================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                              ------------------
                                   Form 20-F
                              ------------------

[  ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
     SECURITIES EXCHANGE ACT OF 1934 OR

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

                  For the fiscal year ended December 31, 1996

                                       OR

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

            For the transition period from __________ to __________

                     Commission file number _______________


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


                                  Tevecap S.A.
             (Exact name of Registrant as specified in its charter)
TEVECAP INC.                               THE FEDERATIVE REPUBLIC OF BRAZIL
(Translation of Registrant's               (Jurisdiction of incorporation 
  name into English)                               or organization)

                               Rua do Rocio, 313
                              Sao Paulo, SP Brazil
                                   04552-904
                          (Telephone: 55-11-821-8550)
         (Address and telephone number of principal executive offices)

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

Securities registered or to be registered pursuant to Section 12(b) of the Act:
                                      None
                                    ---------
                                (Title of Class)

Securities registered or to be registered pursuant to Section 12(g) of the Act:
                                      None
                                    ---------
                                (Title of Class)

Securities for which there is a reporting  obligation  pursuant to Section 15(d)
of the Act:

     12-5/8%  Senior Notes due 2004 of Tevecap S.A.  and  guarantees  thereof by
each of TVA Sistema de Televisao S.A., Galaxy Brasil S.A., TVA Sul Participacoes
S.A.,  Comercial Cabo TV Sao Paulo Ltda.,  TVA Parana Ltda., TV Alfa Cabo Ltda.,
CCS Camboriu Cable System de  Telecomunicacoes  Ltda.,  TCC TV a Cabo Ltda., TVA
Sul Santa Catarina Ltda., and TVA Sul Foz do Iguacu Ltda.

     Indicate the number of outstanding  shares of each of the issuer's  classes
of capital or common  stock as of the close of the period  covered by the annual
report:

                            196,712,855 Common Shares

     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 [   ]

     Indicate by check mark which  financial  statements item the registrant has
elected to follow:

       ITEM 17  [   ]           ITEM 18   [ X ]
                      

================================================================================

<PAGE>

                                TABLE OF CONTENTS

                                     PART I
ITEM 1.   DESCRIPTION OF BUSINESS.............................................1
ITEM 2.   DESCRIPTION OF PROPERTY............................................26
ITEM 3.   LEGAL PROCEEDINGS..................................................26
ITEM 4.   CONTROL OF REGISTRANT..............................................27
ITEM 5.   NATURE OF TRADING MARKET...........................................29
ITEM 6.   EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
          SECURITY HOLDERS...................................................29
ITEM 7.   TAXATION...........................................................31
ITEM 8.   SELECTED FINANCIAL DATA............................................34
ITEM 9.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS................................37
ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT...........................50
ITEM 11.  COMPENSATION FOR DIRECTORS AND OFFICERS............................51
ITEM 12.  OPTIONS TO PURCHASE SECURITIES.....................................52
ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.....................52

                                     PART II
ITEM 14.  DESCRIPTION OF SECURITIES TO BE REGISTERED.........................55

                                    PART III
ITEM 15.  DEFAULTS UPON SENIOR SECURITIES....................................55
ITEM 16.  CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR
          REGISTERED SECURITIES..............................................55
ITEM 17.  FINANCIAL STATEMENTS...............................................55
ITEM 18.  FINANCIAL STATEMENTS...............................................55
ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS..................................56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ..................................F-1
GLOSSARY ....................................................................A-1



                                        i

<PAGE>



Presentation of Certain Information

     Tevecap S.A. ("Tevecap") and, together with its subsidiaries,  "TVA" or the
"Company") is a corporation  (sociedade anonima) organized under the laws of the
Federative Republic of Brazil. The accounts of the Company, which are maintained
in Brazilian reais,  were prepared in accordance with the accounting  principles
generally  accepted in the United States of America and  translated  into United
States dollars on the basis set forth in Note 2.3 of the consolidated  Financial
Statements of Tevecap and Subsidiaries (the "Tevecap  Financial  Statements" and
together with the Financial  Statements of TVA Sistema de Televisao S.A. and TVA
Sul Participacoes S.A., and the Financial Information of TV Alfa Cabo Ltda., TCC
TV a Cabo Ltda.,  CCS Camboriu Cable System de  Telecomunicacoes  Ltda., TVA Sul
Parana  Ltda.,  TVA Sul Foz do Iguacu  Ltda.  and TVA Sul Santa  Catarina  Ltda.
included  elsewhere  in this  Annual  Report  on Form  20-F for the  Year  ended
December 31, 1996 (the "Annual  Report"),  the  "Financial  Statements")  of the
Company.  Certain amounts stated herein in U.S. dollars (other than as set forth
in the Financial  Statements and financial  information  derived therefrom) have
been  translated,  for the convenience of the reader,  from reais at the rate in
effect on December 31, 1996 of R$1.0394 = US$1.000. Such translations should not
be construed as a  representation  that reais could have been  converted at such
rate on such date or at any other date. See "Item 6: Exchange Controls and Other
Limitations Affecting Security Holders." All references in this Annual Report to
(i) "US Dollars,"  "$" or "US$" are to United  States  dollars and (ii) "reais,"
"real" or "R$" are to  Brazilian  reais.  Capitalized  terms used in this Annual
Report are  defined,  unless the context  otherwise  requires,  in the  Glossary
attached hereto. Unless otherwise specified,  data regarding population or homes
in a licensed  area are  projections  based on 1991  population  census  figures
compiled by the Instituto Brasileiro de Geografia e Estatistica ("IBGE").  There
can be no assurance  that the number of people or the number of  households in a
specified  area has not  increased  or  decreased by a higher or lower rate than
those estimated by the IBGE since the 1991 census.  Unless otherwise  indicated,
references to the number of the Company's  subscribers are based on Company data
as of December  31,  1996.  The term  DIRECTV(R)  ("DIRECTV")  (DIRECTV(R)  is a
registered trademark of Hughes Electronics  Corporation ("Hughes  Electronics"))
refers to the Ku-Band  service  provided by Galaxy  Brasil in  conjunction  with
Galaxy Latin  America.  Data  concerning  total MMDS,  Cable,  C-Band or Ku-Band
subscribers and penetration rates represent  estimates made by the Company based
on the January 1996 data of Kagan World Media,  Inc.,  IBGE data,  the Company's
knowledge  of the pay  television  systems  of the  Company  and  the  Operating
Ventures,  and public  statements of other  Brazilian pay television  providers.
Although the Company believes such estimates are reasonable, no assurance can be
made as to their accuracy.

                                       ii

<PAGE>



                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

     TVA is a  leading  pay  television  operator  in  Brazil  and is one of the
country's largest pay television programming distributors.  In 1989, TVA was the
first to provide  pay  television  services  in Brazil  and,  in July 1996,  the
Company  launched  DIRECTV,   Brazil's  first  digital  Ku-Band  service.   With
approximately  380,000 subscribers,  TVA is the only operator in Brazil to offer
pay television services utilizing five distribution  technologies:  MMDS, Cable,
digital  Ku-Band,  digital  C-Band and UHF.  TVA  believes  that its  ability to
strategically  deploy  alternative  technologies  provides  it with  significant
competitive  advantages,  including  the ability to rapidly  enter new  markets,
maximize  penetration of existing  markets and deliver  service in the most cost
effective  manner.  Additionally,  TVA has interests in HBO Brasil  Partners and
ESPN Brasil Ltda., two programming joint ventures (the "Programming  Ventures").
Through  owned,  affiliated  and  independent  pay  television  operators,   TVA
programming reaches approximately one million pay television households.  TVA is
a majority owned subsidiary of Abril,  S.A.  ("Abril"),  Latin America's leading
magazine publishing, printing and distribution company. TVA's other shareholders
are Falcon International Communications (Bermuda) L.P. ("Falcon International"),
The  Hearst  Corporation  ("Hearst"),  ABC,  Inc.  ("ABC")  and Chase  Manhattan
International Finance Ltd. ("CMIF").

     The Company  conducts its pay  television  operations  through  three owned
operating systems (the "Owned Systems"): TVA Sistema, TVA Sul and Galaxy Brasil.
Through  the MMDS and Cable  systems of TVA  Sistema  and TVA Sul,  the  Company
serves six cities  with a  combined  population  of  approximately  18  million,
including three of the seven largest cities in Brazil:  Sao Paulo (population of
10.2  million),  Rio  de  Janeiro  (population  of  5.7  million)  and  Curitiba
(population  of 1.5  million).  The Company  also holds  minority  interests  in
Canbras TVA and TV Filme (the "Operating Ventures"),  which together provide pay
television services to an additional seven cities with a total population of 6.5
million.  In  addition,  the Company  sells  programming  to, and receives a per
subscriber  fee  from,   unaffiliated  pay  television  operators  ("Independent
Operators").

     The Company,  through Galaxy Brasil, is Brazil's  exclusive provider of the
premium programming  service,  DIRECTV,  Brazil's first digital direct broadcast
satellite Ku-Band service.  Galaxy Brasil receives  programming,  scheduling and
related  services for DIRECTV from Galaxy Latin  America  ("GLA"),  in which TVA
holds a 10.0%  equity  interest.  The  other  owners of GLA are a unit of Hughes
Electronics,  a member of the  Cisneros  Group and a  subsidiary  of Grupo  MVS.
Through local  operating  companies such as Galaxy Brasil,  GLA plans to provide
DIRECTV service throughout much of Latin America and the Caribbean. The Company,
through TVA Sistema,  also  currently  provides  Brazil's  only  digital  C-Band
television  service  (together with Galaxy Brasil,  the "DBS Systems").  The DBS
Systems  enable the  Company to deliver a greater  number of  channels  than any
other television operator in Brazil and provide TVA with access to substantially
all of Brazil's 33.9 million TV Homes.



                                        1

<PAGE>



Programming Distribution and Markets

     The following table sets forth  information  regarding the markets in which
TVA operates systems and distributes programming:

<TABLE>
<CAPTION>

                                                                                                              Pay Television
                                                                                               Average Revenue Programming
                            Service Launch                       Class ABC                      per Month per   Channels
                               Date                TV Homes     Households(a)     Subscribers    Subscriber     Offered
<S>                         <C>                   <C>             <C>               <C>          <C>               <C>

Owned Systems
MMDS
TVA Sistema
    Sao Paulo(b) ..........  September 1991       3,978,096       2,732,686         126,797      $39.98            18
    Rio de Janeiro ........  March 1992           2,659,472       1,694,193          79,928       38.61            15
TVA Sul
    Curitiba ..............  March 1992             502,512         364,707          23,595       32.90            15
Cable(c)
TVA Sistema
    Sao Paulo .............  October 1994         3,978,096       2,732,686          21,352       35.66            44
TVA Sul
    Curitiba ..............  January 1995           502,512         364,707          10,377       27.93            44
    Camboriu ..............  June 1996               37,618          22,686           5,209       38.27            31
    Foz do Iguacu .........  June 1996               46,669          28,145           7,157       29.17            34
    Florianopolis .........  September 1996         155,382          93,706           1,916        --              --
                                                                                  ---------                         
Total MMDS and Cable                                                                                      
  Subscribers .............      --                   --             --             276,331        --              --
                                                                                  ---------                         
DBS
TVA Sistema/Galaxy
Brasil(d) .................  March 1995          33,900,000      19,568,310          73,180      $32.62           26(e)
Subscribers Awaiting     
  Installation ............      --                 --               --              31,124        --              --
                                                                                  ---------
Total Subscribers-Owned 
  Systems .................      --                 --               --             380,635        --              --
                                                                                  =========                         
Households Receiving
  TVA Programming

Owned Systems .............      --                 --               --             380,635        --              --
                                                                                  ---------                         
Operating Ventures
MMDS
TV Filme, Inc. 
    Brasilia ..............  July 1993              412,996         308,677          50,602      $44.49           16
    Goiania ...............  December 1994          319,434         179,542          10,426       43.41           16
    Belem .................  December 1994          221,370         135,020          16,102       46.49           15
Cable
Canbras TVA
    Four cities(f) ........  April 1996             222,358         152,773          8,126                        38
                                                                                  ---------                         
Total-Operating Ventures ..     --                    --              --             85,256       --              --
                                                                                  =========                         
Independent Operators
(53 Independent ...........     --                    --              --                          --              --
  Operators) ..............     --                    --              --            564,499       --              --
                                                                                  ---------                         
 Total .....................     --                    --              --         1,030,390       --              --
                                                                                  =========                         

</TABLE>

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

(a)  The number of Class ABC  Households  is based on  information  provided  by
     Grupo Midia, IBGE and IBOPE.

(b)  The number of MMDS  subscribers  includes 9,341 UHF  subscribers in the Sao
     Paulo  metropolitan  area.  UHF  subscribers  are  provided two channels of
     programming,  HBO Brasil and ESPN Brasil. The average revenue per month per
     UHF subscriber, as of December 31, 1996, was approximately $22.96.

                                        2

<PAGE>


(c)  The Company's Cable Systems in Sao Paulo, Curitiba, Camboriu, Foz do Iguacu
     and Florianopolis had approximately  238,450,  53,277,  25,032,  20,404 and
     23,031 Homes Passed, respectively, as of December 31, 1996.

(d)  This data principally reflects the Company's digital C-Band operations. TVA
     launched DIRECTV service,  on a limited basis, in July 1996. As of December
     31, 1996, the DIRECTV service  offered 53 channels of video  programming at
     an average per month  subscriber fee of $48.20.  Since that date the number
     of channels  offered  through the DIRECTV  service has  increased to 60. TV
     Homes and Class ABC Households  information is national information for all
     of Brazil.

(e)  The number includes nine SAP channels.

(f)  The four  cities  served by  Canbras  TVA are Santo  Andre,  Sao  Bernardo,
     Guaruja and Sao Vicente.


Brazilian Pay Television Market

     Brazil is the largest  television and video market in Latin America with an
estimated  33.9  million TV Homes which,  as of December  31,  1995,  watched on
average more than 4.0 hours of television  per day, as compared to an average of
4.5 hours in the United States.  Approximately  6.2 million  television sets and
1.9  million  VCR units  were sold in Brazil  during  1995.  The pay  television
industry  in Brazil  began in 1989 with the  commencement  by the Company of UHF
service in Sao Paulo.  As of December  31,  1996,  there were an  estimated  1.8
million pay television subscribers, representing approximately 5.3% of Brazilian
TV  Homes.  By  comparison,  as of  December  31,  1995,  51.1%  of TV  Homes in
Argentina,  12.6% of TV Homes in Mexico, 21.7% of TV Homes in the United Kingdom
and  69.2%  of TV Homes  in the  United  States  subscribed  to pay  television.
Management believes that the number of pay television subscribers in Brazil will
continue to grow as pay  television  reaches  more  households  both through the
expansion of existing and new MMDS and Cable systems and through  development of
nationwide  DBS systems.  The Ministry of  Communications  estimates that Brazil
will have 16.5 million pay television subscribers by 2003.

Competitive Advantages

     Management  believes  that  the  Company  has  the  following   competitive
advantages:

     Superior Quality  Programming  Lineup.  TVA's programming  line-up includes
exclusive  rights to ESPN Brasil in the Company's major markets,  with exclusive
coverage,  as of  January  1997,  of  many of  Brazil's  most  important  soccer
championships,  including the Brasil Cup, the Brazilian Championship and the Sao
Paulo and Rio de Janeiro State Championships. The Company exclusively offers CMT
Brasil and Bravo Brasil and is also the only pay  television  provider  offering
HBO  programming in TVA's served  markets.  Management  believes that as the pay
television  industry grows,  programming will become the critical factor driving
consumer  selection  of  a  pay  television   provider,   and  that  with  TVA's
relationships  with  strong  international  partners  and its  exclusive  soccer
coverage, TVA will continue to offer superior quality programming.

     Strategic Deployment of Alternative Distribution Technologies.  The Company
is the only pay television  operator  utilizing five distribution  technologies:
MMDS, Cable, Ku-Band,  C-Band and UHF. The availability of multiple distribution
technologies  enables the Company to  capitalize  on the  population  and income
characteristics,  topography  and  competitive  dynamics of each of its targeted
markets.  The  Company  has the ability to  penetrate  new  markets  quickly and
efficiently  and to offer tiered  programming at low cost with MMDS. The Company
is expanding  its Cable  systems,  where  warranted by economic and  competitive
conditions, to build its subscriber base and to prepare for future opportunities
in  interactive  services  and  telecommunications.   Additionally,   management
believes  the Company can rapidly  penetrate  virtually  any market  through the
continued deployment of its DBS Systems.

     DBS  Systems:  Nationwide  Coverage  and Digital  Service.  Through its DBS
Systems,  TVA is capable of offering  programming to nearly all of Brazil's 33.9
million TV Homes,  including  those  households  in markets  where Cable or MMDS
systems are either not developed or not economically viable. Through its DIRECTV
service,  TVA is the first provider of Ku-Band pay television services in Brazil
and expects to enroll as subscribers a significant


                                        3

<PAGE>


share of those who are interested in broader,  digital  quality  programming and
pay-per-view  services.  Through its digital C-Band system, the Company provides
26 channels  of  programming  (including  nine SAP  channels)  and is capable of
providing  up to 38  channels  of  programming  (including  SAP  channels).  The
Company's only significant  competitor in C-Band pay television service provides
six analog channels of programming in addition to off-air channels.  The Company
currently  targets  its  C-Band  service to the  estimated  3.7  million  C-Band
satellite dish owners in Brazil, most of whom currently receive only the off-air
channels.

     Modern Cable  Infrastructure.  The Company's  Cable systems are constructed
with, or are being  upgraded to,  either 750 mhz or 550 mhz bandwidth  capacity,
the latter of which is readily  upgradeable  to 750 mhz bandwidth  capacity with
only  moderate  investment.  This Cable  technology  will  enable the Company to
provide    data    transmission    and    interactive    services,     including
telecommunications,  in the future. Management believes that the Company's major
competitors  for Cable  service use narrower  bandwidths  over portions of their
Cable systems and have  installed  certain  types of Cable in  households  which
currently may prevent them from providing  telecommunications or high speed data
delivery  through these portions of their systems until  substantial  additional
investments have been made for system reconstruction or upgrade.

     Strong Strategic Partners. The Company's strategic equity partners continue
to offer valuable expertise.  TVA benefits from Abril's extensive  experience in
the  business  of  subscriptions   and  distribution  and  from  the  collective
experience of Falcon International, Hearst and ABC with regard to pay television
operations and from access to programming.

Business Strategy

     TVA  seeks to be  Brazil's  largest  and  most  profitable  pay  television
operator  and   programming   distributor  and  intends  to  capitalize  on  the
convergence and development of voice, video and telecommunications services. The
Company intends to achieve these goals through the following strategies:

     Maximize Penetration in Existing Markets. The Company seeks to increase its
penetration  of  existing  markets  by: (i)  expanding  the range of TVA's Cable
systems by extending  its fiber optic and coaxial  cable  network and by seeking
pre-wiring arrangements with residential housing developers,  (ii) improving the
signal  quality and  coverage  of TVA's MMDS  systems by using  signal  repeater
technology, (iii) maximizing penetration by offering tiered subscription options
and  developing  programming  packages  to  appeal to more  households  and (iv)
expanding  its  penetration  in  ABC  Class  households  through  its  scheduled
nationwide  rollout of DIRECTV  service and the continued  development of C-Band
service.

     Maximize Customer Retention Through Superior Customer Service.  In order to
maximize  customer  retention,  the Company aims to provide a consistently  high
level of customer  service.  The Company has developed or has acquired the right
to use proprietary  management  information  systems which,  among other things,
provide  Company  representatives  immediate  access  to  customer  records  and
correspondence  history. This enables TVA to provide high quality service to its
clients while monitoring subscriber payment patterns.  The Company's Churn rate,
which  reflects  the  ability  of the  Company to retain  subscribers,  averaged
approximately  1.8% per month  during  the year ended  December  31,  1996.  The
average  monthly Churn rate for MMDS service in 1994 was 1.6%, in 1995 was 1.3%,
and in 1996 was 2.4%.  The average  monthly Churn rate for Cable service in 1994
was less than 1.0%,  in 1995 was 1.1%,  and in 1996 (the year Cable  service was
initiated) was 0.8%.  The average  monthly Churn rate for C-Band service in 1994
was 5.3%, in 1995 was 0.1% and for the year ended  December 31, 1996,  was 2.0%.
DIRECTV service was only initiated in July 1996.

         Enhance TVA's Programming Package. In order to maintain and enhance its
position as a provider of superior  programming in Brazil, TVA is developing new
programming through the Programming Ventures, as well as through Abril and other
partners.  TVA frequently  evaluates the  demographics  of its  subscribers  and
potential  subscribers  and seeks to provide  programming  most in  demand.  The
Company  also  takes  advantage  of   opportunities  


                                        4

<PAGE>




to  enter  into  exclusive   distribution   agreements  for  popular  television
programming  in Brazil.  Management  believes  that its DIRECTV  service,  which
includes both basic and premium  channels,  as well as  pay-per-view  movies and
events from Brazil, other Latin American countries,  Europe, Asia and the United
States,  further enhances TVA's programming  offerings and positions the Company
to be the provider of the widest selection of popular programming in Brazil.

         Enter New  Markets.  The  Company  intends to enter new markets by: (i)
acquiring   existing   MMDS  and  Cable   operations,   (ii)   applying   either
independently,  or in conjunction with the Operating  Ventures,  independent pay
television  providers or other appropriate third parties, for new MMDS and Cable
licenses  offered by the Brazilian  Government,  (iii) initiating the nationwide
rollout of DIRECTV  service and (iv)  investing in new  operating  ventures with
other MMDS and Cable  operators.  The  Brazilian  Government  has  announced its
intention to auction MMDS  licenses in 15 state  capitals.  Although no date has
been set for these  auctions,  management  expects them to occur during the last
quarter of 1997. The Company has submitted proposals,  either individually or in
conjunction  with  local  partners,  for  all  such  licenses,  as  well  as for
additional licenses throughout Brazil.

         Continue  Network  Enhancement.  The Company is  positioning  itself to
provide high speed data transmission,  interactive and other  telecommunications
services over its systems and to take advantage of possible deregulation and the
growing demand for these services in Brazil.  The Company is expanding its Cable
systems with fiber optic and coaxial cable capable of being  upgraded to provide
such  enhanced  services.  In  addition,  the Company  continues  to explore the
development of digital compression of MMDS signals.

         Through the implementation of the Company's  strategy,  the Company has
been able to achieve rapid  subscriber  growth.  The following  chart sets forth
information  regarding  (i) the number of  subscribers  to the  Company's  Owned
Systems  at  December  31,  1993,  1994,  1995 and 1996,  (ii) the number of new
installations  during the years ended December 31, 1993,  1994,  1995, and 1996,
and (iii) the average installation fee for the year ended December 31, 1996.

<TABLE>
<CAPTION>



                                                                                                                         Average  
                                               Subscribers at                         New Installations               Installation
                                               End of Period(s)                        During Period                  Fee for the
                                  ---------------------------------------      --------------------------------------  Year Ended
                                                                                                                         Dec. 31,
                                   1993       1994      1995        1996       1993       1994        1995      1996      1996
                                  ------    -------    -------    -------     ------     ------    -------    -------  -----------
<S>                               <C>        <C>       <C>        <C>         <C>        <C>        <C>        <C>       <C>    
MMDS
  Sao Paulo .................     54,183     72,425    121,969    126,797     33,966     34,372     75,332     61,235    $117.99
  Rio de Janeiro ............     20,490     28,234     51,664     79,928     12,961     13,855     31,733     48,928     182.38
  Curitiba ..................      7,801     11,112     15,260     23,595      5,965      5,972     10,513     17,117      79.83
                                  ------    -------    -------    -------     ------     ------    -------    -------    ------- 
Total MMDS ..................     82,474    111,771    188,893    230,320     52,892     54,199    117,578    127,280       --
                                  ------    -------    -------    -------     ------     ------    -------    -------    ------- 
CABLE
 Sao Paulo ..................       --        1,007     13,885     21,352       --          482      6,546      6,907    $ 40.39

 Curitiba ...................       --         --        1,244     10,377       --         --          434      3,794      21.57

 Foz do Iguacu ..............       --         --         --        7,157       --         --         --        2,275     150.00

 Camboriu ...................       --         --         --        5,209       --         --         --        1,596     150.00

 Florianopolis ..............       --         --         --        1,916       --         --         --        1,966     150.00
                                  ------    -------    -------    -------     ------     ------    -------    -------    ------- 


Total Cable .................       --        1,007     15,129     46,011       --          482      6,980     16,538       --
                                  ------    -------    -------    -------     ------     ------    -------    -------    ------- 
DBS

C-Band/DIRECTV(b) ...........        511      2,075     15,126     73,180        511      1,914     16,873     66,085    $649.98
                                  ------    -------    -------    -------     ------     ------    -------    -------    ------- 
Total
Subscribers-Owned
  Systems ...................     82,985    114,853    219,148    349,511     53,403     56,595    141,431    209,903       --
                                  ======    =======    =======    =======     ======     ======    =======    =======    =======
</TABLE>


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

(a)  Excludes backlog, reconnected and disconnected subscribers.

(b)  DIRECTV  service was launched,  on a limited basis,  in July 1996. The full
     list price for initiation of the service is $877.00.



                                        5

<PAGE>


Ownership

     Tevecap is a majority  owned  subsidiary  of Abril,  the  leading  magazine
publishing,  printing and distribution company in Latin America. Abril publishes
over 266 weekly, bi-weekly and monthly titles. During 1996, the combined monthly
paid circulation of Abril and its affiliates  averaged 16.6 million copies.  TVA
benefits from Abril's extensive  experience in the business of subscriptions and
distribution,  advertising  synergies,  common research  resources and financial
analysis  and  support.  Certain of  Tevecap's  other  shareholders  provide the
Company  with  access  to  additional  international   programming  and  certain
technical and financial expertise.  The Company's shareholders have invested, in
aggregate,  approximately  $288.0  million  in the  Company.  Tevecap's  current
ownership is as follows:  Abril, 56.5%;  Falcon  International,  14.2%;  Hearst,
10.0%; ABC, 10.0%; and CMIF, 9.3%. Each of Tevecap's corporate  shareholders has
agreed,  with  certain  exceptions,  to a  reorganization  of the  ownership  of
Tevecap. As a result of the proposed  reorganization a new Brazilian corporation
would become an 80%  shareholder in Tevecap and Hearst/ABC  would remain a 20.0%
shareholder in Tevecap.  The new structure would not result in any change in the
current beneficial equity  participation of the Stockholders in Tevecap, and the
transactions  establishing  the new structure and the new structure itself would
have to conform to the restrictions of the Indenture. As of the date hereof, the
timing of the restructuring is under discussion by the Stockholders. See "Item 4
- Control of Registrant."

Distribution Operating Systems

     TVA  and  the  Operating  Ventures  distribute   programming  through  five
different technologies:  MMDS, Cable, Ku-Band, C-Band, and UHF. The availability
of  multiple  distribution  technologies  enables  the  Company to  exploit  the
population and income  characteristics,  topography and competitive  dynamics of
each of its markets.

     MMDS

     TVA's  strategy of rapidly  deploying an extensive MMDS network has allowed
it to enter new markets quickly and develop broad geographic  coverage which the
Company  may expand  utilizing  signal  repeaters.  TVA has  developed  Brazil's
largest MMDS  network,  and with the  Operating  Ventures,  serves the country's
major  metropolitan  areas.  MMDS  systems  are  typically  easier to deploy and
require relatively little capital investment for construction and maintenance as
compared to Cable systems. Programming is transmitted by signals through the air
from  microwave   transmitters  to  a  small  receiving  antenna  located  at  a
subscriber's home or dwelling unit. At the subscriber's  location, the microwave
signals  are  converted  to  frequencies  that can pass  through a  conventional
coaxial cable into a decoder  located near a television  set. In accordance with
Brazilian  regulations,  each MMDS  license  allows an MMDS  operator to provide
service to households in a circular area within a radius of up to 50 kilometers,
depending on the  technical  capability  of the  operator.  It is expected  that
expansion into such newly available  territory would require minimal  additional
capital  spending  by the  Company.  However,  tall  buildings  and  other  tall
structures may block reception of an MMDS signal.  See  "Regulatory  Framework."
MMDS is being used in other  emerging pay  television  markets such as Venezuela
and Hong Kong, and in Mexico, where Cable has a strong incumbent position.

     TVA owns eight MMDS licenses and operates MMDS systems in Sao Paulo, Rio de
Janeiro and Curitiba,  which have an aggregate  population of approximately 17.4
million.  TVA serves 230,320 MMDS subscribers in these three cities.  During the
year ended  December 31, 1996,  TVA  averaged  approximately  3,500 net new MMDS
subscribers  per month.  The MMDS systems of TVA offer between 15 to 18 channels
of programming.  Management intends to increase its channel offerings to 31 soon
after the Ministry of Communications grants additional channel rights as allowed
under recently  passed  regulations.  See  "Regulatory  Framework." TV Filme, an
Operating Venture, operates MMDS systems in Brasilia,  Goiania and Belem and has
77,130 MMDS subscribers. See "Regulatory Framework--MMDS Regulation." During the
year ended  December 31, 1996,  the Operating  Ventures 




                                        6

<PAGE>





averaged  approximately  3,500 net new MMDS  subscribers per month. In addition,
TVA  provides  UHF service to 9,341  subscribers  in the Sao Paulo  metropolitan
area.

     Cable

     TVA has recently  emphasized the strategic  deployment of Cable service and
currently operates Cable systems in Sao Paulo,  Curitiba and three other cities.
Cable  service   involves  a  broad  band  network   employing  radio  frequency
transmission  through coaxial and/or fiber optic cable. Cable systems consist of
four major parts: a headend, a distribution  network, a subscriber network and a
house terminal.  The  programming is collected from the headend,  then processed
and fed into the distribution  path consisting of trunk and distribution  cable,
which consists of coaxial and/or fiber optic cables. The signal is then fed into
a  subscriber  network  that is either  located in an  apartment  building  or a
subscriber's home. Most of the Company's systems are constructed with either 750
mhz or 550 mhz bandwidth capacity, the latter of which is readily upgradeable to
750 mhz  bandwidth  capacity.  The  Company's  four  newly  acquired  systems in
Curitiba (2),  Camboriu (1) and Foz do Iguacu (1) are being  upgraded to 550 mhz
bandwidth  capacity.   The  Company's  new  system  in  Florianopolis  is  being
constructed to 550 mhz bandwidth  capacity.  It is expected that this technology
will   enable   the   Company  to  provide   interactive   services,   including
telecommunications  in the future.  In addition,  the  Company's  Cable  systems
generally use addressable converters,  which allow the provision of pay-per-view
services  and enable TVA to upgrade,  downgrade  or  disconnect  a  subscriber's
service from the headend on short notice.

     TVA,  through  TVA  Sistema  and TVA Sul,  owns eight  Cable  licenses  and
operates Cable systems in Sao Paulo, Curitiba,  Camboriu,  Florianopolis and Foz
do Iguacu,  which have an aggregate population of approximately 11.9 million and
46,011  subscribers.  As of December  31, 1996,  TVA had deployed  approximately
1,139  kilometers of its Cable network,  including 185 kilometers of fiber optic
cable. As part of this build-out  plan, the Company  constructed a 281 kilometer
fiber optic network,  including a 57 kilometer fiber optic loop in Sao Paulo and
a 28 kilometer fiber optic network in Curitiba, and is upgrading or constructing
the three recently acquired Cable systems.  As a result of this buildout,  as of
December 31, 1996, TVA Cable systems passed  approximately  300,000 homes in Sao
Paulo, approximately 118,000 homes in Curitiba and a total of 494,000 throughout
all of the Company's  Cable  systems.  As of December 31, 1996,  Canbras TVA, an
Operating   Venture,   had  an  existing  Cable  network  of  approximately  173
kilometers,  with  approximately  62,000  Homes Passed and  approximately  8,126
subscribers.  Canbras TVA is  constructing  Cable  networks in ten cities in the
greater  Sao Paulo  area with a  combined  population  of over 2.8  million.  By
comparison,  TVA's largest  competitor in Sao Paulo for Cable service had, as of
June 30,  1996,  a Cable  network  in Sao  Paulo of  approximately  1,225  miles
(including  approximately  151 miles of fiber optic  cable) with  463,900  Homes
Passed. TVA and Canbras TVA currently offer between 31 and 44 analog channels of
programming  (including  off-air channels) on their Cable systems,  depending on
the market, and have the capability of offering up to 78 analog channels. During
the year ended December 31, 1996, TVA averaged approximately 2,600 net new Cable
subscribers  per  month,  and  Canbras  TVA,  after  its first  eight  months of
operation ended December 31, 1996, had 8,126 subscribers.

     DIRECTV

     In July 1996, TVA launched,  on a limited basis,  Brazil's DIRECTV service,
Brazil's first Ku-Band service.  A nationwide rollout of DIRECTV was launched in
November 1996, at which time TVA initiated a publicity  campaign  supported by a
nationwide network of trained installers.  By comparison,  DIRECTV, Inc., a unit
of Hughes Electronics,  started its DIRECTV service in the United States in June
1994 and had, as of December 31, 1996, approximately 2.6 million subscribers for
this service.

     Galaxy Brasil receives  programming from GLA,  including  programming which
GLA  purchases  from TVA.  Additionally,  GLA  provides  scheduling  and related
services to Galaxy Brasil for use with DIRECTV.  GLA distributes  programming to
Brazil  through  the  transmission  of an encoded  signal  via the Galaxy  III-R
satellite utilizing 12 transponders to a subscriber's 60 centimeter dish antenna
which  can be  mounted  outside  a window or



                                        7

<PAGE>




on a rooftop.  The signal is then transmitted to an integrated  receiver decoder
in the subscriber's home. A single antenna may serve a single family dwelling or
a  multifamily  dwelling,  such as an  apartment  building,  in which  case each
apartment  needs to be  equipped  with a decoder.  A unit of Hughes  Electronics
leases the Galaxy III-R  satellite  and provides  the use of the  satellite  and
related services to GLA pursuant to a technical service  agreement,  the term of
which  extends  until October 31, 2010.  GLA, in turn,  charges  Galaxy Brasil a
royalty on a per subscriber basis for the use of the satellite  transponders and
related services. The orbital location of the Galaxy III-R satellite enables the
Company to offer DIRECTV service to substantially all of the TV Homes in Brazil.
However, in the less populated northern and western regions of Brazil, reception
of DIRECTV programming requires a dish antenna 1.1 meters in diameter and in the
western third of Brazil (a sparsely populated area when compared to the southern
and eastern regions) reception may require an even larger antenna.  In addition,
tall  buildings  and other tall  structures  may block  reception of the DIRECTV
programming signal. The Galaxy III-R satellite was launched in December 1995 and
has an  expected  useful  life of nine  years  from the date of  launch.  Hughes
Electronics  expects to launch  within the next 12 months a second  satellite to
provide additional  transponders for transmission of DIRECTV  programming.  With
DIRECTV  service,  TVA provided 60 channels of video  programming  (including 18
pay-per-view  channels) and 33 channels of audio programming as of July 1, 1997.
The Company expects that the number of video channels will increase to 70 in the
last quarter of 1997.  In  addition,  since  December 31, 1996 a competitor  has
entered  the  Ku-Band  market,  but  offers  only  26  channels  of  programming
(including  four  pay-per-view  channels).  TVA owns and has made a  substantial
investment in a satellite  uplink center for the  Brazilian  DIRECTV  service in
Tambore in greater Sao Paulo (the "Tambore  Facility").  The Tambore Facility is
used to uplink programming to the Galaxy III-R satellite.

     At the original full  installation  price of $990,  the purchase of DIRECTV
services  was  affordable  only for the affluent  Class A households  in Brazil.
However,  TVA  expects  to  be  able  to  reduce  the  installation  fee  having
consummated the Galaxy Brasil Leasing Facility and certain  financings under the
SurFin Credit  Facility and upon  consummation  of additional  financings in the
future. Management expects these financing arrangements to enable the Company to
finance the acquisition and lease of antennae decoder boxes and other equipment,
thereby permitting TVA to reduce the initial  installation fee and to spread the
expenses to subscribers of installing such equipment over time.  Management also
expects  the  cost of  decoders  and  associated  equipment  to  decline  as new
manufacturers enter the market and proposed  manufacturing  facilities in Brazil
open. Accordingly, as the cost of DIRECTV service is reduced, management expects
the purchase of DIRECTV  service to become more  affordable to a broader segment
of Class ABC Households including Class ABC Households outside the more affluent
urban areas of Brazil. In addition,  management expects to offer different tiers
of service,  charging  different  installation and subscription  prices for each
tier of  service.  Such  tiered  service  will also  allow the  Company to offer
DIRECTV  service  to a broader  segment  of Class ABC  Households.  In any case,
management  believes DIRECTV service may be profitable for the Company,  even if
purchase of DIRECTV  service  remains  feasible  only for  affluent  Brazilians.
However,  no assurances can be given that Galaxy Brasil Leasing Facility and the
SurFin  Credit  Facility will provide the Company with the ability to reduce the
installation  fees for DIRECTV  service to the extent  necessary to attract less
affluent  purchasers,  or that  DIRECTV  service will be  attractive  to a large
segment of Brazilians whether or not affluent.

     C-Band

     TVA has offered  C-Band  service since 1993, and is the only pay television
operator to deliver a digital  C-Band  signal in Brazil.  TVA's  C-Band  service
consists  of the  transmission  of a digital  encoded  signal via the  Brasilsat
satellite  utilizing  four  transponders  to a  satellite  antenna 1.1 meters in
diameter  located at a  subscriber's  home,  where the signal passes  through an
integrated receiver decoder. A single antenna may serve a single family dwelling
or a multifamily  dwelling,  such as an apartment  building,  in which case each
apartment  needs to be equipped  with a decoder.  The  Brasilsat  satellite  was
launched  in July 1994 and is owned by Empresa  Brasileira  de  Telecomunicacoes
(Brazilian   Telecommunications   Company,   or   "Embratel"),   the   Brazilian
Government-owned  company  authorized  to provide  satellite  telecommunications
services  utilizing  the Sistema  Brasileiro  de  Telecomunicacoes  por Satelite
(Brazilian  Satellite  Telecommunications  System, or "SBTS").  TVA utilizes the


                                        8

<PAGE>


Brasilsat  satellite pursuant to three satellite  transponder leases that expire
on May 30, 2002,  November 20, 2003,  and November 24, 2003,  respectively.  The
orbital  location  of the  Brasilsat  satellite  enables  TVA to provide  C-Band
service  throughout  Brazil  with  little  or  no  interference.  However,  tall
buildings and other tall structures may block  reception of C-Band  programming.
The Brasilsat  satellite has an expected useful life of  approximately  12 to 15
years from the date of launch.

     TVA's  C-Band  service  provides  the Company  with  national  coverage via
satellite transmission and a large preinstalled market. As of December 31, 1996,
there were approximately 4.0 million parabolic C-Band antennae in use in Brazil,
most of which receive only off-air channels.  This installed base represents the
Company's  target market for its digital C-Band service and the Company  expects
to attract these viewers through marketing and promotional  initiatives.  TVA is
able to deliver 38 channels of  programming  (including  nine SAP  channels)  in
addition to the off-air channels and currently  delivers 26 channels  (including
nine SAP  channels)  as compared to the six  channels in addition to the off-air
channels  offered  by its only  significant  competitor  for this  service.  TVA
provides service to 49,858 C-Band subscribers  throughout much of Brazil. During
the year ended  December 31,  1996,  TVA  averaged  approximately  2,900 net new
C-Band subscribers per month.

         UHF Service

         TVA's UHF  service is the  broadcast  of an encoded  UHF signal  over a
geographic  area.  TVA  provides  UHF  service  only in Sao  Paulo and has 9,341
subscribers  for such  service.  TVA's UHF  service  provides  two  channels  of
programming, HBO Brasil and ESPN Brasil. This service is provided to subscribers
who are  unable  to  receive  or have  chosen  not to have  access  to other pay
television  services.  UHF subscribers pay on average  approximately  $22.96 per
month for this limited service.


Recent Acquisitions and License Applications

         TVA's expansion into new metropolitan areas is limited by the number of
MMDS and Cable  licenses held by TVA. In order to expand,  TVA seeks to purchase
existing  operations  and  licenses,  form new  ventures  such as the  Operating
Ventures  to offer  pay  television  in  markets  for  which TVA does not hold a
license, find new Independent Operators to purchase TVA programming, and, either
individually or along with various  partners and affiliated  parties,  apply for
new MMDS and Cable licenses.

         Since January 1996, TVA has purchased four existing Cable systems,  two
in  Curitiba  and one in each of two other  cities in southern  Brazil,  and has
purchased  a license  to  operate a Cable  system  in a fourth  city.  As of the
respective dates of their acquisitions,  the two systems in Curitiba had a total
of 4,515  subscribers,  and the  systems in the two other  cities had a total of
8,298  subscribers.  The  four  acquired  systems  had in the  aggregate,  as of
December 31, 1996, Cable networks comprising  approximately 482 kilometers.  The
Company is upgrading the  operations  of the four existing  Cable systems and is
constructing a cable system in the fourth city.

         In  addition,   TVA  has   submitted   proposals  to  the  Ministry  of
Communications  for  concessions  to  provide  service  in  numerous  locations,
including the 15 state  capitals,  currently  being evaluated by the Ministry of
Communications  for pay  television  service  (none of which  currently  receive
either  MMDS or Cable  service).  No date has been set for the  auction of these
concessions,  in which TVA  intends to  participate  either  individually  or in
conjunction with local partners. See "Regulatory  Framework." Management expects
the bidding process for new Cable licenses to begin in the last quarter 1997.

     TVA Sistema and TVA Sul

     TVA  Sistema  and TVA Sul  operate  the  Company's  MMDS,  Cable and C-Band
businesses.  TVA holds a 98.0% equity interest in TVA Sistema, and the estate of
Matias Machline, a Brazilian national, holds the remaining


                                       9
<PAGE>

2.0% equity interest. The Company holds an 87.0% equity interest in TVA Sul, and
Leonardo Petrelli, a Brazilian national,  holds the remaining 13.0%. Pursuant to
an Association Agreement, dated February 15, 1996 (the "TVA Sul Agreement"), for
so long as Mr. Petrelli controls at least 8.0% of the voting capital of TVA Sul,
he is allowed to exercise veto power over a number of decisions  relating to TVA
Sul, including:  any merger,  split,  liquidation or dissolution of TVA Sul; any
sale, purchase of or lien on property of over R$50,000 in value; any acquisition
or transfer of any debt of over R$50,000 in value;  any guaranty or surety given
by TVA Sul; approval of budget and business plans; approval of dividends of over
25.0%  of net  profit;  and  any  modifications  to TVA  Sul's  Estatuto  Social
(bylaws).  Mr. Petrelli has irrevocably  waived his veto rights and consented to
the  execution  and  delivery  by TVA Sul of the  Indenture  and the  Subsidiary
Guarantee by TVA Sul and such other  documents and agreements as may be required
under the Indenture and the Subsidiary  Guarantee and the performance by TVA Sul
of its rights and obligations under the Indenture,  the Subsidiary Guarantee and
such other  documents and agreements to which TVA Sul may be a party pursuant to
the Indenture.  The TVA Sul Agreement has a term equal to the longer of 10 years
or the  duration of the  licenses  required  to operate  TVA Sul,  and for equal
successive periods thereafter.

     GLA and Galaxy Brasil

     Pursuant to a  Partnership  Agreement,  dated  February 13,  1995,  GLA was
formed as a general partnership.  As of April 11, 1997, GLA was converted into a
Delaware limited  liability  company.  Such conversion did not materially affect
the  governance  of GLA or TVA's  ownership  interest  in GLA.  Under a  Limited
Liability Company Agreement, dated April 11, 1997 (the "GLA Agreement"),  GLA is
managed by a seven-member Executive Committee to which Hughes Communications GLA
("HCGLA")  can appoint  four members and each of the other  partners,  including
Tevecap,  can appoint one member as long as such partner holds at least an eight
percent equity  interest in GLA. The GLA Agreement  provides for local operating
agreements  between GLA and local operators  throughout  South America,  Central
America, Mexico and the Caribbean which will govern the relationship between GLA
and such local operator. The GLA Agreement stipulates that the local operator in
Brazil  shall be  Galaxy  Brasil,  100.0%  of the  equity  interest  of which is
currently  owned by Tevecap,  but up to 12.5% of which may be purchased by HCGLA
and up to 12.5% of which may be  purchased by Darlene  Investments,  a member of
the Cisneros Group.  Tevecap,  in turn, has an option to purchase up to 15.0% of
the  equity  interest  of the  local  operator  in  Venezuela,  all of  which is
currently owned by Darlene  Investments.  The current  partners in GLA have also
agreed to "seek and maintain"  equity  positions in other local  operators.  The
Company has agreed to make  capital  contributions  under the GLA  Agreement  of
$33.5 million,  of which $27.8 million had been  contributed as of July 1, 1997.
The GLA Agreement places restrictions, including first negotiation, approval and
tag-along  rights, on the transfer of capital stock or voting securities of each
of the  current  partners  in GLA  and in  certain  circumstances  their  parent
entities.  In connection  with the  conversion  of GLA into a limited  liability
company,  GLA's uplink facility was transferred to California  Broadcast Center,
LLC, a Delaware limited  liability company formed on April 11, 1997 and owned by
two units of Hughes Electronics.

     Pursuant to a Local Operating  Agreement (the "Local Operating  Agreement")
between GLA and Galaxy Brasil, dated March 3, 1995, GLA has agreed to provide to
Galaxy Brasil the exclusive  right and ability to supply the DIRECTV  service in
Brazil. In accordance with a formula based on the number of subscribers,  Galaxy
Brasil is obligated to pay a periodic  royalty to GLA. In addition,  TVA may not
own or engage in any other Ku-Band  service and GLA may not own or engage in any
other pay  television  service in Brazil.  GLA,  upon the  occurrence of certain
events,  has the  right  to  terminate  the  Local  Operating  Agreement,  or to
terminate Galaxy Brasil's  exclusive rights to distribute  DIRECTV  programming.
Such events  include  breach of any material  obligation of Galaxy Brasil to GLA
and the failure of Galaxy Brasil to meet certain specified performance goals.


The Operating Ventures

     The Operating  Ventures also operate MMDS (TV Filme) or Cable (Canbras TVA)
systems.  TVA holds a 36.0%  equity  interest in each of Canbras TVA Cabo and TV
Cabo Santa Branca (the "Canbras TVA 



                                       10
<PAGE>


Companies").  Canbras  Communications Corp., a publicly-traded  Canadian company
("Canbras"),    and   Canbras   Participacoes   Ltda.,   a   Brazilian   company
("Canbras-Par") hold the remaining interests in Canbras TVA Cabo and Canbras-Par
owns the remaining interest in TV Cabo Santa Branca. Bell Canada  International,
Inc.  ("BCI"),  an affiliate of BCE Inc.,  Canada's  largest  telecommunications
group, holds a $27.0 million convertible  debenture that upon conversion,  would
permit BCI to become,  inter alia, a majority  shareholder of  Canbras-Par.  The
Canbras Association  Agreement provides for each of the Canbras TVA companies to
be governed by a management committee of three members, one of which TVA has the
right to  designate.  In  addition,  TVA  agreed to supply  to the  Canbras  TVA
companies  all  programming  regularly  supplied  to the Owned  Systems at "most
favored  prices" and other terms at which  programming  is provided to the Owned
Systems or to third parties in arm's-length  transactions.  TVA will continue to
provide MMDS service,  where  possible,  to customers in the Santo Andre and Sao
Bernardo  operating  area of the Canbras TVA  Companies  until cable  service is
available  in  these  areas.  Canbras  TVA Cabo and TV Cabo  Santa  Branca  will
compensate  TVA for each  subscriber  that transfers from TVA's MMDS system to a
Canbras TVA Cable system. The Company agreed to grant to Canbras-Par a "right of
first  refusal" to  participate  in Cable  licenses that the Company may obtain,
directly or indirectly,  and Canbras-Par granted to the Company a similar "right
of first refusal" to participate in Cable licenses acquired by Canbras-Par.  The
term of the Canbras  Association  Agreement is for so long as Canbras-Par or its
assignee owns shares "in  companies  which have the objective of engaging in the
cable TV business." The Canbras Association Agreement does not specify the terms
and conditions on which any co-investments in Cable licenses are to be made, and
such terms and  conditions  will be negotiated in good faith,  on a case-by-case
basis, in connection with any future cable license investments.

     TVA holds a 14.3% equity  interest (not including a 2.4% interest which may
be acquired by TVA under an outstanding warrant having a nominal exercise price)
in TV Filme.  The  remaining  interests are held by Warburg,  Pincus  Investors,
L.P., which currently holds a 41.2% equity interest; members of the Lins family,
Brazilian  nationals,  who currently  hold a 16.2% equity  interest;  and public
shareholders,  who currently hold a 28.3% equity interest.  On July 29, 1996, TV
Filme  completed a public  offering of 2.5 million shares of its common stock in
the  United  States at an  initial  price of $10.00  per  share.  Pursuant  to a
programming  agreement,  TVA provides  programming to TV Filme, and TV Filme has
agreed to use  50.0% of the  channel  capacity  of each of its MMDS  systems  in
Brasilia,  Goiania  and Belem (the "TV Filme  Service  Area") to  broadcast  TVA
programming  so long as (i) the quality of TVA  programming,  in the  reasonable
judgment of TV Filme,  remains  compatible  with the taste and  standards  of TV
Filme's subscribers, (ii) TVA continues to own, directly or indirectly, 10.0% of
TV Filme's common stock and (iii) TVA remains a subsidiary of Abril.  Within the
TV Filme Service Area, TVA may not provide TVA programming to any Cable or other
MMDS pay television service provider and TVA may not compete with TV Filme as an
MMDS  service  provider.  TV  Filme  also  has a  nonexclusive  license  to  TVA
programming  in 19 cities in which TV Filme has  pending  license  applications,
subject  to any  exclusive  license  previously  granted  by TVA  to  other  pay
television  service  providers in such cities and which  exclusive  license TVA,
using its best efforts,  is unable to renegotiate to allow TVA to provide for TV
Filme to have a  nonexclusive  license.  TVA may not  charge  TV Filme an amount
greater than the minimum rates charged by TVA to other  subscription  television
operators, nor may such charges exceed comparable rates for other programming of
a similar nature. The terms of the programming  agreement  terminate on July 20,
2004. From time to time, in connection with the programming agreement,  TV Filme
has  agreed to enter  into  additional  agreements  with the  Company  regarding
specified channels.  The agreements  typically have two year terms and determine
the monthly fees which TV Filme pays for such channels.


Programming

     TVA

     TVA,  through  its MMDS,  Cable and C-Band  systems,  currently  provides a
programming package consisting of 15 to 44 television channels.  TVA programming
emphasizes  sports,  movies,  and news  with a  secondary  emphasis  on  general
entertainment.



                                       11
<PAGE>


     With respect to MMDS and Cable  service in TVA's  market,  TVA is currently
the sole provider of ESPN Brasil,  HBO Brasil,  CMT Brasil,  Bravo  Brasil,  the
Superstation,  RTPi and  Eurochannel.  In addition,  as of January 1997, TVA has
exclusive  distribution  rights to certain of  Brazil's  most  important  soccer
championships,  including the Brasil Cup, the Brazilian Championship and the Sao
Paulo  and  Rio de  Janeiro  State  Championships.  TVA  has  entered  into  two
Programming Ventures,  ESPN do Brasil Ltda. ("ESPN Brasil Ltda.") and HBO Brasil
Partners,  through  which it  distributes  a large volume of  programming  which
management  believes is  especially  important to its  subscribers.  ESPN Brasil
Ltda. is a joint venture between Tevecap and ESPN Brazil,  Inc. (a subsidiary of
ESPN, Inc.), each of which holds a 50.0% equity interest.  ESPN, Inc. is a joint
venture between ABC and Hearst.  ESPN,  Inc.  provides the programming of the US
channel  ESPN2 to ESPN  Brasil  Ltda.,  which  packages  such  programming  with
Brazilian and other international content and provides such packaged programming
to TVA.  Pursuant to a  Quotaholders  Agreement,  dated June 26, 1995 (the "ESPN
Agreement"),  ESPN Brasil has the right to transmit "ESPN2 Service"  programming
as well as all library  programming of ESPN. The Company has the exclusive right
to broadcast the programming of ESPN Brasil Ltda. in Sao Paulo,  Rio de Janeiro,
Curitiba,  Brasilia,  Belem and Goiania.  The Company also acts as the exclusive
sales  representative of ESPN Brasil  programming with respect to sales to other
Brazilian  pay  television  providers  and receives a commission  in  connection
therewith.  The Company is also the sole advertising agent for ESPN Brasil until
June 1999 and receives a commission on advertising  sales. ESPN Brasil Ltda., in
turn,  receives on an exclusive  basis from the Company all rights to soccer and
other  sporting  events  acquired by the Company after  February 24, 1995.  ESPN
Brazil,  Inc. has the right to terminate  the ESPN  Agreement  and dissolve ESPN
Brasil  Ltda.  in the  event  that a  Brazilian  court  issues a  non-appealable
decision  that the Company did not have the right to grant these  rights to ESPN
Brasil.  TVA's mandatory capital  contributions to ESPN Brasil Ltda. are subject
to a maximum  aggregate amount of $5.0 million,  whether in the form of loans or
subscriptions for additional  quotas. The ESPN Agreement is effective until June
17, 2045 and automatically renewable for a 50-year period.

     HBO Brasil  Partners is a joint venture  between TVA,  which as of December
31, 1996, held a 33.3% equity  interest,  and HBO Ole Partners,  a joint venture
among Time-Warner, Sony and Ole Communications,  Inc., which as of the same date
held the  remaining  66.7% equity  interest.  HBO Brasil  Partners has exclusive
programming contracts with Sony, Time-Warner and certain independent programming
distributors.   HBO  Brasil  Partners,   through  an  affiliate,   provides  the
programming  for HBO Brasil to TVA.  Pursuant to a Partnership  Agreement  dated
April 15,  1994 (the "HBO  Agreement"),  HBO  Brasil  Partners  is  managed by a
Partners'  Committee comprised of an equal number of agents appointed by TVA and
HBO Ole Partners,  the other partner. The HBO Agreement provides for the Company
to enter into an  affiliation  agreement with HBO Brasil  Partners,  pursuant to
which the Company pays a monthly fee per subscriber to the  partnership.  During
the first  quarter of 1997,  TVA's equity  interest in HBO Brasil was reduced to
24.0% as a result of the entry of BVI Television Investments, Inc., an affiliate
of Disney Enterprises, Inc., as a partner in HBO Brasil Partners.

     In addition to the Programming  Ventures,  TVA has entered into a number of
other  programming  agreements.  Since  June  1991,  TVA has  had a  programming
agreement  with De Santi & Vallone  to  broadcast  SuperStation  programming  in
Brazil, with exclusivity in Sao Paulo, Rio de Janeiro, Curitiba, Brasilia, Belem
and  Goiania,  as well as  throughout  all of Brazil  via  C-Band.  Through  the
SuperStation,  TVA provides  exclusive  attractions from the news departments of
two  major US  television  networks  (CBS and NBC) as well as  general  interest
programming.  In December  1996,  TVA began  transmitting  programming  from the
History  Channel on the  SuperStation.  TVA  acquired the rights to transmit the
History Channel programming  through an agreement with A&E Networks  Television.
The Bravo Company, a joint venture among NBC and certain other parties, provides
international  movies and arts  programming  for the Bravo Brasil  channel on an
exclusive basis to TVA for  distribution in Brazil.  TVA customizes Bravo Brasil
with the  insertion  of  Brazilian  arts and movie  programming.  Country  Music
Television,   which  is  owned  by  Group  W  Broadcasting,   Inc.  and  Gaylord
Entertainment Company, provides programming for CMT Brasil, which TVA customizes
with Brazilian content. Pursuant to a Letter of Understanding, dated January 18,
1996,  TVA and Country Music  Television  ("CMT") agreed to form CMT Brasil as a
joint  venture  entity,  in which TVA will hold a 75.0% equity  interest and CMT
will hold the  remaining  25.0%  equity  interest.  The  formation of this joint
venture is still  under  discussion  by the  parties.  Eurochannel  is a channel



                                       12
<PAGE>


assembled  exclusively by TVA with  programming from the German channel Deutsche
Welle, the Spanish channel Radiotelevision Espanola, European movies, and series
acquired from the BBC.  Additionally,  pursuant to existing  agreements,  TVA is
planning,  through  DIRECTV  service,  to become the first  provider  of Cinemax
programming in Brazil  (expected by September  1997). TVA also plans to transmit
CNA, a Brazilian news channel to be produced by Abril with programming from SBT,
a Brazilian  off-air  channel.  TVA distributes its programming  through its own
operations and through sales of programming  to the Operating  Ventures,  Galaxy
Latin America,  the Independent  Operators and, to a lesser extent, to competing
pay television providers.

     In addition, TVA offers non-exclusive  programming from major international
subscription  television programming providers,  including such channels as ESPN
International, CNN, TNT, Fox, and the Discovery Channel.

     TVA currently offers subscribers the following channels, among others:

     HBO  Brasil is the  dominant  first-run  pay  television  movie  channel in
Brazil. HBO Brasil airs 24 hours a day offering an average of 12 different films
per day with limited  commercial slots. All films are either subtitled or dubbed
into  Portuguese.  In the case of dubbed  versions,  viewers  can  listen to the
original soundtrack on an SAP channel.  Recently,  in some locations,  TVA began
offering HBO Brasil2, transmitting HBO Brasil films with a six hour time shift.

     ESPN Brasil,  offered  exclusively by TVA, began  transmission  on June 17,
1995. TVA negotiated agreements with the major Brazilian soccer  confederations,
providing TVA, as of the 1997 season,  exclusive first choice coverage of soccer
games of the Brazilian Soccer Championship, the Sao Paulo State Championship and
the Brazil Cup. ESPN Brasil's  programming centers around these exclusive soccer
games and other  exclusive  Brazilian  and  international  sports  entertainment
programs, mixed with programming from ESPN2.

     ESPN  International  is the second sports channel offered by TVA, for which
TVA recently signed a new non-exclusive 50-year contract automatically renewable
for another  50-year  period.  ESPN  International  offers a number of different
sporting  events,  which include auto racing,  National  Football  League games,
professional   tennis  matches,   Major  League  Baseball  games,  and  National
Basketball   Association  games.  ESPN  International  also  currently  provides
Portuguese language commentaries exclusively to TVA.

     CNN  International  features  news and  information  programming,  offering
international  news  coverage  concerning  politics,   business,  financial  and
economic developments, 24 hours a day.

     TNT is a movie channel which,  pursuant to a  non-exclusive  agreement with
Turner   International,   Inc.,  offers  the  Turner  Network  Television  movie
collection, including over 5,000 classic movie titles from MGM. In addition, TNT
airs  children's  programming,  documentaries  and sporting  events.  The movies
presented  by TNT are  broadcast  in  stereo  sound and  subtitled  or dubbed in
Portuguese or Spanish. In the case of dubbed versions, viewers can listen to the
original soundtrack on a SAP channel.

     Cartoon Network is an animated  cartoon  channel  targeted to children that
offers programs such as The Flintstones,  The Jetsons, The Smurfs, Yogi Bear and
other classic series.

     Discovery  Brasil is  comprised  of  programming  shown on the US Discovery
Channel,  based on  topics  in the  areas of  nature,  science  and  technology,
history, adventure and world cultures.

     The Fox Channel presents movies,  as well as programs from the 2,000 titles
in Fox's library.  Fox also presents American  television  series,  such as L.A.
Law, M*A*S*H, and The Simpsons, among many others.



                                       13
<PAGE>


     The SuperStation is a general  entertainment channel programmed by De Santi
& Vallone for TVA's  distribution in Brazil. De Santi & Vallone has entered into
exclusive  contracts  with leading  American  networks for the  transmission  of
documentary,  variety,  music  and news  programming.  The  SuperStation  offers
popular programs,  such as The Late Show With David Letterman,  E! Entertainment
programs,  NBC and CBS news, as well as a variety of other  programs,  including
programming from the History Channel, interviews, and programs on such topics as
food and cooking, travel and fashion.

     Eurochannel  is  specially   assembled  and  packaged  by  TVA  and  offers
subscribers European programming. The channel presents programs from the Spanish
Radiotelevision  Espanola, the German Deutsche Welle, the BBC, the news from the
French TF1, as well as a variety of quality European films. News, sports,  music
and variety shows are also offered.

     MTV Brasil is a 24-hour  channel  produced by MTV Brasil,  a joint  venture
company owned by Abril and an indirect subsidiary of Viacom  International.  MTV
Brasil is entirely  produced in Brazil in  Portuguese.  MTV Brasil has licensing
agreements  with the MTV  Network,  a  division  of  Viacom  International,  and
transmits a  combination  of music and other  video  clips,  cartoons  and local
programming.

     MTV Latino  presents  original  programming  from MTV Latin America,  which
includes music and other video clips and cartoons in Spanish.

     CMT Brasil is a country music channel with programming supplied from the US
version of Country Music  Television  channel  exclusively to TVA and customized
for Brazil with Brazilian country music and local events.

     Sony Entertainment is primarily a situation-comedy  channel,  consisting of
Sony's film library, including Friends, Seinfeld, Mad About You and E.R.

     The Warner Channel is a family entertainment  channel, with new and classic
cartoons, children's programs and movies.

     Bravo Brasil is an arts and movie  channel,  following  the same concept as
the US version of the Bravo channel, showing high quality, cultural events, such
as classical music,  jazz, opera,  ballet and European movies. TVA inserts local
programming,  such as Brazilian music and movies,  as well as shows performed in
Brazil by international artists.

     RTPi, Radiotelevisao Portuguesa Internacional,  is a Portuguese state-owned
general entertainment  channel produced and assembled in Portugal,  airing music
events, talk shows, movies, news, documentaries, exclusive to TVA.

     TVA's complete channel offerings as of July 1, 1997 are as follows:


Channel                               Description
-------                               -----------
HBO Brasil........................... movie channel
HBO Brasil 2......................... HBO Brasil with a six-hour time shift
ESPN Brasil.......................... sports channel
ESPN International................... sports channel
CNN International.................... news channel
TNT.................................. movie channel
Cartoon Network...................... cartoon channel
Discovery Brasil..................... science and documentary channel
Fox Channel.......................... movie channel


                                       14
<PAGE>



Channel                                 Description
-------                                 -----------
SuperStation......................... variety programming channel
Eurochannel.......................... European variety programming channel
MTV Brasil........................... music channel
MTV Latino........................... music channel
RTPi................................. Portugal's state television channel
CMT Brasil........................... music channel
TV5.................................. French variety programming channel
WorldNet............................. American news and variety channel
RTVE................................. Spanish variety channel
Deutsche Welle....................... German variety channel
America 2............................ Argentine variety channel
CV Noticias.......................... Argentine news channel
CV Sports............................ Argentine sports channel
Canal de Noticias NBC................ NBC news channel in Spanish
TeleUno.............................. Spanish variety channel
Sony Entertainment................... situation comedy channel
The Warner Channel................... family entertainment channel
Bravo Brasil......................... arts and movie channel
Globo................................ national off-air channel
SBT.................................. national off-air channel
Gazeta/CNT........................... national off-air channel
Bandeirantes......................... national off-air channel
Record............................... national off-air channel
Manchete............................. national off-air channel
Cultura.............................. national off-air channel
CBI.................................. local off-air channel
Rede Mulher.......................... local off-air channel
Rede Vida............................ local off-air channel
TV Senado............................ local off-air channel
TV Educativa Rio..................... local off-air channel

     The following additional channels are under development and are expected to
be offered by TVA to the Brazilian subscription television marketplace.


Channel                                Description
-------                                -----------
Cinemax.............................. movie channel
CNA.................................. news channel
Mundo................................ variety channel
E! Entertainment..................... entertainment news channel

     DIRECTV

     The DIRECTV programming package offered by Galaxy Brasil as of July 1, 1997
consisted of 60 video channels (including 18 pay-per-view channels),  certain of
which,  such as Bravo Brasil,  CMT Brasil and Eurochannel,  are provided by TVA,
and 33 audio  channels.  The Company  expects that the number of video  channels
will  increase  to  approximately  70 in the last  quarter of 1997.  Programming
includes  movies,  news,  athletic  



                                       15
<PAGE>


events and other  programs  available  on a  pay-per-view  basis.  The  complete
DIRECTV service channel offerings, other than pay-per-view,  as of July 1, 1997,
were as follows:

Channel                                         Description
HBO Brasil........................... movie channel
HBO Brasil 2......................... HBO Brasil with a six-hour time shift
ESPN Brasil.......................... sports channel
ESPN International................... sports channel
Eurochannel.......................... European variety programming channel
CMT Brasil........................... music channel
MTV Brasil........................... music channel
MTV Latino........................... music channel
RTPi................................. Portugal's state television channel
CNN International.................... news channel
TNT.................................. movie channel
Cartoon Network...................... cartoon channel
Discovery Brasil..................... science and documentary channel
Sony Entertainment................... sit-com channel
Bravo Brasil......................... art and movie channel
Deutsche Welle....................... German variety channel
TVE.................................. Spanish variety channel
Tele Uno............................. Spanish variety channel
Warner Channel....................... family entertainment channel
CBS Telenoticias..................... CBS news channel in Spanish
Bloomberg............................ business news channel
Multipremier......................... Mexican movie channel
ZAZ.................................. Mexican children's programming channel
Travel Channel....................... travel programming channel
NHK.................................. Japanese general entertainment channel
BBC.................................. U.K. news channel
TVN.................................. Chilean programming channel
Gazeta/CNT........................... national off-air channel
TV Senado............................ local off-air channel
TV Educativa Rio..................... local off-air channel
TV Cultura........................... local off-air channel
Nickelodeon.......................... children's programming channel
Discovery Kids....................... children's programming channel
Locomotion........................... children's programming channel
BBC World............................ world news channel
TV Chile............................. Chilean programming channel
Playboy TV........................... adult programming channel
AdulTVision.......................... adult programming channel


                                       16
<PAGE>



Operations

     Marketing.  The Company  periodically  conducts  marketing surveys to gauge
consumer  preferences and evaluate new and existing markets. TVA also frequently
evaluates the  demographics  of the subscribers to its  programming,  seeking to
provide  programming  most in demand.  In each  market,  TVA's  marketing  staff
typically applies one or more of the following programs to attract  subscribers:
(i) extensive  marketing tied to regional  events such as soccer  matches,  (ii)
neighborhood promotional events featuring large screen broadcasts of its channel
offerings, (iii) direct mailings, (iv) telemarketing, (v) television, billboard,
magazine  and  newspaper   advertisements,   (vi)  prewiring  arrangements  with
residential housing developers and (vii) other promotional marketing activities,
including referral programs and promotional gifts.

     Installation.  The  installation  package  delivered  to a  new  subscriber
depends upon the type of programming  delivery service chosen by the subscriber.
The MMDS  installation  package  features a standard  rooftop mount linked to an
antenna and related equipment,  including a decoder, located at the subscriber's
location.  Cable service requires the installation of a cable line and a decoder
at the subscriber's  dwelling.  Ku-Band  satellite  service  typically  involves
installation  of a  60-centimeter  dish antenna,  which can be mounted outside a
subscriber's  window or on the  rooftop  of a  subscriber's  building  or house,
together with a decoder located at the  subscriber's  dwelling.  As with Ku-Band
service,  C-Band  service  installation  includes  the  installation  of a  dish
antenna,  although of a greater size (1.1 meters in diameter)  and a decoder and
related  equipment at the subscriber's  home. DBS installations at single-family
homes require an entire  installation  package,  while installations at multiple
dwelling units in which drop lines are installed  require only a decoder at each
subscriber's  location and therefore are less costly to the Company.  Once a new
subscriber has requested service,  the amount of time a subscriber waits for the
commencement of service depends on several  factors,  including type of service,
whether  the  subscriber  has access to Cable,  whether the  subscriber  is in a
single  family home or multiple  dwelling  unit,  whether the  topography of the
surrounding area makes MMDS service viable and whether the subscriber is located
in an area of Brazil  that can be  reached  by C-Band or  Ku-Band  service.  TVA
provides   installation  service  with  its  own  personnel  and  through  local
subcontractors.  TVA or such subcontractor attempts to complete installation and
begin service within 30 days of a subscription order.

     Uplink  Facilities.  A major  part of the  delivery  of TVA's DBS  service,
whether   Ku-Band  or  C-Band,   is  the  collection  of  programming   and  the
transmission,  or uplinking,  of such  programming to the Galaxy III-R satellite
and the Brasilsat  satellite,  respectively.  Upon receipt of  programming,  the
Company  processes,  compresses,  encrypts,  multiplexes  (combines  with  other
channels)  and  modulates  (prepares  for  transmission  to the  satellite  at a
designated  carrier  frequency)  such  programming.   The  Company  uses  uplink
facilities of Embratel in Sao Paulo to service its existing C-Band service.  TVA
delivers  its   programming   to  the  Embratel   uplink  center  via  microwave
transmission,  where it is prepared for transmission to the Brasilsat  satellite
using equipment provided by TVA. For its DIRECTV service,  the Company has built
the Tambore  Facility,  an uplink center,  for a total cost of approximately $20
million in Tambore in the State of Sao Paulo consisting of an uplink antenna and
ancillary  equipment.  The Tambore  Facility has operated since June 1996 and is
used to uplink Brazilian programming to the Galaxy III-R satellite.  Through the
Galaxy III-R satellite, programming from Galaxy Brasil is mixed with programming
from  the  California  Broadcast  Center  (the  "CBC")  in Long  Beach  and with
programming provided by members of the Cisneros Group through an uplink facility
in Venezuela  and by Grupo  Frequencia  Modulada  Television  through its uplink
facility in Mexico, for delivery to subscribers in Brazil and other countries to
which  GLA  provides  DIRECTV  service.  The  Tambore  Facility  and the  uplink
facilities  in  Venezuela,  Mexico and the United  States are equipped with full
emergency power  generation  equipment and other emergency  facilities to enable
GLA to avoid  signal  disruptions.  As of April 11, 1997,  California  Broadcast
Center,  LLC, a new Delaware limited  liability  company,  was established,  the
principal asset of which is GLA's satellite uplink facility.  The new company is
owned  by two  subsidiaries  of  Hughes  Electronics.  In  connection  with  the
establishment of the new company,  TVA  Communications  and Tevecap have agreed,
pursuant to the  Indemnification  Agreement,  to provide certain  indemnities in
favor of GLA, Hughes Communications GLA, the  newly-established  company and its
shareholders.  To secure its obligations  under the  Indemnification  Agreement,
Tevecap  has agreed to pledge its equity  interest in GLA, as well as any future
notes or interest it may hold relating to the uplink facility.



                                       17
<PAGE>


     Programming  Facilities.  Programming  equipment  is  used to  prepare  the
programming  material for  transmission  via the  Company's  MMDS,  Cable or DBS
systems,  including  compression with respect to Cable and Ku-Band service.  The
programming   equipment   inserts   commercial  or  promotional   material,   if
appropriate,  monitors  the quality of the picture and sound,  and  delivers the
material to the multiplexing  system. For programming  delivered to TVA as taped
material,  the  programming  equipment  also  compiles  the various  programming
segments, inserting commercial and promotional material.

     Compression  System.  The Company also uses its  programming  facilities to
digitize  the  programming  signals  used in TVA's  Cable and  Ku-Band  service.
Digital  technology permits the compression and transmission of a digital signal
to  facilitate  multiple  channel   transmission   through  a  single  channel's
bandwidth,  thereby giving  broadcasters the ability to offer significantly more
channels than is currently the case with analog systems.  Digitized  signals are
compressed  using the MPEG-2  standard.  (Moving  Pictures Expert  Group-2,  the
international video compression standard).

     Conditional  Access System. GLA and News Digital Systems Limited ("NDS"), a
wholly-owned   subsidiary  of  News   Corporation,   are  parties  to  a  System
Implementation and License Agreement.  Under the Local Operating Agreement,  GLA
provides to Galaxy Brasil the use of the access control system licensed from NDS
and the Smart Cards  provided by NDS.  The  Company  expects the access  control
system to adequately protect DIRECTV programming from unauthorized  access. With
Smart Card technology, it is possible to change the access control system in the
event of a security  breach  allowing TVA to  reestablish  security.  Management
believes that the ability to take  electronic  measures and to replace the Smart
Cards will provide an effective means to combat unauthorized programming access.

     Subscriber  Service.  Management  believes that  delivering  high levels of
subscriber  service in installation and maintenance  enables it to maintain high
levels of subscriber  satisfaction and to maximize subscriber retention. To this
end,  TVA  attempts to promptly  schedule  installations,  provides a subscriber
service  hotline  in each of the  metropolitan  areas  in  which  TVA  operates,
attempts to promptly  provide  response  repair  service,  and  attempts to make
follow-up  calls  to  new  subscribers  shortly  after  installation  to  ensure
subscriber satisfaction.  TVA seeks to instill a subscriber service focus in all
its employees  through  ongoing  training and has  established an  intra-company
electronic  mail  system to  provide a forum for  employees  to  exchange  ideas
concerning  ways to  increase  subscriber  satisfaction.  TVA also  has  various
employee bonus programs linked to measures of subscriber satisfaction. To enable
its employees to provide quicker  service,  TVA is working to  decentralize  its
subscriber  service operations by opening small service offices throughout TVA's
served markets.

     Management Information Systems and Billing.  Management believes that TVA's
proprietary  management  information  systems  enable  TVA to  deliver  superior
subscriber  service,  monitor  subscriber  payment  patterns and  facilitate the
efficient management of each of its operating systems.  Management believes that
TVA's billing  procedures  are an integral part of its strategy to maintain high
levels  of  subscriber   satisfaction  and  to  maximize  subscriber  retention.
Subscribers  select  the day of the  month on  which  payment  for that  month's
service is due, and pay their bills at a bank through direct transfers, which is
the standard payment method in Brazil.  After  disconnection  and the removal of
the  delinquent  subscribers  decoder  box,  the  Company  generally  offers  to
reconnect the delinquent subscribers for a fee of approximately $50.00.

Competition

     General

     TVA  and  the  Operating  Ventures  compete  with  pay  television  service
providers  using  Cable,  MMDS and DBS  transmission  technologies.  The Company
expects to continue  to face  competition  from a number of existing  and future
sources,  including  potential  competition  as a result  of new and  developing
technologies  and the easing of regulation in the pay television  industry.  TVA
believes  that  competition  is and will  continue  to be  primarily  based 


                                       18
<PAGE>


upon program offerings, customer satisfaction, quality of the system network and
price.  Since  there is a very  limited  history of pay  television  services in
Brazil,  there can be no  assurance  that,  based on the  potential  size of the
Brazilian pay television  industry,  the pay  television  market will be able to
sustain a number of  competing  pay  television  providers.  The Company and the
Operating  Ventures also compete with national  broadcast  networks and regional
and local  broadcast  stations.  TVA's MMDS and Cable  operations and its C-Band
satellite  service  and  Ku-Band  satellite  service  may  compete  for the same
subscribers.

     MMDS and Cable Service

     TVA's  principal  competitors  in Cable  service  are  operations  owned or
controlled  by Multicanal  Participacoes  S.A.  ("Multicanal"),  Net Brasil S.A.
("Net  Brasil"),  Globo  Cabo S.A.  ("Globo  Cabo") and RBS  Participacoes  S.A.
("RBS").  Multicanal  and Net Brasil  operate Cable systems  throughout  much of
Brazil,  including Sao Paulo,  Rio de Janeiro,  Curitiba and several other large
metropolitan  areas.  Globo Cabo has Cable  systems in  approximately  18 cities
including  Brasilia.  RBS  operates  Cable  services  in 19 cities in Brazil and
provides MMDS service in Porto Alegre.  Net Brasil also provides MMDS service in
Recife,  and  has  a  license  to  provide  MMDS  service  in  Curitiba.   Globo
Comunicacoes e  Participacoes  Ltda.  ("Globo Par") and TV Globo,  the owners of
Brazil's most popular off-air channels  (together,  "Globo"),  control,  or have
significant  interests,  in each of  Multicanal,  Net Brasil and Globo Cabo. RBS
also holds an interest in Multicanal.  The systems controlled by Multicanal, Net
Brasil,  Globo Cabo and RBS offer a similar number of channels of programming at
prices  comparable  to those charged for TVA's MMDS and Cable  Service.  Each of
these systems  broadcasts  programming  purchased from TVA as well as from other
services.

     DBS Service

     Management  believes its only competitor in DBS service is Net Sat Servicos
Ltda.  ("Net Sat") in which Globo Par also has a controlling  interest and whose
other equity  holders  include News  Corporation  plc, a subsidiary  of The News
Corporation Limited and Grupo Televisa,  S.A., of Mexico. TVA offers 26 channels
of programming with its C-Band service,  compared to the six channels offered by
Net Sat's C-Band  service.  However,  while monthly  charges are  comparable and
TVA's digital C-Band  service  offers more  channels,  often with better picture
quality,   the  analog  decoder  necessary  for  Net  Sat's  C-Band  service  is
significantly  less expensive than the digital  decoder TVA's  subscribers  must
purchase.  With  respect  to Ku-Band  service,  Net Sat uses a  satellite  which
provides  broader  coverage of Brazil.  The orbital location of the Galaxy III-R
satellite  enables GLA to offer DIRECTV service to  substantially  all of the TV
Homes in Brazil.  However, in the less populated northern and western regions of
Brazil,  reception  of DIRECTV  programming  requires  a dish  antenna up to 1.1
meters in diameter and in the western third of Brazil (a sparsely populated area
when  compared  to the  southern  and  eastern  regions)  reception  may  not be
practical due to the size of the antenna necessary for reception.  TVA's Ku-Band
service  currently offers 60 channels of programming,  including 18 pay-per-view
channels,  as  compared to the 26  channels  of  programming  offered by Net Sat
(including four pay-per-view channels).

     Off-Air Broadcast Television

     Broadcasting  services are currently  available to substantially all of the
Brazilian   population   without   payment   of  a   subscription   fee  by  six
privately-owned  national broadcast  television  networks and a government-owned
national  public  television  network.  The six  national  broadcast  television
networks and their local  affiliates  currently  provide  services to nearly all
Brazilian TV Homes without payment of a subscription fee. The national broadcast
television  networks and local broadcast stations receive a significant  portion
of their  revenues from the sale of television  advertising,  which revenues are
based in part on the  audience  share and  ratings for the  networks'  programs.
Programming  offered  by  pay  television  providers,  including  TVA,  directly
competes  for  audience  share  and  ratings  with the  programming  offered  by
broadcast   television  networks  as  well  as  regional  and  local  television
broadcasters.  The six national  broadcast  television  networks are Globo, SBT,
Bandeirantes, TV Manchete, TV Record and



                                       19
<PAGE>


Gazeta/CNT.  The national  television networks utilize one or more satellites to
retransmit their signals to their local affiliates throughout Brazil.

     Programming Sales

     TVA competes  with a variety of  Brazilian  and  international  programming
providers for sales of its programming to the Operating Ventures and Independent
Operators.  In addition,  TVA competes  with other pay  television  operators to
purchase programming from some of these Brazilian and international sources.

Regulatory Framework

     The subscription  television industry in Brazil is subject to regulation by
the   Brazilian   Ministry  of   Communications   pursuant   to  the   Brazilian
Telecommunications Code of 1962, as amended (the "Telecommunications Code"). The
Ministry of  Communications  grants  concessions for MMDS,  Cable,  DBS, and UHF
licenses.

     MMDS Regulations

     General.   The   Telecommunications   Code   empowers   the   Ministry   of
Communications,  among other things, to issue, revoke, modify and renew licenses
within the spectrum  available to MMDS systems,  to approve the  assignments and
transfer of control of such  licenses,  to approve the location of channels that
comprise  MMDS  systems,  to regulate the kind,  configuration  and operation of
equipment  used  by  MMDS  systems,   and  to  impose  certain  other  reporting
requirements on channel  license  holders and MMDS operators.  The licensing and
operation of MMDS  channels are  currently  governed by Rule No.  002/94  ("Rule
002/94"),  adopted by Ministry of Communications  Administrative Rule No. 043/94
("Rule  043/94").  Under Rule 002/94,  MMDS is defined as the special service of
telecommunication  which uses  microwaves  to  transmit  codified  signals to be
received in pre-established points on a contractual basis. On September 9, 1996,
the Ministry of Communications  issued Ordinance No. 1,085  ("Ordinance  1085"),
which  revised Rule 002/94 and imposed  restrictions  on the granting and use of
MMDS licenses.

     Licenses.  The Ministry of Communications grants licenses and regulates the
use of channels by MMDS operators to transmit video  programming,  entertainment
services and other  information.  A maximum of 31 MMDS channels  (constituting a
spectrum  bandwidth  of 186 mhz) may be  authorized  for use in an MMDS  market.
While licenses are usually  granted for the use of up to 16 channels,  depending
on  technical  feasibility  and the  existence of  competition,  the Ministry of
Communications can grant a license for all 31 channels available in one specific
area. If the license is for 16 or more  channels,  at least two channels must be
reserved for educational and cultural programming.  If the license involves less
than 15 channels, only one channel must be reserved for educational and cultural
purposes. If a license is for fewer than 15 channels,  there is no obligation to
reserve  any channel  for  educational  and  cultural  purposes.  In each of the
Company's  operating or targeted  markets,  up to 31 MMDS channels are available
for MMDS (in addition to any local off-air VHF/UHF channels which are offered).

     Any company in which  nationals  of Brazil own at least 51.0% of the voting
capital is  eligible  to be granted a license  to operate an MMDS  service.  For
purposes  of  this  regulation,  "national"  means  any  native  Brazilian  or a
naturalized Brazilian who has held Brazilian citizenship for at least ten years.
The license is granted for a renewable  period of 15 years.  The application for
renewal of a license  must be filed with the Ministry of  Communications  during
the period from 180 to 120 days before the end of the license term. To renew the
license,  the  license  holder  must (i) meet  applicable  legal and  regulatory
requirements,  (ii) have  complied  with all legal and  contractual  obligations
during the term of such  license,  (iii) meet certain  technical  and  financial
requirements and (iv) provide educational and cultural programming.

     Under the most recently  promulgated  rules of Ordinance 1085, each license
holder and its affiliates  may be granted  permission to operate MMDS systems in
different areas of Brazil,  provided that no holder may be


                                       20
<PAGE>


granted licenses for (i) more than seven  municipalities with a population equal
to or exceeding 700,000  inhabitants and (ii) more than 12 municipalities with a
population between 300,000 and 700,000 inhabitants.  The restrictions only apply
to areas in which the MMDS system  operator (or an affiliate  thereof)  faces no
competition from other pay television services,  excluding services that utilize
a satellite  to transmit  their  signal.  Ordinance  1085 grants the Ministry of
Communications full discretion to alter or eliminate the restrictions.  The term
affiliate is defined by Ordinance 1085 as "(i) any legal entity that directly or
indirectly  holds at least 20% of the voting  capital of another legal entity or
any of two  legal  entities  under  common  ownership  of at least  20% of their
respective voting capital, (ii) any of two legal entities that have at least one
officer or director in common,  (iii) any of two legal  entities  when, due to a
financial  relationship between them, one entity is dependent on the other." The
Company  currently  controls  four MMDS  licenses in cities of more than 700,000
inhabitants (Sao Paulo, Rio de Janeiro,  Curitiba and Porto Alegre), but in each
such city TVA has at least one  competitor.  No assurance can be given as to the
number of  licenses  that will be  granted,  if any.  Prices for pay  television
services may be freely established by the system operator, although the Ministry
of Communications may interfere in the event of abusive pricing. The Ministry of
Communications may impose penalties including fines, suspension or revocation of
the license if the license holder fails to comply with applicable regulations or
becomes legally,  technically or financially unable to provide MMDS service. The
Ministry of Communications  also may intervene to the extent operators engage in
unfair practices intended to eliminate competition.

     The Ministry of  Communications  awards licenses to use MMDS channels based
upon  applications  demonstrating  that the  applicant  is qualified to hold the
license,  that the  proposed  market is  viable  and that the  operation  of the
proposed channels will not cause  impermissible  interference to other permitted
channels.  After the Ministry of  Communications  determines that an application
has met these  requirements,  it publishes a notice requesting comments from all
parties  interested  in providing  the same services in the same or a near area.
Depending on the comments received, the Ministry of Communications may decide to
open a public bid for the  service in that area,  although it has not done so in
the past. In the case of a public bid,  applicants would be evaluated based on a
number of factors  including the applicant's  proposed schedule for implementing
service aspects of the applicant's  community relations,  such as involvement of
local residents as stockholders of the applicant,  the applicant's commitment to
local  programming  and  the  extent  to  which  the  applicant   provides  free
programming to local cultural and educational institutions. Once an MMDS license
application  is granted by the Ministry of  Communications,  the license  holder
must finalize  construction and begin operations within 12 months,  which period
may be extended by an additional 12 months.

     In addition to qualifying under the application  process described above, a
license holder must also  demonstrate  that its proposed signal does not violate
interference  standards in the area of another MMDS channel license  holder.  To
this  end,  existing  license  holders  are  given a 30-day  period  in which to
ascertain and comment to the Ministry of Communications  whether the new license
holder's proposed signal will interfere with existing signals.  The area covered
by the  services is exclusive  to a radius of five to 50  kilometers  around the
transmission site, depending on the technical capability of the operator.

     On November 28, 1995,  the  President  of Brazil  enacted  Decree No. 1719,
which provides that all granting of  concessions  and licenses for the rendering
of  commercial  telecommunications  services  in  Brazil  shall be made  through
bidding procedures. As of March 31, 1996, the Ministry of Communications had not
granted any new  licenses for the  operation  of MMDS  systems  pursuant to such
Decree.

     Other  Regulations.  MMDS license  holders are subject to  regulation  with
respect to the  construction,  marketing  and  lighting of  transmission  towers
pursuant to the Brazilian  Aviation  Code and certain  local zoning  regulations
affecting  construction  of  towers  and  other  facilities.  There  may also be
restrictions imposed by local authorities.  The subscription television industry
also is subject to the Brazilian  Consumer  Code. The Consumer Code entitles the
purchasers  of goods or  services  to  certain  rights,  including  the right to
discontinue  a service and obtain a refund if the  services  are deemed to be of
low quality or not rendered adequately. For instance, in case of a suspension of
the  transmission  for a given  period,  the  subscriber  shall be entitled to a
discount on the monthly fees.  



                                       21
<PAGE>



Rule No. 002/94 and Ordinance 1085 have certain provisions  relating to consumer
rights,   including  a  provision  for  mandatory  discounts  in  the  event  of
interruption of service.  The Company as of July 15, 1997, had not been required
to repay any amounts or provide any discounts due to  interruptions  of service.
However,  the Company  does refund  prepaid  installation  service fees when the
Company  discovers such service is unavailable for whatever  reason.  Due to the
regulated nature of the subscription  television industry,  the adoption of new,
or changes to existing,  laws or regulations or the interpretations  thereof may
impede the Company's  growth and may otherwise have a material adverse effect on
the Company's results of operations and financial condition.

     Cable Regulation

     General.  Cable  services  in Brazil  are  licensed  and  regulated  by the
Ministry of  Communications  pursuant to Law No. 8977,  enacted by the Brazilian
National Congress on January 6, 1995 ("Law 8977"),  and Decree No. 1718, enacted
by the President of Brazil on November 28, 1995 ("Decree 1718").  Until Law 8977
was enacted in 1995,  the  Brazilian  Cable  industry  had been  governed by two
principal  regulatory  measures since its inception in 1989:  Ordinance No. 250,
issued by the Ministry of Communications on December 13, 1989 ("Ordinance 250"),
and its successor, Ordinance No. 36, issued by the Ministry of Communications on
March 21,  1991  ("Ordinance  36").  On  September  9,  1996,  the  Ministry  of
Communications  issued Ordinance 1086 ("Ordinance 1086") regulating the granting
and use of Cable Licenses.

     Ordinance 250 regulated the distribution of television signals ("DISTV") by
physical  means (i.e.,  by Cable) to  end-users.  DISTV  services  generally are
limited  only  to  the  reception  and   transmission  of  signals  without  any
interference by a DISTV operator with the signal  content.  Under Ordinance 250,
101  authorizations  were  granted by the  Ministry of  Communications  to local
operators to commercially exploit DISTV services. Although Ordinance 250 did not
specifically  address Cable services, a number of DISTV operators (including the
Company's   Cable  systems)  began  to  offer  Cable  services  based  on  DISTV
authorizations.

     By issuing  Ordinance  36 in March 1991,  the  Ministry  of  Communications
suspended  Ordinance 250,  although it allowed the DISTV  authorizations  issued
during the preceding 15 months to remain valid.  The Ministry of  Communications
submitted proposed  regulations relating to Cable services for public comment at
the same time  Ordinance 36 was issued.  These proposed  regulations  were never
adopted and no further  regulatory  action was taken until the  enactment of Law
8977 in 1995.  Currently Law 8977, together with Decree 1718 (which provides the
implementing  procedures  for Law  8977)  and  Ordinance  1086,  constitute  the
regulatory framework for Cable services in Brazil.

     Licenses.  Under Law 8977, a Cable  operator must obtain a license from the
Ministry of  Communications  in order to provide Cable  services in Brazil.  All
Cable licenses are nonexclusive  licenses to provide Cable services in a service
area. Cable licenses are granted by the Ministry of Communications  for a period
of 15 years and are renewable for equal and successive  periods.  Renewal of the
Cable license by the Ministry of Communications is mandatory if the Cable system
operator has (i)  complied  with the terms of the license  grant and  applicable
governmental  regulations and (ii) agrees to meet certain technical and economic
requirements  relating to the  furnishing  of adequate  service to  subscribers,
including system modernization standards.

     Ordinance  1086  imposes  restrictions  on the  number of areas that can be
served by a Cable television system operator (or an affiliate thereof). Pursuant
to Ordinance  1086, a Cable system  operator (or an affiliate  thereof) may only
hold  licenses with respect to (i) a maximum of seven areas with a population of
700,000 and above and (ii) a maximum of 12 areas with a population of 300,000 or
more and less than 700,000.  The  restrictions  only apply to areas in which the
Cable system operator (or an affiliate  thereof) faces no competition from other
pay television services, excluding services that utilize a satellite to transmit
their  signal.  Ordinance  1086  grants  the  Ministry  of  Communications  full
discretion to alter or eliminate the restrictions. The term affiliate is defined
by Ordinance 1086 as "(i) any legal entity that directly or indirectly  holds at
least 20% of the  voting  capital of  another  legal  entity or any of two legal
entities  under  common  ownership  of at least 20% of their  respective  voting
capital, (ii) any of two 

                                       22
<PAGE>


legal  entities that have at least one officer or director in common,  (iii) any
of two legal entities when,  due to a financial  relationship  between them, one
entity is dependent  on the other." The Company  currently  controls  four Cable
licenses in cities of more than 700,000  inhabitants  (Sao Paulo and  Curitiba),
but in each such city TVA has at least one competitor.

     Generally,  only legal entities that are  headquartered  in Brazil and that
have 51.0% of their  voting  capital by  Brazilian-born  citizens or persons who
have held Brazilian citizenship for more than 10 years are eligible to receive a
license to operate Cable systems in Brazil.  In the event that no private entity
displays an interest in providing  Cable services in a particular  service area,
the Ministry of  Communications  may grant the local  public  telecommunications
operator a license to provide Cable services.

     Cable  operators  that  presently  provide  Cable  services  under  a DISTV
authorization  granted under  Ordinance 250 are required  under Law 8977 to file
applications to have their DISTV  authorizations  converted into Cable licenses.
Ordinance 1086 grants a one year period from the date a DISTV  authorization  is
converted  into a cable  television  license  for any Cable  system  operator to
comply with the  restrictions.  The Company's  Cable  systems,  all of which are
operating under DISTV authorizations, have applied for conversion of their DISTV
authorizations.

     Cable  licenses  for service  areas not covered by existing  authorizations
will be  granted  pursuant  to a  public  bidding  process  administered  by the
Ministry of Communications  after prior public  consultation.  All such licenses
shall be nonexclusive licenses. In order to submit a bid for a license, a bidder
must meet certain financial and legal  prerequisites.  After such  prerequisites
are met, a bidder must then submit a detailed bid describing its plan to provide
Cable  services in the service area. In the  qualification  phase of the bidding
process,  the Ministry of Communications  assigns a number of points to each bid
based on certain  weighted  criteria,  including  the degree of ownership of the
bidder by  residents  of the local  service  area;  the channel  capacity of the
proposed  system;  the timetable for installing the Cable system;  the timetable
for offering subscription  programming and amount of such programming;  the time
allocated to local public interest programming; the number of channels allocated
to educational and cultural programming;  the number of establishments,  such as
schools,  hospitals and community  centers,  to which basic service  programming
will be offered free of charge;  and the proposed basic subscription rate. After
calculating  the  number of points  awarded  to each  bidder,  the  Ministry  of
Communications  will then apply a formula based on the population of the service
area to select  the  winning  bid from among  those  bidders  that meet  certain
defined minimum  qualifying  thresholds.  For service areas with a population of
700,000 or more  inhabitants,  the qualified bidder that submits the highest bid
for the license will be selected.  For service  areas with a population  between
300,000 and  700,000  inhabitants,  the  winning  bid is  selected  based on the
highest  product  obtained by  multiplying  the number of points  awarded in the
qualification  phase and the amount bid for the license.  For service areas with
less than 300,000  inhabitants,  the winning bid is selected on the basis of the
number of points awarded in the  qualification  phase and the payment of a fixed
fee.

     Once a Cable  license is granted,  the licensee has an 18 month period from
the date of the license grant to complete the initial stage of the  installation
of the Cable system and to commence  providing  Cable services to subscribers in
the service area. The 18 month period is subject to a single 12 month  extension
for cause at the discretion of the Ministry of Communications.

     Any  transfer  of a Cable  license is subject to the prior  approval of the
Ministry of  Communications.  A license  generally may not be  transferred  by a
licensee  until it has commenced  providing  Cable services in its service area.
Transfers  of shares  causing a change in the  control of a license or the legal
entity  which  controls a license  also is subject to the prior  approval of the
Ministry of Communications.  The Ministry of Communications  must receive notice
of any change in the capital structure of a licensee,  including any transfer of
shares or increase of capital that do not result in a change of control.

     A license can be  revoked,  upon the issue of a judicial  decision,  in the
event the licensee lacks  technical,  financial or legal capacity to continue to
operate a Cable system;  is under the  management of  individuals,  or under


                                       23
<PAGE>


the control of individuals or  corporations  who,  according to Law 8977, do not
qualify for such positions;  has its license transferred,  either directly or by
virtue of a change in  control,  without  the prior  consent of the  Ministry of
Communications;  does not start to provide Cable services  within the time limit
specified  by Law  8977;  or  suspends  its  activities  for  more  than  thirty
consecutive  days without  justification,  unless  previously  authorized by the
Ministry of Communications.

Cable Related Service Regulation

     General.  Brazilian  telecommunications  services are governed primarily by
(i) Article 21 of the Federal  Constitution,  as amended by  Amendment  No. 8 of
August 15, 1995 ("Amendment 8"), and (ii) the  Telecommunications  Code (Law No.
4117 of August 27, 1962, as amended).  The Brazilian  Government also has issued
detailed  regulations  covering specific areas of  telecommunications  services,
including radio broadcasting,  paging, trunking,  subscription television, Cable
television and cellular telephony.  The Ministry of Communications  presently is
responsible for the regulation of  telecommunications  services in Brazil. Prior
to its amendment in 1995,  Article 21 of the Federal  Constitution  required the
Brazilian  Government to operate  directly,  or through  concessions  granted to
companies  whose  shares  are  controlled  by  the  Brazilian  Government,   all
telephone,  telegraph,  data  transmission  and other public  telecommunications
services. This constitutional requirement was the basis for the establishment of
the state-owned telephone monopoly,  Telebras, which holds controlling interests
in 27 regional telephone operating companies.  With the adoption of Amendment 8,
Article  21  was  modified  to  permit  the  Brazilian   Government  to  operate
telecommunications   services   either   directly  or  through   authorizations,
concessions or permissions granted to private entities. In particular, Amendment
8 removed the  constitutional  requirement  that the Brazilian  Government  must
either  directly  operate  or  control  the shares of  companies  which  operate
telecommunications  services.  Even  with  the  adoption  of  Amendment  8,  the
Brazilian    Government   still   retains   broad    regulatory    powers   over
telecommunications  services.  Notwithstanding  the  existence  of the  Telebras
monopoly, private companies have been permitted under Brazilian law to provide a
number of  telecommunications  services other than  telephony,  including  radio
broadcasting,  paging,  trunking,  subscription  television and cable television
services.   However,   fixed  public  telephony  and  cellular   telephony  were
exclusively  provided  by  Telebras  through its  regional  telephone  operating
companies.  While  Amendment 8 permits the  Brazilian  Government  to  authorize
private  companies to provide such  services,  further action on the part of the
Brazilian  legislature  will be required  before  private  entities may actually
provide fixed telephony services.

     High-Speed  Cable Data  Services.  Law 8977 and Decree  1718,  among  other
things,  authorize cable television operators,  such as the Company, in addition
to furnishing video and audio signals on their cable networks,  to utilize their
networks for the transmission of meteorological,  banking, financial,  cultural,
prices  and other  data.  This  broad  grant of  authority  by the  Ministry  of
Communications  is  understood to permit Cable  television  operators to furnish
services such as interactive  home banking and high-speed Cable data services to
subscribers through their cable television networks.

     Cable  Telephony.  Under present  Brazilian  law, only  Telebras'  regional
telephone  operating companies are permitted to furnish fixed telephone services
in Brazil. Therefore, absent a change in Brazilian law, the Company would not be
permitted to furnish cable telephony on its network. There are, however, certain
limited  regulatory  exceptions  pursuant to which private  entities  other than
Telebras and the regional telephone  operating  companies have been permitted to
provide  limited  fixed  telephony  services  in  Brazil.  Under one  particular
exception,  certain private telephone  networks  (Centrais Privadas de Comutacao
Telefonica  or "CPCT")  serving  "condominiums"  (as such term is defined  under
Brazilian  law) have been  permitted to  interconnect  their  private  telephone
networks  to the  public  telephone  network  operated  by the  local  telephone
operating company. A CPCT is comparable to a private branch exchange (PBX) found
in some larger apartment complexes,  hotels and businesses in the United States.
Under  Brazilian  law,  the  term   "condominium"   refers  to  residential  and
nonresidential  buildings or building  complexes  that have entered into a legal
association.  In  practice,  a  condominium  desiring  to  establish a CPCT will
generally  contract  with a private  service  provider to  install,  operate and
maintain  the CPCT and to  secure  interconnection  with  the  public  telephone
network.  Ordinance No. 119/90 of the 10 December 1990 ("Ordinance 


                                       24
<PAGE>

119"),  which was issued by the  predecessor to the Ministry of  Communications,
sets  forth  requirements  for the  interconnection  of CPCTs  with  the  public
telephone network.  In general the installation,  operation and maintenance of a
CPCT does not require any  authorization  from the Ministry of Communications or
Telebras.  In order to interconnect  with the public telephone  network,  a CPCT
must comply with the requirements set forth in Ordinance 119. Such  requirements
primarily relate to meeting  technical  equipment  certification  and acceptance
standards.  Assuming  that  such  standards  are  met,  the  regional  telephone
operating  company is required  under  Ordinance  119 to  interconnect  the CPCT
requesting interconnection to the public telephone network. The Company believes
that, under current Brazilian law, Cable television  operators can utilize their
Cable television  networks in order to facilitate the installation and operation
of a CPCT. Furthermore,  under the authority granted by Ordinance 119, CPCTs may
be  interconnected  through Cable  television  networks to the public  telephone
network.

     Satellite  Service  Regulation.   On  October  1,  1991,  the  Ministry  of
Communications enacted Ordinance No. 230 to regulate telecommunications services
via  satellite in Brazil  ("Ordinance  230").  Under  Ordinance  230 any company
authorized to broadcast  television by any means is also authorized to broadcast
by satellite  transmission.  The Company has operated  satellite  pay-television
services since 1993 through a contract signed with Embratel.

     Ordinance No. 281, issued by the Ministry of Communications on November 28,
1995,  partially  amended  Ordinance  230  allowing  only  companies  to which a
concession,  permission  or  authorization  had been granted  previously  by the
Ministry of Communications to provide telecommunications services via satellite.
Companies  that were already  operating  satellite  telecommunications  services
without  such  authorization  were  given a  period  of 60  days  to  seek  such
authorization.  The  Company  applied for such  authorization  within the 60-day
period,  and on April 23, 1996, the Ministry of Communications  issued Ordinance
No. 87/96 ("Ordinance 87"), granting TVA the non-exclusive permission to operate
a pay television  service via satellite.  Such authorization is valid for a term
of fifteen years,  commencing  October 26, 1994.  Ordinance 87 further  provides
that TVA has the obligation to (a) render services  continuously and efficiently
in order  to fully  satisfy  users,  (b) in an  emergency  or  disaster,  render
services to the entities that require services without charge,  and (c) meet the
technical adequacy  requirements which the Ministry of Communications  considers
essential to  guarantee  fulfillment  of the  obligations  under the  permission
granted.  In addition,  on April 23, 1996,  Galaxy Brasil received approval from
the  Ministry of  Communications,  pursuant to Ordinance  No. 86/96  ("Ordinance
86"), to operate  satellite  services via the Galaxy III-R satellite,  leased by
Hughes  Electronics.  Galaxy  Brasil  also  received  approval  to  operate  the
corresponding ground transmission station pursuant to Ordinance 86.

     On May 31, 1996, the Ministry of Communications  presented Ordinance No. 23
("Ordinance 23") for a 30-day period of public review and comment.  Ordinance 23
is a proposed  general  rule which  would  govern the  granting  of  licenses to
provide   satellite  pay   television   services.   Under  the  proposed   rule,
licenseholders  would be required  to be legal  entities at least 51.0% of whose
voting capital is owned by (a) Brazilian  citizens who are either born in Brazil
or naturalized  for at least ten years or (b) a corporation  organized in Brazil
and  controlled  by  Brazilian  citizens  who  are  either  born  in  Brazil  or
naturalized for at least ten years. Furthermore, licenses would be granted for a
renewable period of ten years, and could be transferred only with prior approval
of the  Ministry  of  Communications.  If issued  as  currently  drafted,  these
proposed  rules  will not have a  material  impact  on the  Ku-Band  and  C-Band
operations of TVA.

Employees

     TVA had 1,677  employees as of December 31, 1996. TVA utilizes  third-party
contract  employees in connection with the  construction of its broadcast system
network and certain other activities.  Substantially all of the employees of TVA
are  represented  by unions.  TVA believes  that it has good  employee and labor
relations.



                                       25
<PAGE>


ITEM 2. DESCRIPTION OF PROPERTY

     The Company owns most of the assets essential to its operations.  The major
fixed  assets of the Company are coaxial and fiber optic cable,  converters  for
subscribers'  homes,   electronic   transmission,   receiving,   processing  and
distribution  equipment,  microwave  equipment and antennae.  The Company leases
certain distribution  facilities from third parties,  including space on utility
poles,  roof  rights  and land  leases for the  placement  of certain of its hub
sights and head ends and space for other  portions of its  distribution  system.
The Company leases its offices from third parties, with the exception of certain
offices of TVA Sul,  located in Curitiba,  State of Parana,  and the offices and
uplink facility for Galaxy Brasil,  located in Tambore,  Sao Paulo State, all of
which are  owned by the  Company.  The  Company  also  owns its data  processing
facilities and test equipment.

ITEM 3. LEGAL PROCEEDINGS

     The  Company  is party to certain  legal  actions  arising in the  ordinary
course of its business which, individually or in the aggregate, are not expected
to have a material  adverse  effect on the  combined  financial  position of the
Company.  As of December 31, 1996, the Company had reserved  approximately  $5.0
million  as  contingent   liabilities  in  connection  with  certain  litigation
contingencies,  including  a number of claims by persons  arising in  connection
with the termination of their employment (approximately $1.8 million) and claims
relating to the payment by the  Company of certain  taxes on imported  materials
(approximately  $2.4 million).  See Note 19 to the Tevecap Financial  Statements
included  herein.   As  a  result  of  an  agreement  between  the  Company  and
governmental  authorities regarding an installment payment schedule for one such
tax (the Imposto sobre  Circulacao de  Mercadorias e Servicos,  or "ICMS"),  the
Company reduced its reserve for litigation  contingencies to approximately  $5.0
million as of December 31, 1996,  which amount  includes a provision  for claims
described in the following paragraph.

     The Company's operating companies are currently defending a lawsuit brought
by the Escritorio Central de Arrecadacao e Distribuicao  (Central Collection and
Distribution  Office,  or "ECAD"),  a  government-created  entity  authorized to
enforce  copyright laws relating to musical works.  ECAD filed a lawsuit in 1993
against  all  pay-television  operators  in Brazil  seeking to  collect  royalty
payments in connection with musical works  broadcast by the operators.  The suit
was filed against TVA in the Tribunal de Justica do Estado de Sao Paulo,  the 16
Vara Civil do Estado de Sao Paulo,  the  Tribunal de Justica do Estado do Parana
and the  Tribunal  de  Justica do Estado de Santa  Catarina.  The suit was filed
against TV Filme in the Tribunal de Justica do Estado de Goias,  the Tribunal de
Justica do Distrito  Federal  and the  Tribunal de Justica do Estado do Para and
against  Canbras TVA in the Tribunal de Justica do Estado de Sao Paulo.  ECAD is
seeking a judgment award of 2.55% of all past and present revenues  generated by
the  operators.  The Company and all such cable  operators  are currently in the
process of responding to this suit.  Although the Company  intends to vigorously
defend this suit,  the loss of such suit may have a material  adverse  effect on
the consolidated  financial position of the Company. Based on agreements reached
by ECAD with other Brazilian television operators,  however, management believes
that it can reach a negotiated settlement to this suit whereby the Company would
make monthly payments to ECAD in an amount  significantly lower than that sought
by ECAD.  As of  December  31,  1996,  the Company  had  reserved  approximately
$770,000 for claims related to the ECAD suit.



                                       26
<PAGE>

ITEM 4. CONTROL OF REGISTRANT

     Tevecap  has one class of capital  stock,  common  shares,  authorized  and
outstanding. As of December 31, 1996, 196,712,855 common shares were outstanding
representing  authorized  social capital of  R$366,000,715.  The following table
sets forth,  as of December  31,  1996,  information  regarding  the  beneficial
ownership of Tevecap's common shares:

<TABLE>
<CAPTION>

                                                                                Number of Common
Shareholder                                                                       Shares Owned            Percentage
-----------                                                                       ------------            ----------
<S>                                                                               <C>                        <C>   
Abril S.A...........................................................              111,075,318                56.47%
Falcon International Communications (Bermuda) L.P.(a)...............               27,930,827                14.20
Hearst/ABC Video Services II(b).....................................               34,714,031                17.65
Cable Participacoes Ltda.(b)........................................                4,628,536                 2.35
Chase Manhattan International Finance Ltd.(c).......................               18,364,122                 9.33
All directors and executive officers as a group.....................                       21             --(d)
</TABLE>


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

(a)  A subsidiary of Falcon International Communications L.L.C.

(b)  Each of Hearst and ABC indirectly  holds a 50.0% equity interest in each of
     Hearst/ABC Video Services II and Cable Participacoes Ltda.

(c)  11,496,329  and  6,867,793  of  the  shares  beneficially  owned  by  Chase
     Manhattan  International  Finance  Ltd.  ("CMIF") are held of record by two
     wholly-owned  subsidiaries of CMIF (the "Chase Parties"). In December 1995,
     CMIF sold a portion  of the shares  beneficially  owned by it to Hearst and
     ABC.

(d)  Less than 1.0%.


     The  relations  among  the  Company's  equity  holders  are  governed  by a
Stockholders Agreement (the "Stockholders  Agreement"),  dated December 6, 1995,
among Tevecap, Robert Civita, Abril, the Chase Parties, Falcon International and
HABC II and CPL (together with HABC II,  "Hearst/ABC  Parties" and together with
Robert  Civita,  Abril,  the  Chase  Parties  and  Falcon   International,   the
"Stockholders").  The  following  describes  certain  terms of the  Stockholders
Agreement, as amended.

     Transfer of Shares. Any Stockholder  desiring to transfer shares of capital
stock to any third party,  including another Stockholder,  must first offer such
shares to Tevecap  and all of the other  Stockholders.  Tevecap has the right to
determine  first  whether to  purchase  such  shares;  if Tevecap  elects not to
exercise its right to purchase the shares,  the other  Stockholders may elect to
purchase such shares.  If Tevecap or the other  Stockholders  decide to purchase
the offered shares, all of such shares must be purchased. If neither Tevecap nor
the  other  Stockholders  offer  to  purchase  all of the  offered  shares,  the
Stockholder  desiring  to sell such  shares may sell the  shares to any  person,
provided  that (i) all of the shares are sold  simultaneously  within six months
after the decision by Tevecap and the  Stockholders  not to purchase the shares,
(ii)  Tevecap  has not  determined  that the person  making  such  purchase is a
stockholder of undesirable  character,  lacks  necessary  financial  capacity or
competes  with the Company,  and (iii) the price for sale to such third party is
at least 90.0% of the price  offered to the Company and the other  Stockholders.
The  provisions  regarding  transfers  of shares do not  apply to  transfers  to
certain  affiliates of the  Stockholders.  In addition,  the  Stockholders  have
preference  over all other persons or entities to subscribe for new issuances of
capital  stock by the  Company in  proportion  to their  existing  ownership  of
capital stock.

     Event Put  Options.  Upon the  occurrence  of certain  defined  "triggering
events" each of the Stockholders,  other than Abril, may demand that Tevecap buy
all or a  portion  of the  shares  of  capital  stock  of  Tevecap  held by such
Stockholder,  unless the shares of capital  stock held by such  Stockholder  are
publicly  registered,  listed or traded  (collectively  referred to as an "Event
Put").  The triggering  events are: (i) the amount of capital stock held by such
Stockholder exceeds the amount allowed under any legal restriction to which such
Stockholder may be subject ("Regulatory Put"); (ii) a breach without cure within
a designated period by Robert Civita, Abril, any of the 


                                       27
<PAGE>


respective   affiliates   of  Robert   Civita  or  Abril  or   Tevecap   of  any
representation,  warranty,  covenant  or  duty  made  or  owed  pursuant  to the
Stockholders  Agreement,  the Stock Purchase  Agreement,  dated August 25, 1995,
among Robert Civita, Abril, the Chase Parties, and certain other parties, or the
Stock Purchase Agreement,  dated December 6, 1995, among Tevecap, Robert Civita,
Abril, HABC Parties,  the Chase Parties,  Falcon International and certain other
parties;  (iii) a breach without cure within a designated period by Abril of the
Abril Credit Facility;  (iv) Robert Civita ceases to directly or indirectly hold
without the approval of the Stockholders 31.258% of the capital stock and voting
capital  stock of Tevecap or he ceases to control the voting  capital stock held
by his  affiliates  representing  50% or more of the  voting  capital  stock  of
Tevecap;  (v) the Service  Agreement,  dated July 22,  1994,  as amended,  among
Tevecap,  Televisao Show Time Ltda.  ("TV Show Time"),  TVA Brasil  Radioenlaces
Ltda. ("TVA Brasil") and Abril,  each of which holds certain  licenses  covering
certain  operations of TVA, ceases to be valid or effective or TV Show Time, TVA
Brasil or Abril is  liquidated or dissolved or files  voluntarily,  or has filed
against it involuntarily, any petition in bankruptcy or (vi) another Stockholder
exercises  an Event Put,  other than a  Regulatory  Put. The price to be paid in
connection with an Event Put is set at fair market value determined by appraisal
or by a multiple of Tevecap's  most recent  quarterly  earnings.  The Indenture,
however,  contains  restrictions on the ability of Tevecap to purchase shares of
its capital stock. See "Description of Notes--Certain  Covenants--Limitation  on
Restricted  Payments."  Accordingly,  the parties to the Stockholders  Agreement
have agreed to amend the Stockholders Agreement prior to the Offering to provide
that if the terms of the Indenture  prohibit the Company from purchasing  shares
that are subject to an Event Put ("Event Put Shares"),  in whole or in part, the
Company  shall not be obligated  to purchase  such shares to the extent it is so
restricted.  However, in such event, the Company shall,  subject to the terms of
the  Indenture,  have the  obligation to issue shares of preferred  stock of the
Company  ("Special  Preferred  Shares") should the Tevecap  Stockholder elect to
convert  Event Put Shares to Special  Preferred  Shares.  The holders of Special
Preferred Shares will be entitled to dividends  required by law and a cumulative
dividend  equal to LIBOR plus a 4.0% margin,  provided  that if the terms of the
Indenture prohibit the payment of dividends on the Special Preferred Shares, the
Company shall not be obligated to make such  dividend  payments to the extent so
restricted. However, under the terms of the Special Preferred Shares such unpaid
dividends  shall  cumulate and will be paid in full when  permissible  under the
Indenture  or when  the  Indenture  no  longer  restricts  the  payment  of such
dividends.  After the payment of all dividends on the Special  Preferred Shares,
the Company  must use any  remaining  profit or reserve to purchase  the largest
number of Event Put Shares and Special Preferred  Shares,  provided that, if the
terms of the Indenture  prohibit the purchase of such shares,  the Company shall
not be  obligated  to make such  purchases  until  permitted by the terms of the
Indenture.

     Time Put Options.  In  addition,  pursuant to the  Stockholders  Agreement,
Falcon  International  may demand  that  Tevecap  buy all or any  portion of the
shares of capital stock of Tevecap held by Falcon  International  if such shares
are not publicly registered, listed or traded by September 22, 2002 (the "Falcon
Time Put").  The price to be paid in connection with the Falcon Time Put is fair
market  value  determined  in the  same  manner  as an  Event  Put.  If  Tevecap
determines  that the terms of the  Indenture  prohibit it from  purchasing  such
shares, Tevecap may, subject to the terms of the Indenture, delay the payment of
such purchase price with three annual payments ("Put Annual  Payments") or issue
promissory  notes  denominated  in US dollars for the amount of such price ("Put
Promissory  Notes").  The Put  Promissory  Notes would  mature three years after
issuance with interest  payments due quarterly in arrears.  The interest rate on
the Put  Promissory  Notes would be equal to the rate  applicable to US Treasury
obligations of similar maturity plus a margin to be negotiated, with the parties
taking into  account the risks  associated  with the type of obligor,  Tevecap's
creditworthiness  and  investments  in  Brazil.  Under  the  provisions  of  the
Stockholders   Agreement,  as  amended,  while  the  Put  Promissory  Notes  are
outstanding,  Tevecap  may not  pay any  dividends  or make  distributions  with
respect to its capital stock,  including the Special  Preferred  Shares,  should
they exist.  To the extent  dividends,  distributions  or payment sunder the Put
Promissory Notes may be made under the Indenture, payments must be made first to
satisfy the obligations under the outstanding Put Promissory Notes. If the terms
of the Indenture  prohibit the Company from making the Put Annual Payments,  the
Company  shall not be  required to make such  payment,  but shall be required to
deliver Put Promissory  Notes in the principal amount of the affected Put Annual
Payments. If the terms of Indenture prohibit the Company from making an interest
payment  required  under  any Put  Promissory  Note,  the  Company  shall not be
required to make such payment at such time, provided that any accrued and unpaid
interest  shall  accumulate  and interest on such unpaid  amount shall  


                                       28
<PAGE>


compound  quarterly  and the Company  shall make payments of interest as soon as
such payment is no longer restricted under the Indenture.  Pursuant to the terms
of  the  proposed  amendment  to  the  Stockholders  Agreement,  payment  of the
principal and interest on the Put Promissory  Notes would be subordinated to the
prior payment in full of the Notes.

     Registration Rights. At any time after December 6, 1997, the Chase Parties,
considered together,  the Hearst/ABC Parties or Falcon International may request
that the Company effect the registration of any or all of the capital stock held
by such Stockholder.  However,  the Company is not obligated to effect more than
one registration  requested by a Stockholder in any 12 month period or more than
three registrations requested by a Stockholder in total. Also, the capital stock
that is the  subject of the  registration  demand  must be of a certain  minimum
amount.  In addition,  Tevecap must offer each Stockholder  other than Abril the
opportunity  to  register  capital  stock held by such  Stockholder,  subject to
standard  reductions in amount such  Stockholder  may register as recommended by
the managing underwriter.  Tevecap is obligated to pay all registration expenses
other than underwriting discounts and commissions or transfer taxes, and Tevecap
is only  obligated  to pay for the fees and  expenses of  Tevecap's  counsel and
accountants.

     Board of Directors  and Advisory  Board.  Tevecap is governed by a board of
directors with 11 members.  Under the Stockholders  Agreement,  Abril designates
six members,  Falcon  International  designates  two members,  the Chase Parties
together designate one member, and Hearst/ABC Parties designates 2 members.  The
affirmative vote of members of the board representing the Chase Parties,  Falcon
International and Hearst/ABC  Parties is required for:  acquisition of ownership
interests in other companies;  acquisition or liens on equity in other companies
or liens on assets  other than in  ordinary  course and in  aggregate  less than
$500,000;  incurrence of  indebtedness  of less than one year maturity and in an
amount greater than  $1,000,000;  incurrence of indebtedness of greater than one
year  maturity  except  trade  debt  and in an  aggregate  amount  of less  than
$500,000;  loans on advance  payments;  non-financial  guarantees  in  aggregate
totaling more than $100,000;  transactions with affiliates; and modifications to
Service  Agreement.  Tevecap must get the approval of Hearst/ABC  Parties before
entering into contracts in excess of $1,000,000 in value and making any material
programming  decisions.  Tevecap must get the  approval of Falcon  International
before  entering into  contracts in excess of  $1,000,000.  Tevecap must get the
approval  of  each  of  Hearst/ABC   Parties,   the  Chase  Parties  and  Falcon
International  before any  corporate  restructuring  or any public  offering  of
securities of Tevecap.

     Required  Dividend.  Tevecap is required  by the terms of the  Stockholders
Agreement to pay annual dividends equal to the net cash flow of Tevecap or 25.0%
of the net  consolidated  profit  (as  defined  by  Brazilian  law) of  Tevecap.
However,  Tevecap  may delay the  payment  of such  dividends  to the extent the
payment of such  dividends is prohibited by the  Indenture,  and such  dividends
will accumulate and be payable to the extent allowed under the Indenture.


ITEM 5. NATURE OF TRADING MARKET

     The  Company's  outstanding  registered  securities  consist  solely of the
Company's 125/8% Senior Notes due 2004 that were registered under the Securities
Act pursuant to an Exchange  Offer which  expired on May 23,  1997.  There is no
formal trading market for such securities.


ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

     There are two legal foreign exchange markets in Brazil: the commercial rate
exchange market (the "Commercial  Market") and the floating rate exchange market
(the "Floating Market"). The Commercial Market is reserved primarily for foreign
trade  transactions and transactions  that generally require prior approval 



                                       29
<PAGE>


from Brazilian monetary authorities, such as the purchase and sale of registered
investments by foreign persons and related  remittances of funds abroad, such as
a repurchase by the Company of the Notes.  Purchases of foreign  exchange in the
Commercial  Market may be carried out only  through a financial  institution  in
Brazil  authorized  to buy and sell  currency in that  market.  The  "Commercial
Market Rate" is the  commercial  selling  rate for  Brazilian  currency  into US
dollars,  as reported by the Central Bank. The "Floating  Market Rate" generally
applies to  transactions  to which the  Commercial  Market  Rate does not apply.
Prior to the implementation of the Real Plan, the Commercial Market Rate and the
Floating Market Rate differed  significantly at times. Since the introduction of
the real, the two rates have not differed  significantly,  although there can be
no  assurance  that there will not be  significant  differences  between the two
rates in the future.  Both the  Commercial  Market Rate and the Floating  Market
Rate are reported by the Central Bank on a daily basis.

     Both the  Commercial  Market Rate and the  Floating  Market Rate are freely
negotiated  but are strongly  influenced  by the Central Bank,  which  typically
intervened in the Commercial  Market,  prior to the  implementation  of the Real
Plan, in order to control  fluctuations and to regulate  disparities between the
Commercial Market Rate and the Floating Market Rate. After implementation of the
Real Plan, the Central Bank allowed the real to float with minimal intervention.
However,  as described  below,  on March 6, 1995, the Central Bank announced its
intention  to  intervene in the foreign  exchange  markets and has  subsequently
intervened in the markets and taken other actions affecting such markets.

     On August 1, 1993,  the cruzeiro  real replaced the cruzeiro as the unit of
Brazilian  currency,  with each  cruzeiro  real being equal to 1,000  cruzeiros.
Beginning in December 1993, the Brazilian Government began implementation of the
Real Plan,  which was intended to reduce  inflation.  On July 1, 1994,  the real
replaced the cruzeiro  real as the unit of  Brazilian  currency,  with each real
being equal to 2,750  cruzeiros  reais and having an exchange  rate of R$1.00 to
US$1.00.  According to Brazilian  law,  the issuance of reais is  controlled  by
quantitative limits backed by a corresponding  amount of US dollars in reserves,
but the Brazilian Government subsequently expanded those quantitative limits and
allowed  the real to  float,  with  parity  between  the real and the US  dollar
(R$1.00 to US$1.00) as a ceiling.

     On March 6, 1995, the Central Bank announced that it would intervene in the
market and buy or sell US dollars,  establishing  a band (faixa de flutuacao) in
which the exchange rate between the real and the US dollar could fluctuate.  The
Central  Bank  initially  set the band with a floor of R$0.86 per  US$1.00 and a
ceiling of R$0.90 per US$1.00 and provided that, from and after May 2, 1995, the
band would fluctuate between R$0.86 and R$0.98 per US$1.00.  Shortly thereafter,
the Central Bank issued a new directive providing that the band would be between
R$0.88 and R$0.93 per US$1.00. On June 22, 1995, the Central Bank issued another
directive providing that the band would be between R$0.91 and R$0.99 per US$1.00
and subsequently reset the band on January 30, 1996 to between R$0.97 and R$1.06
per  US$1.00.  Upon  resetting  the band on January 30,  1996,  the Central Bank
adjusted the exchange rate within such band on a number of occasions,  generally
in increments of R$.001, by means of buying and selling US dollars in electronic
auctions.  On February 18, 1997, the band was reset by the Central Bank to float
between R$1.05 and R$1.14 per US$1.00.  On April 7, 1997, the Commercial  Market
Rate was R$1.06 per US$1.00. There can be no assurance that the band will not be
altered in the future.



                                       30
<PAGE>



     The following  table sets forth the Commercial  Market Rate for the periods
indicated.


                             Exchange Rates of Brazilian Currency per US$1.00(a)
                             ---------------------------------------------------

Period(b)                      Low             High        Average    Period End
---------                      ---             ----        -------    ----------

1991     ..................  0.000062        0.000389     0.000149    0.000389
1992     ..................  0.000393        0.004505     0.001655    0.004505
1993     ..................  0.004557        0.118584     0.032809    0.118584
1994     ..................  0.120444        0.940000     0.645000    0.846000
1995     ..................  0.834000        0.972600     0.917742    0.972500
1996     ..................  0.972600        1.040700     1.005000    1.039400

(a)  The information  set forth in this table is based on information  published
     by the Central Bank.

(b)  The historical  information  from 1991 through 1994  represents the nominal
     Brazilian currency expressed in current reais adjusted for depreciation and
     currency substitution. The exchange rates have been translated at the rates
     of exchange at the time the successor currencies took effect.


     Brazilian law provides that,  whenever there is, or is a serious risk of, a
material  imbalance in Brazil's  balance of payments,  the Brazilian  Government
may, for a limited  period of time,  impose  restrictions  on the  remittance to
foreign  investors of the proceeds of their investments in Brazil, as it did for
approximately six months in 1989 and early 1990, as well as on the conversion of
the Brazilian currency into foreign currencies.

     The Brazilian  Government  currently  restricts the ability of Brazilian or
foreign  persons or entities to convert  Brazilian  currency  into US dollars or
other currencies other than in connection with certain authorized  transactions.
The can be no assurance  that the  Brazilian  Government  will not in the future
impose more restrictive foreign exchange  regulations that would have the effect
of  eliminating  or restricting  the Company's  access to foreign  currency that
would be required to meet its foreign currency  obligations,  including payments
under the 12-5/8%  Senior Notes due 2004 issued by Tevecap in November 1996. The
likelihood of the imposition of such  restrictions  by the Brazilian  Government
may be affected by, among other factors, the extent of Brazil's foreign currency
reserves,  the availability of sufficient foreign currency on the date a payment
is due, the size of Brazil's  debt service  burden  relative to the economy as a
whole,  Brazil's  policy towards the  International  Monetary Fund and political
constraints to which Brazil may be subject.


ITEM 7. TAXATION

Brazil

     The  following  is  a  summary  of  the  material   Brazilian   income  tax
consequences  to Tevecap in connection  with the sale and repayment of Tevecap's
12 5/8% Senior Notes due 2004 (the "Notes")  including any interest thereon) and
to beneficial owners of the Notes that are non-residents of Brazil in connection
with the purchase,  ownership  and  disposition  of such Notes.  This summary is
limited to Tevecap and to non-residents of Brazil which acquire the Notes at the
original  issue price,  and does not address  investors who purchase  Notes at a
premium or market discount. In addition,  this summary is based on the Brazilian
tax  regulations as presently in effect and does not take into account  possible
future changes in such tax laws.

     Individuals domiciled in Brazil and Brazilian companies are taxed in Brazil
on the basis of their  worldwide  income (which  includes  earnings of Brazilian
companies'  foreign  subsidiaries,  branches  and  affiliates).  The earnings of
branches of foreign companies and non- Brazilian  residents in general are taxed
in Brazil only when derived from Brazilian sources.  Interest, fees, commissions
and any other  income  (which for the  purposes of this  paragraph  


                                       31
<PAGE>


includes  any deemed  income on the  difference  between  the issue price of the
Notes and the price at which the Notes  are  redeemed)  payable  by a  Brazilian
obligor to an  individual,  company,  entity,  trust or  organization  domiciled
outside  Brazil is considered  derived from  Brazilian  sources and is therefore
subject to income tax  withheld  at the  source.  Brazilian  tax laws  expressly
authorize  the  paying  source to pay the income or  earnings  net of taxes and,
therefore,  to assume the cost of the applicable tax. The rate of withholding is
15.0% or such other lower rate as is provided  for in an  applicable  tax treaty
between Brazil and such other country where the recipient of the payment has its
domicile. Notwithstanding the foregoing, the applicable withholding tax rate for
negotiable  instruments  such as the  Notes was  reduced  to zero,  pursuant  to
Resolutions  1853 of July 31,  1991 and 644 of October  22,  1980 of the Central
Bank, subject to Central Bank Circular 2661 of February 8, 1996, which restricts
such  withholding  tax  reductions  to negotiable  instruments  having a minimum
maturity of 96 months. As a result, since the Notes have an original maturity of
96 months,  such  reduction  will apply to payments of interest and other income
with respect to the Notes.

     If,  however,  any  Note is  redeemed  prior to  November  26,  2004,  such
reduction  will not apply and,  therefore,  upon such  redemption  the Brazilian
withholding tax will be imposed on the amount of interest,  fees and commissions
paid on such Notes from the date of issue through the date of redemption.  Based
on the advice of its Brazilian tax counsel, Tevecap believes and intends to take
the position for tax  reporting  purposes  that,  in the event of any such early
redemption to which such  withholding  tax applies,  so long as the paying agent
through  which such  payment  is made is  located  in Japan and  payment to such
paying agent  discharges the  obligations of Tevecap to make payments in respect
of the  Notes,  interest  and other  income  with  respect  to the Notes will be
subject to Brazilian  withholding tax at a rate of 12.5% under the tax treaty in
effect  between  Brazil and Japan.  In any event,  under the terms of the Notes,
Tevecap would be required to gross up Noteholders for any Brazilian  withholding
tax, subject to customary exceptions.  Tevecap has the right to redeem the Notes
at par in the event that it is  required to gross up for  Brazilian  withholding
tax imposed at a rate in excess of 15.0%.

     Any earnings or capital gains  resulting  from the sale (whether  inside or
outside Brazil) of any Notes by a non-resident of Brazil to another non-resident
of Brazil are not subject to tax in Brazil.  Earnings or capital gains resulting
from the sale (whether  inside or outside Brazil) of any Notes by a non-resident
of Brazil to a  resident  of Brazil  should  not be  subject  to tax in  Brazil,
although the matter is not free from doubt.

     On February 8, 1996,  the Brazilian  Federal  Government  issued Decree No.
1,815, which imposed a tax on Brazilian issuers with respect to foreign exchange
transactions  ("IOF  tax")  related  to the  entering  into  Brazil of  proceeds
resulting  from foreign loans  (including  the issue of  securities  such as the
Notes).  The rate of IOF tax paid by the Company with respect to the issuance of
the Notes was zero %. Decree No. 1,815 was revoked by Decree No. 2,219 of May 2,
1997 which currently regulates the IOF tax. The IOF tax rate was reduced to zero
upon the adoption of Ordinance No. 85 on April 24, 1997. However,  under Law No.
8.894 dated June 21, 1994, such tax rate may be increased up to 25%.

     On  August  15,  1996,  the  Brazilian  Congress  approved   Constitutional
Amendment No. 12 creating a new temporary tax, the Contribuicao Provisoria sobre
Movimentacao  Financeira  ("CPMF").  Based on such  Amendment,  Law No. 9.311 of
October 24, 1996 was enacted, creating the CPMF tax. Under Law No. 9.311/96, all
financial debit and money transfers  through Brazilian bank accounts effected as
from January 23, 1997 until  February 22, 1998,  including  payments made by the
Company with respect to the Notes, will be subject to the assessment of the CPMF
tax at the rate of 0.2%.

     There is no stamp,  transfer or other similar tax in Brazil with respect to
the  transfer,  assignment  or  sale  of  any  debt  instrument  outside  Brazil
(including the Notes).




                                       32
<PAGE>

United States

     The following is a summary of the material United States Federal income tax
consequences to a beneficial owner of the Notes that is a citizen or resident of
the  United  States,  a  corporation,  partnership  or other  entity  created or
organized  in or under the laws of the United  States or any State  thereof,  an
estate the income of which is subject to United States Federal  income  taxation
regardless  of its source or a trust for which a court within the United  States
is able to exercise primary  supervision over its  administration  and for which
one or more U.S.  fiduciaries  have the  authority  to control all  substanntive
decisions,  as well as other  persons  subject to United States  Federal  income
taxation  on a net  income  basis in  respect  of the  purchase,  ownership  and
disposition of a Note ("US Holders"). Such tax treatment may vary depending upon
the  particular  situation of a US Holder.  This summary does not discuss all of
the tax consequences  that may be relevant to certain types of investors subject
to special  treatment  under the United States  Federal income tax laws (such as
individual   retirement  accounts  and  other  tax  deferred  accounts,   banks,
securities broker-dealers,  life insurance companies,  tax-exempt organizations,
foreign persons, persons whose "functional currency" is other than the US dollar
or persons that hold Notes as part of a "straddle" or  "conversion  transaction"
or otherwise as part of a "synthetic  asset") and is limited to investors  which
hold Notes as capital assets. In addition, this summary is limited to US Holders
that acquire the Notes at their issue price and does not address  investors that
purchase  Notes at a premium or market  discount.  This  summary is based on the
Internal  Revenue Code of 1986,  as amended (the "Code"),  final,  temporary and
proposed Treasury regulations  thereunder (the "Regulations"),  revenue rulings,
court cases,  and other legal  authorities as now in effect (or proposed) and as
currently  interpreted,  and does not take into account possible changes in such
tax laws or other legal authorities or such  interpretations.  No rulings on any
of the issues  discussed  below will be sought from the United  States  Internal
Revenue Service (the "IRS").

     PROSPECTIVE  PURCHASERS  OF THE  NOTES ARE  ADVISED  TO  CONSULT  THEIR TAX
ADVISERS  AS TO THE  CONSEQUENCES  OF A PURCHASE  AND SALE OF NOTES,  INCLUDING,
WITHOUT  LIMITATION,  (I) THE  APPLICABILITY  AND EFFECT OF ANY STATE,  LOCAL OR
NON-US TAX LAWS TO WHICH THEY MAY BE SUBJECT, AND OF ANY POSSIBLE LEGISLATIVE OR
ADMINISTRATIVE  CHANGES  IN LAW,  (II) THE  UNITED  STATES  FEDERAL  INCOME  TAX
CONSEQUENCES OF THE POSSIBLE  DEDUCTION BY THE ISSUER OF BRAZILIAN TAXES (AND OF
THE PAYMENT BY THE ISSUER OF  ADDITIONAL  AMOUNTS  WITH  RESPECT  THERETO)  FROM
PAYMENTS ON THE NOTES,  (III) THE  AVAILABILITY FOR UNITED STATES FEDERAL INCOME
TAX PURPOSES OF A CREDIT OR DEDUCTION  FOR ANY  BRAZILIAN  TAXES SO DEDUCTED AND
(IV) THE  CONSEQUENCES OF PURCHASING THE NOTES AT A PRICE OTHER THAN THEIR ISSUE
PRICE.

Interest on the Notes

     Interest on the Notes will be taxable to a US Holder as ordinary  income at
the time it accrues or is received in accordance  with the US Holder's method of
accounting for tax purposes.  The amount includible in the income of a US Holder
will be the gross amount of interest,  including any Additional Amounts, if any,
payable to holders of Notes (i.e.,  the amount before deduction of any Brazilian
withholding taxes).

Disposition of a Note

     Generally, any sale, redemption or other taxable disposition of a Note by a
US Holder will result in taxable  gain or loss equal to the  difference  between
(1) the sum of the amount of cash and the fair  market  value of other  property
received  with respect to such taxable sale,  redemption  or other  distribution
(other than consideration  attributable to accrued interest not previously taken
into account, which consideration would be treated as interest received) and (2)
the US  Holder's  tax basis in the  Note.  Any gain or loss upon a sale or other
disposition  of a Note will be capital  gain or loss (which will be long-term if
the Note is held for more than one year).



                                       33
<PAGE>


Effect of Brazilian Withholding Taxes

     It is believed  that payments with respect to a Note will not be subject to
Brazilian  withholding  tax unless the Note is redeemed  prior to  November  26,
2004. See "--Brazil." In the case of any Note which is so redeemed,  withholding
taxes in respect  of  interest  previously  paid may be imposed by Brazil at the
time of  redemption.  Any Brazilian tax withheld  generally will be treated as a
foreign  income  tax that US  Holders  may elect to deduct  in  computing  their
taxable income or, subject to the limitations on foreign tax credits  generally,
to credit  against their United States  Federal  income tax  liability.  No such
deduction or credit will be  available to the extent  Brazil pays a subsidy to a
US  Holder,  a related  person or  Tevecap,  the  amount of which is  determined
(directly or  indirectly)  by reference  to the amount of the  withholding  tax.
While  Brazil  does not have a program  or policy of paying  such  subsidies  at
present, it has had programs of that nature in the past and could implement such
programs again in the future.  For purposes of determining a US Holder's  United
States  foreign tax credit,  the gain or loss on the sale,  redemption  or other
taxable  disposition  of a Note will generally  constitute  United States source
income.  Interest  (including  any Additional  Amounts  payable by Tevecap) will
generally  constitute foreign source passive income or financial services income
for United States foreign tax credit  purposes.  However,  if a Note is redeemed
prior to November 26, 2004, and payments with respect to the Note are subject to
Brazilian  withholding  tax  imposed  at a rate of 5.0% or more,  the IRS  might
retroactively  treat interest paid with respect to the Note as high  withholding
tax  interest.  In any event,  because the amount of foreign taxes for which the
foreign tax credit may be taken for the taxable year is generally  limited to an
amount equal to the US Holder's United States Federal income tax rate multiplied
by its  foreign  source  income  for the  taxable  year,  a US  Holder  may have
insufficient  foreign  source  income to utilize  fully any  foreign  tax credit
attributable  to such  Brazilian  withholding  taxes  (but such US Holder may be
entitled  to utilize the foreign  tax credit  attributable  to such  withholding
taxes for the holders'  previous two or succeeding  five taxable years,  or such
withholding  taxes may instead be deductible by the US Holder).  A US Holder may
be required to provide the IRS with a certified  copy of the receipt  evidencing
payment of withholding  tax imposed in respect of payments on the Notes in order
to claim a foreign tax credit in respect of such withholding tax.

Information Reporting and Backup Withholding

     For each  calendar  year in  which  the  Notes  are  outstanding,  each DTC
participant or indirect participant holding an interest in a Note on behalf of a
US Holder  and each  paying  agent  making  payments  in  respect of a Note will
generally  be required to provide the IRS with  certain  information,  including
such US Holder's name, address and taxpayer  identification  number (either such
US Holder's Social Security number or its employer identification number, as the
case may be), and the aggregate amount of interest and principal paid to such US
Holder during the calendar year. These reporting  requirements,  however, do not
apply with  respect to certain US Holders,  including  corporations,  securities
dealers,  other  financial  institutions,  tax-exempt  organizations,  qualified
pension and profit sharing trusts, individual retirement accounts.

     In the event that a US Holder fails to establish  its  exemption  from such
information reporting  requirements or is subject to the reporting  requirements
described above and fails to supply its correct taxpayer  identification  number
in the manner required by applicable law, or underreports its tax liability, the
direct or indirect DTC  participant  holding such  interest on behalf of such US
Holder or paying agent  making  payments in respect of a Note may be required to
"backup" withhold a tax equal to 31.0% of each payment of interest and principal
with respect to the Notes. This backup  withholding tax is not an additional tax
and may be credited  against the US Holder's  United States  Federal  income tax
liability if the required information is furnished to the IRS.


ITEM 8. SELECTED FINANCIAL DATA

     The selected  financial  data as of December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996 have been derived from,
and  should  be read in  conjunction  with,  the  Tevecap  Financial  


                                       34
<PAGE>

Statements  included in this Annual  Report.  The selected  financial data as of
December  31,  1994,  1993 and 1992 and for each of the two years in the  period
ended December 31, 1993 have been derived from the audited financial  statements
of the Company that are not included elsewhere in this Annual Report.

     As required by  Brazilian  law,  and in  accordance  with local  accounting
practices,  the financial records of Tevecap and its subsidiaries are maintained
in  the  applicable  Brazilian  currency  (the  real).  However,  the  Financial
Statements  are  presented  in US  dollars.  In order to prepare  the  Financial
Statements,  the Company's  accounts have been  translated  from the  applicable
Brazilian currency,  on the basis described in Note 2.3 to the Tevecap Financial
Statements  included in this Annual Report.  Because of the differences  between
the  evolution  of the rates of inflation in Brazil and the changes in the rates
of  devaluation,  amounts  presented  in US dollars  may show  distortions  when
compared on a period-to-period basis.

<TABLE>
<CAPTION>



                                                                                           Year Ended December 31,
                                                                 -------------------------------------------------------------------

                                                                     1992           1993        1994          1995           1996
                                                                  ---------     ---------     ---------     ---------     ---------
                                                                         (Dollars in Thousands, Except Selected Operating Data)
Statements of Operating Data:
Gross Revenues
<S>                                                               <C>           <C>           <C>           <C>           <C>      
Monthly subscriptions ........................................    $   7,070     $  12,544     $  27,976     $  62,496     $ 123,020
  Installation ...............................................        1,857         4,350         6,997        26,045        61,717
  Indirect programming (a) ...................................          512           530         1,626         2,866        11,377
  Other (b) ..................................................        1,322         2,468         7,173        10,603        15,724
  Revenue taxes (c) ..........................................         (305)         (371)         (872)       (7,506)      (13,747)
                                                                  ---------     ---------     ---------     ---------     ---------
Total net revenue ............................................       10,456        19,521        42,900        94,504       198,091
                                                                  ---------     ---------     ---------     ---------     ---------
Direct operating expenses (d) ................................       32,905        29,779        28,659        62,026       112,297
Selling, general and administrative expenses .................       17,834        19,957        24,370        46,902        81,455
Depreciation and amortization ................................        2,704         4,813         6,177        13,268        28,216
Allowance for inventory obsolescence .........................         --            --            --            --           2,250
                                                                  ---------     ---------     ---------     ---------     ---------
Total operating expenses .....................................       53,443        54,549        59,206       122,196       224,218
                                                                  ---------     ---------     ---------     ---------     ---------
Operating loss ...............................................      (42,987)      (35,028)      (16,306)      (27,692)      (26,127)
Non operating expenses
  Interest expense ...........................................      (13,538)       (8,492)      (16,413)      (17,745)      (17,520)
  Equity in income (losses) of affiliates (e) ................         --            --             383        (3,672)       (8,532)
  Other nonoperating income, net (f) .........................        2,232         5,892        20,339         8,039         4,443
  Income tax expense .........................................         --            --            --            --            (156)
                                                                  ---------     ---------     ---------     ---------     ---------
Net loss .....................................................    $  54,293     $ (37,628)    $ (11,997)    $ (41,070)    $ (47,892)
                                                                  =========     =========     =========     =========     =========
Other Data:
EBITDA-TV Group (g) ..........................................    $ (40,283)    $ (30,215)    $ (10,129)    $ (13,318)    $   8,991
EBITDA-Galaxy Brasil (g) .....................................         --            --            --          (1,106)       (4,652)
                                                                  ---------     ---------     ---------     ---------     ---------
EBITDA (g) ...................................................      (40,283)      (30,215)      (10,129)      (14,424)        4,339
Pro forma interest expense (h) ...............................         --            --            --          38,623        45,502
Purchase of fixed assets .....................................        7,627        11,379        22,369        93,029       125,612
Ratio of earnings to fixed charges (i) .......................         --            --            --            --            --
Cash Flow Data:
Cash provided by (used in) operating activities (j) ..........      (32,633)      (19,180)       (9,707)       22,989       (17,696)
Cash provided by (used in) investing activities ..............      (11,761)      (13,190)      (24,334)     (119,661)     (163,900)
Cash provided by (used in) financing activities ..............       44,088        32,348        38,666       116,229       262,193
Selected Operating Data:
Number of subscribers to owned systems (k) ...................       42,924        82,985       114,853       219,148       349,511
Average monthly revenue per Subscriber (l) ...................    $   18.64     $   21.30     $   27.80     $   33.24     $   39.15
Balance Sheet Data (at period end):
Cash and cash equivalents ....................................    $      41     $      19     $   4,644     $  24,201     $ 104,798
Property, plant and equipment ................................       29,561        35,859        51,426       131,266       233,593
Total assets .................................................       40,779        45,529        80,441       216,848       459,122
Loans from affiliated companies ..............................       42,577        89,769             0           586         2,721
Long-term liabilities ........................................       67,736        97,105         4,523         9,604       265,860
Redeemable common shares .....................................         --            --          19,754       149,534       164,910
Total shareholders equity ....................................      (54,483)      (92,111)       27,590       (18,260)      (81,528)

</TABLE>

     See accompanying Notes to Selected Historical Financial And Other Data

                                       35
<PAGE>


              Notes to Selected Historical Financial and Other Data

(a)  Represents  revenues received by the company for selling programming to the
     Independent Operators.

(b)  Includes Advertising and Other revenues.

(c)  Represents  various non-income based taxes paid on certain of the Company's
     gross revenue items with rates ranging from 2.65% to 7.65%.

(d)  Represents costs directly related to Monthly  subscriptions,  and a portion
     of Installation, Indirect programming and Other revenues.

(e)  Represents  the  Company's  pro rata share of the Net loss or income of its
     equity investment.

(f)  Includes  interest income,  Gain on issuance of shares by equity investees,
     Translation gain or loss, Other nonoperating  (expenses)  income,  net, and
     Minority interest. The amount for the year ended December 31, 1994 includes
     Interest income totaling  $21,806.  During that year, the Company  received
     capital contributions from stockholders which resulted in a surplus of cash
     invested during such period.

(g)  EBITDA  represents  the  sum  of  (i)  net  income  (loss),  plus,  without
     duplication (ii) income tax expense, (iii) interest expense (income),  net,
     (iv)  other   nonoperating   (expenses)   income,   net  (v)  depreciation,
     amortization  and all other  non-cash  charges,  less (vi)  non-cash  items
     increasing  net income  (loss) with the  exception  of  amortized  deferred
     sign-on and hookup fee revenue,  in each case determined in accordance with
     GAAP.  EBITDA-TV  Group and  EBITDA-Galaxy  represent  operating  loss plus
     depreciation and amortization. The term "TV Group" refers to the operations
     of TVA,  excluding the  operations of Galaxy  Brasil.  The TV Group,  which
     constitutes  the  operations  of TVA,  excluding  the  operations of Galaxy
     Brasil,  represents  the more mature  operations  of the group while Galaxy
     Brasil remains in a startup phase and has yet to collect material  revenues
     to offset the costs of  initiating  the  Ku-Band  service.  EBITDA has been
     presented  separately for the TV Group and Galaxy Brasil to take account of
     the different stages of development of these operations.

(h)  Represents  interest  expense  on a pro  forma  basis,  resulting  from the
     offering  of the  12.625%  Senior  Notes  due 2004  (the  "Notes")  and the
     application of the net proceeds therefrom as follows:


<TABLE>                                                        
<CAPTION>                                                                                                      
                                                                                                               
                                                                                     Year ended                
                                                                                     December 31               
                                                                       --------------------------------------- 
                                                                             1995                   1996       
                                                                       -----------------      ---------------- 
<S>                                                                               <C>                   <C>    
Historical interest expense                                                       17,745                17,520 
Elimination of interest expense related to certain affiliated                                                  
  indebtedness                                                                   (11,788)               (4,684)
Interest resulting from the Notes based on an interest rate of                                                 
  12.625%                                                                         31,563                31,563 
Amortization of deferred financing costs relating to the Notes                     1,103                 1,103 
                                                                       -----------------      ---------------- 
                                                                                  38,623                45,502 
                                                                       =================      ================ 
</TABLE>



(i)  For the five years ended December 31, 1996,  earnings were  insufficient to
     cover fixed  charges by $54,487,  $37,920,  $13,100,  $38,268 and  $41,209,
     respectively.  In  calculating  the  Ratio of  earnings  to fixed  charges,
     earnings  represents Net loss before minority interest,  Equity in (losses)
     income of affiliates,  less fixed charges. Fixed charges consist of the sum
     of interest  expense paid or accrued on indebtedness of the Company and its
     subsidiaries  and  affiliates  and one-third of operating  rental  expenses
     (such amount  having been deemed by the Company to  represent  the interest
     portion of such payments).

(j)  Cash provided by (used in) operating activities (hereinafter referred to as
     cash flows from  operating  activities)  has been  determined in accordance
     with  GAAP  while  EBITDA  has  been  calculated  in  accordance  with  the
     definition  in  footnote  (g).  In  accordance  with GAAP,  cash flows from
     operating activities generally reflect the cash effects of transactions and
     other events that enter into the determination of net income. The principal
     difference between EBITDA and cash flows from operating activities arise as
     a result of the  treatment  of the  changes in the  balances  of  operating
     assets and liabilities from the beginning to the end of a reporting period.
     That is, in accordance with GAAP, such changes are components of cash flows
     from  operating  activities  while  there is no similar  adjustment  in the
     calculation  of EBITDA.  EBITDA  has been  presented  as it is a  financial
     measure  commonly  used in the  Company's  industry.  EBITDA  should not be
     considered  as an  alternative  to cash  provided  by (used  in)  operating
     activities,  as an indicator of  operating  performance  or as a measure of
     liquidity.


                                       36
<PAGE>


(k)  Represents the number of Owned  Systems'  subscribers as of the last day of
     each period.

(l)  Average  monthly  revenue  per  subscriber  refers to the  average  monthly
     subscription fee as of the last day of each period.



ITEM 9. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following  discussion  should be read in conjunction with the Financial
Statements (including the notes thereto) included in this Annual Report. For the
purposes of the following discussion,  all dollar amounts, with the exception of
average  installation  and  subscriber  fees,  are set forth in  thousands of US
dollars.

     This  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations reflects the historical results of the Company. Due to the
limited operating  history,  startup nature,  translations of Brazilian currency
into US dollars, and rapid growth of the Company,  period-to-period  comparisons
of financial data are not necessarily indicative,  and should not be relied upon
as an indicator of the future performance of the Company.

Overview

     Since its  inception in 1989,  the Company has been in a  developmental  or
buildout stage.  The TV Group,  representing  the more mature  operations of the
Company,  has  experienced,  and  continues  to  experience,  rapid  growth.  In
addition, the Company,  through Galaxy Brasil, initiated Ku-Band DIRECTV service
on a limited basis in July 1996.  Despite its growth,  the Company has sustained
substantial net losses due primarily to insufficient  revenue with which to fund
startup costs,  interest expense and charges for depreciation and  amortization.
However, the TV Group has been generating positive operating cash flow beginning
with  the  three  month  period  ended  June  30,  1996,  while  Galaxy  Brasil,
representing the Company's less mature  operations,  remains in a start-up phase
and has not yet  collected  material  revenues to offset the costs of initiating
the Ku-Band  service.  Net losses  incurred by the Company since  inception have
been funded principally by (i) net contributions of approximately  $288,000 from
the Company's  shareholders,  (ii)  borrowings from Abril under the Abril Credit
Facility  and (iii)  short term  borrowings  made from time to time.  Management
expects the financial  results of the Company to improve as the operation of the
Ku-Band service matures and the number of subscribers for the Company's  Ku-Band
service and TV Group  services  continues  to grow.  There can be no  assurance,
however,  that the number of the  Company's  subscribers  will grow, or that the
Company's financial performance will improve.


                                       37
<PAGE>


Results of Operations

     The following table sets forth for the periods indicated certain statements
of  operations  data  expressed in US dollar  amounts and as a percentage of net
revenue:

<TABLE>
<CAPTION>

                                                                              Year Ended December 31,
                                              --------------------------------------------------------------------------------------
                                                         1994                           1995                            1996
                                              ---------------------------   ---------------------------     ------------------------
                                                                 % of Net                     % of Net                      % of Net
                                                Amount           Revenue      Amount          Revenue         Amount        Revenue
                                              ---------          -------    ---------         -------       ---------       --------
<S>                                           <C>                 <C>        <C>                 <C>        <C>                 <C> 
Statement of Operations
  Data:
Gross revenues
Monthly subscriptions .................       $  27,976           65.2%      $  62,496           66.1%      $ 123,020         62.1%
Installation ..........................           6,997           16.3          26,045           27.6          61,717         31.2
Indirect programming ..................           1,626            3.8           2,866            3.0          11,377          5.7
Other .................................           7,173           16.7          10,603           11.2          15,724          7.9
Revenue taxes .........................            (872)          (2.0)         (7,506)          (7.9)        (13,747)        (6.9)
                                              ---------          -----       ---------          -----         -------        -----  
Net revenue ...........................          42,900          100.0          94,504          100.0         198,091        100.0
                                              ---------          -----       ---------          -----         -------        -----  
Direct operating expenses..............          28,659           66.8          62,026           65.6         112,297         56.7
Selling, general and 
  administrative expenses  ............          24,370           56.8          46,902           49.6          81,455         41.1
Depreciation and Amortization .........           6,177           14.4          13,268           14.0          28,216         14.2
Allowance for inventory 
  obsolescence ........................            --              --             --              --            2,250          1.1
                                              ---------          -----       ---------          -----         -------        -----  
Total operating expenses  .............          59,206          138.0         122,196          129.3         224,818        113.2
                                              ---------          -----       ---------          -----         -------        -----  
Operating loss ........................         (16,306)         (38.0)        (27,692)         (29.3)        (26,127)       (13.2)
Interest income .......................          21,806           50.8           3,118            3.3           5,813          2.5
Interest expense ......................         (16,413)         (38.3)        (17,745)         (18.8)        (17,520)        (8.8)
Translation (loss) gain ...............            (914)          (2.1)           (339)          (0.4)            473          0.2
Equity in (losses) income            
  of affiliates ........................            383            0.9          (3,672)          (3.9)         (8,532)        (4.3)
Gain on issuance of shares by
  equity investees  ...................               0            0.0               0            0.0           2,317          1.2
Other nonoperating 
  (expenses) income, net ..............          (1,273)          (3.0)          4,389            4.6          (6,009)        (3.0)
Minority interest .....................             720            1.7             871            0.9           1,849          0.9
Income tax expense ....................               0            0.0               0            0.0            (156)        (0.1)
                                              ---------          -----       ---------          -----         -------        -----  
Net loss ..............................       $ (11,997)         (28.0)%     $ (41,070)         (43.5)%       (47,892)       (24.2)%
                                              =========          =====       =========          =====         =======        =====  

</TABLE>



                                       38
<PAGE>



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

     The table below sets forth the number of  subscribers  at December 31, 1995
and December 31, 1996 for the Owned Systems.



                                               December 31,  December 31,
Owned Systems Subscribers                          1995          1996
-------------------------                        -------       --------
MMDS(a) .......................................  188,893       230,320
Cable .........................................   15,129        46,011
DIRECTV and Digital C-Band ....................   15,126        73,180
                                                 -------       -------
                                                 219,148       349,511
Paid Subscribers Awaiting Installation(b) .....   18,343        31,124
                                                 -------       -------
Total Owned Systems ...........................  237,491       380,635
                                                 =======       =======
--------------------

(a)  Includes UHF subscribers.

(b)  Subscribers  who  have  paid  an  installation  fee but  are  awaiting  the
     installation of service.

     The table below sets forth at December  31, 1995 and  December 31, 1996 the
approximate  number of television  households  which received TVA's  programming
through  the Owned  Systems and the  Operating  Ventures  and  through  sales of
programming to the Independent Operators.

Households Receiving TVA Programming


                                                 December 31,       December 31,
                                                    1995                1996
                                                  ---------          ---------

Total Owned Systems ......................          237,491            380,635
Operating Ventures .......................           35,572             85,256
Independent Operators ....................          341,699            564,499
                                                  ---------          ---------
Total ....................................          614,762          1,030,390
                                                  =========          =========

     Revenues.  Revenues  consist  primarily  of Monthly  subscriptions  revenue
(which  principally  consists of monthly fees paid by subscribers to the Company
for  programming  services,  including  equipment  use),  Installation  revenue,
Indirect programming revenue (which consists of payments made to the Company for
the sale of its  programming  to the  Independent  Operators)  and Other revenue
(which  consists of  Advertising  revenues and Other  revenues).  Revenue  taxes
consist of a 2.65% tax on Advertising  revenue and a 7.65% tax on the balance of
revenues, in each case charged by the Brazilian Government.

     Monthly  subscriptions  revenue  for the year ended  December  31, 1996 was
$123,020,  as compared to $62,496 for the comparable period in 1995, an increase
of  $60,524.  This  increase  was  principally  attributable  to an  increase in
subscriber  base and an  increase  in the  amount of  average  monthly  fees for
existing   subscribers  from  $30.43  to  $39.15  per  subscriber  and  for  new
subscribers   from  $39.48  to  $43.70  per  subscriber.   The  average  monthly
subscription  price during the year ended December 31, 1996, was $44.94 for MMDS
service,  $38.59 for Cable service and $38.02 for C-Band service, as compared to
$44.04, $38.12 and $41.37,  respectively,  for the year ended December 31, 1995.
The average monthly subscription price for Ku-Band service from its introduction
in July 1996 to December 31, 1996, was $40.20.  Galaxy Brasil contributed $2,266
to monthly subscription revenue for the year ended December 31, 1996.

     Installation  revenue for the year ended December 31, 1996 was $61,717,  as
compared to $26,045 for the  comparable  period in 1995, an increase of $35,672.
This increase was principally  attributable to the increase in the number of new
subscribers and also to an increase in the average  installation  fee for C-Band
service from $586.79



                                       39
<PAGE>



to $649.98. The average installation fee during the year ended December 31, 1996
was $134.48 for MMDS  service,  $36.61 for Cable  service and $649.98 for C-Band
service, as compared to $169.70,  $81.87 and $586.79 respectively,  for the year
ended December 31, 1995. The average  installation  fee for Ku-Band service from
its  introduction in July 1996 to December 31, 1996, was $877. The net number of
subscribers  added to the Company's Owned Systems during the year ended December
31, 1996 was  130,363,  as compared to 104,295  added  during the same period of
1995.  Galaxy Brasil  contributed  $15,609 to Installation  revenue for the year
ended December 31, 1996.  After an initial  rollout in July 1996,  Galaxy Brasil
began enrolling subscribers.

     Indirect  programming  revenue  for the year ended  December  31,  1996 was
$11,377, as compared to $2,866 for the comparable period of 1995, an increase of
$8,511. This increase was principally attributable to the increase in the number
of Independent  Operators' subscribers for the period. The number of Independent
Operators'  subscribers  increased by 222,800 during the year ended December 31,
1996, as compared to an increase of 252,026  during the same period of the prior
year.  Independent  Operators  pay a fee to the  Company  based on the number of
subscribers  to such  Independent  Operator's  system and the number of channels
purchased  from the Company.  The average  monthly fee paid to the Company by an
Independent  Operator  during the year  ended  December  31,  1996 was $1.44 per
subscriber.

     Other revenue for the year ended December 31, 1996 was $15,724, as compared
to $10,603 for the comparable period of 1995, an increase of $5,121. This change
included a decrease in Advertising  revenue to $7,532 from $8,377, a decrease of
$845, and an increase in Other to $8,192 from $2,226, an increase of $5,966. The
decrease in Advertising revenue was attributable to a shift in advertising sales
from advertising on ESPN  International  programming  (the Advertising  revenues
from which were reported as Advertising  revenues in the Company's  consolidated
financial  statements),  to advertising  sales on ESPN Brasil Ltda.  programming
(the  Advertising  revenues  from which  were not  reported  in the  Advertising
revenues line of the Company's  consolidated financial statements but as part of
the Company's  Equity in (losses) income of  affiliates).  The increase in Other
revenues was principally due to the increase in sales of TVA magazine, technical
assistance,  commissions for sales of HBO Brasil and ESPN Brasil  advertising as
well as sales of ESPN Brasil programming to independent programming providers.

     Revenue  taxes  for the year  ended  December  31,  1996 were  $13,747,  as
compared to $7,506 for the same period of the prior year, an increase of $6,241.
Galaxy Brasil  contributed  $1,488 to revenue taxes for the year ended  December
31, 1996.  Galaxy Brasil began enrolling  subscribers and collecting  revenue in
July 1996.

     For the reasons  noted above,  Net revenue for the year ended  December 31,
1996 was  $198,091,  as  compared to $94,504  for the  comparable  period in the
previous year, an increase of $103,587. Galaxy Brasil contributed $16,530 to Net
revenue for the year ended December 31, 1996.

     Direct operating  expenses.  Direct operating  expenses include Payroll and
benefits,  Programming,  Transponder lease cost,  Technical  assistance expense,
Vehicle rentals expense, TVA Magazine and Other expenses.  These expenses,  with
the exception of Transponder  lease costs, are variable  expenses which increase
as the number of subscribers  increases and the Company's  systems grow, and are
also  dependent  on the type of service  subscribers  select.  Direct  operating
expenses  for the year ended  December  31, 1996 were  $112,297,  as compared to
$62,026 for the same period in 1995,  an increase of $50,271.  This increase was
primarily  attributable  to expenses  incurred  to service  the  increase in the
number of  subscribers  for such  period in 1996  compared to the same period in
1995. Payroll and benefits expense increased to $27,203 from $12,520 an increase
of  $14,683,  as a result of the  hiring of more than 217 new  employees  and an
increase in the amounts of  commissions  paid to  employees.  Programming  costs
increased  to $42,391  from  $21,609,  an increase  of  $20,782,  as a result of
changes  implemented in the  programming  purchased by the Company.  Transponder
lease cost increased to $10,847 from $7,568,  an increase of $3,279, as a result
of leasing a third transponder in 1996.  Technical assistance costs increased to
$5,507 from $5,152,  an increase of $355;  Vehicle rentals expense  increased to
$1,862  from  $1,732,  an increase of $130;  and the expense of  publishing  TVA
Magazine  increased to $6,842 from $3,318, an increase of $3,524.  This increase



                                       40
<PAGE>



was principally  due to the increase in the number of  subscribers.  Other costs
include  commissions  for third party sales,  transportation  of  equipment  and
materials,  third party services,  maintenance and other miscellaneous expenses.
For the year ended December 31, 1996,  Other costs were $17,645,  as compared to
$10,127 for the same period the prior year, an increase of $7,518. Galaxy Brasil
contributed $5,854 to Direct operating  expenses,  as compared to $1,027 for the
comparable  period in 1995,  an  increase  of $4,827 as Galaxy  Brasil  incurred
Payroll and benefits,  Vehicle rentals and other costs  consistent with starting
this operation.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses  include  Payroll and  benefits  expense  for  selling,
administrative, financial, legal and human resources, Advertising and promotion,
Rent  expense,  Other  administrative  expenses,  and  Other  general  expenses.
Selling,  general and  administrative  expenses for the year ended  December 31,
1996 were  $81,455,  as  compared  to $46,902  for the same  period of 1995,  an
increase of $34,553. The Company has experienced increasing Selling, general and
administrative  expenses as a result of its increased pay television  activities
and the associated  administrative costs, including costs related to opening and
maintaining  additional  facilities and an overall increase of $5,804 in Payroll
and benefits expense,  which, for the year ended December 31, 1996 were $27,431,
as compared to $21,627 for the same period of 1995,  resulting  from an increase
in the number of employees  and sales  commissions.  Advertising  and  promotion
expense increased to $21,355 from $11,122,  an increase of $10,233,  as a result
of an increase in the number of subscribers  and  promotional  activity.  Galaxy
Brasil contributed $15,328 to Selling,  general and administrative  expenses for
the year ended December 31, 1996, as compared to $79 for the  comparable  period
in 1995,  an  increase  of $15,249.  Such  increase at Galaxy  Brasil was due to
increases in Payroll and benefits expense and Other administrative expenses.

     Depreciation,   Amortization  and  Allowance  for  inventory  obsolescence.
Depreciation  and  Amortization  includes  depreciation  of systems,  equipment,
installation  materials,  installation  personnel and  organizational  costs and
amortization of  concessions.  Allowance for inventory  obsolescence  represents
charges for  obsolescence of certain  equipment and material.  Depreciation  and
Amortization  for the year ended  December 31, 1996 was $28,216,  as compared to
$13,268 for the same period of 1995,  an increase of $14,948.  This increase was
principally due to the depreciation of additional  reception  equipment acquired
during 1996,  including  equipment used in the expansion of the Company's  cable
systems  and  decoders  used for  DIRECTV  and  C-Band  service.  Allowance  for
inventory  obsolescence  for the year  ended  December  31,  1996 was  $2,250 as
compared to $0 for the  comparable  period in 1995, an increase of $2,250.  This
increase was principally due to advances in MMDS reception equipment  technology
which  resulted  in the  obsolescence  of MMDS  reception  equipment  previously
installed by the Company.  Galaxy  Brasil  contributed  $2,858 to  Depreciation,
Amortization  and  Allowance  for  inventory  obsolescence  for the  year  ended
December 31, 1996,  as compared to $127 for the  comparable  period in 1995,  an
increase of $2,731.  Such increase was due to depreciation  expenses  associated
with the Tambore Facility.

     For the reasons noted above, Operating loss for the year ended December 31,
1996 was $26,127,  as compared to $27,692 for the  comparable  period in 1995, a
decrease of $1,565.  Galaxy Brasil  contributed $7,510 of this loss for the year
ended  December 31,  1996,  as compared to $1,233 for the  comparable  period in
1995, an increase of $6,277.

     Interest  income.  Interest income for the year ended December 31, 1996 was
$5,813,  as  compared  to $3,118 for the same  period in 1995,  an  increase  of
$2,695. This increase was principally due to interest received by the Company in
connection with temporarily  invested  portions of the proceeds of the Notes and
capital contributions in December 1995.

     Interest expense. Interest expense for the year ended December 31, 1996 was
$17,520, as compared to $17,745 for the same period of 1995, a decrease of $225.
In November  1996 the Company  issued the Notes and used some of the proceeds to
repay certain outstanding  indebtedness bearing interest rates greater than that
applicable to the Notes.


                                       41
<PAGE>


     Equity in losses  (income) of affiliates  and Gain on issuance of shares by
equity investee. For the year ended December 31, 1996, Equity in losses (income)
of affiliates  amounted to a loss of $8,532,  as compared to a loss of $3,672 in
the same period of 1995, an increase in loss of $4,860.  The primary  reason for
this increase in loss was sustained  losses at ESPN Brasil,  which was formed on
June 15, 1995.  The Gain on issuance of shares by equity  investees  amounted to
$2,317 for the year ended  December  31, 1996 and was due to a capital gain from
TV Filme's equity offering in 1996.

     Other  non-operating  (expenses)  income.  Other  non-operating  (expenses)
income  for the year ended  December  31,  1996 was an  expense  of  $6,009,  as
compared to income of $4,389 in the same period in 1995,  an increase in expense
of  $10,398.  This  increase  was  primarily  due to costs  incurred  in 1996 in
connection with the  negotiations  resulting in the investment in the Company by
certain  shareholders in December 1995, a loss of unrecovered decoders installed
in the homes of subscribers  whose service was terminated,  and the organization
of TVA Sul as a holding company.  The Other non-operating  expenses for the year
ended December 31, 1996 consisted  primarily of fees paid in connection with the
investment of Falcon  International and Hearst/ABC  Parties in the Company.  The
Other non-operating income for the comparable period of 1995 consisted primarily
of income from the sale of movie inventory and other assets.

     Minority  interest.  The  Minority  interest  of $1,849  for the year ended
December  31,  1996  represents  Mr.  Leonardo  Petrelli's  13.0%  share  of the
aggregate losses of TVA Sul.

     Net loss. For the reasons noted above, Net loss for the year ended December
31, 1996 was $47,892,  as compared to $41,070 for the comparable period in 1995,
an increase of $6,822.

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

     The table below sets forth the number of  subscribers  at December 31, 1995
and December 31, 1994 for the Owned Systems.


                                                  December 31,   December 31,
                                                  ------------   ------------
Owned System Subscribers                             1994           1995
                                                  ------------   ------------

MMDS(a).......................................     111,771         188,893
Cable.........................................       1,007          15,129
Digital C-Band................................       2,075          15,126
                                                   -------         -------
                                                   114,853         219,148
Paid Subscribers Awaiting Installation(b).....      13,956          18,343
                                                   -------         -------
Total Owned Systems...........................     128,809         237,491
                                                   =======         =======
--------------------

(a)  Includes UHF subscribers.

(b)  Subscribers  who  have  paid  an  installation  fee but  are  awaiting  the
     installation of service.

     The table below sets forth at December  31, 1995 and  December 31, 1994 the
approximate  number of television  households  which received TVA's  programming
through  the Owned  Systems and the  Operating  Ventures  and  through  sales of
programming to the Independent Operators.



                                       42
<PAGE>


Households Receiving TVA Programming


                                                  December 31,   December 31,
                                                  ------------   ------------
                                                     1994           1995
                                                  ------------   ------------  
Total Owned Systems...........................     128,809         237,491
Operating Ventures............................       7,640          35,572
Independent Operators.........................      89,673         341,699
                                                   -------         -------
         Total................................     226,122         614,762
                                                   =======         =======

     Revenues.  Monthly  subscriptions  revenue for the year ended  December 31,
1995 was $62,496,  as compared to $27,976 for the comparable  period in 1994, an
increase of $34,520.  This  increase  was  attributable  to the net  addition of
104,295  subscribers  to the Company's  Owned  Systems,  and the increase in the
average monthly fee for existing  subscribers to $33.24 from $27.80, an increase
of $5.44,  and for new subscribers to $39.48 from $31.87,  an increase of $7.61.
The average monthly  subscription  price during the year ended December 31, 1995
was $44.04 for MMDS service and $38.12 for Cable service,  as compared to $42.48
and $26.26,  respectively,  for the year ended  December 31,  1994.  The average
monthly  subscription  price for C-Band  service for the year ended December 31,
1995 was $41.37.  In 1994, the Company's C-Band service was in its initial phase
of  operations.   In  addition,   Galaxy  Brasil's  Ku-Band  service  was  under
development  in 1995.  The Company  was able to increase  the monthly fee as the
market  price  for pay  television  increased.  The  increase  in the  number of
subscribers  was due to (i)  the  continued  expansion  and  penetration  of the
Company's MMDS service,  including the  introduction of signal  repeaters in Sao
Paulo  and  Rio  de  Janeiro,  (ii)  the  full  year  benefit  of  Cable  system
construction  in  Sao  Paulo  and  (iii)  the  net  addition  of  13,051  C-Band
subscribers  through an aggressive national marketing campaign timed to coincide
with the Company's main  competitor  focusing on its Cable systems.  During each
year,  all revenues came from the operation of the TV Group as the operations of
Galaxy Brasil were in development.

     Installation  revenue for the year ended December 31, 1995 was $26,045,  as
compared to $6,997 for the  comparable  period in 1994,  an increase of $19,048.
This  increase  was  principally  attributable  to the increase in the number of
installations  and to the  increase in the average fees for  installations.  The
average fee for MMDS service installation  increased to $169.70 from $119.75, an
increase of $49.95, and the average fee for Cable service installation increased
to $81.87 from $44.69,  an increase of $37.18.  The C-Band average  installation
fee  increased to $586.79  from  $500.00,  an increase of $86.79.  The growth in
installations  was aided by the continued growing awareness of pay television in
Brazil and the Company's  start-up of live broadcasts of the Brazilian  National
Soccer  Championship,  the Sao Paulo State  Championship and other soccer events
through ESPN Brasil.  As with Monthly  subscriptions  revenue,  all Installation
revenue during each year came from the operations of the TV Group.

     Indirect  programming  revenue  for the year ended  December  31,  1995 was
$2,866,  as compared to $1,626 for the comparable period of 1994, an increase of
$1,240. This increase was principally attributable to the increase in the number
of Independent  Operators'  subscribers for the period,  as compared to the same
period in 1994. Such Independent  Operators' subscribers increased to 341,699 at
December  31, 1995,  as compared to 89,673 at December 31, 1994,  an increase of
252,026. The average fee paid during both 1995 and 1994 was $1.50 per subscriber
per month.

     Other revenue for the year ended December 31, 1995 was $10,603, as compared
to $7,173  for the  comparable  period of 1994,  an  increase  of  $3,430.  This
increase  included an increase in Advertising  revenue to $8,377 from $5,727, an
increase of $2,650. The growth in Advertising revenue was due to the increase in
the subscriber  base, an increase in the amount of advertising  time sold by the
Company  per  hour of  programming  and an  increase  in the  rate  charged  for
advertising time.



                                       43
<PAGE>

     Revenue taxes for 1995 were $7,506, as compared to $872 for the prior year,
an increase of $6,634. This increase was primarily  attributable to a Government
imposed 5.0% increase in the tax rate,  which  increased  Revenue taxes to 7.65%
from 2.65%,  imposed on the  Company's  Gross  revenues  (excluding  Advertising
revenue, which is taxed at 2.65%).

     For the reasons  noted above,  Net revenue for the year ended  December 31,
1995 was $94,504,  as compared to $42,900 for the comparable period the previous
year, an increase of $51,604.

     Direct operating  expenses.  Direct  operating  expenses for the year ended
December  31, 1995 were  $62,026,  as compared to $28,659 for the same period of
1994, an increase of $33,367.  This increase was  attributable  primarily to the
increase in the number of  subscribers  to the  Company's  systems  which led to
increases  in Payroll and benefits  expense,  Programming  expense,  Transponder
lease cost, Technical assistance expense,  Vehicle rentals expense, TVA Magazine
expense and Other costs.  Payroll and benefits expense increased to $12,520 from
$8,022, an increase of $4,498, as the Company added approximately 450 employees.
Programming  costs increased to $21,609 from $12,133,  an increase of $9,476, as
the  Company's  subscriber  base grew and the Company added four new channels to
each of its  distribution  systems.  Transponder  lease cost increased to $7,568
from $1,555, an increase of $6,013,  due to an increase in the cost of satellite
transponder  leases and the  application of a 25.0% tax charged by the Brazilian
Government  on  transponder  lease  payments  beginning in June 1995.  Technical
assistance  expense increased to $5,152 from $1,622, an increase of $3,530,  due
to an increase in the  subscriber  base and the upgrade of existing  systems for
the receipt of  additional  channels by  subscribers,  Vehicle  rentals  expense
increased to $1,732 from $788,  an increase of $944,  and TVA  Magazine  expense
increased  to $3,318 from  $1,430,  an increase of $1,888.  These  expenses  are
variable and increased  due to the costs  associated  with  servicing the larger
subscriber base and installing new subscribers.  For the year ended December 31,
1995,  Other costs were  $10,127,  as compared to $3,109 for the same period the
prior year, an increase of $7,018. The Company experienced increased expenses as
a result of its increased television activities and associated costs,  including
costs related to opening and maintaining  additional  facilities.  Galaxy Brasil
contributed  $1,027 to Direct operating expenses for the year ended December 31,
1995,  as  compared to $0 for the same period of 1994.  Galaxy  Brasil  incurred
Payroll and benefits expense, Vehicle rentals expense and Other costs consistent
with starting its DIRECTV service.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses for the year ended  December 31, 1995 were $46,902,  as
compared  to $24,370 for the same  period of 1994,  an increase of $22,532.  The
Company experienced increased Selling,  general and administrative expenses as a
result of its increased pay television activities and associated  administrative
costs,  including costs related to opening and maintaining additional facilities
and an overall  increase in payroll  expenses  resulting from an increase in the
number of employees. Advertising and promotion expense increased to $11,122 from
$3,540, an increase of $7,582 largely due to the Company's increased promotional
activity,  including nationwide C-Band promotion.  Galaxy Brasil contributed $79
to Selling,  general and administrative expenses for the year ended December 31,
1995, all of which constituted  Advertising and rent expenses, as compared to $0
for the same period of 1994.

     Depreciation and  Amortization.  Depreciation and Amortization  expense for
the year ended December 31, 1995 was $13,268, as compared to $6,177 for the same
period of 1994,  an  increase  of $7,091.  The  increase  was due  primarily  to
increased  capitalization  of the costs associated with building the MMDS, Cable
and C-Band systems and with the installation of new  subscribers.  Galaxy Brasil
contributed  $127  to  Depreciation  and  Amortization  expense  (all  of  which
constituted  Depreciation  expense) for the year ended  December  31,  1995,  as
compared to $0 for the comparable period in 1994.

     For the reasons noted above, Operating loss for the year ended December 31,
1995 was $27,692,  as compared to $16,306 for the comparable  period in 1994, an
increase in loss of $9,303.  Galaxy Brasil contributed  $11,386 to this loss for
the year ended December 31, 1995, as compared to $0 for the comparable period in
1994.



                                       44
<PAGE>


     Interest  income.  For the year ended  December 31, 1995,  Interest  income
totaled $3,118, as compared to $21,806 in the similar period in 1994, a decrease
of $18,688. This reduction in Interest income was a result of the shorter period
in which a capital  contribution of $125,000 in 1995 earned interest relative to
the length of time a capital  contribution  of $151,452 earned interest in 1994,
as well as due to the sharp  appreciation  of the  Brazilian  real versus the US
dollar upon introduction of the real in late 1994.

     Interest expense. Interest expense for the year ended December 31, 1995 was
$17,745,  as  compared  to $16,413  for the year ended  December  31,  1994,  an
increase of $1,332.

     Equity in losses  (income) of  affiliates.  For the year ended December 31,
1995,  Equity in losses (income) of affiliates was a loss of $3,672, as compared
to income  of $383 for the same  period  in 1994,  a  decrease  of  $4,055.  The
principal  reasons for this  reduction  were the loss  sustained  by ESPN Brasil
Ltda. which came into existence during June 1995, and HBO Brasil Partners, which
came into existence in 1994.

     Other  non-operating  (expenses)  income.  For the year ended  December 31,
1995, Other non-operating (expenses) income was income of $4,389, as compared to
an expense of $1,273 for the same period of 1994,  an  increase  of $5,662.  The
primary reasons for this increase were equipment rental income,  sales of assets
and a release of certain obligations, among others.

     Minority  interest.  The  Minority  interest of $871 for the twelve  months
ended December 31, 1995  represents Mr. Leonardo  Petrelli's  20.0% share of the
$4,355 in aggregate losses of TVA Curitiba.

     Net loss. For the reasons noted above, Net loss for the year ended December
31, 1995 was $41,070,  as compared to $11,997 for the comparable period in 1994,
an increase of $29,073.

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993

     The table below sets forth the number of  subscribers  at December 31, 1994
and December 31, 1993 for the Owned Systems.


                                                  December 31,   December 31,
                                                  ------------   ------------
Owned System Subscribers                             1994           1995
                                                  ------------   ------------

MMDS(a) ....................................        82,474         111,771
Cable ......................................             0           1,007
Digital C-Band .............................           511           2,075
                                                   -------         -------
                                                    82,985         114,853
Paid Subscribers Awaiting Installation(b) ..         7,438          13,956
                                                   -------         -------
Total Owned Systems ........................        90,423         128,809
                                                   =======         =======
--------------------

(a)  Includes UHF subscribers.

(b)  Subscribers  who  have  paid  an  installation  fee but  are  awaiting  the
     installation of service.

     The table below sets forth at December  31, 1994 and  December 31, 1993 the
approximate  number of television  households  which received TVA's  programming
through  the Owned  Systems and the  Operating  Ventures  and  through  sales of
programming to the Independent Operators.


                                       45
<PAGE>


Households Receiving TVA Programming

                                                  December 31,   December 31,
                                                  ------------   ------------
                                                      1994           1995
                                                  ------------   ------------

Total Owned Systems ........................        90,423         128,809
Operating Ventures .........................         1,505           7,640
Independent Operators ......................        36,659          89,673
                                                   -------         -------
         Total .............................       128,587         226,122
                                                   =======         =======

     Revenues.  Monthly  subscriptions  revenue for the year ended  December 31,
1994 was $27,976,  as compared to $12,544 for the comparable  period of 1993, an
increase of $15,432.  This  increase  was  attributable  to the net  addition of
31,868  subscribers  to the  Company's  Owned  Systems  and the  increase in the
average monthly fee for existing  subscribers to $27.80 from $21.30, an increase
of $6.50, and for new subscribers to $31.87 from $23.63 over the same period, an
increase of $8.24.  The Company  added three  premium  channels,  including  HBO
Brasil,  and suspended its "a la carte" channel  offerings.  The increase in the
number of subscribers was due to the continued  expansion and penetration of the
Company's MMDS service,  principally in Sao Paulo,  Rio de Janeiro and Curitiba,
the  launch of a Cable  system in Sao  Paulo,  and the net  addition  (after the
December 1993 launch) of 1,564 C-Band subscribers.

     Installation  revenue for the year ended  December 31, 1994 was $6,997,  as
compared  to $4,350 for the  comparable  period of 1993,  an increase of $2,647.
This increase was  principally  attributable to the growing number of subscriber
installations  and to the increase in the average  revenue for  installation  of
MMDS service, which increased to $119.75 from $91.33, an increase of $28.42. The
growth in installations  was aided by the growing awareness of pay television in
Brazil, the Company's larger sales force and increased  promotional  activities,
especially with respect to single family homes.

     Indirect  programming  revenue  for the year ended  December  31,  1994 was
$1,626,  as compared to $530 for the previous year, an increase of $1,096.  This
increase  was  principally  attributable  to  the  increase  in  the  number  of
Independent  Operators'  subscribers  for the  period,  as  compared to the same
period in 1994.  Such  subscribers  increased to 89,673 at December 31, 1994, as
compared to 36,659 at December 31, 1993, an increase of 53,014.  The average fee
paid by the  Independent  Operators  during  both  1993 and 1994 was  $1.50  per
Independent Operator subscriber per month.

     Other revenue for the year ended December 31, 1994 was $7,173,  as compared
to $2,468  for the  comparable  period of 1993,  an  increase  of  $4,705.  This
increase  included an increase in  Advertising  and promotion  revenue to $5,727
from $2,099,  an increase of $3,628.  The growth in  Advertising  and  promotion
revenue  was due to the  increase  in the  subscriber  base,  an increase in the
amount of advertising  time sold by the Company per hour of  programming  and an
increase in the rate charged for advertising time.

     Revenue  taxes  were $872 for the  period  ending  December  31,  1994,  as
compared to $371 for the  comparable  period of 1993, an increase of $501.  This
increase  was based on the  growth of the  subscriber  base and an  increase  in
revenue.

     For the reasons  noted above,  Net revenue for the year ended  December 31,
1994 was $42,900,  as compared to $19,521 for the previous  year, an increase of
$23,379.

     Direct operating  expenses.  Direct  operating  expenses for the year ended
December  31, 1994 were  $28,659,  as compared to $29,779 for the same period of
1993, a decrease of $1,120. This decrease was attributable  primarily a decrease
in Programming Expense, which was partially offset by the increase in the number
of subscribers to the Company's  systems,  including the increase in Payroll and
benefits expense. 



                                       46
<PAGE>



     Payroll and benefits expense  increased to $8,022 from $6,079,  an increase
of $1,943, as the Company added  approximately 200 employees.  Programming costs
decreased  to $12,133  from  $18,156,  a decrease of $6,023.  This  decrease was
attributable to the termination of the production of the Showtime  channel (a 24
hour per day movie channel), which was expensive relative to other channels, and
the renegotiation of several other programming contracts. Transponder lease cost
increased  to $1,555 from  $1,262,  an increase  of $293.  Technical  assistance
expense  decreased to $1,622 from $1,773,  a decrease of $151.  Vehicle  rentals
expense  increased  to $788 from  $597,  an  increase  of $191 and TVA  Magazine
expense  increased  to $1,430 from $725,  an increase of $705.  Other costs were
$3,109, as compared to $1,187 for the same period the prior year, an increase of
$1,922. The Company experienced  increased expenses as a result of its increased
television  activities and associated costs,  including costs related to opening
and maintaining additional facilities.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses for the year ended  December 31, 1994 were $24,370,  as
compared  to $19,957  for 1993,  an  increase  of $4,413.  Selling,  general and
administrative expenses,  excluding Advertising and promotion expenses, remained
essentially  unchanged  due to  the  ability  of the  Company  to  increase  its
subscriber base without increasing Selling, general and administrative expenses,
including human resource expense. Advertising and promotion expense increased to
$3,540 from $2,205, an increase of $1,335. The increase was due to the Company's
increase in promotional activity.

     Depreciation and  Amortization.  Depreciation and Amortization  expense for
the year ended December 31, 1994 was $6,177,  as compared to $4,813 for the same
period of 1993, an increase of $1,364 due primarily to increased  capitalization
of the costs  associated with building the MMDS and Cable systems and installing
new subscribers.

     For the reasons noted above, Operating loss for the year ended December 31,
1994 was $16,306, as compared to $35,028 for the year ended December 31, 1993, a
decrease of $18,772.

     Interest  income.  Interest income for the year ended December 31, 1994 was
$21,806,  as compared to $5,369 for the previous  year,  an increase of $16,437.
This  increase  was due  primarily  to the  contribution  to the  capital of the
Company by Abril and CMIF of $151,452 in the  aggregate  and the  investment  of
surplus funds from such contribution.

     Interest expense. Interest expense for the year ended December 31, 1994 was
$16,413,  as compared to $8,492 for the  previous  year,  an increase of $7,921.
This  increase  was  primarily  due to  increased  borrowing  from Abril to fund
ongoing operations.

     Equity in losses  (income) of  affiliates.  For the year ended December 31,
1994, Equity in losses (income) of affiliates was income of $383, as compared to
$0 in the same period in 1993.  This increase was the result of the formation of
Tevecap as the  holding  company of its  various  operating  subsidiaries  which
became  effective on June 30, 1994 and Equity in Losses in HBO Brasil  Partners,
which came into existence in 1994.

     Other  non-operating  (expenses)  income.  For the year ended  December 31,
1994,  Other  non-operating  income and  expenses  was an expense of $1,273,  as
compared  to an  expense of $557 for the same  period in 1993,  an  increase  in
expense of $716.  The reasons for this  increase  in expense  were the  negative
results of TVA Sistema prior to its acquisition by Tevecap.

     Minority  interest.  The  Minority  interest of $720 for the twelve  months
ended December 31, 1994  represents Mr. Leonardo  Petrelli's  20.0% share of the
$3,601 in aggregate losses of TVA Parana.

     Net loss. For the reasons noted above, Net loss for the year ended December
31, 1994 was $11,997,  as compared to $37,628 for the comparable period in 1993,
a decrease of $25,631.


                                       47
<PAGE>



Seasonality

     The Company's revenues are seasonal. Generally, during the Brazilian summer
months of  December  and  January  the  Company  experiences  lower  demand  for
installation  for each of its  services and lower rates of retention of existing
subscribers for each of its services.

Liquidity and Capital Resources

     Since  inception,  the  Company  has  sustained  losses  primarily  due  to
insufficient  revenue to fund start-up costs,  interest  expense and charges for
depreciation and amortization arising from the development of its pay television
systems. As of December 31, 1996, the Company had incurred cumulative net losses
of over $203,867. During the periods under review, the Company required external
funds  to  finance  its  capital  expenditures,  operating  activities  and make
payments of  principal  and  interest on its  indebtedness.  The sources of such
funds have been as follows:  (i)  borrowings  from Abril under the Abril  Credit
Facility ($105,800  outstanding as of October 31, 1996 which was repaid with the
proceeds from the sale of Tevecap's  12-5/8% Senior Notes due 2004 (the "Notes")
and none of which has been redrawn,  (ii) short-term borrowings under short-term
lines of  credit  ($14,916  outstanding  as of  December  31,  1996 and  $21,322
outstanding  as  of  May  31,  1997),   (iii)  net  capital   contributions   of
approximately  $288,000 from  shareholders and (iv) borrowings from shareholders
(approximately $4,608 outstanding as of September 30, 1996 and $0 outstanding as
of December 31, 1996).

     The  Company's   liquidity   needs  will  arise   primarily   from  capital
expenditures,  debt service requirements and, in certain periods, the funding of
its working  capital  requirements.  As of December  31,  1996,  the Company had
approximately  $272,864 of  indebtedness  outstanding,  primarily  consisting of
$250,000 principal amount of the Notes.

     In addition to debt service,  the Company will require  substantial amounts
of capital for (i) the  construction  of cable networks and the  installation of
equipment  at  subscribers'  locations,  (ii)  the  construction  of  additional
transmission and headend facilities and related equipment  purchases,  (iii) the
continued   funding  of  losses  and  working  capital   requirements  and  (iv)
investments  in, and maintenance of,  vehicles and  administrative  offices.  In
addition,  the Company continually  evaluates  opportunities to acquire,  either
directly or indirectly, pay television licenses and programming rights.

     The Company made purchases of fixed assets of $11,379, $22,639, $93,029 and
$125,612 in 1993, 1994, 1995 and 1996,  respectively.  Management estimates that
$292,708 and $239,202 of capital expenditures will be required in 1997 and 1998,
respectively.  Of these balances,  management  anticipates  deferring payment of
$108  million  and  $39  million,  respectively,  for a  period  of 360  days in
accordance  with the terms of the agreements to be entered into with the parties
from whom the Company  will  purchase  such fixed  assets.  Such  deferrals  are
standard practice in Brazil.

     The Company  also has certain  commitments  that must be funded,  including
capital contributions of approximately $26,992 prior to December 1997 to GLA, TV
Filme,  ESPN  Brasil  Ltda.,  HBO Brasil  Partners,  Canbras  TVA and CNBC,  and
programming payments of approximately  $12,895 for the two-year period beginning
January 1, 1997 and ending  December 31, 1998.  Actual amounts of funds required
may vary materially from these estimates and additional  funds could be required
in the  event of cost  overruns,  unanticipated  expenses,  regulatory  changes,
engineering design changes and other technological-driven changes. In connection
therewith,  management  expects  to  invest  $13,719  and  $0 in  the  Operating
Ventures, the Programming Ventures and in other minority investments in 1997 and
1998, respectively.

     The Company's principal sources of liquidity are the Abril Credit Facility,
the EximBank  Facility,  the Galaxy  Brasil  Leasing  Facility and the Company's
short-term  line of credit (each as  described  below),  together  



                                       48
<PAGE>


with net cash provided by operating activities.  However,  until sufficient cash
flow is generated from  operations,  the Company will be required to utilize its
current sources of debt funding to satisfy its liquidity  needs. The Company had
approximately $104,798 of cash and cash equivalents as of December 31, 1996.

     For the year ended December 31, 1996, net cash used in operating activities
was $17,696,  primarily as the result of an increase in accounts  receivable  of
$23,395,  an increase in pre-paid  and other assets of $8,973 and an increase in
inventories  of  $2,227.  The  increase  was  partially  offset  by  $26,539  of
depreciation,  a non-cash item. For the year ended December 31, 1996,  cash used
in  investing  activities  was  $163,900,  primarily  as the  result of  capital
expenditures  of $125,612 for the purchase of fixed  assets and  investments  in
equity and cost  investments and concessions of $30,803.  The purchases of fixed
assets were principally related to the purchase of decoders, equipment, hardware
and  materials  and  labor  used  for  new  subscriber   installations  and  the
investments  related to TVA Sul. For the year ended  December 31, 1996, net cash
provided  by  financing  activities  was  $262,193,  consisting  principally  of
$241,875 in net proceeds from the sale of the Notes.

     The Abril Credit  Facility  allows the Company to borrow up to $60,000 on a
revolving basis until December 1998.  Since June 1996, the Company has from time
to time requested, and Abril has provided, funds in excess of $60,000. The loans
are generally denominated in reais and bear interest at a rate equal to 99.5% of
the CDI rate, the Brazilian interbank lending rate, adjusted at the beginning of
each month.  The Company  currently has no amounts  outstanding  under the Abril
Credit Facility.  However, the Company will be able to re-borrow the full amount
of such facility, as required.

     On December 9, 1996, TVA Sistema,  as Borrower,  and Tevecap, as Guarantor,
entered into a credit  agreement with The Chase Manhattan Bank for the financing
of C-Band decoders and other related  equipment (the "EximBank  Facility").  The
Export-Import  Bank of the United States of America  ("EximBank") will guarantee
85.0% of the amount of the loan.  The loan is to be made on terms  customary for
credits supported by EximBank to Brazilian borrowers.  The interest rate will be
LIBOR plus a specified margin. The principal amount of the loan will be $29,350,
which will be dispersed in two tranches,  the first in the  principal  amount of
$11,400  with a term of five  years and the  second in the  principal  amount of
$17,950 with a term of 4.5 years.  As of December 31, 1996,  neither tranche had
been disbursed.

     Galaxy Brasil entered into the Galaxy Brasil Leasing Facility,  a five-year
$49,900 sale  leaseback  facility,  during the first quarter of 1997.  Under the
Galaxy Brasil Leasing Facility,  Galaxy Brasil will have access to financing for
the purpose of acquiring  dish antennae,  decoder boxes and other  equipment for
its Ku-Band  service.  This facility will be available  until 2002 and will bear
interest at a fixed rate of 12.5% per year. Galaxy Brasil's payment  obligations
under the Galaxy Brasil Leasing Facility were guaranteed by Tevecap.

     The Company  has also from time to time  received  contributions  and loans
from its  shareholders  to fund liquidity needs and may continue to receive such
contributions  and loans in the future.  In  addition,  as is standard  business
practice  in Brazil,  the Company  frequently  finances a portion of its working
capital  through  the  deferment  of  payment  terms for the  purchase  price of
property  (typically up to 360 days). These amounts have often subsequently been
refinanced  by the  Company  with  short-term  bank  indebtedness.  The  Company
currently  has lines of credit with terms of 360 days which will  continue to be
available after the Offering.

     The  Company  believes,   based  on  management's  internal  forecasts  and
assumptions relating to its operations, that the aggregate net proceeds from the
sale of the Notes,  together  with the proceeds from the deferral of payments to
suppliers of fixed assets,  the Eximbank  Facility,  the Galaxy  Brasil  Leasing
Facility, the Abril Credit Facility, and funds generated from operations will be
sufficient to meet its working capital and capital expenditure  requirements for
at least the period  through  December 31, 1997.  In the long term,  the Company
believes,  based on management's  internal forecasts and assumptions relating to
its  operations,  that its existing cash and funds  generated  from  operations,
together with its existing financing facilities  agreements,  will 



                                       49
<PAGE>


be sufficient to meet its working capital and capital expenditure  requirements.
In the event that the Company's plans change,  its  assumptions  change or prove
inaccurate,  or if the  proceeds  from  the  sale  of the  Notes,  the  Eximbank
Facility,  the Galaxy Brasil  Leasing  Facility,  the Abril Credit  Facility and
projected cash flows  otherwise  prove  insufficient  to fund operations (due to
unanticipated  expenses,  technical  problems,  difficulties or otherwise),  the
Company could be required to seek additional  sources of financing.  The Company
has no current  arrangements with respect to sources of additional financing and
there can be no assurance  that the Company  would be able to obtain  additional
financing on terms acceptable to the Company, or at all.

     In addition,  the  Company's  liquidity  may also be adversely  affected by
statutory minimum dividend requirements under applicable Brazilian law.

Accounting for Income Taxes

     The Company has approximately  $135,036 of net operating losses ("NOLs") to
offset against regular taxes. These NOLs are unexpirable. Statement of Financial
Accounting Standards No. 109 (Accounting for Income Taxes) ("SFAS 109") requires
that the Company determine whether it is "more-likely-than-not" that the Company
will  realize the  benefits  associated  with such losses and  provides  that in
making such a  determination,  all  negative  and  positive  evidence  should be
considered   (with  more  weight  given  to  evidence  that  is  "objective  and
verifiable"). SFAS No. 109 indicates that "forming a conclusion that a valuation
allowance is not needed is  difficult  when there is negative  evidence  such as
cumulative losses in recent years".  The Company has a limited operating history
and has generated  losses since its inception.  In view of this, the Company has
established a full valuation  allowance for the amount of NOL  carryforwards  in
excess  of net  taxable  temporary  differences.  This  determination  was based
primarily on  historical  losses.  Management  does,  however,  believe that the
Company will be profitable  in the future and, as such,  will be able to utilize
these NOLs.


ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT

     The  Company  is  managed  by its  Conselho  de  Administracao  ("Board  of
Directors"), Conselho Consultivo ("Advisory Board") and Diretoria ("Committee of
Officers").  Members of the Board of  Directors  and  Committee  of Officers are
elected for a two-year period,  currently expiring on April 30, 1998. Day-to-day
operations  of the Company are managed by the Company's  Executivos  ("Executive
Officers").

Board of Directors


                                                         Current Position Held
Member                                      Position              Since
------                                      --------     ---------------------
Robert Civita..........................    President              1994
Jose Augusto P. Moreira................      Member               1994
Robert Hefley Blocker..................      Member               1995
Giancarlo Francesco Civita.............      Member               1994
Thomaz Souza Correa Neto...............      Member               1995
Francisco Savio Couto Pinheiro.........      Member               1995
Arnaldo Bonoldi Dutra..................      Member               1996
Sergio Vladimirschi Junior.............      Member               1995
Jose Luis de Salles Freire.............      Member               1995
Jorge Fernando Koury Lopes.............      Member               1995
Oswaldo Leite de Moraes Filho..........      Member               1995



                                       50
<PAGE>


Advisory Board

                                                         Current Position Held
Member                                      Position              Since
------                                      --------     ---------------------
Robert Civita..........................     President             1995
Jose Augusto P. Moreira................       Member              1995
Robert Hefley Blocker..................       Member              1995
Claudio Dascal.........................       Member              1996
Angelo Silvio Rossi....................       Member              1996
Francisco Savio Couto Pinheiro.........       Member              1995
Stephen Vaccaro........................       Member              1996
Marc Nathanson.........................       Member              1995
Tully M. Friedman......................       Member              1995
Raymond E. Joslin......................       Member              1996
Herbert A. Granath.....................       Member              1996

Committee of Officers

                                                         Current Position Held
Member                                      Position              Since
------                                      --------     ---------------------
Jose Augusto Pinto Moreira.............      Member              1992
Angelo Silvio Rossi....................      Member              1996
Claudio Cesar D`Emilio.................      Member              1992
Sergio Vladimirschi Junior.............      Member              1996

Executive Officers


<TABLE>
<CAPTION>
                                                                              Current Position Held
Member                                        Position                                 Since
------                                        --------                          ---------------------
<S>                                                                                     <C> 
Raul Rosenthal.........................  Chief Executive Officer                        1997
Gene Musselman.........................  Executive Vice President                       1996
                                           and Chief Operating Officer
Douglas Duran..........................  Chief Financial Officer                        1992
Virgilio Jose Carreira Amaral..........  Engineering Officer                            1995
Antonio Alberto Teixeira Filho.........  Technology Officer                             1994
Roseli Parrella........................  Human Resources Officer                        1997
Leonardo Petrelli Neto.................  Curitiba Operations Officer                    1992
Luiz Eduardo B.P. Rocha................  Rio de Janeiro Operations                      1996
                                         Officer
Luiz Gleiser...........................  Programming Officer                            1997
Celso Antonio Penteado.................  Sao Paulo Operations Officer                   1997
Alexandre Annemberg....................  Development Officer                            1997
Jose Carlos Romero Alves...............  Management Information                         1997
                                           System Officer
Leila Abraham Loria....................  Galaxy Brasil Officer                          1997
                                         
</TABLE>                                 
                                       

     Robert Civita is the father of Giancarlo  Francesco Civita.  Marc Nathanson
is the uncle of Sergio Vladimirschi Junior.


ITEM 11. COMPENSATION FOR DIRECTORS AND OFFICERS

     For the year ended December 31, 1996, the aggregate compensation, including
bonuses,  of all Directors,  Officers and Executive  Officers of the Company was
$2,015,780.  Members  of the  Board of  Directors,  the  Advisory  Board and the
Committee of Officers do not receive a salary from the Company.



                                       51
<PAGE>


     For the year ended December 31, 1996, the aggregate amount set aside by the
Company  to  provide  pension,  retirement  or similar  benefits  to  Directors,
Officers and Executive Officers was approximately $60,000.


ITEM 12. OPTIONS TO PURCHASE SECURITIES

     Not applicable.


ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

Overview

     Tevecap has engaged in a  significant  number and variety of related  party
transactions,  including,  without limitation, the transactions described below.
Tevecap has not performed any studies or analyses to determine whether the terms
of past  transactions  with related parties have been equivalent to arm's-length
transactions  and  cannot  state  with any  certainty  the  extent to which such
transactions  are  comparable  to those  which might have been  obtained  from a
non-affiliated third party.

Transactions Among Shareholders

     On  December  6, 1995,  Tevecap's  shareholders  executed a Stock  Purchase
Agreement and a  Stockholders  Agreement  relating to the  investment of ABC and
Hearst in the  Company  through  Hearst/ABC  Parties.  See "Item 4 - Control  of
Registrant."  On that date, the Tevecap  shareholders  also executed a series of
inter-shareholder  agreements  relating to, among other things, the provision of
services  and  programming  among  the  Company  and  the  shareholders.   These
agreements  supplemented  other  existing  agreements  among  Shareholders.  The
following  contracts  are the  principal  agreements  among the  Company and the
Tevecap shareholders (each of which, unless specified otherwise,  is dated as of
December 6, 1995).

General and Advisory Services

     Under an Advisory Services  Agreement,  each of Hearst, ABC and HABC II has
agreed,  upon a request  from the  Company,  to use its  reasonable  efforts  to
arrange for the investors to furnish  personnel to provide advisory  services to
the Company.  To date, the Company and Hearst,  ABC and HABC II have not entered
into a  supplemental  agreement to provide  specific  personnel or services at a
particular cost.

     In addition,  on April 1, 1996,  Tevecap  entered into a separate  Advisory
Services Agreement with Falcon International Communications,  L.L.C. Pursuant to
this  agreement,  which has a  renewable  two-year  term,  Falcon  International
Communications, L.L.C. has agreed to provide a range of advisory services to the
Company,  encompassing such areas as accounting,  budget and billing procedures,
financial and operation statements, customer, employee and government relations,
the design,  purchase and  maintenance  of equipment and supplies,  negotiations
with  programmers and other such matters as the Company may reasonably  request.
In  exchange  for  such   services,   the  Company  has  agreed  to  pay  Falcon
International Communications, L.L.C. an annual fee of $200,000, which amount may
be revised on each anniversary of the agreement.

Programming

     In connection with the investment by Hearst and ABC in Tevecap, Tevecap and
these  two  parties  entered  into  a  Programming  Agreement  (the  "Hearst/ABC
Programming Agreement").  Pursuant to the Hearst/ABC Programming Agreement, each
of Hearst and ABC has  agreed to offer  first to Tevecap  pay  



                                       52
<PAGE>


programming  that Hearst or ABC (or any subsidiary of which either Hearst or ABC
owns at least 80.0% of the outstanding  equity interests) intends to license for
use in Brazil in the pay  television  markets  served by TVA.  The parties  also
agreed to consider  future  co-production  activities  which could enhance TVA's
business and competitive  position.  Tevecap agreed to pay to each of Hearst and
ABC such fees and  expenses as are agreed upon at the time such  programming  or
co-production  services are provided.  The Hearst/ABC Programming Agreement does
not apply to The Walt  Disney  Company  or its  subsidiaries  other than ABC and
ABC's subsidiaries.  In addition,  the Hearst/ABC Programming Agreement does not
apply to the activities of The A&E Television Networks,  Lifetime Television and
ESPN, including agreements relating to ESPN Brasil.

Other Transactions Among Shareholders

     Each of Tevecap's corporate  shareholders has entered into a side letter to
the Stock Purchase  Agreement and the Stockholders  Agreement  pursuant to which
each of Abril, Falcon and the Chase Parties agreed, with certain exceptions,  to
exchange all of its respective  shares in Tevecap for a corresponding  number of
shares of a newly-formed Brazilian corporation. The new corporation would become
an 80.0%  shareholder in Tevecap and Hearst/ABC would remain a 20.0% shareholder
in  Tevecap,  which  would be  reorganized  as a  Brazilian  limitada.  This new
structure  would not  result  in any  change in the  current  beneficial  equity
participation of the Stockholders in Tevecap.  In addition,  the transactions in
establishing  the new  structure  and the new  structure  itself  would  have to
conform to the terms of the Indenture.  As of the date hereof, the timing of the
restructuring is under discussion by the Stockholders.

Transactions Among Related Parties

General and Advisory Services

     TVA Sistema and MTV Brasil have  entered  into  various  agreements,  dated
August 27,  1996,  governing  reciprocal  services  between  the Company and MTV
Brasil.  The services  covered by the  agreement  include  billing,  subleasing,
equipment  use,   administrative,   financial,   accounting,   human  resources,
engineering,  infrastructure and satellite services.  TVA Sistema and Abril have
also entered into an agreement,  dated January 1995, with Uniser,  a division of
Abril, pursuant to which Uniser provides telecommunications,  maintenance, human
resources,  travel,  legal other  services in exchange for a monthly  payment of
approximately $20,000.

     In addition,  pursuant to an agreement dated January 10, 1995,  Tevecap has
agreed to provide  various  financial  services to Canbras,  in return for which
Tevecap  receives a monthly payment of  approximately  $5,000.  Tevecap provides
similar  financial  services to Galaxy  Brasil,  in return for which the Company
receives a monthly  payment of $5,000  pursuant to an  agreement  dated March 9,
1995. Tevecap also provides to ESPN Brasil Ltda.  financial services,  for which
it receives a payment of approximately $7,500 per month, and satellite and other
engineering  services,  for which it receives a payment of approximately $78,000
per month, pursuant to an agreement dated June 26, 1995.

     The Company has also  entered into an agreement  with SMC  Marketing  Ltda.
("SMC"),  dated September 1, 1995, to provide space,  equipment and personnel to
SMC, in return for which the Company receives a monthly payment of approximately
US$29,000.

Publishing and Advertising

     The  Company   publishes  a  monthly   magazine   detailing  the  Company's
programming  options in a given month.  In connection  with this  magazine,  TVA
Sistema has entered into an agreement with Abril, dated September 1992, pursuant
to which Abril publishes  approximately  300,000 copies of the Company's monthly
magazine in return for a monthly payment of approximately  $240,000. The monthly
magazine is  distributed  in 



                                       53
<PAGE>


accordance with a distribution  agreement,  dated  September  1992,  between the
Company  and  Irmaos  Reis,  pursuant  to which the  Company  pays  Irmaos  Reis
approximately $60,000 per month.

     TVA Sistema and Abril also have a reciprocal advertising agreement in which
the Company publishes advertisements for Abril in the Company's monthly magazine
in exchange for  advertisements  for the Company (and third parties  through the
Company) in the magazines published by Abril.

         In addition,  the Company has an agreement with SMC, dated September 1,
1995,  pursuant to which the  Company  assists  SMC in selling  advertising,  in
return for which the Company receives 25.0% of SMC's advertising revenues.

Insurance

     TVA  currently  reimburses  TVA  Sistema for  payments  made by TVA Sistema
pursuant to an insurance  policy  covering the  operations  of TVA Sistema,  TVA
Brasil   Abril  Video  da  Amazonia   and  the  former  MTV  Division  of  Abril
(collectively,  the "Insureds").  TVA Sistema makes such payments pursuant to an
agreement  among the Insureds dated September 30, 1996. The annual premiums paid
by TVA Sistema and reimbursed by the Company amount to approximately $84,000.

Abril Credit Facility

     Tevecap has entered, as the borrower, into a revolving credit facility (the
"Abril Credit  Facility") with Abril, as the lender.  The Abril Credit Facility,
effective  December  6, 1995 and valid for a period  of 36  months,  allows  the
Company to draw down amounts not to exceed a maximum aggregate  principal amount
of $60,000,000.  Since June 1996,  Tevecap has from time to time requested,  and
Abril has provided, funding in excess of the aggregate maximum principal amount.
The loans  provided  under the Abril Credit  Facility are  denominated in reais,
unless the loan is a pass-through  loan that Abril has funded in US dollars,  in
which case the loan is funded in a real-equivalent  amount.  Abril has agreed to
use its reasonable  commercial  efforts to obtain the lowest  possible  interest
rates for its loans to Tevecap  under the Abril Credit  Facility.  As of October
31, 1996, the aggregate  principal amount of loans  outstanding  under the Abril
Credit  Facility was  approximately  $105.8  million,  which was fully repaid to
Abril with the proceeds of the  offering of the Notes.  As of December 31, 1996,
the Company had not redrawn any amounts  under the Abril  Credit  Facility.  See
Note 9 to the Financial Statements included in this Annual Report.

Other Intercompany/Shareholder Loans

     Tevecap  has used the  proceeds  from the  Abril  Credit  Facility  to make
capital  contributions  to TVA Sistema and Galaxy  Brasil,  as well as to extend
loans to various interrelated companies. The aggregate outstanding amounts under
these loans as of December  31, 1996 were:  $25.6  million to TVA Brasil;  $16.4
million to Galaxy  Brasil;  $12.3  million to SMC; $8.3 million to TVA Sul; $3.7
million to Canbras  TVA;  $188,000 to Comercial  Cabo Sao Paulo;  and $96,000 to
other affiliates.

     Abril has  received  loans  from ESPN  Brasil  Ltda.,  which  loans,  as of
December  31,  1996,  had an  aggregate  principal  outstanding  amount  of $1.5
million.

     In addition, TVA Sistema has made loans to various interrelated  companies.
The aggregate principal outstanding amounts under these loans as of December 31,
1996 were $2.9 million to TVA Sul and $130,000 to TV Show Time. TV Show Time has
loans  outstanding  to Abril,  which  loans,  as of December  31,  1996,  had an
aggregate outstanding amount of approximately $2.7 million.



                                       54
<PAGE>


     All other intercompany and shareholder loans outstanding as of December 31,
1996 equaled an aggregate principal amount of approximately $1.6 million.

Advances of Capital Contributions

     As of  December  31,  1996,  the  Company  had  made  advances  of  capital
contributions of $254.2 million,  $10.6 million and $53,256 to TVA Sistema,  TVA
Sul and other affiliates, respectively.

Service Agreement with Licenseholders

     Pursuant to a Service  Agreement,  dated July 22,  1994,  as  amended,  TVA
Brasil and TV Show Time (the "Licenseholders") agreed to transfer to TVA all the
rights and  benefits  associated  with their  current and future  pay-television
licenses,  with the exception of licenses operated by companies in which TVA has
minority  interests.  While  the  Licenseholders  retained  the  title  to  such
licenses,  the  Licenseholders  promised to take all steps necessary to transfer
the title of such  licenses  to Tevecap.  Such steps  included  the  appropriate
procedures required by the Ministry of Communications and any other governmental
authority  regulating the transfers.  The transfer of the title to such licenses
is  currently   either   pending,   subject  to  approval  by  the  Ministry  of
Communications,  or waiting for the passage of certain  statutory or  regulatory
waiting periods.


                                     PART II

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED

     Not applicable.


                                    PART III

ITEM 15. DEFAULTS UPON SENIOR SECURITIES

     Not applicable.


ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES

     Not applicable.


ITEM 17. FINANCIAL STATEMENTS

     The Company is furnishing financial statements pursuant to the instructions
in Item 18 of Form 20- F.


ITEM 18. FINANCIAL STATEMENTS

     See Item  19(a) for a list of  financial  statements  filed as part of this
Form 20-F.


                                       55
<PAGE>


ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS

     (a) Financial Statements.  The following financial statements and schedules
are  filed  as part of this  annual  report,  together  with the  report  of the
independent accountants.


                        INDEX TO THE FINANCIAL STATEMENTS

                                                                           Page
                                                                           ----

Report on Consolidated Financial Statements of Tevecap S.A. and 
   Subsidiaries as of December 31, 1996 and 1995 and for each of the 
   three years in the period ended December 31, 1996 ...................   F-1

     Report of Independent Accountants .................................   F-2

     Consolidated Balance Sheets as of December 31, 1996 and 1995 ......   F-3

     Consolidated Statements of Operations for each of the three
       years in the period ended December 31, 1996 .....................   F-5

     Consolidated Statements of Change in Shareholders' Equity
       and Statement of Redeemable Common Stock for each of
       the three years in the period ended December 31, 1996 ...........   F-6

     Consolidated Statements of Cash Flows for each of the three
       years in the period ended December 31, 1996 .....................   F-7

     Notes to these Consolidated Financial Statements ..................   F-9


                                                                           Page
                                                                           ----
Report on Financial Statements of TVA Sistema de Televisao S.A.
     as of December 31, 1996 and 1995 and for each of the three
     years in the period ended December 31, 1996 ........................  F-44

     Report of Independent Accountants ..................................  F-45

     Balance Sheets as of December 31, 1996 and 1995 ....................  F-46

     Statements of Operations for each of the three
        years in the period ended December 31, 1996 .....................  F-48

     Statements of Change in Shareholders' Equity for
        each of the three years in the period ended December 31, 1996 ...  F-49

     Statements of Cash Flows for each of the three
        years in the period ended December 31, 1996 .....................  F-50

     Notes to these Financial Statements ................................  F-51



                                       56
<PAGE>


                                                                            Page
                                                                            ----
Report on Financial Statements of TVA Sul Participacoes S.A. and 
Subsidiaries as of December 31, 1996 and 1995 and for each of the 
three years in the period ended December 31, 1996 ........................  F-64

 Report of Independent Accountants .......................................  F-65

 Balance Sheets as of December 31, 1996 and 1995 .........................  F-66

 Statements of Operations for each of the three
     years in the period ended December 31, 1996 .........................  F-68

 Statements of Change in Shareholders' Equity for
     each of the three years in the period ended December 31, 1996 .......  F-69

 Statements of Cash Flows for each of the three
     years in the period ended December 31, 1996 .........................  F-70

 Notes to these Financial Statements .....................................  F-72

                                                                            Page
                                                                            ----
                        
TV Alfa Cabo Ltda.,  TCC TV A Cabo Ltda.,  CCS  Camboriu  Cable  System de
Telecomunicacoes Ltda., TVA Sul Parana Ltda., TVA Sul Foz do
Iguacu Ltda. and TVA Sul Santa Catarina Ltda .............................  F-85

 Report of Independent Accountants .......................................  F-86

 Balance Sheets as of December 31, 1996 ..................................  F-92

 Statements of Income the periods ended December 31, 1996 ................  F-94

 Statements of Change in Shareholders' Equity for
     the periods ended December 31, 1996 .................................  F-95

 Statements of Cash Flows for the periods ended
     December 31, 1996 ...................................................  F-96

 Notes to Financial Information ..........................................  F-97


         (b) Exhibits. Not applicable.              



                                       57
<PAGE>




                                   SIGNATURES

Pursuant to the  requirements  of Section 12 of the  Securities  Exchange Act of
1934, the registrant  certifies that it meets all of the requirements for filing
on Form 20-F and has dully caused this annual  report to be signed on its behalf
by the undersigned, thereunto duly authorized.


TEVECAP S.A.



By:     /s/ Jose Augusto P. Moreira
---------------------------------------
Name:    Jose Augusto P. Moreira
Title:   Officer


By:     /s/ Claudio Cesar D'Emilio
---------------------------------------
Name:    Claudio Cesar D'Emilio
Title:   Officer


Date:    July 18, 1997




                                       58
<PAGE>



                                  TEVECAP S.A.
                                AND SUBSIDIARIES

                             REPORT ON CONSOLIDATED
                              FINANCIAL STATEMENTS

                      as of December 31, 1996 and 1995 and
                    for each of the three years in the period
                             ended December 31, 1996


<PAGE>



                                  TEVECAP S.A.

                                AND SUBSIDIARIES

                   Index to Consolidated Financial Statements





Contents


                                                                            Page

Report of Independent Accountants                                           F-2

Consolidated Balance Sheets as of December 31, 1996 and 1995                F-3

Consolidated Statements of Operations for each of the three 
years in the period ended December  31, 1996                                F-5

Consolidated Statements of Change in Shareholders' Equity and
Statement of Redeemable Common Stock for each of the three years 
in the period ended December 31, 1996                                       F-6

Consolidated Statements of Cash Flows for each of the three years 
in the period ended December 31, 1996                                       F-7

Notes to  these Consolidated Financial Statements                           F-9



                                      F-1
<PAGE>


Report of Independent Accountants


To the Shareholders and Directors of
TEVECAP S.A.

We have audited the accompanying consolidated balance sheets of TEVECAP S.A. and
subsidiaries  (the  "Company") as of December 31, 1996 and 1995, and the related
consolidated  statements  of  operations,  changes in  shareholders'  equity and
redeemable common stock and cash flows for each of the three years in the period
ended December 31, 1996, all expressed in United States dollars. 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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits 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 consolidated  financial position of TEVECAP S.A. and
subsidiaries as of December 31, 1996 and 1995, and the  consolidated  results of
operations  and cash  flows  for each of the  three  years in the  period  ended
December 31, 1996, in conformity with accounting  principles  generally accepted
in the United States of America.


Coopers & Lybrand

Sao Paulo, Brazil
April 11, 1997



                                      F-2
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES


Consolidated Balance Sheets

December 31, 1996 and 1995
(in thousands of U.S. dollars)


                                                               December 31,
                                                           ---------------------
                                                             1996         1995
                                                           --------     --------
                             ASSETS

Current assets
   Cash and cash equivalents (Note 3)                      $104,798     $ 24,201
   Accounts receivable, net (Note 4)                         32,296       11,253
   Inventories (Note 5)                                      13,095       13,076
   Film exhibition rights (Note 6)                            1,061           30
   Prepaid and other assets (Note 7)                          2,829        2,968
   Other accounts receivable (Note 8)                         3,008          985
                                                           --------     --------

               Total current assets                         157,087       52,513
                                                           --------     --------

Property, plant and equipment, net (Note 12)                233,593      131,266
Investments (Note 11)
   Equity affiliates                                          7,667        3,462
   Cost basis investees                                      16,326       11,240
   Concessions, net                                          17,574        7,978
Loans to related companies (Note 9)                          15,308        6,732
Debt issuance costs                                           9,145          --
Others                                                        2,422        3,657
                                                           --------     --------

               Total assets                                $459,122     $216,848
                                                           ========     ========



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



                                      F-3
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 1996 and 1995
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                   --------------------------------
                                                                                                     1996                   1995
                                                                                                   ---------              ---------
<S>                                                                                                <C>                    <C>      
                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
   Short-term bank loans (Note 13)                                                                 $  18,039              $    --
   Film suppliers                                                                                      7,012                  5,892
   Other suppliers                                                                                    52,932                 52,078
   Taxes payable other than income taxes                                                               8,953                  6,171
   Accrued payroll and related liabilities                                                             6,141                  4,571
   Advance payments received from subscribers                                                         10,482                  3,986
   Other accounts payable (Note 14)                                                                    4,543                  3,272
                                                                                                   ---------              ---------

               Total current liabilities                                                             108,102                 75,970
                                                                                                   ---------              ---------

Long-term liabilities
   Loans (Note 13)                                                                                   250,464                   --
   Loans from related companies (Note 9)                                                               2,721                    586
   Loans from shareholders (Note 15)                                                                   1,640                  3,086
   Provision for claims (Note 19)                                                                      5,045                  3,763
   Liability to  Fund Equity investee (Note 11)                                                        1,107                  2,169
   Deferred hook-up fee revenue                                                                        4,883                   --
                                                                                                   ---------              ---------

               Total long-term liabilities                                                           265,860                  9,604
                                                                                                   ---------              ---------

Commitments and contingencies (Note 17)

Minority interest                                                                                      1,778                   --
Redeemable common stock, no par value, 85,637,516 shares
   issued and outstanding                                                                            164,910                149,534

Shareholders' equity
   Common stock, no par value, 111,075,339
      shares issued and outstanding (Note 18)                                                        142,495                142,495
   Accumulated deficit                                                                              (224,023)              (160,755)
                                                                                                   ---------              ---------

               Total shareholders' equity                                                            (81,528)               (18,260)
                                                                                                   ---------              ---------

               Total liabilities and shareholders' equity                                          $ 459,122              $ 216,848
                                                                                                   =========              =========
</TABLE>


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



                                      F-4
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Consolidated Statements of Operations

for the years ended December 31, 1996, 1995 and 1994
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                                               Year ended December 31,
                                                                                    -----------------------------------------------
                                                                                      1996               1995               1994
                                                                                    ---------          ---------          ---------
<S>                                                                                 <C>                <C>                <C>      
Gross revenues
   Monthly subscriptions                                                            $ 123,020          $  62,496          $  27,976
   Installation                                                                        61,717             26,045              6,997
   Advertising                                                                          7,532              8,377              5,727
   Indirect programming                                                                11,377              2,866              1,626
   Other                                                                                8,192              2,226              1,446
   Revenue taxes                                                                      (13,747)            (7,506)              (872)
                                                                                    ---------          ---------          ---------
            Net revenue                                                               198,091             94,504             42,900
                                                                                    ---------          ---------          ---------

Direct operating expenses
   Payroll and benefits                                                                27,203             12,520              8,022
   Programming                                                                         42,391             21,609             12,133
   Transponder lease cost                                                              10,847              7,568              1,555
   Technical assistance                                                                 5,507              5,152              1,622
   Vehicle rentals                                                                      1,862              1,732                788
   TVA magazine                                                                         6,842              3,318              1,430
   Other costs                                                                         17,645             10,127              3,109
                                                                                    ---------          ---------          ---------
                                                                                      112,297             62,026             28,659
                                                                                    ---------          ---------          ---------

Selling, general and administrative expenses
   Payroll and benefits                                                                27,431             21,627             14,241
   Advertising and promotion                                                           21,355             11,122              3,540
   Rent                                                                                 3,422              1,073                656
   Other administrative expenses                                                       18,910              6,673              2,206
   Other general expenses                                                              10,337              6,407              3,727
                                                                                    ---------          ---------          ---------
                                                                                       81,455             46,902             24,370
                                                                                    ---------          ---------          ---------

Allowance for obsolescence                                                              2,250               --                 --
Depreciation                                                                           26,539             12,848              6,177
Amortization                                                                            1,677                420               --
                                                                                    ---------          ---------          ---------
            Operating loss                                                            (26,127)           (27,692)           (16,306)
                                                                                    ---------          ---------          ---------

Interest income                                                                         5,813              3,118             21,806
Interest expense                                                                      (17,520)           (17,745)           (16,413)
Translation gain (loss)                                                                   473               (339)              (914)
Equity in losses of affiliates                                                         (8,532)            (3,672)               383
Gain on issuance of shares by equity investees                                          2,317               --                 --
Other nonoperating (expenses) income, net                                              (6,009)             4,389             (1,273)
                                                                                    ---------          ---------          ---------

            Loss before income taxes and minority interest                            (49,585)           (41,941)           (12,717)
Income taxes (Note 10)                                                                   (156)              --                 --
                                                                                    ---------          ---------          ---------

            Loss before minority interest                                             (49,741)           (41,941)           (12,717)
   
            
Minority interest                                                                       1,849                871                720
                                                                                    ---------          ---------          ---------

            Net loss                                                                $ (47,892)         $ (41,070)           (11,997)
                                                                                    =========          =========            ======= 
</TABLE>


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



                                      F-5
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Consolidated  Statements  of Changes in  Shareholders'  Equity and  Statement of
Redeemable Common Stock



for the years ended December 31, 1996, 1995 and 1994
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                                                                          Redeemable
                                                                       Paid-in                             Total            Common
                                                                       Capital       Accumulated       Shareholders'         Stock
                                                                      (Note 18)         Deficit           Equity           (Note 18)
                                                                      ---------        ---------         ---------         ---------
<S>                                                                   <C>              <C>               <C>               <C>      
Balance as of December 31, 1993 (Combined)                            $  10,797        $(102,908)        $ (92,111)             --

Capital contributed on:
   June 30, 1994                                                        131,698                            131,698              --
   July 25, 1994                                                                                                           $  19,754
Net loss for the period                                                                  (11,997)          (11,997)             --
                                                                      ---------        ---------         ---------         ---------

Balance as of December 31, 1994 (Consolidated)                          142,495         (114,905)           27,590            19,754

Capital contributed on:
   September 22, 1995                                                                                                          2,000
   September 25, 1995                                                                                                          8,000
   September 26, 1995                                                                                                         40,000
   December 8, 1995                                                                                                           75,000
Net loss for the period                                                                  (41,070)          (41,070)             --
Accretion related to Redeemable Common Stock                                              (4,780)           (4,780)            4,780
                                                                      ---------        ---------         ---------         ---------

Balance as of December 31, 1995 (Consolidated)                          142,495         (160,755)          (18,260)          149,534

Net loss for the period                                                                  (47,892)          (47,892)             --
Accretion related to Redeemable Common Stock                                             (15,376)          (15,376)           15,376
                                                                      ---------        ---------         ---------         ---------

Balance as of December 31, 1996 (Consolidated)                        $ 142,495        $(224,023)        $ (81,528)        $ 164,910
                                                                      =========        =========         =========         =========
</TABLE>


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



                                      F-6
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES


Consolidated Statements of Cash Flows

for the years ended  December  31,  1996,  1995 and 1994 (in  thousands  of U.S.
dollars)

<TABLE>
<CAPTION>
                                                                                                Year Ended December 31,
                                                                                    -----------------------------------------------
                                                                                       1996              1994                1995
                                                                                    ---------          ---------          ---------
<S>                                                                                 <C>                <C>                  <C>     
Cash flows from operating activities:
  Net loss                                                                          $ (47,892)         $ (41,070)         $ (11,997)
  Adjustments to reconcile net loss to net cash (used in)
    provided by operating activities:
    Depreciation                                                                       26,539             12,848              6,141
    Amortization                                                                        1,677                420               --
    Allowance for exhibition costs                                                       --                  827               --
    Allowance for doubtful accounts                                                     2,352              2,196                848
    Allowance for obsolescence                                                          2,250               --                 --
    Provision for claims                                                                1,276              2,688                864
    Minority interest                                                                  (1,849)              (871)              (721)
    Disposal and write-off of property, plant and equipment                             1,005                341                662
    Gain on issuance of shares by equity investees                                     (2,317)              --                 --
    Equity in losses (income) of affiliates                                             8,532              3,672               (383)
  Changes in operating assets and liabilities:
    Film exhibition rights                                                             (1,031)               560               (114)
    Accounts receivable                                                               (23,395)            (5,908)            (7,007)
    Prepaid and other assets                                                           (8,973)            (1,269)            (1,364)
    Other accounts receivable                                                            (775)              (709)              (199)
    Accrued interest                                                                    5,908              9,241                723
    Inventories                                                                        (2,227)            (7,373)            (2,383)
    Suppliers                                                                           1,549             36,275              5,309
    Taxes payable other than income taxes                                               2,665              4,881                685
    Accrued payroll and related liabilities                                             1,371              1,636              1,454
    Advances received from subscribers                                                  6,451              2,956               (496)
    Deferred hook-up fee revenue                                                        4,883               --                 --
    Other accounts payable                                                              4,305              1,648             (1,729)
                                                                                    ---------          ---------          ---------
               Net cash (used in) provided by operating activities                    (17,696)            22,989             (9,707)
                                                                                    ---------          ---------          ---------

Cash flows from investing activities:
  Purchase of property, plant and equipment                                          (125,612)           (93,029)           (22,369)
  Loans to related companies                                                          (39,181)            (7,967)            (3,482)
  Cash received on loans to related companies                                          31,696              2,591              4,481
  Purchase of concessions                                                             (14,235)            (6,393)            (2,035)
  Investments in equity and cost investments                                          (16,568)           (14,863)              (929)
                                                                                    ---------          ---------          ---------
               Net cash used in investing activities                                 (163,900)          (119,661)           (24,334)
                                                                                    ---------          ---------          ---------

Cash flows from financing activities:
  Bank loans                                                                          268,503               --                 --
  Capital contributions                                                                  --              125,000            151,452
  Repayments of loans from shareholders                                                (2,929)              --               (3,082)
  Loans from related companies                                                        168,414            131,860             96,986
  Repayments of loans from related companies                                         (171,795)          (140,631)          (186,755)
  Repayment of loans from banks                                                          --                 --              (19,935)
                                                                                    ---------          ---------          ---------
               Net cash provided by financing activities                              262,193            116,229             38,666
                                                                                    ---------          ---------          ---------

Net increase in cash and cash equivalents                                              80,597             19,557              4,625
Cash and cash equivalents at beginning of the period                                   24,201              4,644                 19
                                                                                    ---------          ---------          ---------
               Cash and cash equivalents at end of the period                       $ 104,798          $  24,201          $   4,644
                                                                                    ---------          ---------          ---------

Supplemental cash disclosure:
  Cash paid for interest                                                            $   7,312          $   8,390          $  16,413
                                                                                    =========          =========             ======
</TABLE>


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

                                      F-7
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

for the years ended December 31, 1996 and 1995 (in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                                                    Year Ended December 31,
                                                                                       ---------------------------------------------
                                                                                         1996                 1995             1994
                                                                                       --------             --------           -----
<S>                                                                                    <C>                     <C>             <C> 
Supplemental noncash financing activities:
  Accrued interest on related company loans refinanced
    as principal balance                                                               $    354             $  9,355           $ --
                                                                                       ========             ========           =====

Details of acquisitions:
  Fair value of assets acquired                                                        $ 15,701                 --               --
  Liabilities assumed                                                                    (1,385)                --               --
                                                                                       --------             --------           -----

  Cash paid                                                                              14,316                 --               --
  Less: cash acquired                                                                       (81)                --               --
                                                                                       --------             --------           -----
Net cash paid for acquisitions                                                         $ 14,235                 --               --
                                                                                       ========             ========           =====
</TABLE>


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


                                      F-8
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements

(in thousands of U.S. dollars)





1.   The Company and its principal operations

     The accompanying  consolidated  financial  statements have been prepared to
     reflect the consolidated  results of TEVECAP S.A. and its subsidiaries (the
     "Company").

     TEVECAP  S.A.  is a  holding  company,  the  subsidiaries  of which  render
     services  related  to  wireless  cable  and  cable  and  parabolic  antenna
     television  systems,  including  marketing  and  advertising,   production,
     distribution and licensing of domestic and foreign television programs. The
     Company has wireless cable channel rights  primarily in major urban markets
     in Brazil.

2.   Summary of significant accounting policies

     Significant  policies  followed  in the  preparation  of  the  accompanying
     consolidated financial statements are described below:

2.1  Basis of presentation and consolidation

     a) Basis of presentation

     The  consolidated  financial  statements are presented in U.S.  dollars and
     have been  prepared in  accordance  with  accounting  principles  generally
     accepted in the United  States of America  ("U.S.  GAAP"),  which differ in
     certain respects from accounting  principles  applied by the Company in its
     local currency financial statements,  which are prepared in accordance with
     accounting principles generally accepted in Brazil ("Brazilian GAAP").

     The  preparation  of  financial  statements  requires  management  to  make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosures of contingent  assets and liabilities as of the
     financial  statement dates and the reported amount of revenues and expenses
     during the reporting periods.  Since management's  judgment involves making
     estimates  concerning the  likelihood of future events,  the actual results
     could  differ from those  estimates  which will have a positive or negative
     effect on future period results.

     b) Consolidation as of and for the three years ended December 31, 1996

     On June 30, 1994,  TEVECAP S.A. was  established  as a holding  company for
     certain entities which were under common control.  Subsequent to this date,
     additional entities were formed


Continued



                                      F-9
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


     under,  or  acquired  by TEVECAP  S.A.,  as  described  elsewhere  in these
     consolidated financial statements.  Accordingly, the consolidated financial
     statements  as of and for the year ended  December 31, 1994 and  thereafter
     are prepared on a consolidated basis.

     The  consolidated   financial   statements  include  the  accounts  of  all
     majority-owned  subsidiaries.  All  significant  intercompany  balances and
     transactions have been eliminated on consolidation.

2.2  Accounting records

     As  required  by  Brazilian  Law and in  accordance  with local  accounting
     practices,  the  accounting  records  of  the  Company  are  maintained  in
     Brazilian  currency (real). In order to present the consolidated  financial
     statements in conformity with accounting  principles  generally accepted in
     the United States of America, the Company maintains  additional  accounting
     records which are used solely for this purpose.

2.3  Currency remeasurement

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
     52,  "Foreign  Currency  Transactions",  the United  States dollar has been
     assumed to be the  functional  currency as Brazil is a  "hyperinflationary"
     country.  As such, the local  accounts of the Company are  translated  into
     United States dollars as follows:

     o    Nonmonetary assets and liabilities are translated at historical rates.
          All other assets and  liabilities  are translated at the official rate
          of exchange of R$1.0394 to US$1 in effect on December  31,  1996;  and
          R$0.973 to US$1 in effect on December 31, 1995.

     o    Income and expenses are  translated at the average  exchange  rates in
          effect each month,  except for those related to assets and liabilities
          which are translated at historical exchange rates, and deferred income
          taxes,   which  are  translated  at  the  current  rate.   Translation
          gains/losses are recognized in the income statement.


Continued


                                      F-10
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


2.4  Consolidated financial statements

     The Company's operating subsidiaries included in the consolidated financial
     statements are:

<TABLE>
<CAPTION>
                                                                                 Ownership Interest as of
                                                                                       December 31,
                                                                                ----------------------------
                                                                                 1996                 1995
                                                                                -------              -------
<S>                                                                             <C>                  <C>    
     Owned Systems
         TVA Sistema de Televisao S.A.                                           98.00%               98.00%
         TVA Sul Participacoes S.A.                                              87.00%                 --
            TVA Sul Parana Ltda. (a), (b)                                        87.00%               80.00%
            TVA Sul Santa Catarina Ltda. (b)                                     87.00%                 --
            TVA Sul Foz do Iguacu Ltda. (b)                                      87.00%                 --
            TCC TV a Cabo Ltda. (b)                                              87.00%                 --
            TV Alfa Cabo Ltda. (b)                                               87.00%                 --
            CCS Camboriu Cable Systems de Telecomunicacoes Ltda.                 52.20%                 --
         Galaxy Brasil S.A.                                                     100.00%              100.00%

     License Subsidiary
         Comercial Cabo TV Sao Paulo Ltda. (c)                                  100.00%              100.00%

     Programming Ventures
         TVA Communications Ltd.                                                100.00%              100.00%
            TVA Communications Aruba N.V.                                       100.00%                 --
</TABLE>

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

(a)  In August 1996, TVA Curitiba Servicos  Telecomunicacoes  Ltda.  changed its
     name to TVA Parana Ltda.  ("Parana").  The Company's initial  investment in
     Parana  together  with  its   contributions  of  $18,454  relating  to  the
     acquisition  of 27,712,345  shares during the year ended December 31, 1996,
     was in excess of the Company's  share of the book value of Parana after the
     contribution. This resulted in a loss of $2,727.

(b)  One common share in each of these entities is owned by a Brazilian National
     pursuant to local legislative requirements.

(c)  0.00149% of the common  shares in this entity are owned by the  controlling
     shareholder   of  the  parent   company   pursuant  to  local   legislative
     requirements. 

2.5  Acquisitions

     During the year ended  December 31, 1996, the Company  acquired  control of
     the following  entities which were accounted for under the purchase  method
     of  accounting:  i) in February  1996,  the Company  acquired TVA Sul Santa
     Catarina ("TVA SSC"); ii) in March 1996, the Company acquired TCC TV a Cabo
     Ltda. ("TCC") and TV Alfa Cabo Ltda. ("TV Alfa"); and iii) in May 1996, the
     Company  acquired TVA Sul Foz do Iguacu  Ltda.  ("TVA SF") and CCS Camboriu
     Cable Systems de  Telecomunicacoes  Ltda. ("CCS"). In each case, the excess
     of the purchase price over the fair value of assets acquired represents the
     value of concessions of certain television stations.  These concessions are
     being amortized on a straight line basis over ten years.

     The purchase  prices have been  allocated to the assets  purchased  and the
     liabilities assumed based upon the fair values on the dates of acquisition,
     as follows:


Continued



                                      F-11
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


     Camboriu Cable Systems de Telecomunicacoes Ltda. ("CCS"). In each case, the
     excess  of the  purchase  price  over the fair  value  of  assets  acquired
     represents the value of concessions of certain television  stations.  These
     concessions are being amortized on a straight line basis over ten years.

     The purchase  prices have been  allocated to the assets  purchased  and the
     liabilities assumed based upon the fair values on the dates of acquisition,
     as follows:

<TABLE>
<CAPTION>
                                            TVA SSC    TVA SF       CCS        TCC      TV Alfa
                                            -------    -------    -------    -------    -------
<S>                                         <C>        <C>        <C>        <C>        <C>    
     Current assets, other than cash           --      $    23    $     7    $    51    $     5
     Property, plant and equipment          $    25        319      3,501        238        176
     Other assets                              --            3       --         --         --
     Concessions                                 45      5,346        841      2,622      2,418
     Other liabilities                          (55)      (377)      (139)      (127)      (687)
                                            -------    -------    -------    -------    -------
     
     Purchase price, net of cash received   $    15    $ 5,314    $ 4,210    $ 2,784    $ 1,912
                                            =======    =======    =======    =======    =======
     
                Total purchase price        $    15    $ 5,324    $ 4,210    $ 2,834    $ 1,933
                                            =======    =======    =======    =======    =======
</TABLE>
        
     The operating  results of these acquired  businesses  have been included in
     the consolidated statement of operations from the dates of acquisition.  On
     the basis of a pro forma  consolidation  of the results of operations as if
     the  acquisitions  had taken  place on January 1,  1995,  consolidated  net
     revenues would have been $98,147 for the year ended December 31, 1995. Such
     pro forma  amount does not purport to be  indicative  of results that would
     have occurred had the acquisition been in effect for the periods presented,
     not do they purport to be  indicative  of the results that will be obtained
     in the future.

     The  Company  is unable to present  pro forma  amounts  for  income  before
     extraordinary  items and net income as,  although  management  attempted to
     obtain  such  information  from the  owners,  it was not  available.  These
     entities  were  acquired for the purpose of  expanding  the cable TV system
     penetration  for the Company.  The assets  purchased will be operated under
     the Company's management, using the Company's programming and employees.

2.6  Cash and cash equivalents

     Cash and  cash  equivalents  are  defined  as cash  and  cash in banks  and
     investments  in  interest-bearing  securities  and are carried at cost plus
     accrued interest.  Short-term investments with original maturities of three
     months or less at the time of purchase are considered cash equivalents.


Continued


                                      F-12
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


2.7  Financial instruments

     In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
     Instruments",  information  is  provided  about the fair  value of  certain
     financial instruments for which it is practicable to estimate that value.

     For the purposes of SFAS No. 107, the  estimated  fair value of a financial
     instrument  is the amount at which the  instrument  could be exchanged in a
     current  transaction  between  willing  parties,  other than in a forced or
     liquidation   sale.  The  carrying   values  of  the  Company's   financial
     instruments as of December 31, 1996 and 1995 approximate  management's best
     estimate  of  their  estimated  fair  values.  The  following  methods  and
     assumptions were used to estimate the fair value of each class of financial
     instrument for which it is practicable to estimate that value:

     o    The fair value of certain financial assets carried at cost,  including
          cash,  accounts  receivable,  other accounts  receivable,  and certain
          other short-term assets, is considered to approximate their respective
          carrying value due to their short-term nature.

     o    The fair value of  payables  to film  suppliers  and other  suppliers,
          other accounts  payable,  loans to related companies and certain other
          short-term  liabilities is considered to approximate  their respective
          carrying value due to their short-term nature.

     o    The fair  value of loans from  related  companies  approximates  their
          respective  carrying  values as  interest  on these loans is at market
          rates.

2.8  Accounts receivable

     An  allowance  for  doubtful  accounts  is  established  on the basis of an
     analysis of the accounts receivable, in light of the risks involved, and is
     considered  sufficient  to cover any  losses  incurred  in  realization  of
     credits.

2.9  Inventories

     Inventories  consist of  materials  and  supplies  and  imports in transit.
     Materials and supplies are used to provide service to new customers, and to
     ensure  continuity  of service to  existing  customers.  Imports in transit
     represent materials purchased from foreign countries that have not yet been
     received.

     Inventories  are stated at the lower of cost or market.  Cost is determined
     principally under the average cost method.

     An  allowance  for  obsolescence  has been  established  on the basis of an
     analysis of slow-moving materials and supplies.


Continued


                                      F-13
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


2.10 Film exhibition rights and program licensing

     Film  exhibition  rights  and  program  licensing  costs are  deferred  and
     recognized as the films and/or  programs are  exhibited.  The allowance for
     exhibition  expiration is determined based on management's  estimate of the
     Company's capacity to telecast the films and projected revenue streams.

2.11 Property, plant and equipment

     Property,  plant and equipment are stated at cost and depreciated using the
     straight-line method, over the remaining useful lives, as described in Note
     12.

2.12 Advertising

     Advertising revenues are recognized, and the production cost of commercials
     and programming are charged to expense, when the commercial is telecast.

2.13 Recoverability of long-lived assets to be held and used in the business

     Management reviews long-lived assets,  primarily the Company's licenses and
     its property and  equipment  to be held and used in the  business,  for the
     purposes of determining  and measuring  impairment on a recurring  basis or
     when events or changes in circumstances indicate that the carrying value of
     an asset or group of assets may not be recoverable.  Assets are grouped and
     evaluated  for possible  impairment  at the level of each cable  television
     system;  impairment is assessed on the basis of the forecasted undiscounted
     cash flows of the  businesses  over the  estimated  remaining  lives of the
     assets related to those systems.  A write-down of the carrying value of the
     assets  or group of  assets  to  estimated  fair  value  will be made  when
     appropriate.

     The  Company  adopted  SFAS No.  121,  "Accounting  for the  Impairment  of
     Long-Lived  Assets  and for  Long-Lived  Assets to Be  Disposed  Of",  from
     January 1, 1996, and the effect on the consolidated financial statements as
     a result of the adoption was not significant.

2.14 Revenue recognition

     Hook-up fees are recognized as revenue on the equipment  installation  date
     to the extent of direct selling costs  incurred.  The remainder is deferred
     and amortized to income over the estimated  average period that subscribers
     are expected to remain connected to the system.  Subscription  revenues are
     recognized as earned on an accrual basis.

2.15 Licenses

       Televisao  Show Time Ltda.  ("TV Show Time") and TVA Brasil  Radioenlaces
       Ltda. ("TVA Brasil") hold certain licenses covering certain operations of
       the Company.  The use of such 


Continued

                                      F-14
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued

     licenses is provided to the  Company,  for a nominal  fee,  under a Service
     Agreement  dated July 22, 1994,  as amended,  among  TEVECAP  S.A., TV Show
     Time, TVA Brasil and Abril S.A.

     Pursuant to the Service Agreement,  TV Show Time and TVA Brasil have agreed
     to transfer the licenses,  which are carried at nil value,  to TEVECAP S.A.
     at nominal cost.

2.16 Accounting for issuances of stock by subsidiaries and equity investees

     Gains or losses  arising from the issuances of shares by  subsidiaries  and
     equity  investees are  recognized in income to the extent that the net book
     value of the shares  owned after the sale  exceeds or is lower than the net
     book  value per share  immediately  prior to the sale of the  shares by the
     subsidiary or equity investees.

3.   Cash and cash equivalents

     As of December 31, 1996 and 1995, cash and cash  equivalents were comprised
     of:

                                                        1996              1995  
                                                      --------          --------
     Cash on hand and in banks                        $  1,296          $    640
     Short-term investments                            103,502            23,561
                                                      --------          --------
                                                      $104,798          $ 24,201
                                                      ========          ========

4.   Accounts receivable

     As of December 31, 1996 and 1995, accounts receivable were comprised of:

                                                        1996             1995
                                                      --------         --------
     Subscriptions                                    $  8,798         $  5,154
     Installation fees                                  19,020            4,637
     Advertising and programming                         4,511            1,810
     Barter                                              5,248            2,989
     Others                                                478               70
     Allowance for doubtful accounts                    (5,759)          (3,407)
                                                      --------         --------
                                                      $ 32,296         $ 11,253
                                                      ========         ========


Continued


                                      F-15
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued

5.   Inventories

     As of December 31, 1996 and 1995, inventories were comprised of:

                                                        1996              1995
                                                      --------          --------
     Materials and supplies                           $ 14,323          $ 10,913
     Imports in transit                                  1,022             2,163
     Allowance for obsolescence                         (2,250)             --
                                                      --------          --------
                                                      $ 13,095          $ 13,076
                                                      ========          ========

6.   Film exhibition rights

     As of December 31, 1996 and 1995, film exhibition rights were comprised of:

                                                          1996           1995
                                                         -------        -------
     Exhibition rights                                   $ 2,223        $ 1,192
     Allowance for exhibition expiration                  (1,162)        (1,162)
                                                         -------        -------
                                                         $ 1,061        $    30
                                                         =======        =======

7.   Prepaid and other assets

     As of December 31, 1996 and 1995, prepaid expenses were comprised of:

                                                              1996         1995 
                                                             ------       ------
     Advances to suppliers                                   $1,973       $2,078
     Prepaid TVA magazine publishing expenses                   510          562
     Prepaid meals and transportation                           227          171
     Others                                                     119          157
                                                             ------       ------
                                                             $2,829       $2,968
                                                             ======       ======


Continued


                                      F-16
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued

8.   Other accounts receivable

     As of December 31, 1996 and 1995, other accounts  receivable were comprised
     of:

                                                                1996       1995
                                                               ------     ------
     Advances to employees                                     $  476     $  491
     Accounts receivable from related companies (Note 9)        1,460        389
     Others                                                     1,072        105
                                                               ------     ------
                                                               $3,008     $  985
                                                               ======     ======

9.   Related party transactions

     The following  tables  summarize the  transactions  between the Company and
     related  parties as of  December  31, 1996 and 1995 and for the three years
     ended December 31, 1996:

                                                               December 31,
                                                         -----------------------
                                                          1996             1995
                                                         ------           ------
     Abril S.A 
        Accounts payable                                 $  104             --
        Loans payable                                     2,721           $   39

     Televisao Abril Ltda 
        Accounts receivable                                 136             --

     ESPN do Brasil Ltda 
        Accounts receivable                                  28              389
        Loans receivable                                   --              3,913
        Accounts payable                                    367              963

     Canbras TV a Cabo Ltda 
        Accounts receivable                                  70             --
        Loans receivable                                  3,710              815
        Loans payable                                      --                547

     HBO Partners
        Accounts receivable                                 271             --
        Loans receivable                                  1,792            1,879

     TV Sagatti
        Loans receivable                                   --                118

     Galaxy Latin America
        Loans receivable                                  7,100             --
        Accounts payable                                    769             --


Continued




                                      F-17
<PAGE>


9.   Related-party transactions (Continued)

                                                               December 31,
                                                         -----------------------
                                                          1996             1995
                                                         ------           ------
     TVAICO
        Loans receivable                                 $1,640             --

     AICO
        Loans receivable                                 $1,059             --

      LEONarDO PETRELLI
        Accounts receivable                              $  906             --

     Editora Azul
        Accounts payable                                   --             $  104

     Others
        Accounts receivable                              $   49             --
        Loans receivable                                 $    7           $    7
        Accounts payable                                 $    4           $   55


                                                 Year ended December 31,
                                         ---------------------------------------
                                           1996           1995            1994
                                         --------       --------         -------
     Abril S.A 
        Net interest expense             $  7,196       $ 16,566           --
        Printing costs                   $  4,516          2,723          1,309

     ESPN do Brasil Ltda 
        Programming costs                $  3,850       $    646           --
        Net interest income              $   (773)          --             --
        Net interest expense                 --         $    330           --

     AICO
        Net interest income              $   (354)          --             --

     TV Filme
        Programming revenue              $ (6,435)          (742)          (163)

     Canbras TV a Cabo
        Net interest expense             $    150           --             --
        Programming revenue              $   (207)          --             --

     Loans granted to or obtained from related companies, under loan agreements,
     are denominated in reais and subject to variable interest of 1.80% to 2.50%
     per month in December 31, 1996 (3.44% per month in December 31, 1995).


Continued

                                      F-18
<PAGE>

TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


     Effective  December 31, 1996 the Company has a credit  facility  with Abril
     S.A.  under  which the  Company  is  allowed  to borrow up to  $60,000 on a
     revolving basis until December 1998. In November 1996,  TEVECAP S.A. raised
     funds through a private placement of $250,000 million 12.625% senior notes.
     Part of the proceeds of this  placement were used to repay the amount drawn
     under  this  facility.  The  Company  has not drawn any  amounts  under the
     facility subsequent to the application of such proceeds.

     Additionally, Abril S.A. provided a guarantee in the course of the year for
     equipment  imported by Galaxy Brasil S.A.,  TVAST, TV Filme and TVA Parana.
     The amount  outstanding  pursuant to this guarantee as of December 31, 1996
     was $58,345.

     The Company and Falcon International  Communications  Services Inc., one of
     the Company's shareholders,  signed a consulting service agreement on April
     1, 1996 related to the Company's  operations and  technologies.  Initially,
     the duration of this  agreement is two years,  renewable  every  subsequent
     two-year period thereafter. The payment for the consulting services amounts
     to $200 per annum.

     Related-party  transactions  relating  to  programming  sales and costs and
     printing services costs were carried out at usual market rates and terms.

10.  Deferred income tax

     The tax effects of temporary  differences  that give rise to a  significant
     portion of the deferred tax asset and deferred tax liability as of December
     31, 1996 and 1995 are as follows:

                                                            1996         1995 
                                                          --------     --------
     Deferred tax assets:
        Net operating loss carryforwards                  $ 44,562     $ 32,700
        Deferred charges                                     7,536        7,720
        Deferred hook-up fee revenue                         1,611         --
        Allowance for obsolescence                             437         --
        Provision for claims                                 1,528         --
        Allowance for decoders                                 438         --
        Others                                                 148          680
                                                          --------     --------

                    Total gross deferred tax asset          56,260       41,100
                                                          --------     --------

           Less valuation allowance                        (50,274)     (33,111)
                                                          --------     --------

     Net deferred tax asset                                  5,986        7,989

     Deferred tax liability:
        Installation costs                                  (5,986)      (7,989)
                                                          --------     --------

                    Total gross deferred tax liability      (5,986)      (7,989)
                                                          --------     --------

     Net deferred tax asset                               $   --       $   --
                                                          ========     ========


Continued



                                      F-19
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


     The Company has a limited  operating history and has generated losses since
     its inception.  The valuation  allowance has been established in accordance
     with the requirements of SFAS No. 109.

     As of December  31, 1996,  the Company and  subsidiaries  have  unexpirable
     accumulated tax losses of $135,036.

     The  consolidated  income tax credit was different from the amount computed
     using the Brazilian  statutory  income tax for the reasons set forth in the
     following table:

<TABLE>
<CAPTION>
                                                                    December 31,  
                                                       ----------------------------------
                                                         1996         1994         1995
                                                       --------     --------     --------
<S>                                                    <C>          <C>          <C>   
Loss before income taxes and minority interest         $ 49,585     $ 41,941       12,717
Statutory income tax rate                                    33%       30.56%          43%
                                                       --------     --------     --------
                                                         16,363       12,817        5,468
Increase (decrease) in the income tax rate                2,644       (8,466)       3,037
Monetary correction net of unallowable
      amortization                                        2,088         (308)     (11,240)
Monetary correction of deferred charges amortization      4,996       (5,576)     (14,264)
Translation rate difference on exhibition rights           --            381         (476)
Translation (loss) gain of tax losses                    (2,103)       1,896        5,606
Monetary correction of shareholders' equity                --          5,889       33,181
Monetary correction of installation materials             3,648         (314)      (5,708)
      depreciation
Equity in losses of affiliate                            (2,816)      (1,122)         165
Income before income tax of TVA communications           (1,436)          (6)        --
Others                                                   (6,377)      (1,345)        (207)
                                                       --------     --------     --------

Net income tax benefit for the period                    17,007        3,846       15,562
Increase in valuation allowance                         (17,163)      (3,846)     (15,562)
                                                       --------     --------     --------

                                                       $   (156)    $   --       $   --
                                                       ========     ========     ========
</TABLE>

Income tax payable  represents  amounts  owing by  subsidiaries  calculated on a
unitary basis.


Continued


                                      F-20
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


11.  Investments

     Investments as of December 31, 1996 and 1995 were comprised of:

<TABLE>
<CAPTION>
                                                             Percentage
                                                             of Control        1996         1995
                                                             ----------       -------      -------
<S>                                                           <C>             <C>          <C>    
     Equity basis investments:
         TV Filme, Inc.                                       14.3(a)(b)      $ 6,840      $ 2,352
         ESPN Brasil Ltda.                                      50                827         --
         HBO Brasil Partners                                    33               --          1,110
                                                                              -------      -------

                                                                              $ 7,667      $ 3,462
                                                                              =======      =======
     Liability to fund joint venture or
         equity investee:
         ESPN Brasil Ltda.                                      50                --       $(2,009)
         Canbras TV a Cabo                                      36            $  (997)        (160)
         HBO Brasil Partners                                    33               (110)        --
                                                                              -------      -------

                                                                              $(1,107)     $(2,169)
                                                                              =======      =======

     Cost basis investments:
         Galaxy Latin America                                   10            $16,320      $11,220
         Others                                                                     6           20
                                                                              -------      -------

                                                                              $16,326      $11,240
                                                                              =======      =======

     Concessions, net:
         Stations in South of Brazil                                          $10,436         --
         Ype Radio e Televisao Ltda. concessions                                6,363      $ 6,363
         Comercial Cabo Ltda.                                                   1,970        1,970
         Other                                                                     65           65
         Amortization                                                          (1,260)        (420)
                                                                              -------      -------

                                                                              $17,574      $ 7,978
                                                                              =======      =======
</TABLE>

----------

(a)  Accounted for under the equity method because the Company has two seats out
     of six on the  Board  of  Directors,  is  dependent  on the  Company  for a
     substantial  portion  of its  revenue  and  has an  option  to  acquire  an
     additional 2% interest.

(b)  During the year  ended  December  31,  1996  there was a  reduction  in the
     interest  of  Tevecap  S.A.  in TV Filme,  Inc.  from 16.7% to 14.3% due to
     subscription of shares issued by other shareholders, for which an amount in
     excess of the book  value  was paid.  This  resulted  in a capital  gain of
     $2,317.


Continued


                                      F-21
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


     On February 3, 1995, an agreement was signed between  TEVECAP S.A.,  Hughes
     (GLA   Inc./USA),   Inversiones   Divtel  (ODC   Cisneiros/Venezuela)   and
     Multivision  (MVS/Mexico) for the  incorporation of Galaxy Latin America in
     August 1995. On March 3, 1995,  the  operational  agreement  between Galaxy
     Latin America and TEVECAP S.A. was  formalized  with the purchase of 10% of
     the shares of Galaxy  Latin  America for $7,194.  On March 9, 1995,  Galaxy
     Brasil S.A.  was  created,  with 99.5% of the shares  held by TEVECAP  S.A.
     Galaxy  Brasil  S.A.  provides  distribution  services of  multichannel  TV
     programs to all national regions. The transmission commenced February 1996.
     Galaxy Latin America will charge Galaxy Brasil for the use of a satellite.

     The ESPN Brasil  joint  venture was formed in June 1995,  with TEVECAP S.A.
     and ESPN International each holding 50% of ESPN Brasil's shares. Operations
     commenced  on June  15,  1995,  and the  objective  of ESPN  Brasil  is the
     transmission of ESPN's  international  sport programs.  Condensed financial
     information of the joint venture as of and for the years ended December 31,
     1996 and 1995 are as follows:

                                             1996        1995
                                           --------    -------- 
                Current assets             $  3,640    $  3,483
                Non-current assets         $  2,107    $    262
                Current liabilities        $  3,663    $  3,850
                Long-term liabilities      $   --      $  3,913
                Revenues                   $ 12,733    $  4,748
                Gross losses               $ (9,785)   $ (2,884)
                Loss before income taxes   $(10,715)   $ (4,020)
                Net loss                   $(10,715)   $ (4,020)

     The Company holds a 33.33%  interest in HBO Brasil  Partners joint venture.
     The operations commenced in 1994 and condensed financial  information as of
     and for the years ended December 31, 1996 and 1995 are as follows:

                                             1996        1995
                                           --------    -------- 
                Current assets             $ 10,080    $  6,385
                Non-current assets         $  1,659    $    762
                Current liabilities        $ 11,615    $  3,855
                Long-term liabilities      $   --      $   --
                Revenues                   $ 20,867    $ 11,354
                Gross losses               $ (3,072)   $ (4,384)
                Loss before income taxes   $ (3,168)   $ (4,323)
                Net loss                   $ (3,168)   $ (4,323)


Continued



                                      F-22
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


     On April 3, 1995, TEVECAP S.A. acquired 49% of the common shares and 49% of
     the preferred shares of Ype Radio e Televisao Ltda., for $6,363,  obtaining
     the concession of certain  television  channels.  The concessions are being
     amortized over ten years.

     In previous years the Company acquired Comercial Cabo Ltda.,  obtaining the
     concessions for certain  television  channels and other minor  investments.
     The concessions are being amortized over ten years.

12.  Property, plant and equipment

     As of  December  31,  1996 and 1995,  property,  plant and  equipment  were
     comprised of:

<TABLE>
<CAPTION>
                                                                Annual
                                                             Depreciation
                                                                 Rate
                                                                  %            1996         1995
                                                             ------------   ---------     ---------
<S>                                                               <C>       <C>           <C>      
     Machinery and equipment                                      10        $  47,784     $  37,877
     Converters                                                   10          101,837        36,485
     Leasehold improvements                                       25            2,111         1,830
     Furniture and fixtures                                       10            2,089         1,226
     Premises                                                     10            2,730         1,116
     Vehicles                                                     20            1,257           457
     Software                                                     20            2,949         1,529
     Tools                                                        10              696           621
     Reception equipment                                          20           73,330        45,711
     Cable plant                                                  10           25,385         6,513
     Building                                                      4           11,734           342
                                                                            ---------     ---------
                                                                                         
                                                                              271,902       133,707
     Accumulated depreciation                                                 (50,661)      (23,373)
     Telephone line use rights                                                  2,320         1,453
     Trademarks, patents and others                                               165           577
     Fixed assets in transit                                                    8,917        18,902
     Others                                                                       950          --
                                                                            ---------     ---------
                                                                                         
                                                                            $ 233,593     $ 131,266
                                                                            ---------     ---------
</TABLE>


Continued



                                      F-23
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


13.  Loans

     As of December 31, 1996, loans were comprised of:

                                                          Short-term   Long-term
                                                          ----------   ---------

     Working capital, foreign currency denominated         $  3,123     $250,464
     Local currency financings                               14,916         --
                                                           --------     --------

                                                           $ 18,039     $250,464
                                                           ========     ========

     On November 26, 1996,  TEVECAP S.A. raised funds in foreign markets through
     a private  placement  amounting to $250,000 of Senior  Notes.  These Senior
     Notes mature on November 26, 2004 and are  guaranteed by certain of TEVECAP
     S.A.'s  subsidiaries.  Interest  thereon  is at  12.625%  per  annum and is
     payable on May 25 and November 25 of each year commencing on May 25, 1997.

     Debt issuance  costs  associated  with the 12,625% senior notes amounted to
     $9,241  and  are  being  amortized  over  the  term  of the  Senior  Notes.
     Amortization costs for the year ended December 31, 1996 amounted to $96.

     Short-term financings in local currency are secured by promissory notes and
     chattel  mortgages,  and bear  interest at rates  varying from 8% to 9% per
     year.

     Shor-term bank loans as of December 31, 1996  represent the  refinancing of
     certain supplier  payables.  The average  short-term  interest rate on such
     loans is LIBOR Plus 1.5%.

14.  Other accounts payable

     As of December 31, 1996 and 1995, other accounts payable were comprised of:

                                                           1996            1995
                                                          ------          ------
     Accounts payable to related
       companies (Note 9)                                 $1,244          $1,122
     Advertising                                             265             427
     Importation expenses payable                          1,627             599
     Others                                                1,407           1,124
                                                          ------          ------

                                                          $4,543          $3,272
                                                          ======          ======


Continued



                                      F-24
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


15.  Loans from shareholders

     Loans from shareholders as of December 31, 1996 and 1995 were comprised of:

                                                         1996              1995
                                                        ------            ------
     Roberto Civita                                     $ --              $2,616
     Maricla I. R. Rossi                                  --                  61
     Edgard Silvio Faria                                  --                 184
     Angelo Silvio Rossi                                  --                  45
     Leonardo Petrelli                                   1,640               180
                                                        ------            ------

                                                        $1,640            $3,086
                                                        ======            ======

     Loans from  shareholders in 1995 were subject to interest based on the UFIR
     (Fiscal  Reference  Unit)  variation which was 22.46% during that year. The
     December 31, 1996 loan balance represents an advance from a shareholder and
     is not subject to interest.

16.  Insurance

     The  Company  maintains   insurance  coverage  for  its  fixed  assets  and
     inventories in an amount considered sufficient to cover the risks involved.

17.  Leased assets and commitments

     The Company has entered  into film  distribution  contracts  and  licensing
     agreements with film producers for  programming  for future  periods.  Such
     contracts and  agreements,  which range in life from one to nine years with
     the  exception  of a  specific  contract  with ESPN  which has a life of 50
     years,  require a per-subscriber fee to be paid by the Company on a monthly
     basis.

     The Company has funding  commitments  related to Galaxy Latin  America,  TV
     Filme,  ESPN Brasil  Ltda.,  HBO Brasil  Partners,  Canbras TVA and CNBC of
     approximately $27,009 which must be met prior to December, 1997.


Continued


                                      F-25
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


     The Company has rented its office space until the year 2001. As of December
     31, 1996, future minimum rental payments  applicable to operating leases in
     respect of this space aggregate approximately $5,038, as follows:

                                  1997   $1,805
                                  1998    1,438
                                  1999      623
                                  2000      589
                                  2001      583
                                         ------

                                 Total   $5,038
                                         ======

     As of December  31,  1996,  the Company had  contractual  commitments  with
     Embratel  for  transponder  use until the year 2003.  Based on the contract
     provisions,   these  commitments  are  currently   estimated  to  aggregate
     approximately $71,854, as follows:

                                 1997   $11,665
                                 1998    11,665
                                 1999    11,665
                                 2000    11,665
                                 2001    11,665
                                 2002     8,054
                                 2003     5,475
                                        -------

                                Total   $71,854
                                        =======

     Through its  subsidiary,  Galaxy  Brasil S.A.,  the Company has a licensing
     agreement with Galaxy Latin America for the use of the trademark,  DirecTV,
     satellite and programming,  which requires a per-subscriber  fee to be paid
     by the  Company on a monthly  basis for an  indefinite  period,  calculated
     based on the number of subscribers.

18.  Common stock

     Common stock as of December 31, 1996 and 1995 was comprised of:

                                      1996                       1995
                           -------------------------   -------------------------
                               US$         Shares          US$          Shares
                           -----------   -----------   -----------   -----------
     Common stock subject
        to redemption      $   144,754    85,637,516   $   144,754    85,637,516
                           ===========    ==========   ===========    ==========
     Paid-in capital       $   142,495   111,075,339   $   142,495   111,075,339
                           ===========   ===========   ===========   ===========


Continued


                                      F-26
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


  a) Common stock subject to redemption

     As of December 31, 1996 and 1995, 43.5% of the common stock of TEVECAP S.A.
     was  subject  to  an  Event  Put  i.e.  a  "triggering   event"  under  the
     Stockholders  Agreement  pursuant to which each of the shareholders  (other
     that  Abril)  may,  in certain  circumstances,  demand  that  TEVECAP  S.A.
     purchase all or a portion of its shares, unless the shares of capital stock
     held by such  Stockholder  are publicly  registered,  listed or traded.  In
     addition,  as of December 31, 1996 and 1995, 14.2% of these shares are also
     subject to Time Put whereby, pursuant to the Stockholders Agreement, Falcon
     International may demand that TEVECAP S.A. buy all or a portion of Falcon's
     shares of  capital  stock  held in  TEVECAP  S.A.  if such  shares  are not
     publicly registered, listed or traded by September 22, 2002.

     For purposes of the Event Put, triggering events are: (i) the amount of the
     capital  stock held by a  stockholder  with an Event Put exceeds the amount
     allowed  under any  legal  restriction  to which  such  Stockholder  may be
     subject  ("Regulatory Put"); (ii) a breach without cure within a designated
     period by certain  specified  entities/individuals  of any  representation,
     warranty,  covenant or duty made or owed  pursuant  to certain  agreements;
     (iii) a breach  without  cure  within a  designated  period by Abril of the
     Abril Credit Facility;  (iv) the controlling shareholder of Abril ceases to
     directly or indirectly hold a specified  percentage of TEVECAP S.A. without
     the approval of the  Stockholders  or ceases to control the voting  capital
     stock held by his affiliates representing 50% or more of the voting capital
     stock of TEVECAP S.A.; (v) the Service Agreement as amended,  among TEVECAP
     S.A., TV Show Time, TVA Brasil and Abril ceases to be valid or effective or
     TV Show Time,  TVA Brasil and Abril is  liquidated  or  dissolved  or files
     voluntarily,  or has  filed  against  it  involuntarily,  any  petition  in
     bankruptcy; or (vi) another Stockholder exercises an Event Put other than a
     Regulatory Put.

     The Company's management believes that the probability of occurrence of the
     triggering  events which would permit any of its  shareholders  to exercise
     their Event Put is remote.  However, a company that is public in the United
     States, and which therefore is required to register its securities with the
     United States  Securities and Exchange  Commission (the "SEC"), is required
     for accounting purposes to present redeemable equity securities  separately
     from  shareholders'  equity, if redemption of such securities is beyond the
     control  of the  registrant.  That  presentation  is  required  even if the
     likelihood of redemption is remote.

     The Common Shares  subject to the Time Put are  redeemable at fair value as
     determined  by  appraisal  or by a multiple  of the  Company's  most recent
     quarterly  earnings.  The Company has recorded an accretion on these shares
     to fair market  value of $15,376 and $4,780 with respect to the years ended
     December 31, 1996 and 1995, determined by Company management.


Continued


                                      F-27
<PAGE>

TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


  b) Paid-in capital

     Paid-in capital represents registered common shares without par value.

     The Company's  shareholders are entitled to minimum dividends of 25% of net
     income for the year,  adjusted according to Corporation Law. As the Company
     has not recorded  net income since its  inception,  no such  dividends  are
     payable.

19.  Litigation contingencies

     Certain claims and lawsuits arising in the ordinary course of business have
     been filed or are pending  against the Company which were not recognized in
     the  consolidated  financial  statements.  The  Company  has also  recorded
     provisions  related to certain claims in amounts that management  considers
     to be adequate  after  considering a number of factors  including  (but not
     limited  to) the views of legal  counsel,  the nature of the claims and the
     prior experience of the Company.

     In Management's  opinion,  all contingencies have been adequately  provided
     for or are  without  merit,  or  are of  such  kind  that  if  disposed  of
     unfavorably,  would not have a  material  adverse  effect on the  financial
     position or future results of operations of the Company.

20.  Pension plan

     In April  1996,  the Company  became a  co-sponsor  of the private  pension
     entity  named  Abrilprev  Sociedade  de  Previdencia  Privada,  the primary
     objective of which is to grant employees benefits other than those provided
     by Social Security. The plan is optional to all employees of the sponsoring
     entities.  Abrilprev  operates  as a  Defined  Contribution  Plan.  Company
     contributions  are made based on a fixed percentage  applied to the payroll
     of the sponsoring entities based on actuarial  calculations.  Plan expenses
     amounted to $368 for the year ended December 31, 1996.


Continued


                                      F-28
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


21.  Abril Health Care Plan

     In February  1996, the Abril Health Care Plan was created to provide health
     care to Abril S.A.  companies'  employees  and their  dependents.  Both the
     companies  and the  employees  contribute  monthly to  Associacao  Abril de
     Beneficios, the company is responsible for the plan management.

     In  1996,  contributions  made  by  TEVECAP  S.A.  and  certain  affiliated
     companies amounted to $2,088.

22.  Supplementary information - valuation and qualifying accounts and reserves

<TABLE>
<CAPTION>
                                                                              Allowance                     Deferred
                                                  Allowance                      for                        Taxation      Provision
                                                for Doubtful  Allowance for   Exhibition      Allowance     Valuation        for
                                                   Accounts   Obsolescence    Expiration     for Decoders   Allowance      Claims
                                                ------------  -------------   ----------     ------------   ---------     ---------
<S>                                                <C>           <C>            <C>            <C>           <C>           <C>    
     Balance as of December 31, 1993               $   363       $    91        $ 3,367           --         $13,703       $   210
     Additions  Charged to Expense                     848          --             --             --          15,562           920
     Reduction                                        --             (91)        (3,032)          --            --             (55)
                                                   -------       -------        -------        -------       -------       -------
     Balance as of December 31, 1994                 1,211          --              335           --          29,265         1,075
     Additions  Charged to Expense                   2,196          --              827           --           3,846         2,688
                                                   -------       -------        -------        -------       -------       -------
     Balance as of December 31, 1995                 3,407          --            1,162           --          33,111         3,763
     Additions  Charged to Expense                   2,352         2,250           --          $ 1,371        17,163         1,282
                                                   -------       -------        -------        -------       -------       -------
     Balance as of December 31, 1996               $ 5,759       $ 2,250        $ 1,162        $ 1,371       $50,274       $ 5,045
                                                   =======       =======        =======        =======       =======       =======
</TABLE>

23.  Recent accounting pronouncements

     The Financial  Accounting  Standards Board has issued certain Statements of
     Financial  Accounting Standards which are not effective with respect to the
     fiscal years presented in the consolidated financial statements.

     SFAS No. 125,  "Accounting  for Transfer and Servicing of Financial  Assets
     and  Extinguishments  of  Liabilities",  provides  accounting and reporting
     standards   for   transfers   and   servicing  of   financial   assets  and
     extinguishments  of liabilities  after December 31, 1996.  This standard is
     not expected to have a material  effect on the  financial  position and the
     results  of  operations  of the  Company  due to the  absence  of  material
     transactions of this nature.

     SFAS No. 128, "Earnings per Share", is effective for fiscal years beginning
     after  December  15,  1997.  This  standards  establishes   guidelines  for
     computing and presenting earnings per share ("EPS") and applies to entities
     with  publicly held common stock or potential  common stock.  


Continued


                                      F-29
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


     This replaces the  presentation of primary EPS with a presentation of basic
     EPS. It also  requires dual  presentation  of basic and diluted EPS for all
     entities with complex capital structures.  This standard is not expected to
     have an impact on the Company given that the Company does not have publicly
     held common stock or potential common stock.

24.  Financial   information   for  subsidiary   guarantors  and   non-guarantor
     subsidiaries

     TEVECAP  S.A.  conducts  a  significant  portion  of its  business  through
     subsidiaries.  The $250,000 12 5/8% Senior  Notes  issued to  institutional
     buyers in November,  1996 are jointly and severally,  irrevocably and fully
     and  unconditionally  guaranteed,  on a senior  basis,  by all of Tevecap's
     direct and indirect  subsidiaries except for TVA Communications  Aruba N.A.
     and TVA TCG Sistema TV.

     Presented  below  is  condensed   consolidating   and  combined   financial
     information  for: i) TEVECAP S.A. on a parent  company only basis;  ii) the
     Wholly-Owned  Guarantor  Subsidiaries;  iii) the  Majority-Owned  Guarantor
     Subsidiaries;  iv)  Non-guarantor  Subsidiaries;  v) Eliminations;  and vi)
     Consolidated Tevecap S.A. and Subsidiaries.

     The equity method has been used by TEVECAP S.A., the Wholly-Owned Guarantor
     Subsidiaries and the Majority-Owned  Guarantor Subsidiaries with respect to
     investments in their subsidiaries.

     The  following  sets forth the  Wholly-Owned  Guarantor  Subsidiaries,  the
     Majority-Owned Guarantor Subsidiaries and the Non-guarantor Subsidiaries:

     a)   Wholly-Owned Guarantor Subsidiaries

          - TVA Communications Ltd.
          - Galaxy Brasil S.A.
          - Comercial Cabo TV Sao Paulo Ltda.

     b)   Majority-Owned Guarantor Subsidiaries

          - TVA Sistema de Televisao S.A.
          - TVA Sul Participacoes S.A.
          - TVA Parana Ltda.
          - TVA Alfa Cabo Ltda.
          - CCS Camboriu Cable System de Telecomunicacoes Ltda.
          - TCC TV a Cabo Ltda.


Continued

                                      F-30
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


          - TVA Sul Foz do Iguacu Ltda.
          - TVA Sul Santa Catarina Ltda.

     c)   Non-guarantor Subsidiaries

          - TVA Communications Aruba N.A.
          - TVA TCG Sistema de Televisao de Porto Alegre S.A.

     Separate  financial  statements for TVA Sistema de Televisao S.A. have been
     presented as of December 31, 1996 and 1995,  and the related  statements of
     operations,  changes in shareholders' equity and cash flows for each of the
     three years in the period ended December 31, 1996.

     Separate  consolidated  and  combined  financial  statements  for  TVA  Sul
     Participacoes  S.A.  have also been  presented  as of December 31, 1996 and
     1995, and the related  statements of operations,  changes in  shareholders'
     equity  and cash  flows for each of the  three  years in the  period  ended
     December 31, 1996.

     Audited  financial  information  has also been  included  for TVA Alfa Cabo
     Ltda., CCS Camboriu Cable System de  Telecomunicacoes  Ltda., TVA Sul Santa
     Catarina Ltda.,  TCC TV a Cabo Ltda., TVA Sul Parana Ltda., and TVA Sul Foz
     do Iguacu Ltda.  as of December 31, 1996 and for the periods from the dates
     of acquisition to December 31, 1996. See Note 2.5.

     Separate financial statements for the Wholly-Owned  Guarantor  Subsidiaries
     have not been presented  based on management's  determination  that they do
     not provide additional information that is material to investors.


Continued


                                      F-31
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


     24.  Financial  information  for subsidiary  guarantors  and  non-guarantor
          subsidiaries (continued)

                                           Condensed Consolidating Balance Sheet
                                                   as of DECEMBER 31, 1996
                                                (in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                 Wholly-       Majority-        Non-
                                                    Parent        Owned         Owned        Guarantor
Assets                                              Company    Subsidiaries  Subsidiaries   Subsidiaries  Eliminations  Consolidated
<S>                                                <C>           <C>           <C>           <C>           <C>            <C>      
Cash and cash equivalents                          $ 103,282     $      59     $   1,444     $      13     $    --        $ 104,798
Accounts receivable, net                                --          10,367        22,568          --            (639)        32,296
Inventories                                             --            --          13,095          --            --           13,095
Film exhibition rights                                  --            --           1,061          --            --            1,061
Prepaid expenses and other assets                       --              71         2,758          --            --            2,829
Other accounts receivable                              1,032           242         4,372          --          (2,638)         3,008
                                                   ---------     ---------     ---------     ---------     ---------      ---------

        Total current assets                         104,314        10,739        45,298            13        (3,277)       157,087
                                                   ---------     ---------     ---------     ---------     ---------      ---------

Property, plant and equipment                           --          49,745       184,376            42          (570)       233,593
Investments - equity affiliates                       64,844          --            --            --         (57,177)         7,667
  Cost basis investees                                  --          16,326          --            --            --           16,326
  Concessions, net                                     7,138          --          10,436          --            --           17,574
Advances payments for investments                       --            --            --            --            --             --
Loans to affiliated companies                        338,442        16,278         3,027          --        (342,439)        15,308
Debt issuance costs                                    9,145          --            --            --            --            9,145
Other                                                   --             877         1,545          --            --            2,422
                                                   ---------     ---------     ---------     ---------     ---------      ---------

        Total assets                               $ 523,883     $  93,965     $ 244,682     $      55     $(403,463)     $ 459,122
                                                   =========     =========     =========     =========     =========      =========
</TABLE>


Continued


                                      F-32
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


24.  Financial   information   for  subsidiary   guarantors  and   non-guarantor
     subsidiaries (continued)

                                           Condensed Consolidating Balance Sheet
                                                   as of DECEMBER 31, 1996
                                                (in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                 Wholly-       Majority-        Non-
                                                    Parent        Owned         Owned        Guarantor
Liabilities                                         Company    Subsidiaries  Subsidiaries   Subsidiaries  Eliminations  Consolidated
<S>                                                <C>           <C>           <C>           <C>           <C>            <C>      

Short-term bank loans                              $   3,166     $   6,789     $   8,084          --            --        $  18,039
Film suppliers                                          --            --          19,828          --       $ (12,816)         7,012
Other suppliers                                          163         4,925        48,127          --            (283)        52,932
Taxes payable other than income taxes                   --             964         7,989          --            --            8,953
Accrued payroll and related liabilities                 --             637         5,504          --            --            6,141
Advances payments received from subscribers             --           3,685         6,797          --            --           10,482
Other accounts payable                                   180           900         5,951          --          (2,488)         4,543
                                                   ---------     ---------     ---------     ---------     ---------      ---------
        Total current liabilities                      3,509        17,900       102,280          --         (15,587)       108,102
                                                   ---------     ---------     ---------     ---------     ---------      ---------
                                                                                                                         
Financing                                            250,000           464          --            --            --          250,464
Loans from affiliated companies                         --          16,600       316,154     $      96      (330,129)         2,721
Loans from shareholders                                 --            --           1,640          --            --            1,640
Provision from claims                                   --            --           5,039          --               6          5,045
Liability to fund equity investee                    160,067           110          --             110      (159,180)         1,107
Deferred hook-up fee revenue                            --           4,883          --            --            --            4,883
                                                   ---------     ---------     ---------     ---------     ---------      ---------
        Total long-term liabilities                  410,067        22,057       322,833           206      (489,303)       265,860
                                                   ---------     ---------     ---------     ---------     ---------      ---------
                                                                                                                         
Minority interest                                       --            --           1,310          --             468          1,778
Redeemable common stock, no par value                164,910          --            --            --            --          164,910
Shareholders' equity                                                                                                     
  Paid-in capital                                    142,495        71,489        33,837         3,216      (108,542)       142,495
  Retained earnings                                 (197,098)      (17,481)     (215,578)       (3,367)      209,501       (224,023)
                                                   ---------     ---------     ---------     ---------     ---------      ---------
       Total shareholders' equity                    (54,603)       54,008      (181,741)         (151)      100,959        (81,528)
                                                   ---------     ---------     ---------     ---------     ---------      ---------
       Total liabilities and                                                                                             
              shareholders' equity                 $ 523,883     $  93,965     $ 244,682     $      55     $(403,463)     $ 459,122
                                                   =========     =========     =========     =========     =========      =========
</TABLE>


Continued


                                      F-33
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


24.   Financial   information  for  subsidiary   guarantors  and   non-guarantor
subsidiaries (continued)

<TABLE>
<CAPTION>
                                       Condensed Consolidating Statement of Operations
                                             for the year ended DECEMBER 31, 1996
                                                (in thousands of U.S. dollars)

                                                                 Wholly-       Majority-        Non-
                                                    Parent        Owned         Owned        Guarantor
         Description                                Company    Subsidiaries  Subsidiaries   Subsidiaries  Eliminations  Consolidated
<S>                                                <C>           <C>           <C>           <C>           <C>            <C>      
Gross revenues
   Monthly subscription                                --        $  2,266     $120,754           --            --         $123,020
   Installation                                        --          15,609       46,108           --            --           61,717
   Advertising revenue                                 --            --          7,532           --            --            7,532
   Indirect programming                                --            --         11,377           --            --           11,377
   Other                                               --             143        8,049           --            --            8,192
   Revenue taxes                                       --          (1,488)     (12,259)          --            --          (13,747)
                                                   --------      --------     --------       --------      --------       --------
Net revenue                                            --          16,530      181,561           --            --          198,091
                                                   --------      --------     --------       --------      --------       --------
                                                                                                                        
Direct operating expenses                                                                                               
   Payroll and benefits                                --           2,781       24,422           --            --           27,203
   Programming                                         --            --         42,391           --            --           42,391
   Transponder lease cost                              --             905        9,942           --            --           10,847
   Technical assistance                                --            --          5,507           --            --            5,507
   Vehicle rentals                                     --              90        1,772           --            --            1,862
   TVA Magazine                                        --            --          6,842           --            --            6,842
   Other costs                                         --           2,078       15,567           --            --           17,645
                                                   --------      --------     --------       --------      --------       --------
                                                       --           5,854      106,443           --            --          112,297
                                                   --------      --------     --------       --------      --------       --------
Selling, general and administrative                                                                                     
   expenses                                                                                                             
   Payroll and benefits                                --           1,491       25,940           --            --           27,431
   Advertising and promotion                           --           7,369       13,986           --            --           21,355
   Rent                                                --             177        3,245           --            --            3,422
   Other administrative expenses                   $    836         6,316       11,758           --            --           18,910
   Other general expenses                              --            --         10,337           --            --           10,337
                                                   --------      --------     --------       --------      --------       --------
                                                        836        15,353       65,266           --            --           81,455
                                                   --------      --------     --------       --------      --------       --------
Allowance for obsolescence                             --            --          2,250           --            --            2,250
Depreciation                                           --           2,858       23,681           --            --           26,539
Amortization                                            840          --            837           --            --            1,677
                                                   --------      --------     --------       --------      --------       --------
Operating loss                                       (1,676)       (7,535)     (16,916)          --            --          (26,127)
                                                   --------      --------     --------       --------      --------       --------
                                                                                                                        
Interest income                                       1,995           596        7,590           --        $ (4,368)         5,813
Interest expenses                                   (12,751)       (1,770)      (7,270)      $    (97)        4,368        (17,520)
Translation                                            (218)          292          399           --            --              473
Equity in (losses) income of affiliates             (44,751)       (1,220)        (883)        (1,220)       39,542         (8,532)
Other nonoperating, net                               9,243        (1,884)         278           --         (11,329)        (3,692)
                                                   --------      --------     --------       --------      --------       --------
Loss before income tax and minority interest        (48,158)      (11,521)     (16,802)        (1,317)       28,213        (49,585)
Income taxes                                           --            --           (156)          --            --             (156)
                                                   --------      --------     --------       --------      --------       --------
Net loss before minority interest                   (48,158)      (11,521)     (16,958)        (1,317)       28,213        (49,741)
                                                   --------      --------     --------       --------      --------       --------
Minority interest                                      --            --             38           --           1,811          1,849
                                                   --------      --------     --------       --------      --------       --------
Net loss                                           $(48,158)     $(11,521)    $(16,920)      $ (1,317)     $ 30,024       $(47,892)
                                                   ========      ========     ========       ========      ========       ========
</TABLE>


Continued



                                      F-34
<PAGE>



TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued

Continued


24.  Financial   information   for  subsidiary   guarantors  and   non-guarantor
     subsidiaries (continued)

<TABLE>
<CAPTION>
                                       Condensed Consolidating Statement of Cash Flows
                                             for the year ended DECEMBER 31, 1996
                                                (in thousands of U.S. dollars)

                                                                   Wholly-       Majority-       Non-
                                                      Parent        Owned         Owned       Guarantor
Cash flows from operating activities:                 Company    Subsidiaries  Subsidiaries  Subsidiaries Eliminations  Consolidated
<S>                                                  <C>         <C>           <C>            <C>          <C>          <C>      

Net loss                                             $ (48,158)  $ (11,521)    $ (16,920)     $  (1,317)   $  30,024    $ (47,892)
Adjustment to reconcile net loss to net cash                                                 
  (used in) provided by operating activities:                                                
  Depreciation                                            --         2,858        23,681           --           --         26,539
  Amortization                                             840        --             837           --           --          1,677
  Allowance for exhibition costs                          --          --            --             --           --              0
  Allowance for doubtful accounts                         --          --           2,352           --           --          2,352
  Allowance for obsolescence                              --          --           2,250           --           --          2,250
  Provision for claims                                    --          --           1,276           --           --          1,276
  Minority interest                                       --          --             (38)          --         (1,811)      (1,849)
  Disposal and write-off of fixed assets                  --          --           1,005           --           --          1,005
  Capital gain                                          (2,317)       --            --             --           --         (2,317)
  Equity in losses (earnings) of affiliates             44,751       1,220          --            1,220      (38,659)       8,532
Changes in operating assets and liabilities:              --          --            --             --           --              0
  Film exhibition rights                                  --          --          (1,031)          --           --         (1,031)
  Accounts receivable                                     --       (10,368)      (13,666)          --            639      (23,395)
  Prepaid and other assets                              (9,145)       (877)          188           --            861       (8,973)
  Other accounts receivable                             (1,030)       (278)       (2,816)          --          3,349         (775)
  Other                                                   --          --            --             --           --              0
  Accrued interest                                       8,062        (888)       (2,107)          --            841        5,908
  Inventories                                             --          --          (2,227)          --           --         (2,227)
  Legal deposits                                          --          --             (30)          --             30            0
  Suppliers                                                163        (934)       11,798           --         (9,478)       1,549
  Taxes payable other than income taxes                   --          (130)        2,795           --           --          2,665
  Accrued payroll and related liabilities                 --           569           802           --           --          1,371
  Advances received from subscribers                      --         3,685         2,766           --           --          6,451
  Deferred accounts payable                               --         4,883          --             --           --          4,883
  Other accounts payable                                     5         645         4,550           --           (895)       4,305
                                                     ---------   ---------     ---------      ---------    ---------    ---------
Net cash (used in) provided by                          (6,829)    (11,136)       15,465            (97)     (15,099)     (17,696)
     operating activities                                                                    
                                                     ---------   ---------     ---------      ---------    ---------    ---------
Cash flows from investing activities                                                         
Business acquisition                                                                         
  Purchase of fixed assets                                --       (41,152)      (84,454)          --             (6)    (125,612)
  Loans to affiliated companies                       (112,557)    (17,675)         (508)          --         91,559      (39,181)
  Cash received on loans to                             54,445       8,205         9,315           --        (40,269)      31,696
        affiliated companies                                                                 
  Purchase of concessions                                 --          --         (14,235)          --           --        (14,235)
  Investments in equity and cost                      (100,452)     (5,100)         --             --         88,984      (16,568)
        investments                                                                          
                                                     ---------   ---------     ---------      ---------    ---------    ---------
Net cash used in investing activities                 (158,564)    (55,722)      (89,882)          --        140,268     (163,900)
                                                     ---------   ---------     ---------      ---------    ---------    ---------
Cash flows from financing activities:                                                        
  Short-term bank loans                                253,166       7,253         7,406           --            678      268,503
  Capital contributions                                   --        65,359        17,533             15      (82,907)        --
  Repayments of loans from shareholders                   --          --          (2,929)          --           --         (2,929)
  Loans from shareholders                                 --          --            --             --           --           --   
  Loans to shareholders                                   --          --            --             --           --           --
  Loans from affiliated companies                      163,858      28,835        62,423             95      (86,797)     168,414
  Repayments of loans from affiliated companies       (171,795)     (9,315)         --           43,857     (171,795)
  Repayments of loans from banks                          --          --            --             --           --           --
                                                     ---------   ---------     ---------      ---------    ---------    ---------
Net cash provided by financing activities            $ 245,229   $  66,905     $  75,118      $     110    $(125,169)   $ 262,193
                                                     =========   =========     =========      =========    =========    =========
</TABLE>


Continued

                                      F-35
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued



<TABLE>
<S>                                                  <C>         <C>           <C>            <C>          <C>          <C>      
Net (decrease) increase in cash and cash equivalents    79,836          47           701             13         --         80,597
Cash and cash equivalents at beginning of the period    23,446          12           743           --           --         24,201
                                                     ---------   ---------     ---------      ---------    ---------    ---------
Cash and cash equivalents at end of the period       $ 103,282   $      59     $   1,444      $      13    $    --      $ 104,798
                                                     =========   =========     =========      =========    =========    =========
Supplemental cash disclosure:                                                                
   Cash paid for interest                            $   7,312        --            --             --           --      $   7,312
                                                     =========   =========     =========      =========    =========    =========
Supplemental noncash financing activities:                                                   
   Accrued interest on related company loans                                                 
     refinanced as principal balance                      --     $     648     $   1,497           --      $  (1,791)   $     354
                                                     =========   =========     =========      =========    =========    =========
Details of acquisitions:                                                                     
   Fair value of assets acquired                          --          --          15,701           --           --         15,701
   Liabilities assumed                                    --          --          (1,385)          --           --         (1,385)
                                                     ---------   ---------     ---------      ---------    ---------    ---------
   Cash paid                                              --          --          14,316           --           --         14,316
   Less: cash acquired                                    --          --             (81)          --           --            (81)
                                                     ---------   ---------     ---------      ---------    ---------    ---------
Net cash paid for acquisitions                            --          --       $  14,235           --           --      $  14,235
                                                     =========   =========     =========      =========    =========    =========
</TABLE>


Continued


                                      F-36
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


24.  Financial   information   for  Subsidiary   Guarantors  and   Non-Guarantor
     Subsidiaries (continued)


                                         Condensed Consolidating Balance Sheet
                                                As of December 31, 1995
                                            (in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                               Wholly-         Majority-       Non-
                                                Parent          Owned           Owned       Guarantor
Assets                                         Company      Subsidiaries    Subsidiaries  Subsidiaries   Eliminations   Consolidated
<S>                                            <C>           <C>             <C>            <C>            <C>            <C>      
Current assets
Cash and cash equivalents                      $  23,446      $      12      $     743           --             --        $  24,201
Accounts receivable, net                            --             --           11,253           --             --           11,253
Inventories                                         --             --           13,076           --             --           13,076
Film exhibition rights                              --             --               30           --             --               30
Prepaid and other assets                            --               55          2,913           --             --            2,968
Other accounts receivable                              2           --            1,490           --        $    (507)           985
                                               ---------      ---------      ---------      ---------      ---------      ---------
        Total current assets                      23,448             67         29,505           --             (507)        52,513
                                               ---------      ---------      ---------      ---------      ---------      ---------

Property, plant and equipment                       --           11,492        120,350           --             (576)       131,266
Investments
  Equity affiliates                                7,252          1,110           --        $   1,110         (6,010)         3,462
  Cost basis investees                                15         11,225           --             --             --           11,240
  Concessions, net                                 7,978           --             --             --             --            7,978
Loans to related companies                       281,034          6,786         10,480           --         (291,568)         6,732
Other                                               --             --            1,568           --            2,089          3,657
                                               ---------      ---------      ---------      ---------      ---------      ---------
        Total assets                           $ 319,727      $  30,680      $ 161,903      $   1,110      $(296,572)     $ 216,848
                                               =========      =========      =========      =========      =========      =========
</TABLE>


Continued


                                      F-37
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


24.  Financial   information   for  subsidiary   guarantors  and   non-guarantor
     bsidiaries (continued)

                                         Condensed Consolidating Balance Sheet
                                                As of DECEMBER 31, 1995
                                            (in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                Wholly-       Majority-       Non-
                                                  Parent         Owned         Owned       Guarantor
Liabilities and Shareholders' Equity              Company     Subsidiaries  Subsidiaries  Subsidiaries   Eliminations   Consolidated
<S>                                              <C>           <C>           <C>           <C>            <C>            <C>      
                                                                                           
Current liabilities                                                                        
Film suppliers                                        --            --          9,512           --        $  (3,620)         5,892
Other suppliers                                       --       $   5,859       46,219           --             --           52,078
Taxes payable other than income taxes                 --           1,095        5,076           --             --            6,171
Accrued payroll and related liabilities               --              68        4,503           --             --            4,571
Advance payments received from subscribers            --            --          3,986           --             --            3,986
Other accounts payable                           $     169           273        2,830           --             --            3,272
                                                 ---------     ---------    ---------      ---------      ---------      ---------
        Total current liabilities                      169         7,295       72,126           --           (3,620)        75,970
                                                 ---------     ---------    ---------      ---------      ---------      ---------
Long-term liabilities                                                                                                    
Loans from related companies                           585        23,174      265,282           --         (288,455)           586
Loans from shareholders                               --            --          3,086           --             --            3,086
Provision for claims                                  --            --          3,763           --             --            3,763
Liability to fund equity investee                  160,508          --           --             --         (158,339)         2,169
                                                 ---------     ---------    ---------      ---------      ---------      ---------
        Total long-term liabilities                161,093        23,174      272,131           --         (446,794)         9,604
                                                 ---------     ---------    ---------      ---------      ---------      ---------
Redeemable common stock, no par value              149,534          --           --             --             --          149,534
Shareholders' equity                                                                                                     
  Paid-in capital                                  142,495         6,214       17,017      $   3,117        (26,348)       142,495
  Accumulated deficit                             (133,564)       (6,003)    (199,371)        (2,007)       180,190       (160,755)
                                                 ---------     ---------    ---------      ---------      ---------      ---------
       Total shareholders' equity                    8,931           211     (182,354)         1,110        153,842        (18,260)
                                                 ---------     ---------    ---------      ---------      ---------      ---------
       Total liabilities and                                                                                             
              shareholders' equity               $ 319,727     $  30,680    $ 161,903      $   1,110      $(296,572)     $ 216,848
                                                 =========     =========    =========      =========      =========      =========
</TABLE>


Continued


                                      F-38
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


24.  Financial   information   for  subsidiary   guarantors  and   non-guarantor
     Bsidiaries (continued)

<TABLE>
<CAPTION>
                                    Condensed Consolidating Statement of Operations
                                         for the year ended December 31, 1995
                                            (in thousands of U.S. dollars)

                                                                Wholly-      Majority-      Non-
                                                  Parent         Owned         Owned      Guarantor
Description                                      Company     Subsidiaries  Subsidiaries  Subsidiaries   Eliminations   Consolidated
<S>                                               <C>           <C>           <C>          <C>          <C>             <C>      
Gross revenues
   Monthly subscriptions                               --           --        $ 62,496         --           --          $ 62,496
   Installation                                        --           --          26,045         --           --            26,045
   Advertising                                         --           --           8,377         --           --             8,377
   Indirect programming                                --           --           2,866         --           --             2,866
   Other                                               --           --           2,226         --           --             2,226
   Revenue taxes                                       --           --          (7,506)        --           --            (7,506)
                                                   --------     --------      --------     --------     --------        -------- 
Net  Revenue                                           --           --          94,504         --           --            94,504
                                                   --------     --------      --------     --------     --------        -------- 
Direct operating expenses                                                                                             
   Payroll and benefits                                --       $    315        12,205         --           --            12,520
   Programming                                         --           --          21,609         --           --            21,609
   Transponder lease cost                              --           --           7,568         --           --             7,568
   Technical assistance                                --           --           5,152         --           --             5,152
   Vehicle rentals                                     --              7         1,725         --           --             1,732
   TVA Magazine                                        --           --           3,318         --           --             3,318
   Other costs                                         --            705         9,422         --           --            10,127
                                                   --------     --------      --------     --------     --------        -------- 
                                                       --          1,027        60,999         --           --            62,026
                                                   --------     --------      --------     --------     --------        -------- 
Selling, general and                                                                                                  
   administrative expenses                                                                                            
   Payroll and benefits                                --           --          21,627         --           --            21,627
   Advertising and promotion                           --             62        11,060         --           --            11,122
   Rent                                                --             18         1,055         --           --             1,073
   Other Administrative Expenses                   $    198          202         6,273         --           --             6,673
   Other general expenses                              --              4         6,403         --           --             6,407
                                                   --------     --------      --------     --------     --------        -------- 
                                                        198          286        46,418         --           --            46,902
                                                   --------     --------      --------     --------     --------        -------- 
Depreciation                                           --            127        12,721         --           --            12,848
Amortization                                            420         --            --           --           --               420
                                                   --------     --------      --------     --------     --------        -------- 
Operating  Loss                                        (618)      (1,440)      (25,634)        --           --           (27,692)
                                                   --------     --------      --------     --------     --------        -------- 
Interest income                                       6,772          350         7,965         --       $(11,969)          3,118
Interest expense                                    (15,273)      (1,226)      (13,215)        --         11,969         (17,745)
Translation loss                                        (28)        (151)         (160)        --           --              (339)
Equity in (losses) of affiliates                    (27,316)      (1,427)         --       $ (1,427)      26,498          (3,672)
Other nonoperating (expenses) income, net              (477)         811         4,055         --           --             4,389   
                                                   --------     --------      --------     --------     --------        -------- 
Loss before income taxes and minority interest      (36,940)      (3,083)      (26,989)      (1,427)      26,498         (41,941)
Income taxes                                                                                                          
                                                   --------     --------      --------     --------     --------        -------- 
Net loss before minority interest                   (36,940)      (3,083)      (26,989)      (1,427)      26,498         (41,941)
Minority interest                                      --           --            --           --            871             871
                                                   --------     --------      --------     --------     --------        -------- 
Net loss                                           $(36,940)    $ (3,083)     $(26,989)    $ (1,427)    $ 27,369        $(41,070)
                                                   ========     ========      ========     ========     ========        ========
</TABLE>


Continued


                                      F-39
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


24.  Financial   information   for  subsidiary   guarantors  and   non-guarantor
     subsidiaries (continued)

<TABLE>
<CAPTION>
                                    Condensed Consolidating Statement of Cash Flows
                                             for the year ended DECEMBER 31, 1995
                                                (in thousands of U.S. dollars)

                                                               Wholly-       Majority-       Non-
                                                   Parent       Owned          Owned       Guarantor
                                                  Company    Subsidiaries   Subsidiaries  Subsidiaries   Eliminations   Consolidated
<S>                                               <C>         <C>           <C>             <C>            <C>            <C>      
Cash flows from operating activities:
Net loss                                         $ (36,940)   $  (3,083)    $ (26,989)    $  (1,427)      $  27,369      $ (41,070)
Adjustments to reconcile net loss to net cash                                                                           
  (used in) provided by                                                                                                 
  operating activities:                                                                                                 
  Depreciation                                        --            127        12,721          --              --           12,848
  Amortization                                         420         --            --            --              --              420
  Allowance for exhibition costs                      --           --             827          --              --              827
  Allowance for doubtful accounts                     --           --           2,196          --              --            2,196
  Provision for claims                                --           --           2,688          --              --            2,688
  Minority interest                                   --           --            --            --              (871)          (871)
  Disposal and write-off of fixed assets              --          4,352           474          --            (4,485)           341
  Equity in losses (earnings) of affiliates         27,316       (1,427)         --           1,427         (23,644)         3,672
Changes in operating assets and liabilities:                                                                            
  Film exhibition rights                              --           --             560          --              --              560
  Accounts receivable                                 --           --          (5,908)         --              --           (5,908)
  Prepaid and other assets                            --            (55)       (1,214)         --              --           (1,269)
  Other accounts receivable                             (2)        --            (599)         --              --             (601)
  Accrued interest                                   8,473          244         5,395          --            (4,871)         9,241
  Inventories                                         --            333        (7,706)         --              --           (7,373)
  Legal deposits                                      --           --            (108)         --              --             (108)
  Suppliers                                           --          5,385        34,004          --            (3,114)        36,275 
  Taxes payable other than income taxes               --          1,095         3,786          --              --            4,881
  Accrued payroll and related liabilities             --             68         1,568          --              --            1,636
  Deferred accounts payable                           --           --           2,956          --              --            2,956
  Other accounts payable                                 3          273         1,372          --              --            1,648
                                                 ---------    ---------     ---------     ---------       ---------      --------- 
Net cash (used in) provided by operating                                                                                
  activities                                          (730)       7,312        26,023          --            (9,616)        22,989
                                                 ---------    ---------     ---------     ---------       ---------      --------- 
Cash flows from investing activities:                                                                                   
  Purchase of fixed assets                            --        (11,619)      (86,470)         --             5,060        (93,029)
  Loans to related companies                      (115,498)      (6,709)       (8,220)         --           122,460         (7,967)
  Cash received on loans to related companies       34,220         --              26          --           (31,655)         2,591
  Purchase of concessions                           (6,393)        --            --            --              --           (6,393)
  Investments in equity and cost  investments       (4,382)     (13,763)         --          (3,117)          6,399        (14,863)
                                                 ---------    ---------     ---------     ---------       ---------      --------- 
Net cash used in investing activities              (92,053)     (32,091)      (94,664)       (3,117)        102,264       (119,661)
                                                 ---------    ---------     ---------     ---------       ---------      --------- 
Cash flows from financing activities:                                                                                   
  Capital contributions                            125,000        2,154          --           3,117          (5,271)       125,000
  Repayments of loans from shareholders               --          2,154          --            --            (2,154)        (2,154)
  Loans from related companies                     131,858       22,848        97,218          --          (120,064)       131,860
  Repayments of loans from related companies      (140,629)     (32,477)         --            --            34,840       (140,631)
                                                 ---------    ---------     ---------     ---------       ---------      --------- 
Net cash provided by financing activities          116,229       24,791        64,741         3,117         (92,649)       116,229
                                                 ---------    ---------     ---------     ---------       ---------      --------- 
Net increase (decrease) in cash and cash                                                                                
  equivalents                                       23,446           12        (3,901)         --              --           19,557
Cash and cash equivalents at beginning of the                                                                           
  period                                              --           --           4,644          --              --            4,644
                                                 ---------    ---------     ---------     ---------       ---------      --------- 
Cash and cash equivalents at end of the period   $  23,446    $      12     $     743     $    --         $    --        $  24,201
                                                 =========    =========     =========     =========       =========      ========= 
Supplemental cash disclosure:                                                                                           
  Cash paid for interest                         $   8,390         --       $   2,708          --         $  (2,708)     $   8,390
                                                 =========    =========     =========     =========       =========      ========= 
Supplemental non-cash financing activities:                                                                             
  Accrued interest on related company loans                                                                             
    refinanced as principal balance              $   9,355    $      34     $   4,754          --         $  (4,788)     $   9,355
                                                 =========    =========     =========     =========       =========      ========= 
</TABLE>



Continued



                                      F-40
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


24.  Financial Information For Subsidiary Guarantors And Non-guarantor
     Subsidiaries (continued)

<TABLE>
<CAPTION>
                                       Condensed Consolidating Statement of Operations
                                             for the year ended December 31, 1994
                                                (in thousands of U.S. dollars)

                                                                                     Majority-
                                                                      Parent           Owned
               Description                                            Company       Subsidiaries       Eliminations     Consolidated
<S>                                                                  <C>               <C>               <C>             <C>     
Gross revenues
   Monthly subscriptions                                                 --            $ 27,976              --          $ 27,976
   Installation                                                          --               6,997              --             6,997
   Advertising                                                           --               5,727              --             5,727
   Indirect programming                                                  --               1,626              --             1,626
   Other                                                                 --               1,446              --             1,446
   Revenue taxes                                                         --                (872)             --              (872)
                                                                     --------          --------          --------        --------
Net  Revenue                                                             --              42,900              --            42,900
                                                                     --------          --------          --------        --------

Direct operating expenses
   Payroll and benefits                                                  --               8,022              --             8,022
   Programming                                                           --              12,133              --            12,133
   Transponder lease cost                                                --               1,555              --             1,555
   Technical assistance                                                  --               1,622              --             1,622
   Vehicle rentals                                                       --                 788              --               788
   TVA Magazine                                                          --               1,430              --             1,430
   Other costs                                                           --               3,109              --             3,109
                                                                     --------          --------          --------        --------
                                                                         --              28,659              --            28,659
                                                                     --------          --------          --------        --------
Selling, general and administrative expenses

   Payroll and benefits                                                  --              14,241              --            14,241
   Advertising and promotion                                             --               3,540              --             3,540
   Rent                                                                  --                 656              --               656
   Other  Administrative Expenses                                        --               2,206              --             2,206
   Other general expenses                                            $    143             3,584              --             3,727
                                                                     --------          --------          --------        --------
                                                                          143            24,227              --            24,370
                                                                     --------          --------          --------        --------
Depreciation                                                             --               6,177              --             6,177
                                                                     --------          --------          --------        --------
Operating  Loss                                                          (143)          (16,163)             --           (16,306)
                                                                     --------          --------          --------        --------
Interest income                                                        64,360             8,479          $(51,033)         21,806
Interest expense                                                       (5,279)          (62,166)           51,032         (16,413)
Translation loss                                                         (231)             (683)             --              (914)
Equity in (losses) income of affiliates                               (61,063)             --              61,446             383
Other nonoperating expenses, net                                       (1,228)              (45)             --            (1,273)
                                                                     --------          --------          --------        --------
Loss before income taxes and minority
    interest income taxes (Note 11)                                    (3,584)          (70,578)           61,445         (12,717)
                                                                     --------          --------          --------        --------
Net loss before minority interest                                      (3,584)          (70,578)           61,445         (12,717)
Minority interest                                                        --                --                 720             720
                                                                     --------          --------          --------        --------
Net loss                                                             $ (3,584)         $(70,578)         $ 62,165        $(11,997)
                                                                     ========          ========          ========        ======== 
</TABLE>


Continued


                                      F-41
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Continued


24.  Financial   information   for  subsidiary   guarantors  and   non-guarantor
     subsidiaries (concluded)

<TABLE>
<CAPTION>
                                       Condensed Consolidating Statement of Cash Flows
                                             for the year ended DECEMBER 31, 1994
                                                (in thousands of U.S. dollars)

                                                                         Wholly-    Majority-
                                                           Parent         Owned       Owned  
                                                           Company     Subsidiarie Subsidiaries Eliminations  Consolidated
<S>                                                       <C>          <C>          <C>          <C>          <C>       
Cash flows from operating activities:
Net loss                                                  $  (3,584)        --      $ (70,578)   $  62,165    $ (11,997)
Adjustments to reconcile net loss to net cash
  (used in) provided by operating activities:
  Depreciation                                                 --           --          6,141         --          6,141
  Allowance for doubtful accounts                              --           --            848         --            848
  Provision for claims                                         --           --            864         --            864
  Minority interest                                            --           --           --           (721)        (721)
  Disposal and write-off of fixed assets                       --           --            662         --            662
  Equity in losses (earnings) of affiliates                  61,063         --           --        (61,446)        (383)
Changes in operating assets and liabilities:
  Film exhibition rights                                       --           --           (114)        --           (114)
  Accounts receivable                                          --           --         (7,007)        --         (7,007)
  Prepaid and other assets                                     --           --         (1,364)        --         (1,364)
  Other accounts receivable                                    --           --           (706)         507         (199)
  Accrued interest                                          (74,306)        --         57,221       17,808          723
  Inventories                                                  --      $    (333)      (2,050)        --         (2,383)
  Suppliers                                                    --            474        5,342         (507)       5,309
  Taxes payable other than income taxes                        --           --            685         --            685
  Accrued payroll and related liabilities                      --           --          1,454         --          1,454
  Advances received from subscribers                           --           --           (496)        --           (496)
  Other accounts payable                                        166         --         (1,663)        (232)      (1,729)
                                                          ---------    ---------    ---------    ---------    --------- 
Net cash (used in) provided by operating activities         (16,661)         141      (10,761)      17,574       (9,707)
                                                          ---------    ---------    ---------    ---------    --------- 
Cash flows from investing activities:
  Purchase of fixed assets                                     --         (4,362)     (18,007)        --        (22,369)
  Loans to related companies                               (148,622)         (33)      (2,098)     147,271       (3,482)
  Cash received on loans to related companies                 5,997         --          4,019       (5,535)       4,481
  Purchase of concessions                                    (2,035)        --           --           --         (2,035)
  Investments in equity and cost investments                   --           (929)        --           --           (929)
                                                          ---------    ---------    ---------    ---------    --------- 
Net cash used in investing activities                      (145,589)      (4,395)     (16,086)     141,736      (24,334)
                                                          ---------    ---------    ---------    ---------    --------- 
Cash flows from financing activities:
  Capital contributions                                     162,250        1,808        7,588      (20,194)     151,452
  Repayments of loans from shareholders                        --           --         (3,082)        --         (3,082)
  Loans from related companies                                 --          2,446      225,581     (131,041)      96,986
  Repayments of loans from related companies                   --           --       (178,680)      (8,075)    (186,755)
  Repayments of loans from banks                               --           --        (19,935)        --        (19,935)
                                                          ---------    ---------    ---------    ---------    --------- 
Net cash provided by financing activities                   162,250        4,254       31,472     (159,310)      38,666
                                                          ---------    ---------    ---------    ---------    --------- 
Net increase in cash and cash equivalents                      --           --          4,625         --          4,625
Cash and cash equivalents at beginning of the period           --           --             19         --             19
                                                          ---------    ---------    ---------    ---------    --------- 
Cash and cash equivalents at end of the period                 --           --      $   4,644         --      $   4,644
                                                          =========    =========    =========    =========    ========= 
Supplemental cash disclosure:
    Cash paid for interest                                $  16,413         --      $   8,583    $  (8,583)   $  16,413
                                                          =========    =========    =========    =========    ========= 
Supplemental non-cash financing activities:
Accrued interest on related company loans refinanced as
    principal balance                                          --           --      $  56,427    $ (56,427)        --
                                                          =========    =========    =========    =========    ========= 
</TABLE>


Continued



                                      F-42
<PAGE>


TEVECAP S.A.

AND SUBSIDIARIES

Notes to these Consolidated Financial Statements, Concluded


25.  Subsequent events

     In 1997, the negotiation of a lease contract between the subsidiary, Galaxy
     Brasil S.A., and Citibank N.A. in the amount of $49,900 was concluded. Such
     contract has a five-year term with interest at 12.5% per year. The contract
     is  guaranteed  by TEVECAP  S.A.  and TVA  Sistema  de  Televisao  S.A.  In
     addition, management entered into a credit agreement for a total of $29,350
     with the Chase Manhattan Bank.



                                     -------



Concluded


                                      F-43
<PAGE>


                          TVA SISTEMA DE TELEVISAO S.A.

                                    REPORT ON
                              FINANCIAL STATEMENTS

                      as of December 31, 1996 and 1995 and
                 for each of the three years in the period ended
                                December 31, 1996


<PAGE>



                          TVA SISTEMA DE TELEVISAO S.A.

                          Index to Financial Statements


                                    Contents


                                                                            Page

Report of Independent Accountants                                           F-45

Balance Sheets as of December 31, 1996 and 1995                             F-46

Statements of Operations for each of the three years
   in the period ended December 31, 1996                                    F-48

Statements of Changes in Shareholders' Equity for
   each of the three years in the period ended December 31, 1996            F-49

Statements of Cash Flows for each of the three years
   in the period ended December 31, 1996                                    F-50

Notes to these Financial Statements                                         F-51


                                      F-44
<PAGE>


Report of Independent Accountants



To the Shareholders and Directors of
TVA SISTEMA DE TELEVISAO S.A.

We have audited the accompanying balance sheets of TVA SISTEMA DE TELEVISAO S.A.
(the "Company") as of December 31, 1996 and 1995, and the related  statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period  ended  December 31, 1996,  all  expressed in United  States
dollars.  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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits 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 TVA SISTEMA DE TELEVISAO S.A.
as of December 31, 1996 and 1995,  and the related  results of their  operations
and cash flows for each of the three  years in the  period  ended  December  31,
1996, in conformity with accounting  principles generally accepted in the United
States of America.



Coopers & Lybrand



Sao Paulo, Brazil
April 11, 1997


                                      F-45
<PAGE>


TVA SISTEMA DE TELEVISAO S.A.


Balance Sheets
December 31, 1996 and 1995
(in thousands of U.S. dollars)


                                                                 December 31,
                                                             ------------------
                                                                1996      1995
                                                             --------   --------
                          ASSETS

Current assets
   Cash and cash equivalents (Note 3)                        $    750   $    698
   Accounts receivable, net (Note 4)                           21,625     11,221
   Accounts receivable from related companies (Note 8)          2,582        945
   Inventories (Note 5)                                         9,126     13,076
   Film exhibition rights (Note 6)                              1,061         30
   Prepaid and other assets (Note 7)                            2,155      2,845
   Other accounts receivable                                      888        543
                                                             --------   --------

               Total current assets                            38,187     29,358

Property, plant and equipment, net (Note 11)                  165,543    118,884
Loans to related companies (Note 8)                             3,024     10,480
Other                                                           1,502      1,559
                                                             --------   --------

               Total assets                                  $208,256   $160,281
                                                             ========   ========


The accompanying notes are an integral part of these financial statements


                                      F-46
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.   


Balance Sheets
December 31, 1996 and 1995
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                  December 31,
                                                             ----------------------
                                                                1996         1995
                                                             ---------    ---------

                      LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                          <C>          <C>      
Current liabilities
   Short-term bank loans (Note 12)                           $   8,084         --
   Film suppliers                                               19,828    $   9,512
   Other suppliers                                              44,940       46,123
   Taxes payable other than income taxes                         7,522        5,020
   Accrued payroll and related liabilities                       5,057        4,250
   Advance payments received from subscribers                    6,782        3,986
   Other accounts payable (Note 13)                              2,687        1,828
                                                             ---------    ---------
               Total current liabilities                        94,900       70,719
                                                             ---------    ---------
Long-term liabilities
   Loans from shareholders (Note 9)                               --          2,906
   Loans from related companies (Note 8)                       293,658      254,802
   Provision for claims (Note 17)                                5,039        3,763
                                                             ---------    ---------
               Total long-term liabilities                     298,697      261,471
                                                             ---------    ---------
Commitments and contingencies (Notes 15 and 17)

Shareholders' equity
   Common shares, no par value, 6,980,764
      shares authorized, issued and outstanding (Note 16)       16,303       16,303
   Accumulated deficit                                        (201,644)    (188,212)
                                                             ---------    ---------
               Total shareholders' equity                     (185,341)    (171,909)
                                                             ---------    ---------
               Total liabilities and shareholders' equity    $ 208,256    $ 160,281
                                                             =========    =========
</TABLE>


The accompanying notes are an integral part of these financial statements


                                      F-47
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.    


Statements of Operations
for the years ended December 31, 1996, 1995 and 1994
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                            Year Ended  December  31,
                                                               -----------------------------------------------------
                                                                  1996                 1995                  1994
                                                               ---------             ---------             ---------
<S>                                                            <C>                   <C>                   <C>      
Gross revenues
   Monthly subscriptions                                       $ 108,774             $  59,263             $  26,584
   Installation                                                   43,954                26,045                 6,997
   Advertising                                                     7,532                 8,377                 5,721
   Indirect programming                                           11,377                 2,866                 1,626
   Other                                                           7,983                 2,226                 1,446
   Revenue taxes                                                 (11,841)               (7,280)                 (801)
                                                               ---------             ---------             ---------
            Net revenue                                          167,779                91,497                41,573
                                                               ---------             ---------             ---------

Direct operating expenses
   Payroll and benefits                                           20,581                10,749                 7,017
   Programming                                                    39,067                21,609                12,133
   Transponder lease cost                                          9,942                 7,568                 1,555
   Technical assistance                                            5,261                 4,937                 1,607
   Vehicle rentals                                                 1,452                 1,478                   767
   TVA magazine                                                    6,401                 3,318                 1,430
   Other costs                                                    13,762                 9,190                 2,677
                                                               ---------             ---------             ---------
                                                                  96,466                58,849                27,186
                                                               ---------             ---------             ---------

Selling, general and administrative expenses
   Payroll and benefits                                           24,662                21,089                14,034
   Advertising and promotion                                      13,382                10,793                 3,540
   Rent                                                            2,998                   941                   656
   Other administrative expenses                                   9,772                 5,981                 2,205
   Other general expenses                                          9,500                 5,917                 2,782
                                                               ---------             ---------             ---------
                                                                  60,314                44,721                23,217
                                                               ---------             ---------             ---------
Allowance for obsolescence                                         2,250                 --                     --
Depreciation                                                      22,128                12,535                 6,141
                                                               ---------             ---------             ---------
            Operating loss                                       (13,379)              (24,608)              (14,971)

Interest income                                                    7,365                 7,800                 8,298
Interest expense                                                  (5,227)               (9,687)              (59,598)
Translation gain (loss)                                               26                  (167)                 (662)
Other nonoperating (expenses) income, net                         (2,217)                4,028                   (45)
                                                               ---------             ---------             ---------
           Loss before income taxes                              (13,432)              (22,634)              (66,978)
Income taxes (Note 10)                                              --                    --                    --
                                                               ---------             ---------             ---------
            Net loss                                           $ (13,432)            $ (22,634)            $ (66,978)
                                                               =========             =========             ========= 
</TABLE>

The accompanying notes are an integral part of these financial statements


                                      F-48
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.    


Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994
(in thousands of U.S. dollars)

                                           Paid-in
                                           Capital     Accumulated
                                          (Note 16)      Deficit        Total
                                          ---------     ---------     ---------

Balance as of December 31, 1993           $  10,797     $ (98,600)    $ (87,803)

Capital contributed on:
   February 28, 1994                          5,432          --           5,432
   April 4, 1994                                 74          --              74

Net loss for the year                          --         (66,978)      (66,978)
                                          ---------     ---------     ---------

Balance as of December 31, 1994           $  16,303     $(165,578)    $(149,275)

Net loss for the year                          --         (22,634)      (22,634)
                                          ---------     ---------     ---------

Balance as of December 31, 1995              16,303      (188,212)     (171,909)

Net loss for the year                          --         (13,432)      (13,432)
                                          ---------     ---------     ---------

Balance as of December 31, 1996           $  16,303     $(201,644)    $(185,341)
                                          =========     =========     =========



The accompanying notes are an integral part of these financial statements   


                                      F-49
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.       


Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                 -----------------------------------
                                                                   1996         1995          1994
                                                                 ---------    ---------    ---------
<S>                                                              <C>          <C>          <C>       
Cash flows from operating activities:
  Net loss                                                       $ (13,432)   $ (22,634)   $ (66,978)
  Adjustments to reconcile net loss to net cash (used in)
    provided by operating activities:
    Depreciation                                                    22,128       12,535        6,141
    Allowance for doubtful accounts                                  1,966        2,196          848
    Allowance for obsolescence                                       2,250         --           --
    Allowance for exhibition costs                                    --            827         --
    Provision for claims                                             1,276        2,688          865
    Loss on disposal of property, plant and equipment                1,005          474          629
  Changes in operating assets and liabilities:
    Film exhibition rights                                          (1,031)         560         (114)
    Accounts receivable                                            (12,370)      (5,876)      (7,007)
    Prepaid and other assets                                           690       (1,191)      (1,330)
    Other accounts receivable                                       (1,925)        (711)      (1,461)
    Accrued interest                                                (3,604)         356       54,019
    Inventories                                                      1,700       (7,706)      (2,050)
    Suppliers                                                        9,133       34,010        5,270
    Taxes payable other than income taxes                            2,502        3,759          662
    Accrued payroll and related liabilities                            807        1,453        1,394
    Advances received from subscribers                               2,796        2,955         (495)
    Other accounts payable                                           1,537          426        1,128
                                                                 ---------    ---------    ---------
           Net cash provided by (used in) operating activities      15,428       24,121       (8,479)
                                                                 ---------    ---------    ---------

Cash flows from investing activities:
  Purchase of property, plant and equipment                        (69,792)     (85,016)     (17,938)
  Loans to affiliated companies                                       (508)      (8,220)      (2,098)
  Cash received on loans to related companies                        9,315           26        3,942
                                                                 ---------    ---------    ---------
           Net cash used in investing activities                   (60,985)     (93,210)     (16,094)
                                                                 ---------    ---------    ---------

Cash flows from financing activities:
  Capital contribution                                                --           --          5,506
  Bank loans                                                         7,406         --           --
  Repayments of loans from shareholders                             (2,767)        --         (3,082)
  Loans from related companies                                      40,970       89,000      227,188
  Repayments of loans from related companies                          --        (23,857)    (180,477)
  Repayments of loans from bank                                       --           --        (19,935)
                                                                 ---------    ---------    ---------
           Net cash provided by financing activities                45,609       65,143       29,200
                                                                 ---------    ---------    ---------

Net increase (decrease) in cash and cash equivalents                    52       (3,946)       4,627
Cash and cash equivalents at beginning of the period                   698        4,644           17
                                                                 ---------    ---------    ---------
           Cash and cash equivalents at end of the period        $     750    $     698    $   4,644
                                                                 =========    =========    =========

Supplemental cash disclosure:
  Cash paid for interest                                               317         --      $   8,583
                                                                 =========    =========    =========

Supplemental non-cash financing activities:
  Accrued interest on related company loans refinanced
    as principal balance                                              --      $   2,468    $  54,158
                                                                 =========    =========    =========
</TABLE>

                                                                             
The accompanying notes are an integral part of these financial statements    


                                      F-50
<PAGE>


TVA SISTEMA DE TELEVISAO S.A.

Notes to these Financial Statements

(in thousands of U.S. dollars)


1.   TVA Sistema de Televisao S.A. (the "Company") and its principal operations

     The Company renders services related to wireless cable and cable and
     parabolic antenna television systems, including marketing and advertising,
     production, distribution and licensing of domestic and foreign television
     programs. The Company has wireless cable channel rights primarily in major
     urban markets in Brazil.


2.   Summary of significant accounting policies

     Significant policies followed in the preparation of the accompanying
     financial statements are described below:

2.1  Basis of presentation

     The financial statements are presented in U.S. dollars and have been
     prepared in accordance with accounting principles generally accepted in the
     United States of America ("U.S. GAAP"), which differ in certain respects
     from accounting principles applied by the Company in its local currency
     financial statements, which are prepared in accordance with accounting
     principles generally accepted in Brazil ("Brazilian GAAP").

     The preparation of financial statements requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosures of contingent assets and liabilities as of the
     financial statement dates and the reported amount of revenues and expenses
     during the reporting periods. Since management's judgment involves making
     estimates concerning the likelihood of future events, the actual results
     could differ from those estimates which will have a positive or negative
     effect on future period results.

2.2  Accounting records

     As required by Brazilian Law, and in accordance with local accounting
     practices, the accounting records of the Company are maintained in
     Brazilian currency ("real" or "R$"). In order to present the financial
     statements in conformity with U.S. GAAP, the Company maintains additional
     accounting records which are used solely for this purpose.

2.3  Currency remeasurement

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
     52, "Foreign Currency Translations", the United States dollar has been
     assumed to be the functional currency as Brazil is a "hyperinflationary"
     country. As such, the local accounts of the Company are translated into
     United States dollars as follows:

     o    Nonmonetary assets and liabilities are translated at historical rates.
          All other assets and liabilities are translated at the official rate
          of exchange of R$1.0394 to US$1 in effect on December 31, 1996, and
          R$0.973 to US$1 in effect on December 31, 1995.

Continued

                                      F-51
<PAGE>


TVA SISTEMA DE TELEVISAO S.A.

Notes to these Financial Statements,  Continued


     o    Income and expenses are translated at the average exchange rates in
          effect each month, except for those related to assets and liabilities
          which are translated at historical exchange rates, and deferred income
          taxes, which are translated at the current rate. Translation
          gains/losses are recognized in the income statement.

2.4  Cash and cash equivalents

     Cash and cash equivalents are defined as cash and cash in banks and
     investments in interest-bearing securities and are carried at cost plus
     accrued interest. Short-term investments with original maturities of three
     months or less at the time of purchase are considered cash equivalents.

2.5  Financial instruments

     In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
     Instruments" information is provided about the fair value of certain
     financial instruments for which it is practicable to estimate that value.

     For the purposes of SFAS No. 107, the estimated fair value of a financial
     instrument is the amount at which the instrument could be exchanged in a
     current transaction between willing parties, other than in a forced or
     liquidation sale. The carrying values of the Company's financial
     instruments as of December 31, 1996 and 1995 approximate management's best
     estimate of their estimated fair values. The following methods and
     assumptions were used to estimate the fair value of each class of financial
     instrument for which it is practicable to estimate that value:

     o    The fair value of certain financial assets carried at cost, including
          cash, accounts receivable, other accounts receivable, and certain
          other short-term assets is considered to approximate their respective
          carrying value due to their short-term nature.

     o    The fair value of  payables  to film  suppliers  and other  suppliers,
          other accounts  payable,  loans to related companies and certain other
          short-term  liabilities is considered to approximate  their respective
          carrying value due to their short-term nature.

     o    The fair value of loans from related companies approximates their
          respective carrying values, as interest on these loans is at market
          rates.

2.6  Accounts receivable

     An allowance for doubtful accounts is established on the basis of an
     analysis of the accounts receivable, in light of the risks involved, and is
     considered sufficient to cover any losses incurred in realization of
     credits.


Continued

                                      F-52
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.                   
                                                
Notes to these Financial Statements,  Continued 


2.7  Inventories

     Inventories consist of materials and supplies and imports in transit.
     Materials and supplies are used to provide service to new customers, and to
     ensure continuity of service to existing customers. Imports in transit
     represent materials purchased from foreign countries that have not yet been
     received.

     Inventories are stated at the lower of cost or market. Cost is determined
     principally under the average cost method.

     An allowance for obsolescence has been established on the basis of an
     analysis of slow-moving materials and supplies.

2.8  Film exhibition rights and program licensing

     Film exhibition rights and program licensing costs are deferred and
     recognized as the films and/or programs are exhibited. The allowance for
     exhibition expiration is determined based on management's estimate of the
     Company's capacity to telecast the films and projected revenue streams.

2.9  Property, plant and equipment

     Property, plant and equipment are stated at cost and depreciated using the
     straight-line method, over the remaining useful lives, as described in Note
     11.

2.10 Advertising

     Advertising revenues are recognized, and the production cost of commercials
     and programming are charged to expense, when the commercial is telecast.

2.11 Recoverability of long-lived assets to be held and used in the business

     Management reviews long-lived assets, primarily the Company's licenses and
     its property and equipment to be held and used in the business, for the
     purposes of determining and measuring impairment on a recurring basis or
     when events or changes in circumstances indicate that the carrying value of
     an asset or group of assets may not be recoverable. Assets are grouped and
     evaluated for possible impairment at the level of each cable television
     system; impairment is assessed on the basis of the forecasted undiscounted
     cash flows of the businesses over the estimated remaining lives of the
     assets related to those systems. A write-down of the carrying value of the
     assets or group of assets to estimated fair value will be made when
     appropriate.

     The Company adopted SFAS No. 121, "Accounting for the Impairment of
     Long-Lived Assets and for Long-Lived Assets to Be Disposed of", from
     January 1, 1996, and the effect on the financial statements as a result of
     the adoption was not significant.

Continued

                                      F-53
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.                   
                                                
Notes to these Financial Statements,  Continued 


2.12 Revenue recognition

     Hook up fees are recognized as revenue on the equipment  installation  date
     to the extent of direct selling costs incurred.  Subscription  revenues are
     recognized as earned on an accrual basis.

2.13 Licenses

     Televisao  Show Time Ltda.  ("TV Show  Time")  and TVA Brasil  Radioenlaces
     Ltda.  ("TVA  Brasil") hold  licenses  covering  certain  operations of the
     Company. The use of such licenses is provided to the Company, for a nominal
     fee,  under a Service  Agreement  dated July 22,  1994,  as amended,  among
     TEVECAP, TV Show Time, TVA Brasil and Abril S.A.

     Pursuant to the Service Agreement,  TV Show Time and TVA Brasil have agreed
     to transfer  the  licenses,  which are carried at nil value,  to TEVECAP at
     nominal cost.


3.   Cash and cash equivalents

     As of December 31, 1996 and 1995, cash and cash  equivalents were comprised
     of:

                                                            December 31,
                                                         -------------------
                                                         1996           1995
                                                         ----           ----
     
     Cash on hand and in banks                           $721           $582
     Short-term investments                                29            116
                                                         ----           ----
                                                         $750           $698
                                                         ====           ====
     
4.   Accounts receivable

     As of December 31, 1996 and 1995, accounts receivable were comprised of:

                                                             December 31,
                                                      -------------------------
                                                        1996              1995
                                                      --------         --------
      
      Subscriptions                                   $  7,294         $  5,154
      Installation fees                                  9,789            4,605
      Advertising and programming                        4,511            1,810
      Barter                                             5,248            2,989
      Others                                               156               70
      Allowance for doubtful accounts                   (5,373)          (3,407)
                                                      --------         --------
      
                                                      $ 21,625         $ 11,221
                                                      ========         ========

Continued


                                      F-54
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.                    
                                                 
Notes to these Financial Statements,  Continued  

5.   Inventories

     As of December 31, 1996 and 1995, inventories were comprised of:

                                                             December 31,
                                                      --------------------------
                                                        1996              1995
                                                      --------          --------

Materials and supplies                                $ 10,544          $ 10,913
Imports in transit                                         832             2,163
Allowance for obsolescence                              (2,250)
                                                      --------          --------
                                                      $  9,126          $ 13,076
                                                      ========          ========

6.   Film exhibition rights

     As of December 31, 1996 and 1995, film exhibition rights were comprised of:

                                                               December 31,
                                                         ----------------------
                                                           1996          1995
                                                         -------        -------

Exhibition rights                                        $ 2,223        $ 1,192
Allowance for exhibition expiration                       (1,162)        (1,162)
                                                         -------        -------
                                                         $ 1,061        $    30
                                                         =======        =======

7.   Prepaid and other assets

       As of December 31, 1996 and 1995, prepaid expenses were comprised of:

                                                                December 31,
                                                             -------------------
                                                              1996         1995
                                                             ------       ------


Advances to suppliers                                        $1,411       $2,022
Prepaid TVA magazine publishing expenses                        510          562
Prepaid meals and transportation                                194          147
Others                                                           40          114
                                                             ------       ------

                                                             $2,155       $2,845
                                                             ======       ======

Continued



                                      F-55
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.                    
                                                 
Notes to these Financial Statements,  Continued  


8.   Related party transactions

     The following  tables  summarize the  transactions  between the Company and
     related parties as of December 31, 1996 and 1995 and for the three years in
     the period ended December 31, 1996:

                                                            December 31,
                                                     ---------------------------
                                                       1996               1995
                                                     --------           --------

TVA Parana
   Loans receivable                                  $  2,936           $ 10,480
   Accounts receivable                                  1,343               --
   Accounts payable                                       580               --
TV Cabo Santa Catarina
   Loans receivable                                        88               --
Tevecap S.A 
   Loans payable                                      286,284            249,885
Coml. Cabo
   Loans payable                                        4,642              4,917
HBO Brasil
   Accounts receivable                                    778                507
Televisao Abril Ltda 
   Accounts receivable                                    136               --
ESPN Brasil Ltda 
   Accounts receivable                                     55                438
   Accounts payable                                       337                510
Abril S.A 
   Accounts receivable                                     19               --
   Accounts payable                                       104                108
   Loans payable                                        2,721               --
Galaxy Brasil
   Accounts receivable                                    136               --
Others
   Accounts receivable                                    115               --
   Accounts payable                                        32                  9
   Loans payable                                           11               --

Continued



                                      F-56
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.                      
                                                   
Notes to these Financial Statements,  Continued    


                                                 Year ended December 31,
                                         ---------------------------------------
                                            1996          1995          1994
                                         ------------  ------------    ---------

Tevecap
   Net interest (income) expense           $ (1,749)     $  2,465      $ 54,143
Abril S.A 
   Printing cost                              4,516         2,723         1,309
   Net interest expense                          46          --            --
Coml. Cabo
   Net interest income                         (319)         --            --
TV Cabo Santa Catarina
   Net interest income                          (21)         --            --
ESPN do Brasil Ltda 
   Programming costs, net                     3,850           646          --
TVA Parana
   Net interest income                       (1,330)       (2,286)         --
TV Filme
   Programming revenue                       (6,435)         (742)         (163)
Canbras TV a Cabo
   Programming revenue                         (207)         --            --


     The  related  company  loans are  denominated  in reais and are  subject to
     monetary  restatement  until December 31, 1995 plus interest charges at the
     market rate which  ranged  from 1.80% to 2.50% per month in  December  1996
     (3.44% per month in December 1995).  Such loans are renewable every year on
     December 31.

     The Company's parent,  TEVECAP S.A.  ("Tevecap"),  and Falcon International
     Communications  Services  Inc.,  one of  Tevecap's  shareholders,  signed a
     consulting  service  agreement  on April 1, 1996  related to the  Company's
     operations and technologies.  Initially,  the duration of this agreement is
     two years,  renewable  every  subsequent  two-year period  thereafter.  The
     payment for the consulting services amounts to $200 per annum.

     Related-party  transactions  relating  to  programming  sales and costs and
     printing service costs were carried out at usual market rates and terms.

     The Company  received  guarantees in the course of the year from its parent
     company  Tevecap and from Abril S.A. in the form of collateral  and letters
     of credit.  The  amount  outstanding  pursuant  to these  guarantees  as of
     December 31, 1996 was $3,198 and $47,890, respectively.

     The  Company,  as well as other  subsidiaries  of  Tevecap,  is a joint and
     several guarantor in a private placement  transaction  conducted by Tevecap
     in the amount of $250,000.  This   transaction  was carried out on November
     26, 1996, with an eight-year term and interest rate of 12.625% p.a.


Continued



                                      F-57
<PAGE>


TVA SISTEMA DE TELEVISAO S.A.                      
                                                   
Notes to these Financial Statements, Continued    


9.   Loans from Shareholders

     Loans from shareholders as of December 31, 1996 and 1995 were comprised of:

                                                              December 31,
                                                           ---------------------
                                                            1996           1995
                                                           ------         ------


Roberto Civita                                             $ --           $2,616
Maricla I. Rossi                                             --               61
Edgard Silvio Faria                                          --              184
Angelo Silvio Rossi                                          --               45
                                                           ------         ------
                                                           $ --           $2,906
                                                           ======         ======
                                                                         

     Loans from  shareholdres in 1995 were subject to interest based on the UFIR
     (Fiscal Reference Unit) variation which was 22.46% during that year.

10.  Deferred income tax

     The tax effects of temporary  differences  that give rise to a  significant
     portion of the deferred tax asset and deferred tax liability as of December
     31, 1996 and 1995 are as follows:


                                                                December 31,
                                                          ----------------------
                                                            1996         1995
                                                          --------     --------

Deferred tax assets:
   Net operating loss carryforwards                       $ 29,845     $ 24,267
   Deferred charges                                          5,581        7,238
   Allowance for obsolescence                                  437         --
   Provision for claims                                      1,461          343
   Allowance for decoders                                      438         --
   Others                                                      379          688
                                                          --------     --------
               Total gross deferred tax asset               38,141       32,536

Less valuation allowance                                   (32,685)     (24,861)
                                                          --------     --------
Net deferred tax asset                                       5,456        7,675

Deferred tax liability:
   Installation costs                                       (5,456)      (7,675)
                                                          --------     --------
               Total gross deferred tax liability         $ (5,456)    $ (7,675)
                                                          --------     --------
Net deferred tax asset                                        --           --
                                                          ========     ========

     The Company has a limited  operating history and has generated losses since
     its inception.  The valuation  allowance has been established in accordance
     with the requirements of SFAS No. 109 "Accounting for Income Taxes".  As of
     December 31, 1996, the Company has  unexpirable  accumulated  tax losses of
     $90,439.

Continued


                                      F-58
<PAGE>


TVA SISTEMA DE TELEVISAO S.A.                  
                                               
Notes to these Financial Statements,  Continued


     Income tax was  different  from the  amount  computed  using the  Brazilian
     statutory income tax for the reasons set forth in the following table:

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                             ----------------------------------
                                                               1996         1994         1995
                                                             --------     --------     --------

<S>                                                          <C>          <C>          <C>     
Loss before income taxes and minority interest               $ 13,432     $ 22,635     $ 66,979
Statutory income tax rate                                          33%       30.56%          43%
                                                             --------     --------     --------
                                                                4,433        6,917       28,801
Increase (decrease) in the income tax rate                      1,957       (7,670)       2,846
Monetary correction of deferred charges amortization            5,102       (5,634)     (14,264)
Translation rate difference on exhibition rights                 --            381         --
Translation (loss) gain of tax losses                          (2,054)       1,718        3,369
Monetary correction of shareholders' equity                      --           (449)        (822)
Monetary correction of installation materials depreciation      3,761         (452)      (5,142)
Others                                                         (5,375)       3,198       (1,116)
                                                             --------     --------     --------

Net income tax benefit for the period                           7,824       (1,991)      13,672
(Increase) decrease in valuation allowance                     (7,824)       1,991      (13,672)
                                                             --------     --------     --------
                                                             $   --       $  --        $  --
                                                             ========     ========     ========
</TABLE>

11.  Property, plant and equipment

     As of  December  31,  1996 and 1995,  property,  plant and  equipment  were
     comprised of:

                                    Annual
                                 Depreciation   Year Ended December 31,
                                     Rate      ------------------------
                                      %           1996          1995
                                   ---------    ---------     ---------
Machinery and equipment              10       $  32,417       $  29,598
Converters                           10          68,078          36,485
Leasehold improvements               25           2,007           1,795
Furniture and fixtures               10           1,199           1,032
Premises                             10           1,376           1,066
Vehicles                             20           1,044             442
Software                             20           2,626           1,360
Tools                                10             632             621
Reception equipment                  20          68,637          44,508
Cable plant                          10          21,931           7,089
Building                              4            --               342 
                                              ---------       ---------
                                                199,947         124,338
Accumulated depreciation                        (45,727)        (23,114)
Telephone line use rights                         1,888           1,370
Trademarks, patents and others                      165             164
Fixed assets in transit                           8,579          16,126
Others                                             691              --
                                              ---------       ---------
                                              $ 165,543       $ 118,884
                                              =========       =========

Continued


                                      F-59
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.                  
                                               
Notes to these Financial Statements,  Continued


12.  Short-term  bank loans as of December 31, 1996 represent the refinancing of
     certain supplier  payables.  The average  short-term  interest rate on such
     loans is LIBOR plus 1.5%.


13.  Other accounts payable

     As of December 31, 1996 and 1995, other accounts payable were comprised of:

                                                                  December 31,
                                                              ------------------
                                                               1996        1995
                                                              ------      ------

Accounts payable to related companies (Note 8)                $1,053      $  627
Advertising                                                      265         427
Importation expenses payable                                   1,330         328
Others                                                            39         446
                                                              ------      ------
                                                              $2,687      $1,828
                                                              ======      ======

14.  Insurance

     The  Company  maintains   insurance  coverage  for  its  fixed  assets  and
     inventories in an amount considered sufficient to cover the risks involved.


15.  Leased assets and commitments

     The Company has entered  into film  distribution  contracts  and  licensing
     agreements with film producers for  programming  for future  periods.  Such
     contracts and  agreements,  which range in life from one to nine years with
     the  exception  of a specific  contract  with ESPN,  which has a life of 50
     years,  require a per-subscriber fee to be paid by the Company on a monthly
     basis.

     The Company has rented its office space until the year 2001. As of December
     31, 1996, future minimum rental payments  applicable to operating leases in
     respect of this space aggregate approximately $5,038 as follows:

                   1997                   $1,805
                   1998                    1,438
                   1999                      623
                   2000                      589
                   2001                      583
                                          ------
                   Total                  $5,038
                                          ======

Continued


                                      F-60
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.                  
                                               
Notes to these Financial Statements,  Continued


     As of December  31,  1996,  the Company had  contractual  commitments  with
     Embratel  for  transponder  use until the year 2003.  Based on the contract
     provisions,  these operating lease  commitments are currently  estimated to
     aggregate approximately $71,854, as follows:

                   1997                   $11,665
                   1998                    11,665
                   1999                    11,665
                   2000                    11,665
                   2001                    11,665
                   2002                     8,054
                   2003                     5,475
                                          -------
                   Total                  $71,854
                                          =======

16.  Common shares

     Common shares represent registered shares without par value.

     The Company's  shareholders are entitled to minimum dividends of 25% of net
     income for the year,  adjusted according to Corporation Law. As the Company
     has not recorded  net income since its  inception,  no such  dividends  are
     payable.


17.  Litigation contingencies

     Certain claims and lawsuits arising in the ordinary course of business have
     been filed or are pending  against the Company which were not recognized in
     the financial statements.  The Company has also recorded provisions related
     to certain claims in amounts that management considers to be adequate after
     considering a number of factors including (but not limited to) the views of
     legal  counsel,  the nature of the claims and the prior  experience  of the
     Company.

     In Management's  opinion,  all contingencies have been adequately  provided
     for or are  without  merit,  or are of  such  kind  that,  if  disposed  of
     unfavorably,  would not have a  material  adverse  effect on the  financial
     position or future results of operations of the Company.


18.  Pension plan

     In April  1996,  the Company  became a  co-sponsor  of the private  pension
     entity  named  Abrilprev  Sociedade  de  Previdencia  Privada,  the primary
     objective of which is to grant employees benefits other than those provided
     by Social Security. The plan is optional to all employees of the sponsoring
     entities.  Abrilprev  operates  as a  Defined  Contribution  Plan.  Company
     contributions  are made based on a fixed percentage  applied to the payroll
     of the sponsoring entities based on actuarial  calculations.  Plan expenses
     amounted to $308 for the year ended December 31, 1996.

Continued


                                      F-61
<PAGE>

TVA SISTEMA DE TELEVISAO S.A.                  
                                               
Notes to these Financial Statements,  Continued


19.  Abril Health Care Plan

     In  February  1996,  the  Abril  Health  Care  Plan,  Associacao  Abril  de
     Beneficios (the "Health Care Plan"),  was created to provide health care to
     Abril S.A.  companies'  employees and their dependents.  Both the companies
     and the  employees  contribute  monthly  to the  Health  Care Plan which is
     responsible for the plan  management.  In 1996,  contributions  made by the
     Company to the Health Care Plan amounted to $1,288.


20.  Working capital deficiency

     The Company's  financial  statements  for the year ended  December 31, 1996
     were prepared on a going concern basis which  contemplates  the realization
     of assets and  settlement  of  liabilities  and  commitments  in the normal
     course of business.  The Company incurred net losses of $13,432 and $22,634
     for the two years in the period ended December 31, 1996,  respectively.  In
     addition,  the Company had negative  working capital of $56,713 at December
     31, 1996.

     The Company is endeavoring to reverse its pattern of losses and effectively
     meet its  liquidity  needs  through  increasing  the revenue base and other
     means.

     In the event that these steps prove to be inadequate to maintain  Sistema's
     operating cash flow, the Company's principal shareholder,  TEVECAP, intends
     to maintain the Company as a going concern. TEVECAP's support may be in the
     form of cash advances, loans, equity infusions or external guarantees.


21.  Supplementary information - valuation and qualifying accounts and reserves


<TABLE>
<CAPTION>
                                                                                                                  
                                                                                  Allowance           Deferred                  
                                             Allowance        Allowance              for              Taxation          Provision
                                            for Doubtful        for               Exhibition          Valuation            for
                                              Accounts       Obsolescence         Expiration          Allowance           Claims
                                              --------       ------------         ----------          ---------           ------
<S>                                           <C>               <C>                <C>                <C>                <C>     
Balance as of December 31, 1993               $    363          $     91           $  3,367           $ 13,180           $    210
                                                                                                                      
Additions  Charged to Expense                      848              --                 --               13,672                920
                                                                                                                      
Reduction                                         --                 (91)            (3,032)              --                  (55)
                                              --------          --------           --------           --------           --------
Balance as of December 31, 1994               $  1,211              --             $    335             26,852           $  1,075
                                                                                                                      
Additions (reductions) charged to Expense        2,196              --                  827             (1,991)             2,688
                                              --------          --------           --------           --------           --------
Balance as of December 31, 1995               $  3,407              --             $  1,162           $ 24,861           $  3,763
Additions  Charged to Expense                    1,966             2,250               --                7,824              1,276
                                              --------          --------           --------           --------           --------
Balance as of December 31, 1996               $  5,373          $  2,250           $  1,162           $ 32,685           $  5,039
                                              ========          ========           ========           ========           ========
</TABLE>


22.  Recent accounting pronoucements

     The Financial  Accounting  Standards Board has issued certain Statements of
     Financial  Accounting Standards which are not effective with respect to the
     fiscal years presented in the consolidated financial statements.

Continued


                                      F-62
<PAGE>



TVA SISTEMA DE TELEVISAO S.A.

Notes to these Financial Statements, Concluded


     SFAS No. 125,  "Accounting  for Transfer and Servicing of Financial  Assets
     and  Extinguishments  of  Liabilities",  provides  accounting and reporting
     standards   for   transfers   and   servicing  of   financial   assets  and
     extinguishments  of liabilities  after December 31, 1996.  This standard is
     not expected to have a material  effect on the  financial  position and the
     results  of  operations  of the  Company  due to the  absence  of  material
     transactions of this nature.

     SFAS No. 128, "Earnings per Share", is effective for fiscal years beginning
     after  December  15,  1997.  This  standards  establishes   guidelines  for
     computing and presenting earnings per share ("EPS") and applies to entities
     with  publicly held common stock or potential  common stock.  This replaces
     the  presentation  of primary EPS with a presentation of basic EPS. It also
     requires dual  presentation  of basic and diluted EPS for all entities with
     complex capital structures. This standard is not expected to have an impact
     on the Company  given that the Company does not have  publicly  held common
     stock or potential common stock.


Concluded


                                      F-63
<PAGE>


                           TVA SUL PARTICIPACOES S.A.
                                AND SUBSIDIARIES

                         REPORT ON FINANCIAL STATEMENTS

        as of December 31, 1996 and 1995 and for each of the three years
                               in the period ended
                                December 31, 1996



                                    


<PAGE>



                           TVA SUL PARTICIPACOES S.A.

                                AND SUBSIDIARIES


                          INDEX TO FINANCIAL STATEMENTS



                                    Contents


                                                                            Page

Report of Independent Accountants                                           F-65

Balance Sheets as of December 31, 1996 and 1995                             F-66

Statements of Operations for each of the three years in
   the period ended December 31, 1996                                       F-68

Statements of Changes in Shareholders' Equity for each
    of the three years in the period ended December 31, 1996                F-69

Statements of Cash Flows for each of the three years
   in the period ended December 31, 1996                                    F-70

Notes to these Financial Statements                                         F-72


                                      F-64


<PAGE>


Report of Independent Accountants


To the Shareholders and Directors of
TVA SUL PARTICIPACOES S.A.

We  have  audited  the  accompanying  consolidated  balance  sheet  of  TVA  SUL
PARTICIPACOES S.A. and subsidiaries (the "Company") as of December 31, 1996, and
the related  consolidated  statements of  operations,  changes in  shareholders'
equity and cash flows for the year then ended; and, combined balance sheet as of
December 31, 1995, and the related combined statements of operations, changes in
shareholders' equity and cash flows for each of the two years in the period then
ended,  all expressed in United States dollars.  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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits 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  consolidated   financial  position  of  TVA  SUL
PARTICIPACOES  S.A.  and  subsidiaries  as of December  31, 1996 and the related
consolidated  results of operations and cash flows for the year then ended;  and
the combined  balance  sheet as of December 31, 1995,  and the related  combined
statements of  operations,  changes in  shareholders'  equity and cash flows for
each of the two years in the period then ended,  in conformity  with  accounting
principles generally accepted in the United States of America.



Coopers & Lybrand



Sao Paulo, Brazil
April 9, 1997

                                      F-65

<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Balance Sheets


as of December 31, 1996 and 1995
(in thousands of U.S. dollars)


                                                            December 31,
                                                     ---------------------------
                                                         1996          1995
                                                    (Consolidated)   (Combined)
                                                     ------------  -------------
                       ASSETS

Current assets
   Cash and cash equivalents (Note 3)                   $   694          $    45
   Accounts receivable, net (Note 4)                        943               32
   Inventories (Note 5)                                   3,969               --
   Prepaid and other assets (Note 6)                        603               68
   Other accounts receivable (Note 7)                       901                2
                                                        -------          -------
                                                                      
               Total current assets                       7,110              147
                                                                      
Property, plant and equipment, net (Note 11)             18,833            1,466
Concessions, less accumulated amortization ($837)        10,436               --
Other                                                        46                9
                                                        -------          -------
                                                                      
               Total assets                             $36,425          $ 1,622
                                                        =======          =======
                                                                 


The accompanying notes are an integral part of these financial statements



                                      F-66


<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Balance Sheets


as of December 31, 1996 and 1995
(in thousands of U.S. dollars)

                                                            December 31,
                                                    ----------------------------
                                                        1996             1995
                                                    (Consolidated)    (Combined)
                                                    --------------    ----------

                   LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
   Suppliers                                           $  3,187    $     97
   Taxes payable other than income taxes                    467          56
   Accrued payroll and related liabilities                  447         253
   Other accounts payable (Note 8)                        1,500          18
   Accounts payable to related companies (Note 9)         1,779         983
                                                       --------    --------

          Total current liabilities                       7,380       1,407
                                                       --------    --------

Long-term liabilities
   Loans from related companies (Note 9)                 11,354      10,480
   Loans from shareholders                                 --           180    
   Advances from shareholders (Note 9)                   12,781        -- 
                                                       --------    --------

          Total long-term liabilities                    24,135      10,660
                                                       --------    --------

Minority interest                                         1,310        --
Shareholders' equity
   Paid-in capital (Note 13)                             17,534           1
   Accumulated deficit                                  (13,934)    (10,446)
                                                       --------    --------

          Total shareholders' equity                      3,600     (10,445)
                                                       --------    --------

          Total liabilities and shareholders' equity   $ 36,425    $  1,622
                                                       --------    --------

The accompanying notes are an integral part of these financial statements



                                      F-67
<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Statements of Operations


for the years ended
December 31, 1996, 1995 and 1994
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>



                                                                               Year Ended December 31,
                                                               -----------------------------------------------------
                                                                  1996                  1995                  1994
                                                              (Consolidated)         (Combined)            (Combined)
                                                              --------------         ----------            ----------
<S>                                                              <C>                   <C>                        <C>     
Gross revenues
   Monthly subscriptions                                         $ 11,980              $  3,233             $  1,392
   Installation                                                     2,154                  --                   --
   Other                                                               66                  --                      6
   Revenue taxes                                                     (418)                 (227)                 (71)
                                                                 --------              --------             --------
            Net revenue                                            13,782                 3,006                1,327
                                                                 --------              --------             --------
Direct operating expenses                                                                               
   Payroll and benefits                                             3,841                 1,456                1,005
   Programming                                                      3,324                  --                   --
   Technical assistance                                               246                   215                   15
   Vehicle rentals                                                    320                   247                   21
   TVA magazine                                                       441                  --                   --
   Other costs                                                      1,805                   232                  432
                                                                 --------              --------             --------
                                                                    9,977                 2,150                1,473
                                                                 --------              --------             --------
Selling, general and administrative expenses                                                            
   Payroll and benefits                                             1,278                   538                  207
   Advertising and promotion                                          604                   267                 --
   Rent                                                               247                   114                 --
   Other administrative expenses                                    1,986                   292                    1
   Other general expenses                                             837                   486                  802
                                                                 --------              --------             --------
                                                                    4,952                 1,697                1,010
                                                                 --------              --------             --------
Depreciation                                                        1,553                   186                   36
Amortization                                                          837                  --                   --
                                                                 --------              --------             --------
            Operating loss                                         (3,537)               (1,027)              (1,192)
                                                                 --------              --------             --------
Interest income                                                       225                   165                  181
Interest expense                                                   (2,043)               (3,527)              (2,568)
Translation gain (loss)                                               373                     8                  (22)
Other nonoperating income, net                                      1,612                    27                 --
                                                                 --------              --------             --------
                                                                                                        
            Loss before income taxes and minority interest         (3,370)               (4,354)              (3,601)
Income taxes (Note 10)                                               (156)                 --                   --
                                                                 --------              --------             --------
            Loss before minority interest                          (3,526)               (4,354)              (3,601)
Minority interest                                                      38                  --                   --
                                                                 --------              --------             --------
            Net loss                                             $ (3,488)             $ (4,354)            $ (3,601)
                                                                 --------              --------             --------
                                                                           
</TABLE>                                                                   
The accompanying notes are an integral part of these financial statements


                                      F-68

<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Statements of Changes in Shareholders' Equity

for the years ended
December 31, 1996, 1995 and 1994
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                  Paid-in
                                                  Capital   Accumulated
                                                 (Note 13)    Deficit      Total
                                                 --------    --------    --------
<S>                                              <C>         <C>         <C>      
Balance as of December 31, 1993 (combined)       $      1    $ (2,491)   $ (2,490)

Net loss for the year                                          (3,601)     (3,601)
                                                 --------    --------    --------

Balance as of December 31, 1994 (combined)              1      (6,092)     (6,091)

Net loss for the year                                          (4,354)     (4,354)
                                                 --------    --------    --------

Balance as of December 31, 1995 (combined)              1     (10,446)    (10,445)

Capital contributed on:
    August 30, 1996                                17,533                  17,533

Net loss for the year                                          (3,488)     (3,488) 
                                                 --------    --------    --------

Balance as of December 31, 1996 (consolidated)
                                                 $ 17,534    $(13,934)   $  3,600
                                                 ========    ========   =========

</TABLE>

The accompanying notes are an integral part of these financial statements

                                      F-69

<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Statements of Cash Flows

for the years ended
December 31, 1996, 1995 and 1994
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>


                                                                                                   Year Ended December 31,
                                                                                      ----------------------------------------------
                                                                                           1996            1995              1994
                                                                                      (Consolidated)     (Combined)       (Combined)
                                                                                      --------------     ----------       ----------
<S>                                                                                      <C>              <C>              <C>      
Cash flows from operating activities:
  Net loss                                                                               $ (3,488)        $ (4,354)        $ (3,601)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
    Depreciation                                                                            1,553              186               36
    Amortization                                                                              837             --               --
    Allowance for doubtful accounts                                                           386             --               --
    Disposal of property, plant and equipment                                                --               --                (15)
    Minority interest                                                                         (38)            --               --
  Changes in operating assets and liabilities:
    Accounts receivable                                                                    (1,296)             (32)            --
    Prepaid and other assets                                                                 (502)             (23)             (34)
    Other accounts receivable                                                                (891)               5                6
    Accrued interest                                                                        1,497            2,331            2,328
    Inventories                                                                            (3,927)            --               --
    Other assets                                                                              (30)              (1)              (5)
    Suppliers                                                                               2,665               (6)              72
    Taxes payable other than income taxes                                                     293               27               22
    Accrued payroll and related liabilities                                                    (4)             113               59
      Advances received from subscribers                                                      (30)            --               --
    Other accounts payable excluding accounts payable from related                          
    companies                                                                               1,664              945               47
                                                                                         --------         --------         --------
           Net cash  used in operating activities                                          (1,311)            (809)          (1,085)
                                                                                         --------         --------         --------

Cash flows used in investing activities:
  Purchase of property, plant and equipment                                               (14,662)          (1,454)             (69)
  Acquisition of businesses, net of cash acquired                                         (14,235)            --               --
                                                                                         --------         --------         --------
           Net cash used in investing activities                                          (28,897)          (1,454)             (69)
                                                                                         --------         --------         --------

Cash flows provided by (used in) financing activities:
  Capital contributions                                                                    17,533             --               --
  Repayments of loans from shareholders                                                      (162)            --               --
  Loans from related companies                                                              8,672            8,220            1,152
  Advances from shareholders                                                               12,781             --               --
  Repayments of loans from related companies                                               (9,315)          (5,912)            --
  Minority interest                                                                         1,348             --               --
                                                                                         --------         --------         --------
           Net cash provided by financing activities                                       30,857            2,308            1,152
                                                                                         --------         --------         --------

Net increase (decrease) in cash and cash equivalents                                          649               45               (2)
Cash and cash equivalents at beginning of the period                                           45             --                  2
                                                                                         --------         --------         --------
           Cash and cash equivalents at end of the period                                $    694         $     45         $   --
                                                                                         --------         --------         --------

</TABLE>

The accompanying notes are an integral part of these financial statements

                                      F-70

<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Statements of Cash Flows

December 31, 1996 and 1995
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>


                                                                                Year Ended December 31,
                                                                      -----------------------------------------
                                                                        1996            1995          1994
                                                                     (Consolidated)   (Combined)    (Combined)
                                                                      ------------   ------------  ------------

<S>                                                                    <C>         <C>             <C>   
Supplemental cash disclosure:
  Cash paid for interest                                              $      --      $     2,708   $       -
                                                                      =============  ============  ============

Supplemental noncash financing activities:
  Accrued interest on related company loans refinanced
    as principal balance                                              $      1,497   $     2,286   $     2,269
                                                                      =============  ============  ============

Details of acquisitions:
  Fair value of assets acquired                                             15,701          --            --
  Liabilities assumed                                                      (1,385)
                                                                      -------------  ------------  ------------
  Cash paid                                                                 14,316          --            --
  Less: cash acquired                                                         (81)          --            --
                                                                      -------------  ------------  ------------
  Net cash paid for acquisitions                                      $      14,235  $      --     $      --
                                                                      =============  ============  ============

</TABLE>

The accompanying notes are an integral part of these financial statements

                                      F-71
<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Notes to these Financial Statements

(in thousands of U.S. dollars)


1.      The Company and its principal operations

        The accompanying  financial statements reflect the results of operations
        of TVA Sul Participacoes S.A. and its subsidiaries (the "Company").

        TVA Sul  Participacoes  S.A. is a holding  company,  the subsidiaries of
        which render  services  related to wireless  cable and cable  television
        systems, including marketing and advertising,  production,  distribution
        and licensing of domestic and foreign television  programs.  The Company
        has wireless  cable channel  rights  primarily in major urban markets in
        the South of Brazil.

2.      Summary of significant accounting policies

        Significant  policies  followed in the  preparation of the  accompanying
        consolidated and combined financial statements are described below:

2.1     Basis of presentation; combined and consolidated

        a) Basis of presentation

        The combined and consolidated financial statements are presented in U.S.
        dollars and have been prepared in accordance with accounting  principles
        generally accepted in the United States of America ("U.S.  GAAP"), which
        differ in certain  respects from  accounting  principles  applied by the
        Company in its local currency financial  statements,  which are prepared
        in accordance with accounting  principles  generally  accepted in Brazil
        ("Brazilian GAAP").

        The  preparation  of financial  statements  requires  management to make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and  disclosures of contingent  assets and liabilities as of
        the financial  statement  dates and the reported  amount of revenues and
        expenses  during the  reporting  periods.  Since  management's  judgment
        involves  making  estimates  concerning the likelihood of future events,
        the actual results could differ from those  estimates  which will have a
        positive or negative effect on future period results.


Continued



                                  F-72
<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Notes to these Financial Statements,  Continued



     b) Consolidated presentation as of and for the year ended December 31, 1996

     TVA Sul  Participacoes  S.A. was incorporated on March 3, 1996 as a holding
     company for certain entities which were under common control.  Accordingly,
     the financial statements as of and for the year ended December 31, 1996 are
     prepared on a consolidated  basis.  The consolidated  financial  statements
     include the accounts of all  majority-owned  subsidiaries.  All significant
     intercompany   balances   and   transactions   have  been   eliminated   on
     consolidation.

     c) Combined  presentation  as of December  31, 1995 and for each of the two
     years in the period ended December 31, 1995

     The combined  financial  statements as of December 31, 1995 and for each of
     the two years in the period ended  December 31, 1995 reflect the results of
     TVA Parana (formerly TVA Curitiba Servicos Telecomunicacoes Ltda.).

2.2  Accounting records

     As required by  Brazilian  Law,  and in  accordance  with local  accounting
     practices,  the  accounting  records  of  the  Company  are  maintained  in
     Brazilian  currency  ("reais" or "R$").  In order to present the  financial
     statements in conformity with accounting  principles  generally accepted in
     the United States of America, the Company maintains  additional  accounting
     records which are used solely for this purpose.

2.3  Currency remeasurement

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
     52,  "Foreign  Currency  Transactions",  the United  States dollar has been
     assumed to be the  functional  currency as Brazil is a  "hyperinflationary"
     country.  As such, the local  accounts of the Company are  translated  into
     United States dollars as follows:

     o    Nonmonetary assets and liabilities are translated at historical rates.
          All other assets and  liabilities  are translated at the official rate
          of exchange of R$1.0394 to US$1 in effect on December  31,  1996,  and
          R$0.973 to US$1 in effect on December 31, 1995.

     o    Income and expenses are  translated at the average  exchange  rates in
          effect each month,  except for those related to assets and liabilities
          which are translated at historical  exchange rates and deferred income
          taxes, which are translated at the current rate. Translation gains and
          losses are recognized in the income statement.

Continued


                                      F-73


<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Notes to these Financial Statements,  Continued

2.4  Cash and cash equivalents

     Cash and  cash  equivalents  are  defined  as cash  and  cash in banks  and
     investments  in  interest-bearing  securities  and are carried at cost plus
     accrued interest.  Short-term investments with original maturities of three
     months or less at the time of purchase are considered cash equivalents.

2.5  Combined and consolidated financial statements

     The Company's combined and consolidated  operating subsidiaries included in
     the financial statements are:

                                                   Ownership interest as of
                                                          December 31,
                                               ---------------------------------
                                                   1996                  1995
                                               (Consolidated)         (Combined)
                                               --------------         ----------
     TVA Sul Parana Ltda. (a)                     100.00%                80.00%
     TVA Sul Santa Catarina Ltda. (a)              99.50%                 --
     TVA Sul Foz do Iguacu Ltda. (a)              100.00%                 --
     CCS Camboriu Cable System
               de Telecomunicacoes Ltda.           60.00%                 --
     TCC TV a Cabo Ltda. (a)                      100.00%                 --
     TV Alfa Cabo Ltda. (a)                       100.00%                 --

----------
a)   One common share in each of these entities is owned by a Brazilian National
     pursuant to local legislation.

2.6  Acquisitions

     During the year ended December 31, 1996 the Company acquired control of the
     following  entities which were  accounted for under the purchase  method of
     accounting:  i) in  February  1996,  the  Company  acquired  TVA Sul  Santa
     Catarina ("TVA SSC"); ii) in March 1996, the Company acquired TCC TV a Cabo
     Ltda. ("TCC") and TV Alfa Cabo Ltda. ("TV Alfa"); and iii) in May 1996, the
     Company  acquired TVA Sul Foz do Iguacu  Ltda.  ("TVA SF") and CCS Camboriu
     Cable Systems de  Telecomunicacoes  Ltda. ("CCS"). In each case, the excess
     of the purchase price over the fair value of assets acquired represents the
     value of concessions of certain television stations.  These concessions are
     being amortized on a straight line basis over ten years.

Continued



                                  F-74

<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Notes to these Financial Statements,  Continued

     The purchase  prices have been  allocated to the assets  purchased  and the
     liabilities assumed based upon the fair values on the dates of acquisition,
     as follows:

<TABLE>
<CAPTION>
                                            TVA SSC     TVA SF      CCS        TCC      TV Alfa
                                            -------    -------    -------    -------    -------
<S>                                         <C>        <C>        <C>        <C>        <C>    
     Current assets, other than cash        $  --      $    23    $     7    $    51    $     5
     Property, plant and equipment               25        319      3,501        238        176
     Other assets                              --            3       --         --         --
     Concessions                                 45      5,346        841      2,622      2,418
     Other liabilities                          (55)      (377)      (139)      (127)      (687)
                                            -------    -------    -------    -------    -------
     Purchase price, net of cash received   $    15    $ 5,314    $ 4,210    $ 2,784    $ 1,912
                                            =======    =======    =======    =======    =======
                Total purchase price        $    15    $ 5,324    $ 4,210    $ 2,834    $ 1,933
                                            =======    =======    =======    =======    =======
</TABLE>

     The operating  results of these acquired  businesses  have been included in
     the consolidated statement of operations from the dates of acquisition.  On
     the basis of a pro forma  consolidation  of the results of operations as if
     the  acquisitions  had taken  place on January 1,  1995,  consolidated  net
     revenues would have been $15,512 (unaudited) and $4,876 (unaudited) for the
     years ended December 31, 1996 and 1995 respectively. Such pro forma amounts
     do not purport to be indicative of results that would have occurred had the
     acquisition been in effect for the periods  presented,  nor do they purport
     to be indicative of the results that will be obtained in the future.

     The  Company  is unable to present  pro forma  amounts  for  income  before
     extraordinary  items and net income as,  although  management  attempted to
     obtain  such  information  from the  owners,  it was not  available.  These
     entities  were  acquired for the purpose of  expanding  the cable TV system
     penetration  for the Company.  The assets  purchased will be operated under
     the Company's management, using the Company's programming and employees.

2.7  Financial instruments

     In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
     Instruments",  information  is  provided  about the fair  value of  certain
     financial instruments for which it is practicable to estimate that value.

     For the purposes of SFAS No. 107, the  estimated  fair value of a financial
     instrument  is the amount at which the  instrument  could be exchanged in a
     current  transaction  between  willing  parties,  other than in a forced or
     liquidation   sale.  The  carrying   values  of  the  Company's   financial
     instruments as of December 31, 1996 and 1995 approximate  management's best
     estimate  of  their  estimated  fair  values.  The  following  methods  and
     assumptions were used to


Continued

    
                                  F-75
<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Notes to these Financial Statements,  Continued

     estimate the fair value of each class of financial  instrument for which it
     is practicable to estimate that value:

     o    The fair value of certain financial assets carried at cost,  including
          cash,  accounts  receivable,  other accounts  receivable,  and certain
          other short-term  assets is considered to approximate their respective
          carrying value due to their short-term nature.

     o    The fair value of payables to suppliers, other accounts payable, loans
          to related  companies  and certain  other  short-term  liabilities  is
          considered to approximate their respective carrying value due to their
          short-term nature.

     o    The fair  value of loans from  related  companies  approximates  their
          respective  carrying  values as  interest  on these loans is at market
          rates.

2.8  Accounts receivable

     An allowance  for  doubtful  accounts  was  established  on the basis of an
     analysis of the accounts receivable,  in light of the risks involved, in an
     amount sufficient to cover any losses incurred in realization of credits.

2.9  Inventories

     Inventories  consist of materials and supplies  used to provide  service to
     new customers, and to ensure continuity of service to existing customers.

     Inventories  are stated at the lower of cost or market.  Cost is determined
     principally under the average cost method.

2.10 Property, plant and equipment

     Property,  plant and equipment are stated at cost and depreciated using the
     straight-line method, over the remaining useful lives, as described in Note
     11.

2.11 Recoverability of long-lived assets to be held and used in the business

     Management reviews long-lived assets,  primarily the Company's  concessions
     and its property and equipment to be held and used in the business, for the
     purposes of determining  and measuring  impairment on a recurring  basis or
     when events or changes in circumstances indicate that the carrying value of
     an asset or group of assets may not be recoverable.  Assets are grouped and
     evaluated  for possible  impairment  at the level of each cable  television
     system;

Continued
                                      F-76


<PAGE>


TVA SUL PARTICIPACOES S.A. 
                           
AND SUBSIDIARIES           

Notes to these Financial Statements,  Continued

     impairment  is assessed on the basis of the  forecasted  undiscounted  cash
     flows of the businesses  over the estimated  remaining  lives of the assets
     related to those systems.  A write-down of the carrying value of the assets
     or group of assets to estimated fair value will be made when appropriate.

     The  Company  adopted  SFAS  No. 121,  "Accounting  for  the  Impairment of
     Long-Lived  Assets  and for  Long-Lived  Assets to be  Disposed  Of ", from
     January 1, 1996 and the effect on the  financial  statements as a result of
     the adoption was not significant.

2.12 Revenue recognition

     Hook up fees are recognized as revenue on the equipment  installation  date
     to the extent of direct selling costs incurred.  Subscription  revenues are
     recognized as earned on an accrual basis.

2.13 Accounting for issuances of stock by subsidiaries

     Gains and losses arising from the issuances of previously  unissued  shares
     to  unrelated   parties  by  subsidiaries   are  recognized  in  income  as
     nonoperating  income to the  extent  that the net book  value of the shares
     owned by the  parent  after the sale  exceed or is lower  than the net book
     value  per  share  immediately  prior  to the  sale  of the  shares  by the
     subsidiary.

3.   Cash and cash equivalents

     As of December 31, 1996 and 1995, cash and cash  equivalents were comprised
     of:

                                                       December 31,
                                                 ----------------------
                                                   1996          1995
                                                 ---------    ---------
        Cash on hand and in banks                $     502    $      45
        Short-term investments                         192            -
                                                 ---------    ---------

                                                 $     694    $      45
                                                 =========    =========
                                                 

Continued


                                  F-77

<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Notes to these Financial Statements,  Continued


4.   Accounts receivable, net

     As of December 31, 1996 and 1995, accounts receivable were comprised of:

                                                       December 31,
                                                  ---------------------
                                                    1996         1995
                                                  ---------   ---------

        Subscriptions                            $     612          --   
        Installation fees                              539    $      32
        Others                                         178          --
        Allowance for doubtful accounts               (386)         --
                                                  --------     --------
                                                 $     943    $      32
                                                  ========     ========


5.   Inventories

     As of December 31, 1996 and 1995, inventories were comprised of:

                                                       December 31,
                                                  ----------------------    
                                                    1996        1995
                                                  --------     ---------      
     Materials and suppliers                     $   3,779        --
     Import in transit                                 190        --   
                                                  --------     --------
                                                  $  3,969        --
                                                  ========     ========


6.   Prepaid and other assets

     As of December 31, 1996 and 1995, prepaid expenses were comprised of:


                                                       December 31,
                                                  ---------------------
                                                     1996         1995
                                                  --------     --------

        Advances to suppliers                    $     563    $      22
        Prepaid meals and transportation                --           20
        Others                                          40           26
                                                  --------     --------
                                                 $     603    $      68
                                                  ========     ========


Continued

                                      F-78


<PAGE>


TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Notes to these Financial Statements,  Continued                                 

7.   Other accounts receivable

     As of December 31, 1996 and 1995, other accounts  receivable were comprised
     of:

                                                       December 31,
                                                  ----------------------
                                                    1996        1995
                                                  --------     ---------
        Advances to employees                    $      79            -
        Accounts receivable from related
           companies (Note 9)                          610            -
        Others                                         212    $       2
                                                  --------     ---------
                                                 $     901    $       2
                                                  ========     =========


8.   Other accounts payable

     As of December 31, 1996 and 1995, other accounts payable were comprised of:

                                                       December 31,
                                                  ----------------------
                                                    1996         1995
                                                  --------     ---------
        Pledges and guarantees                   $     332            -
        Bank loans                                     427            -
        Accounts payable - imports                     297            -
        Others                                         444    $     18
                                                  --------     ---------
                                                 $   1,500    $      18
                                                  ========     =========


9.   Related party transactions

     The following  tables  summarize the  transactions  between the Company and
     related  parties as of December 31, 1996 and 1995 and for each of the three
     years in the period ended December 31, 1996:

Continued
                                      F-79

<PAGE>
TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Notes to these Financial Statements,  Continued

                                                     December 31,
                                                ----------------------
                                                  1996          1995
                                                --------     ---------
Leonardo Petrelli
   Advance from shareholder                    $ 1,643            --

TVA Sistema de Televisao S.A 
   Loans payable                                 3,025         $10,480
   Accounts payable                              1,343             983
   Acounts receivable                              603            --

Tevecap S.A 
   Advance from shareholder                     11,138            --
   Accounts receivable                               6            --
   Loans payable                                 8,329            --

TVA Paga Parana
   Accounts receivable                               1            --

ESPN do Brasil Ltda 
   Accounts payable                                 30            --

Others
   Accounts payable                                406            --



                                                Year ended December 31,
                                           ----------------------------------
                                             1996         1995         1994
                                           --------     --------    ---------
TVA Sistema de Televisao S.A 
   Net interest expense                      1,330       2,286        --
Tevecap
   Net interest expense                        166        --         2,269


     The  related  company  loans are  denominated  in reais and are  subject to
     monetary  restatement  until December 31, 1995 plus interest charges at the
     market  rate  which  ranged  from 1.8% to 2.2% per month in  December  1996
     (3.44% per month in December 1995).  Such loans are renewable every year on
     December 31.


Continued

                                      F-80


<PAGE>
TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Notes to these Financial Statements,  Continued

10.  Deferred income tax

   The tax effects of temporary  differences  that give rise to a  significant
   portion of the deferred tax asset and deferred tax liability as of December
   31, 1996 and 1995 are as follows:

                                                               December 31,
                                                         ----------------------
                                                           1996          1995
                                                          -------       -------
Deferred tax assets:
   Net operating loss carryforwards                       $ 5,044       $ 3,425
   Deferred charges                                            97          --
   Others                                                     171            11
                                                          -------       -------

           Total gross deferred tax asset                   5,312         3,436
                                                          -------       -------

   Less valuation allowance                                (5,071)       (3,122)
                                                          -------       -------

Net deferred tax asset                                        241           314

Deferred tax liability:
   Installation costs                                         241           314
                                                          -------       -------

    Total gross deferred tax liability                       (241)         (314)
                                                          -------       -------

Net deferred tax asset                                    $  --         $  --
                                                          =======       =======


  The Company has a limited  operating history and has generated losses since
  its inception.  The valuation  allowance has been established in accordance
  with the requirements of SFAS No. 109, "Accounting for Income Taxes".

  As of December  31, 1996,  the Company and  subsidiaries  have  unexpirable
  accumulated tax losses of $15,285.

  The  combined  income tax expense was  different  from the amount  computed
  using the Brazilian  statutory  income tax for the reasons set forth in the
  following table:


<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                  ---------------------------------
                                                    1996         1995         1994
                                                   -------     -------     -------
<S>                                                <C>         <C>         <C>    
Loss before income taxes and minority interest     $ 3,370     $ 4,354     $ 3,601
Statutory income tax rate                            33.00%      30.56%         43%
                                                   -------     -------     -------
                                                     1,112       1,331       1,548
Increase (decrease) in the income tax rate              76        (753)        212
Monetary correction of deferred charges               (198)       --          --
Monetary correction net of unallowable
   amoritization                                       486        --          --
Others                                                 317         (26)       (116)
                                                   -------     -------     -------

Consolidated income tax benefit for the period       1,793         552       1,644
Increase in valuation allowance                     (1,949)       (552)     (1,644)
                                                   -------     -------     -------
                                                   $  (156)    $  --       $  --
                                                   =======     =======     =======
</TABLE>

Continued

   
                                 F-81

<PAGE>



TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Notes to these Financial Statements,  Continued


     Income tax payable represents amounts owing by subsidiaries calculated on a
     unitary basis.



11.  Property, plant and equipment

     As of  December  31,  1996 and 1995,  property,  plant and  equipment  were
     comprised of:


                                       Annual           December 31,
                                    Depreciation   ----------------------
                                       Rate          1996          1995
                                         %         --------     ---------
                                   
     Machinery and  Equipment            10       $  1,847    $     172
     Converters                          10          5,412           --
     Leasehold  Improvements             25            104           35
     Furniture and  Fixtures             10            548          164
     Premises                            10            320            3
     Vehicles                            20            126           15
     Software                            20            116           45
     Tools                               10             65           --
     Reception  Equipment                20          4,693        1,203
     Cable plant                         10          3,454           --
     Building                             4          3,765           --
                                                  --------     -------- 
                                                    20,450        1,637
     Accumulated  Depreciation                      (2,071)        (254)
     Telephone  Line Use Rights                         60           83
     Fixed  Assets in Transit                          338           --
     Others                                             56           --
                                                  --------     -------- 
                                                  $ 18,833    $   1,466
                                                  ========     =========


12.  Insurance

     The  Company  maintains   insurance  coverage  for  its  fixed  assets  and
     inventories in an amount considered sufficient to cover the risks involved.



13.  Paid-in capital

     Paid-in capital as of December 31, 1996 and 1995 was comprised of:


                                            1996                    1995
                                    ----------------------  --------------------
                                       US$       Shares        US$      Shares
                                    -------- -------------  --------- ----------

       TVA Parana                       --         --       $    1     1,000
                                    ======== ============== ========= ==========
       TVA Sul Participacoes S.A.   $ 17,534   18,470,825         -         -
                                    -------- -------------- --------- ---------


     Paid-in capital represents registered common shares without par value.


Continued

                                      F-82

<PAGE>

TVA SUL PARTICIPACOES S.A.

AND SUBSIDIARIES

Notes to these Financial Statements,  Continued

     The Company's shareholders are entitled to a minimum dividend of 25% of net
     income for the year,  adjusted  according  to the  Corporation  Law. As the
     Company has recorded no net income since its  inception,  no such dividends
     are payable.


14.  Supplementary information - valuation and qualifying accounts and reserves

                                                  Deferred
                                                  Taxation         Allowance  
                                                  Valuation      for Doubtful
                                                  Allowance         accounts
                                                  ---------      ------------
Balance as of December 31, 1993                    $  926             --
Additions  Charged to Expense                       1,644             --
                                                   ------            ----
Balance as of December 31, 1994                     2,570             --
Additions  Charged to Expense                         552             --
                                                   ------            ----
Balance as of December 31, 1995                     3,122             --
Additions  Charged to Expense                       1,949            $386
                                                   ------           -----
Balance as of December 31, 1996                    $5,071            $386
                                                   ======           =====
                                                              
15.  Recent accounting pronoucements

     The Financial  Accounting  Standards Board has issued certain Statements of
     Financial  Accounting Standards which are not effective with respect to the
     fiscal years presented in the consolidated financial statements.

     SFAS No. 125,  "Accounting  for Transfer and Servicing of Financial  Assets
     and  Extinguishments  of  Liabilities",  provides  accounting and reporting
     standards   for   transfers   and   servicing  of   financial   assets  and
     extinguishments  of liabilities  after December 31, 1996.  This standard is
     not expected to have a material  effect on the  financial  position and the
     results  of  operations  of the  Company  due to the  absence  of  material
     transactions of this nature.

     SFAS No. 128, "Earnings per Share", is effective for fiscal years beginning
     after December 15, 1997. This standard establishes guidelines for computing
     and  presenting  earnings  per share  ("EPS") and applies to entities  with
     publicly  held common stock or potential  common  stock.  This replaces the
     presentation  of primary  EPS with a  presentation  of basic  EPS.  It also
     requires dual  presentation  of basic and diluted EPS for all entities with
     complex capital structures. This standard is not expected to have an impact
     on the Company  given that the Company does not have  publicly  held common
     stock or potential common stock.

Continued

                                      F-83


<PAGE>


TVA SUL PARTICIPACOES S.A.

AND ITS SUBSIDIARY

Notes to these Financial Statements,  Concluded

Concluded

                                                          

16.  Abril Health Care Plan

     In  February  1996,  the  Abril  Health  Care  Plan,  Associacao  Abril  de
     Beneficios  (the "Health Care Plan),  was created to provide health care to
     Abril S.A.  companies'  employees and their dependents.  Both the companies
     and the  employees  contribute  monthly  to the  Health  Care Plan which is
     responsible for the plan  management.  In 1996,  contributions  made by the
     Company to the Health Care Plan and certain  affiliated  companies amounted
     to $115.

Concluded

                                      F-84


<PAGE>


                    TV ALFA CABO LTDA., TCC TV A CABO LTDA.,
          CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA., TVA SUL
                  PARANA LTDA., TVA SUL FOZ DO IGUACU LTDA. AND
                          TVA SUL SANTA CATARINA LTDA.

                         REPORT ON FINANCIAL INFORMATION

                         as of and for the periods ended
                                December 31, 1996








<PAGE>



          TV ALFA CABO LTDA. ("TV ALFA"), TCC TV A CABO LTDA. ("TCC"),
          CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA. ("CCS"),
           TVA SUL PARANA LTDA. ("TVA PARANA"), TVA SUL FOZ DO IGUACU
        LTDA. ("FOZ DO IGUACU") AND TVA SUL SANTA CATARINA LTDA. ("SSC")



                         INDEX TO FINANCIAL INFORMATION



                                    Contents

                                                                           Page

Reports of Independent Accountants                                         F-86

Balance Sheets as of December 31, 1996                                     F-92

Statements of Income for the periods ended December 31, 1996               F-94

Statements of Changes in Shareholders' Equity for the periods 
ended December 31, 1996                                                    F-95

Statements of Cash Flows for the periods ended 
December 31, 1996                                                          F-96

Notes to Financial Information                                             F-97


                                      F-85


<PAGE>


Report of Independent Accountants


To the Shareholders and Directors of
TV ALFA CABO LTDA.

We have audited the accompanying  financial  information  reflecting the balance
sheet of TV ALFA CABO LTDA., as of December 31, 1996, and the related statements
of  operations,  changes in  shareholders'  equity and cash flows for the period
from March 30,  1996 to  December  31,  1996,  all  expressed  in United  States
dollars.  This  financial  information  is the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion  on this  financial
information based on our audits.

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

In our opinion, the financial  information referred to above presents fairly, in
all  material  respects,  the  financial  position of TV ALFA CABO LTDA.,  as of
December  31, 1996 and the results of  operations  and cash flows for the period
from  March 30,  1996 to  December  31,  1996,  in  conformity  with  accounting
principles generally accepted in the United States of America.



Coopers & Lybrand



Sao Paulo, Brazil
April 9, 1997


                                      F-86


<PAGE>


Report of Independent Accountants



To the Shareholders and Directors of
TCC TV A CABO LTDA.

We have audited the accompanying  financial  information  reflecting the balance
sheet  of TCC TV A  CABO  LTDA.,  as of  December  31,  1996,  and  the  related
statements of operations, changes in shareholders' equity and cash flows for the
period from March 30, 1996 to December 31, 1996,  all expressed in United States
dollars.  This  financial  information  is the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion  on this  financial
information based on our audits.

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

In our opinion, the financial  information referred to above presents fairly, in
all  material  respects,  the  financial  position of TCC TV A CABO LTDA.  as of
December  31, 1996 and the results of  operations  and cash flows for the period
from  March 30,  1996 to  December  31,  1996,  in  conformity  with  accounting
principles generally accepted in the United States of America.



Coopers & Lybrand



Sao Paulo, Brazil
April 9, 1997


                                      F-87


<PAGE>


Report of Independent Accountants



To the Shareholders and Directors of
CCS CAMBORIU CABLE SYSTEM
     DE TELECOMUNICACOES LTDA

We have audited the accompanying  financial  information  reflecting the balance
sheet of CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES  LTDA. as of December 31,
1996, and the related statements of operations,  changes in shareholders' equity
and cash  flows for the period  from May 30,  1996 to  December  31,  1996,  all
expressed  in  United  States  dollars.   This  financial   information  is  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on this financial information based on our audits.

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

In our opinion, the financial  information referred to above presents fairly, in
all material  respects,  the financial  position of CCS CAMBORIu CABLE SYSTEM DE
TELECOMUNICACOES LTDA. as of December 31, 1996 and the results of operations and
cash flows for the period from May 30, 1996 to December 31, 1996,  in conformity
with accounting principles generally accepted in the United States of America.



Coopers & Lybrand



Sao Paulo, Brazil
April 9, 1997


                                      F-88


<PAGE>



Report of Independent Accountants



To the Shareholders and Directors of
TVA SUL SANTA CATARINA LTDA.

We have audited the accompanying  financial  information  reflecting the balance
sheet of TVA SUL SANTA CATARINA  LTDA., as of December 31, 1996, and the related
statements of operations, changes in shareholders' equity and cash flows for the
period from  February  28, 1996 to December 31,  1996,  all  expressed in United
States  dollars.  This  financial  information  is  the  responsibility  of  the
Company's  management.  Our  responsibility  is to  express  an  opinion on this
financial information based on our audits.

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

In our opinion, the financial  information referred to above presents fairly, in
all material  respects,  the financial position of TVA SUL SANTA CATARINA LTDA.,
as of December  31, 1996 and the  results of  operations  and cash flows for the
period  from  February  28,  1996 to  December  31,  1996,  in  conformity  with
accounting principles generally accepted in the United States of America.



Coopers & Lybrand



Sao Paulo, Brazil
April 9, 1997


                                      F-89


<PAGE>



Report of Independent Accountants



To the Shareholders and Directors of
TVA SUL FOZ DO IGUACU LTDA.

We have audited the accompanying  financial  information  reflecting the balance
sheet of TVA SUL FOZ DO IGUACU LTDA.  as of December  31, 1996,  and the related
statements of operations, changes in shareholders' equity and cash flows for the
period from May 30, 1996 to December 31, 1996,  all  expressed in United  States
dollars.  This  financial  information  is the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion  on this  financial
information based on our audits.

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

In our opinion, the financial  information referred to above presents fairly, in
all material respects,  the financial position of TVA SUL FOZ DO IGUACU LTDA. as
of December 31, 1996 and the results of operations and cash flows for the period
from May 30, 1996 to December 31, 1996, in conformity with accounting principles
generally accepted in the United States of America.



Coopers & Lybrand



Sao Paulo, Brazil
April 9, 1997


                                      F-90


<PAGE>



Report of Independent Accountants



To the Shareholders and Directors of
TVA SUL PARANA LTDA.

We have audited the accompanying  financial  information  reflecting the balance
sheet  of TVA SUL  PARANA  LTDA.  as of  December  31,  1996,  and  the  related
statements of operations, changes in shareholders' equity and cash flows for the
year  then  ended,  all  expressed  in United  States  dollars.  This  financial
information   is  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on this financial  information based on
our audits.

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

In our opinion, the financial  information referred to above presents fairly, in
all material  respects,  the financial  position of TVA SUL PARANA LTDA. , as of
December 31, 1996 and the results of operations and cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.



Coopers & Lybrand



Sao Paulo, Brazil
April 9, 1997


                                      F-91


<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC



Balance Sheets

as of December 31, 1996
(in thousands of U.S. dollars)


<TABLE>
<CAPTION>


                                                                                                                Foz do        TVA  
                                                            TV Alfa        TCC          CCS          SSC        Iguacu       Parana
                                                           --------      -------      -------      -------      -------      -------


                       ASSETS

<S>                                                         <C>          <C>          <C>         <C>           <C>          <C>    
Current assets
  Cash and cash equivalents (Note 3)                        $    14      $    70      $    86     $    --       $    34      $   406
  Accounts receivable, net (Note 4)                              77           13            3           49           15          786
  Inventories                                                    --           --          907          420          584        2,058
  Prepaid and other assets (Note 5)                              --           --           31           19          144          408
  Other accounts receivable (Note 6)                            352          140           25           54          224          857
                                                           --------      -------      -------      -------      -------      -------
        Total current assets                                    443          223        1,052          542        1,001        4,515

Property, plant and equipment, net (Note 8)                     160          264        3,455        2,470          502       11,982
Loans to related companies (Note 7)                              --           --           --           --           --        2,066
Other                                                            --            5           --           --           25           14
                                                           --------      -------      -------      -------      -------      -------
        Total assets                                        $   603      $   492      $ 4,507      $ 3,012      $ 1,528      $18,577
                                                            =======      =======      =======      =======      =======      =======
</TABLE>



The accompanying notes are an integral part of this Financial Information


                                      F-92


<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC



Balance Sheets


as of December 31, 1996
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>

                                                                                                                Foz do        TVA  
                                                            TV Alfa        TCC          CCS          SSC        Iguacu       Parana
                                                           --------      -------      -------      -------      -------      -------


LIABILITIES AND SHAREHOLDERS' EQUITY

<S>                                                        <C>          <C>         <C>          <C>          <C>          <C>     
Current assets
  Suppliers                                                $    137     $    168    $    477     $    335     $    580     $  1,490
  Taxes payable other than income taxes                         109           31          34            5           50          238
  Accrued payroll and related liabilities                        14           --          11           45           56          321
  Others accounts payable (Note 9)                               77            5         711        1,363          357        2,776
                                                           --------      -------     -------      -------      -------      -------
        Total current assets                                    337          204       1,233        1,748        1,043        4,825
                                                           --------      -------     -------      -------      -------      -------

Long-term liabilities
  Loans from related companies (Note 7)                         492           --          --        2,153          579        9,213
                                                           --------      -------     -------      -------      -------      -------
        Total long-term liabilities                             492           --          --        2,153          579        9,213
                                                           --------      -------     -------      -------      -------      -------

Shareholders' equity
  Paid in capital                                               344           47       4,012            1            5       18,454
  Accumulated (deficit) income                                 (570)         241        (738)        (890)         (99)     (13,915)
                                                           --------      -------     -------      -------      -------      -------
        Total shareholders' equity                             (226)         288       3,274         (889)         (94)       4,539
                                                           --------      -------     -------      -------      -------      -------
        Total liabilities and                              $    603     $    492    $  4,507     $  3,012     $  1,528     $ 18,577
        shareholders' equity                                =======      =======     =======      =======      =======      =======
</TABLE>



The accompanying notes are an integral part of this Financial Information


                                      F-93


<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC



Statements of Income

for the periods ended December 31, 1996
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>

                                                                                                                Foz do        TVA  
                                                            TV Alfa        TCC          CCS          SSC        Iguacu       Parana
                                                           --------      -------      -------      -------      -------      -------

<S>                                                        <C>          <C>          <C>          <C>          <C>          <C>    
Gross revenues
   Monthly subscriptions                                   $ 1,000      $   828      $   943      $   103      $ 1,080      $ 8,026
   Installation                                                 11           --           --           11           70        2,062
   Other                                                        --            2           30           --           --           34
   Revenue taxes                                               (21)         (20)         (26)          (3)         (23)        (325)
                                                           --------      -------      -------      -------      -------      -------
            Net revenue                                        990          810          947          111        1,127        9,797
                                                           --------      -------      -------      -------      -------      -------
Direct operating expenses
   Payroll and benefits                                         --            3          120          198          125        3,395
   Programming                                                 408          420          286           20          507        1,683
   Technical assistance                                         --           --           --           --           --          246
   Vehicle rentals                                              --           --           --           --           --          320
   TVA magazine                                                 42           37           --            9           53          300
   Other costs                                                  --           48          215          535          150          857
                                                           --------      -------      -------      -------      -------      -------
                                                               450          508          621          762          835        6,801
                                                           --------      -------      -------      -------      -------      -------
Selling, general and administrative
     expenses
   Payroll and benefits                                        143            4          123           --          159          849
   Advertising and promotion                                    --            3           23           94           50          434
   Rent                                                         35           14            6           60           --          132
   Other administrative expenses                                34           49          111          106           65        1,621
   Other general expenses                                      118           --           --           --            5          714
                                                           --------      -------      -------      -------      -------      -------
                                                               330           70          263          260          279        3,750
                                                           --------      -------      -------      -------      -------      -------
Depreciation                                                    21           20           99           44           40        1,329
                                                           --------      -------      -------      -------      -------      -------
            Operating income/(loss)                            189          212          (36)        (955)         (27)      (2,083)
                                                           --------      -------      -------      -------      -------      -------
Interest income                                                 27           11           12           --           11          283
Interest expense                                               (26)         (28)         (34)          --          (27)      (1,893)
Translation gain (loss)                                         72          (54)          (2)          95           32           99
Other nonoperating income, net                                   2           --           --           --           --          125
                                                           --------      -------      -------      -------      -------      -------
            Income (loss) before income                        264          141          (60)        (860)         (11)      (3,469)
                taxes
Income taxes (Note 10)                                          --          (64)         (34)          --          (58)          --
                                                           --------      -------      -------      -------      -------      -------
            Net income (loss)                              $   264      $    77      $   (94)     $  (860)     $   (69)     $(3,469)
                                                           ========      =======     ========      =======      =======      =======
</TABLE>


The accompanying notes are an integral part of this Financial Information


                                      F-94



<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC



Statements of Change in Shareholders' Equity


for the periods ended December 31, 1996
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>


                                                                                                   TVA Parana
                                                                                ---------------------------------------------------
                                                                                Paid-in            Accumulated
                                                                                Capital              Deficit                Total
                                                                                --------             --------              --------

<S>                                                                             <C>                  <C>                   <C>     
Balance as of January 1, 1996                                                   $      1             $(10,446)             $(10,445)
Capital contributed on:
  April 30, 1996                                                                  14,895                                     14,895
  August 30, 1996                                                                  3,558                                      3,558
Net loss for the period                                                                                (3,469)               (3,469)
                                                                                --------             --------              --------
        Balance as of December 31, 1996                                         $ 18,454             $(13,915)             $  4,539
                                                                                ========             ========              ========

<CAPTION>

                                                                                                       SSC
                                                                                ---------------------------------------------------
                                                                                Paid-in            Accumulated
                                                                                Capital              Deficit                Total
                                                                                --------             --------              --------
<S>                                                                             <C>                  <C>                   <C>     
Balance as of February 28, 1996                                                 $      1             $    (30)             $    (29)
Net loss for the period                                                                                  (860)                 (860)
                                                                                --------             --------              --------
        Balance as of December 31, 1996                                         $      1             $   (890)             $   (889)
                                                                                ========             ========              ========

</TABLE>


<TABLE>
<CAPTION>

                                                                     TV Alfa                                   TCC
                                                        ----------------------------------       ----------------------------------
                                                        Paid-in    Accumulated                   Paid-in     Accumulated 
                                                        capital      Deficit        Total        capital      deficit        Total 
                                                        -------      -------       -------       -------      -------       -------
<S>                                                    <C>          <C>           <C>           <C>          <C>           <C>    
Balance as of March 30, 1996                            $   344      $  (834)      $  (490)      $    47      $   164       $   211
Net loss for the period                                                  264           264                         77            77
                                                        -------      -------       -------       -------      -------       -------
      Balance as of December 31, 1996                   $   344      $  (570)      $  (226)      $    47      $   241       $   288
                                                        =======      =======       =======       =======      =======       =======

<CAPTION>

                                                                       CCS                                 Foz do Iguacu
                                                        ----------------------------------       ----------------------------------
                                                        Paid-in    Accumulated                   Paid-in     Accumulated 
                                                        capital      Deficit        Total        capital      deficit        Total 
                                                        -------      -------       -------       -------      -------       -------
<S>                                                    <C>          <C>           <C>           <C>          <C>           <C>    
Balance as of May 30, 1996                              $ 4,012      $  (644)      $ 3,368       $     5      $   (30)      $   (25)
Net loss for the period                                                  (94)          (94)                       (69)          (69)
                                                        -------      -------       -------       -------      -------       -------
      Balance as of December 31, 1996                   $ 4,012      $  (738)      $ 3,274       $     5      $   (99)      $   (94)
                                                        =======      =======       =======       =======      =======       =======

</TABLE>


The accompanying notes are an integral part of this Financial Information


                                      F-95



<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC


Statements of Cash Flows

for the periods ended December 31, 1996
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>

                                                                                                                Foz do        TVA  
                                                               TV Alfa       TCC         CCS         SSC        Iguacu       Parana
                                                               --------    --------    --------    --------    --------    -------- 
<S>                                                            <C>         <C>         <C>         <C>         <C>         <C>      
Cash flows from operating activities:
  Net loss                                                     $    264    $     77    $    (94)   $   (860)   $    (69)   $ (3,469)
  Adjustments to reconcile net loss to net
  cash
    provided by (used in) operating
    activities:
    Depreciation                                                     21          20          99          44          40       1,329
  Changes in operating assets and
  liabilities:
    Accounts receivable                                             (76)        (13)         (3)        (49)        (15)       (754)
    Prepaid and other assets                                         --           4         (34)        (19)       (120)       (340)
    Other accounts receivable                                      (342)        (10)        (15)        (53)       (256)       (855)
    Accrued interest                                                 --          --          --         (31)        (23)      1,549
    Inventories                                                      --          42        (907)       (420)       (584)     (2,058)
    Legal deposits                                                   --          (5)         --          --          --          (5)
    Suppliers                                                       (91)         62         388         335         579       1,392
    Taxes payable other than income taxes                            18          26          11           5          50         182
    Accrued payroll and related                                    (124)        (13)        (12)         46          33          68
    liabilities
    Advances received from subscribers                              (39)         --          --           2          --           8
    Other accounts payable                                         (119)          2         706       1,361           2       1,767
                                                               --------    --------    --------    --------    --------    -------- 
        Net cash  (used in) provided by
        operating
         activities                                                (488)        192         139         361        (363)     (1,186)

Cash flows provided by (used in) investing activities:
  Purchase of property, plant and equipment                          (6)        (44)        (53)     (2,490)       (215)    (11,846)
  Loans to related companies                                         --        (127)         --          --          --      (2,066)
                                                               --------    --------    --------    --------    --------    -------- 
        Net cash used in investing                                   (6)       (171)        (53)     (2,490)       (215)    (13,912)
        activities

Cash flows provided by (used in) financing activities:
  Capital contributions                                              --          --          --          --          --      18,453
  Loans from related companies                                      492          --          --       2,177         826       7,010
  Repayments of loans from related                                  
  companies                                                          --          --          --         (48)       (224)     (9,794)
  Repayments of loans from shareholders                              --          --          --          --          --        (180)
  Repayments of loans to related Companies                           --          --          --          --          --         (30)
                                                               --------    --------    --------    --------    --------    -------- 
        Net cash provided by financing                              492          --          --       2,129         602      15,459
        activities
                                                               --------    --------    --------    --------    --------    -------- 

Net (decrease) increase in cash and cash
   equivalents                                                       (2)         21          86          --          24         361
Cash and cash equivalents at beginning of
the
   period                                                            16          49          --          --          10          45
                                                               --------    --------    --------    --------    --------    -------- 
        Cash and cash equivalents at end
        of the
            period                                             $     14    $     70    $     86    $     --    $     34    $    406
                                                               ========    ========    ========    ======      ========    ========

Supplemental non-cash financing activities:
  Accrued interest on related company loans
    refinanced as principal balance
                                                               $     --    $     --    $     --    $  (34)   $      (23)   $  1,549
                                                               ========    ========    ========    ======      ========    ========
</TABLE>


The accompanying notes are an integral part of this Financial Information


                                      F-96



<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO

IGUACU AND SSC

Notes to this Financial Information



1.   Principal operations

The accompanying  financial information reflects the results of operations of TV
Alfa Cabo Ltda.  ("TV Alfa"),  TCC TV A Cabo Ltda.  ("TCC"),  CCS Camboriu Cable
System de Telecomunicacoes  Ltda. ("CCS"),  TVA Sul Foz do Iguacu Ltda. ("Foz do
Iguacu") and, TVA Sul Santa Catarina Ltda. ("SSC"),  all subsidiaries of TVA Sul
Participacoes  S.A. from the dates of acquisition by TVA Sul Participacoes  S.A.
to December 31, 1966. The acquisition dates of these entities are as follows:

               o  TV Alfa                   - March 30, 1996                 
               o  CCS                       - May 30, 1996
               o  Foz do Iguacu             - May 30, 1996
               o  SCC                       - February 28, 1996
               o  TCC                       - March 30, 1996
        
     TVA  Sul  Parana  Ltda.  ("TVA  Parana")  became  a  subsidiary  of TVA Sul
     Participacoes  S.A. in September,  1996. Prior to this date, TVA Parana was
     under common control. Accordingly, the results of operations for TVA Parana
     are for the year ended December 31, 1996.

     Hereinafter,  TV Alfa,  TCC,  CCS,  Foz do  Iguacu,  SSC and TVA Parana are
     referred to as "the Companies".

     These  Companies  render  services  related  to  wireless  cable  and cable
     television  systems,  including  marketing  and  advertising,   production,
     distribution and licensing of domestic and foreign television programs. The
     Companies  have  wireless  cable  channel  rights  primarily in major urban
     markets in the South of Brazil.



2.   Summary of significant accounting policies

     Significant  policies  followed  in the  preparation  of  the  accompanying
     Financial Information are described below:

2.1  Basis of presentation

     The  accompanying  Financial  Information are presented in U.S. Dollars and
     have been  prepared in  accordance  with  accounting  principles  generally
     accepted in the United  States of America  ("U.S.  GAAP"),  which differ in
     certain  respects from  accounting  principles  applied by the Companies in
     their local currency financial statements, which are prepared in accordance
     with accounting principles generally accepted in Brazil ("Brazilian GAAP").

Continued


                                      F-97


<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO

IGUACU AND SSC

Notes to Financial Information, continued


     The Financial  Information has been derived from the Companies  records and
     reflects all adjustments which are, in the opinion of management, necessary
     for a fair  presentation of the financial  information. 

     The  preparation  of  Financial  Information  requires  management  to make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosures of contingent  assets and liabilities as of the
     financial  information  dates  and the  reported  amount  of  revenues  and
     expenses during the reporting periods. Since management's judgment involves
     making  estimates  concerning the  likelihood of future events,  the actual
     results  could  differ from those  estimates  which will have a positive or
     negative effect on future period results.

2.2 Accounting records

     As required by  Brazilian  Law,  and in  accordance  with local  accounting
     practices,  the  accounting  records of the  Companies  are  maintained  in
     Brazilian  currency  ("reais" or "R$").  In order to present the  Financial
     Information in conformity with accounting  principles generally accepted in
     the United States of America, the Companies maintain additional  accounting
     records which are used solely for this purpose.

2.3  Currency remeasurement

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
     52,  "Foreign  Currency  Transactions",  the United  States dollar has been
     assumed to be the  functional  currency as Brazil is a  "hyperinflationary"
     country.  As such,  the local  Financial  Information  of the  Companies is
     translated into United States dollars as follows:

     o    Nonmonetary assets and liabilities are translated at historical rates.
          All other assets and  liabilities  are translated at the official rate
          of exchange of R$1.0394 to US$1 in effect on December 31, 1996.

     o    Income and expenses are  translated at the average  exchange  rates in
          effect each month,  except for those related to assets and liabilities
          which are translated at historical exchange rates, and deferred income
          taxes, which are translated at the current rate. Translation gains and
          losses are recognized in the income statement.

2.4  Cash and cash equivalents

     Cash and  cash  equivalents  are  defined  as cash  and  cash in banks  and
     investments  in  interest-bearing  securities  and are carried at cost plus
     accrued interest. Short-term investments

Continued

                                      F-98


<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO

IGUACU AND SSC

Notes to Financial Information, continued


     with  original  maturities  of three months or less at the time of purchase
     are considered cash equivalents.

2.5  Financial instruments

     In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
     Instruments",  information  is  provided  about the fair  value of  certain
     financial instruments for which it is practicable to estimate that value.

     For the purposes of SFAS No. 107, the  estimated  fair value of a financial
     instrument  is the amount at which the  instrument  could be exchanged in a
     current  transaction  between  willing  parties,  other than in a forced or
     liquidation  sale. The carrying values of the financial  instruments of the
     Companies as of December 31, 1996 approximate management's best estimate of
     their estimated fair values.  The following  methods and  assumptions  were
     used to estimate the fair value of each class of financial  instrument  for
     which it is practicable to estimate that value:

     o    The fair value of certain financial assets carried at cost,  including
          cash,  accounts  receivable,  other accounts  receivable,  and certain
          other short-term  assets is considered to approximate their respective
          carrying value due to their short-term nature.

     o    The fair value of payables to suppliers, other accounts payable, loans
          to affiliated  companies and certain other  short-term  liabilities is
          considered to approximate their respective carrying value due to their
          short-term nature.

     o    The fair  value of loans from  related  companies  approximates  their
          respective  carrying  values as  interest  on these loans is at market
          rates.

2.6  Accounts receivable

     An  allowance  for  doubtful  accounts  is  established  on the basis of an
     analysis of the accounts receivable,  in light of the risks involved, in an
     amount sufficient to cover any losses incurred in realization of credits.

2.7  Inventories

     Inventories  consist of materials and supplies used to provide  services to
     new customers, and to ensure continuity of services to existing customers.


Continued

                                      F-99


<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO

IGUACU AND SSC

Notes to Financial Information, continued


     Inventories  are stated at the lower of cost or market.  Cost is determined
     principally under the average cost method.

2.8  Property, plant and equipment

     Property,  plant and equipment are stated at cost and depreciated using the
     straight-line method, over the remaining useful lives, as described in Note
     8.

2.9  Recoverability of long-lived assets to be held and used in the business

     Management reviews long-lived assets,  primarily the Companies property and
     equipment  to be  held  and  used in the  business,  for  the  purposes  of
     determining and measuring impairment on a recurring basis or when events or
     changes in  circumstances  indicate that the carrying  value of an asset or
     group of assets may not be  recoverable.  Assets are grouped and  evaluated
     for  possible  impairment  at the level of each  cable  television  system;
     impairment  is assessed on the basis of the  forecasted  undiscounted  cash
     flows of the businesses  over the estimated  remaining  lives of the assets
     related to those systems.  A write-down of the carrying value of the assets
     or group of assets to estimated fair value will be made when appropriate.

     The  Companies  adopted SFAS No. 121,  "Accounting  for the  Impairment  of
     Long-Lived  Assets  and for  Long-Lived  Assets to Be  Disposed  Of ", from
     January 1, 1996 and the effect on the Financial  Information as a result of
     the adoption was not significant.

2.10 Revenue recognition

     Hook up fees are recognized as revenue on the equipment  installation  date
     to the extent of direct selling costs incurred.  Subscription  revenues are
     recognized as earned on an accrual basis.



3.   Cash and cash equivalents

     As of December 31, 1996, cash and cash equivalents were comprised of:

<TABLE>
<CAPTION>

                                                                                           Foz do        TVA  
                                       TV Alfa       TCC          CCS         SSC         Iguacu       Parana
                                       --------    --------    --------    --------    --------    -------- 

<S>                                    <C>          <C>        <C>         <C>          <C>        <C>            
     Cash on hand and in banks         $     1      $   62     $    86     $    --     $     34    $    309           
     Short-term investments                 13           8          --          --           --          97
                                       --------    --------    --------    --------    --------    -------- 
                                       $    14     $    70     $    86     $    --     $     34    $    406
                                       ========    ========    ========    ========    ========    ======== 
</TABLE>
                                                                                
                                                                                

Continued

                                      F-100


<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO

IGUACU AND SSC

Notes to Financial Information, continued


<TABLE>
<CAPTION>


4.   Accounts receivable, net

     As of December 31, 1996, accounts receivable were comprised of:

                                                                                                              Foz do        TVA  
                                                            TV Alfa       TCC          CCS         SSC        Iguacu      Parana
                                                            --------    --------    --------    --------     --------    -------- 

<S>                                                         <C>         <C>         <C>         <C>          <C>         <C>       
     Subscriptions                                          $     --    $     --    $     --    $     47     $     --    $    564  
     Installation fees                                             6          --          --           4           --         529
     Others                                                      137          13           3          --           15          10
     Allowance for doubtful accounts                             (66)         --          --          (2)          --        (317)
                                                            --------    --------    --------    --------     --------    -------- 
                                                            $     77    $     13    $      3    $     49     $     15     $   786
                                                            ========    ========    ========    ========     ========    ======== 
<CAPTION>
                                                                                                                                    
5.   Prepaid and other assets
                                                                                                                                
As of December 31, 1996, prepaid expenses were comprised of:                                                                      
                                                                                                              Foz do        TVA  
                                                            TV Alfa       TCC          CCS         SSC        Iguacu      Parana
                                                            --------    --------    --------    --------     --------    -------- 
                                                                                                                           
<S>                                                         <C>         <C>         <C>         <C>          <C>          <C>    
     Advances to suppliers                                  $    --     $     --    $     31    $     19     $    144     $   369
     Prepaid meals and transportation                            --           --          --          --           --          39
                                                            --------    --------    --------    --------     --------    -------- 
                                                            $    --     $     --    $     31    $     19     $    144     $   408
                                                            ========    ========    ========    ========     ========    ======== 
                                                                                                                        
                                                                                                                           

6.   Other accounts receivable
<CAPTION>

                                                                                                              Foz do        TVA  
                                                            TV Alfa       TCC          CCS         SSC        Iguacu      Parana
                                                            --------    --------    --------    --------     --------    -------- 
                                                                                                                                    
As of December 31, 1996, other accounts receivable were comprised of:                                                               
                                                                                                                                    
                                                                                                                                    
<S>                                                         <C>          <C>        <C>         <C>          <C>           <C>   
     Advances to employees                                  $    --      $    --    $     --    $     --     $     --      $   45
     Accounts receivable from related                                                                                       
     Companies (Note 7)                                         352          127          19          23           29         812
     Others                                                      --           13           6          31          195          --
                                                            --------    --------    --------    --------     --------    -------- 
                                                            $   352      $   140    $     25    $     54     $    224      $  857
                                                            ========    ========    ========    ========     ========    ======== 
                                                                                                                                    
</TABLE>



Continued

                                      F-101


<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO

IGUACU AND SSC

Notes to Financial Information, continued


7.   Related party transactions

     The following tables  summarize the transactions  between the Companies and
     related companies as of and for the periods ended December 31, 1996:


<TABLE>
<CAPTION>


                                                                                                               Foz do         TVA  
                                                         TV Alfa       TCC           CCS           SSC         Iguacu       Parana
                                                        --------     --------     --------      --------      --------     --------

<S>                                                       <C>           <C>          <C>         <C>             <C>         <C>  
     TEVECAP                               
           Loans payable                                  --            --            --            87            --            --
     
     TVA SISTEMA
           Accounts receivable                            --            --            --            23            --           580
           Accounts payable                               --            --             2             2             1         1,346
           Loans payable                                  --            --            --            --            --         2,937
     
     TVA PARANA
           Accounts receivable                            --            --            --            --            29            --
           Accounts payable                               --            --            --           126            --            --
           Loans payable                                  --            --            --         2,066            --            --
     
     TVA SUL
           Accounts receivable                           352           127            --            --            --           105
           Accounts payable                               --            --           706         1,128            --           401
           Loans payable                                 492            --            --            --           579         6,276
     
     SSC
           Accounts receivable                            --            --            --            --            --           127
           Loans receivable                               --            --            --            --            --         2,066
     
     FOZ DO IGUACU
           Accounts receivable                            --            --            19            --            --            --
           Accounts payable                               --            --            --            --            --            29
     
     CCS
           Accounts payable                               --            --            --            --            20            --
     
     ESPN DO BRASIL
           Accounts payable                               --            --            --            --            --            30
             
</TABLE>

     The  related  Company  loans are  denominated  in reais and are  subject to
     monetary  restatement  until December 31, 1995 plus interest charges at the
     market rate which ranged from 1.8% to 2.2% per month in December 1996. Such
     loans are renewable every year on December 31.



Continued

                                      F-102


<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO

IGUACU AND SSC

Notes to Financial Information, continued


8.   Property, plant and equipment

     As   of December 31, 1996, property, plant and equipment were comprised of:

                                 
<TABLE>
<CAPTION>
                                 
                                            Annual    
                                         Depreciation 
                                             Rate               TV                                              Foz do         TVA  
                                              %                Alfa         TCC          CCS          SSC       Iguacu       Parana
                                           --------         --------     --------     --------     --------    --------     --------
<S>                                          <C>             <C>           <C>           <C>        <C>          <C>        <C>  
     Machinery and Equipment                  10                --           81            7          192          232        1,269
     Converters                               10                --           30           --           98           --        5,286
     Leasehold  Improvements                  25                --           --        3,447            2           --          378
     Furniture and  Fixtures                  10               275            2           74           47           22          204
     Premises                                 10                --            3           --            6            5           20
     Vehicles                                 20                --           --            3           51           33           39
     Software                                 20                --           --            5           14           16           81
     Tools                                    10                --           --            2           --           --           62
     Reception  Equipment                     20                --           --           --           --           --        4,689
     Cable plant                              10                --          229           --        2,052          280          959
     Building                                  4                --           --           --           --           --          330
                                                            --------     --------     --------     --------    --------     --------
                                                               275          345        3,538        2,462          588       13,317
     Accumulated  Depreciation                                (115)         (81)        (101)         (45)        (121)      (1,584)
     Telephone  Line Use Rights                                 --           --            4           --           12          189
     Fixed  Assets in  Transit                                  --           --           14           --           --           60
     Others                                                     --           --           --           53           23           --
                                                            --------     --------     --------     --------    --------     --------
                                                               160          264        3,455        2,470          502       11,982
                                                            ========     ========     ========     ========    ========     ========
                                                  
</TABLE>
     
     

9.   Other accounts payable

     As of December 31, 1996, other accounts payable were comprised of:

<TABLE>
<CAPTION>

                                                                TV                                              Foz do         TVA  
                                                               Alfa         TCC          CCS          SSC       Iguacu       Parana 
                                                            --------     --------     --------     --------    --------     --------
<S>                                                          <C>           <C>           <C>        <C>          <C>        <C>     
     Accounts payable to relate  companies
         (Note 7)                                            $   --       $   --       $  708       $1,256       $   21       $1,806
     Accounts payable on importation                             --           --           --           93           --          205
     Other                                                       77            5            3           14          336          765
                                                             ------       ------       ------       ------       ------       ------
                                                             $   77       $    5       $  711       $1,363       $  357       $2,776
                                                             ======       ======       ======       ======       ======       ======
</TABLE>



Continued

                                      F-103


<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO

IGUACU AND SSC

Notes to Financial Information, continued



10.  Income taxes

     The Companies  income tax was different from the amount  computed using the
     Brazilian  statutory  income tax for the reasons set forth in the following
     table:

<TABLE>
<CAPTION>

                                                   TV                                                       Foz do         TVA  
                                                  Alfa            TCC          CCS            SSC           Iguacu        Parana 
                                                --------       --------      --------       --------       --------      --------
<S>                                               <C>            <C>            <C>            <C>            <C>            <C>   
Income (Loss) before income tax                     264            141            (60)          (860)           (11)       (3,469)
Statutory income tax rate                         33.00%         33.00%         33.00%         33.00%         33.00%        33.00%
                                                --------       --------      --------       --------       --------      --------
                                                     87             47            (20)          (284)            (4)       (1,145)
Others                                              (87)            17             54             (1)            62           (34)
                                                --------       --------      --------       --------       --------      --------
Consolidated income tax for the period               --             64             34           (285)            58        (1,179)
Increase in valuation allowance                      --             --             --            285             --         1,179
                                                --------       --------      --------       --------       --------      --------
                                                     --             64             34            --              58            --
                                                ========       ========      ========       ========       ========      ========
</TABLE>


11.  Insurance

     The  Companies  maintain  insurance  coverage  for their  fixed  assets and
     inventories in an amount considered sufficient to cover the risks involved.



12.  Paid-in capital

     Paid-in capital as of December 31, 1996 was comprised of:


<TABLE>
<CAPTION>


                                      TV                                                                  Foz do          TVA Parana
                                     Alfa              TCC              CCS               SSC             Iguacu        
                                   -------           -------         ---------         ---------         ---------        ----------
<S>                                <C>               <C>             <C>                     <C>             <C>          <C>       
     US$                               344                47             4,012                 1                 5            18,454
                                   =======           =======         =========         =========         =========        ==========
     Shares                        278,000           250,000         4,850,000               200             5,000        27,712,345
                                   =======           =======         =========         =========         =========        ==========
</TABLE>


13.  Recent accounting pronouncements

     The Financial  Accounting  Standards Board has issued certain Statements of
     Financial  Accounting Standards which are not effective with respect to the
     periods presented in the financial information .


Continued

                                      F-104


<PAGE>


TV ALFA, TCC, CCS, TVA PARANA, FOZ DO

IGUACU AND SSC

Notes to Financial Information, concluded



SFAS No. 125,  "Accounting  for Transfer and  Servicing of Financial  Assets and
Extinguishments of Liabilities", provides accounting and reporting standards for
transfers and servicing of financial assets and  extinguishments  of liabilities
after December 31, 1996. This standard is not expected to have a material effect
on the financial  position and the results of operations of the Companies due to
the absence of material transactions of this nature. 


SFAS No. 128,  "Earnings  per Share",  is effective  for fiscal years  beginning
after December 15, 1997. This standards establishes guidelines for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential  common  stock.  This  replaces  the  presentation  of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS for all entities with complex capital structures.  This
standard  is not  expected  to have an impact on the  Companies  given  that the
Companies do not have publicly held common stock or potential common stock.



<PAGE>



                                    GLOSSARY



     ABC: ABC, Inc., formerly known as "Capital Cities/ABC, Inc."

     ABC Class households: The highest three classes of Brazilian households
based upon the achievement of a total of 10 points or higher on the
classification scale used by the Associacao Brasileira de Anunciantes (Brazilian
Advertisers Association) to determine a household's socio-economic class, which
ranges from A to E depending on the education level of the head of the
household, the possession by the household of certain items of material comfort,
including automobiles, television sets and other household items, and the hiring
of domestic servants by the household.

     Abril: Abril S.A., the leading magazine publishing, printing and
distribution company in Latin America.

     Abril Credit Facility: A revolving credit facility, dated December 6, 1995,
between Tevecap, as the borrower, and Abril, as the lender.

     BBC: British Broadcasting Corporation.

     BCE: BCE, Inc., an affiliate of Bell Canada Inc., Canada's largest
telecommunications group.

     BCI: Bell Canada International, Inc., an affiliate of BCE.

     BNDES: Banco National de Desenolvimento Economico e Social, the national
development bank owned by the Brazilian Government.

     Brasilsat: A satellite operated by Embratel through which the Company
provides C-Band service.

     C-Band: A satellite transmission system which provides a signal on the "c"
bandwidth"

     Cable: A Cable network employs electromagnetic transmission over coaxial
and/or fiber-optic cable to transmit multiple channels carrying images, sound
and data between a central facility and individual customers' television sets.
Networks may allow one-way (from a headend to a residence and/or business) or
two-way transmission from a headend to a residence and/or business with a data
return path for the headend.

     Cable license: A license that is granted by the applicable governing body
pursuant to its authority under the communications laws of a particular country
for the purpose of providing Cable services for a specific franchise/license
area.

     Canbras: Canbras Communications Corp., a Canadian corporation.

     Canbras Association Agreement: Association Agreement dated June 14, 1995,
among Tevecap, TVA Sistema, the Canbras TVA Companies, Canbras and Canbras-Par.

     Canbras TVA Companies: Canbras TVA Cabo and TV Cabo Santa Branca.

     Canbras TVA Cabo: Canbras TVA Cabo Ltda., a Brazilian limitada.



                                       A-1



<PAGE>



     Canbras TVA: The operations of Canbras TVA Cabo and TV Cabo Santa Branca,
in each of which Tevecap holds a 36.0% equity interest and Canbras Par holds a
64.0% equity interest.

     Canbras-Par: Canbras Participacoes, Ltda., a Brazilian limitada
wholly-owned by Canbras.

     CBC: California Broadcasting Center, an uplink center for GLA located in
Long Beach, California.

     CBS: CBS, Inc.

     Central Bank: Central Bank of Brazil (Banco Central do Brasil)

     Chase Parties: Two wholly owned subsidiaries of CMIF through which CMIF
holds its equity interest in Tevecap.

     Churn: With respect to a pay television system for a given period, the
quotient expressed as a percentage of (i) the number of subscribers disconnected
from such system less the number of formerly disconnected subscribers
reconnected to the system divided by (ii) the number of subscribers to the
system as of the beginning of the period plus the number of subscribers added to
the system.

     Cisneros Group: Cisneros Group of Companies, which holds a 10% interest in
GLA through Darlene Investments.

     CMIF: Chase Manhattan International Finance Ltd., an affiliate of The Chase
Manhattan Bank which holds a 9.3% interest in Tevecap through two wholly owned
subsidiaries.

     Coaxial cable: Cable consisting of a central conductor surrounded by and
insulated from another conductor. It is the standard material used in
traditional Cable systems. Signals are transmitted through it at different
frequencies, giving greater channel capacity than is possible with twisted pair
cable, but less than is allowed by optical fiber.

     Comercial Cabo Sao Paulo: Comercial Cabo TV Sao Paulo Ltda., a Brazilian
limitada in which Tevecap holds a 99% equity interest.

     Company: Tevecap, together with its consolidated subsidiaries.

     CPL: Cable Participacoes Ltda., a Brazilian limitada, jointly owned by
Hearst and ABC, which limitada holds a 2.35% equity interest in Tevecap.

     CPCT: Centrals Privadas de Comutacao Telefonica, certain private telephone
networks comparable to private branch exchanges (PBX) found in larger apartment
complexes, hotels and businesses in the United States.

     CVM: Comissao de Valores Mobiliarios, the securities commission of Brazil.

     Darlene Investments: Darlene Investments, LLC, a Cayman Islands limited
liability company which is part of the Cisneros Group of Companies.

     DBS: Direct broadcast satellite service, operating in C-Band or Ku-Band
width, by which television programming is transmitted to individual dwellings,
each served by a single satellite dish.

     DBS Systems: Ku-Band and C-Band operations of Galaxy Brasil and TVA
Sistema, respectively.



                                       A-2



<PAGE>



     De Santi & Vallone: De Santi & Vallone Antennas & Telecommunications
Consultants.

     DIRECTV: Brazil's first digital Ku-Band service, which is operated by
Galaxy Brasil and Galaxy Latin America.

     DISTV: The distribution of television signals by physical means (i.e., by
Cable) to end users, generally limited to signals without interference by a
DISTV operator with the signal content.

     Embratel: Empresa Brasileira de Teleeomunicacoes, the Brazilian
government-owned company authorized to provide satellite telecommunications
services utilizing the Sistema Brasiliero de Telecomunicacoes por Satelite
(Brazilian Satellite Telecommunications System).

     Equity Subscribers: Subscribers to the Operating Ventures adjusted for the
Company's equity ownership in the Operating Ventures.

     ESPN: ESPN, Inc., in which ABC has an 80.0% equity interest and Hearst has
a 70.0% equity interest.

     ESPN Agreement: Quotaholders Agreement, dated June 26, 1995, among Tevecap,
TVA Sistema, ESPN Brazil, Inc. and ESPN Brasil Ltda.

     ESPN Brasil: Programming provided by ESPN Brasil Ltda.

     ESPN Brazil, Inc.: A Delaware corporation wholly owned by ESPN.

     ESPN Brasil Ltda.: ESPN do Brasil Ltda., a Brazilian limitada in which
Tevecap holds a 50.0% equity interest and ESPN Brazil. Inc.. holds a 50.0%
equity interest.

     Event Put: A triggering event under the Stockholders Agreement pursuant to
which each of the Stockholders (other than Abril) may, in certain circumstances,
demand that Tevecap purchase all or a portion of its shares.

     EximBank: The Export-Import Bank of the United States.

     EximBank Facility: A credit facility, dated December 9, 1996, among
Tevecap, as Guarantor, TVA Sistema, as borrower, and The Chase Manhattan Bank,
N.A., as lender. The EximBank will guarantee 85% of amounts borrowed under the
EximBank Facility.

     Falcon International: Falcon International Communications (Bermuda L.P.), a
subsidiary of Falcon International Communications, L.L.C., a Delaware limited
liability company.

     Falcon Time Put: A provision of the Stockholders Agreement pursuant to
which Falcon International may, in certain circumstances, demand that Tevecap
purchase all or a portion of the shares held by Falcon International.

     Fiber-optic cable: Cable made of glass fibers through which signals are
transmitted as pulses of light. Fiber-optic cable has the capacity for a large
number of channels.

     Financial Statements: The audited financial statements of Tevecap and its
subsidiaries and the notes thereto included herein.



                                       A-3



<PAGE>



     Fox: Twentieth Century Fox Television International.

     Galaxy Brasil: Galaxy Brasil S.A., a wholly-owned subsidiary of Tevecap
which operates Brazil's first Ku-Band system.

     Galaxy Brasil Leasing Facility: A five-year, $49.9 million lease and
sale-leaseback facility entered into in March 1997 by Galaxy Brasil, as lessee,
and Citibank, N.A., as lessor.

     Galaxy Latin America: Galaxy Latin America, LLC, a Delaware limited
liability company the members of which are Hughes Communications GLA, which
holds a 60.0% equity interest, Darlene Investments, which holds a 20.0% equity
interest, TVA Communications, which holds a 10% equity interest, and Grupo
Frecuencia Modulada Television, which holds a 10.0% equity Interest.

     Galaxy III-R: A satellite owned and operate by Hughes Communications
through which Galaxy Brasil provides DIRECTV service.

     GLA: Galaxy Latin America.

     GLA Agreement: Limited Liability Company Agreement of Galaxy Latin America,
LLC, dated April 11, 1997.


     Globo: Globo Par and TV Globo, the owners of a number of Brazil's over the
air channels.

     Globo Cabo: Globo Cabo S.A., a Cable service provider in Brazil.

     Globo Par: Globo Comunicacoes e Participacoes Ltda.

     Grupo Midia: Grupo de Midia Sao Paulo.

     Grupo Frecuencia Modulada Television: Grupo Frecuencia Modulada Television,
S.A. de C.V., a Mexican corporation wholly owned by Grupo MVS.

     Grupo MVS: Grupo MVS, S.A. de C.V., a Mexican corporation.

     Guarantors: TVA Sistema de Televisao S.A., Galaxy Brasil S.A., TVA Sul
Participacoes S.A., Comercial Cabo TV Sao Paulo Ltda., TVA Parana Ltda., TV Alfa
Cabo Ltda., CCS Camboriu Cable System de Telecomunicacoes Ltda., TCC TV a Cabo
Ltda., TVA Sul Santa Catarina Ltda., and TVA Sul Foz do Iguacu Ltda.

     HABC II: Hearst/ABC Video Services II, a Delaware general partnership
jointly owned by Hearst and ABC, which partnership holds a 17.65% equity
interest in Tevecap.

     HBO Brasil: Programming provided by HBO Brasil Partners.

     HBO Brasil Partners: HBO Brasil Partners Ltd., a joint venture between TVA.
which holds a 24.0% equity interest, and HBO Ole Partners, which holds a 76.0%
equity interest.

     HBO Ole Partners: A partnership among Time Warner Entertainment Company,
L.P., SPE Latin American Acquisition Corporation, Ole Communications, Inc. and
BVI Television Investments, Inc.



                                       A-4



<PAGE>



     Headend: A collection of hardware, typically including satellite receivers,
modulators, amplifiers and videocassette playback machines. Signals, when
processed, are then combined for distribution within the Cable network.

     Hearst: The Hearst Corporation.

     Hearst/ABC Parties: HABC II and CPL.

     Hearst/ABC Programming Agreement: Programming Agreement, dated December 6,
1995, among Tevecap, Hearst and ABC.

     Homes Passed: Homes that can be connected to a Cable distribution system
without further extension of the distribution network.

     Hughes Communications: Hughes Communications, Inc.

     Hughes Communications GLA: Hughes Communications GLA, Inc., a California
corporation, wholly-owned by Hughes Communications, that holds a 60.0% equity
interest in GLA.

     Hughes Electronics: Hughes Electronics Corporation.

     IBGE: Instituto Brasileiro de Geografia e Estatistica.

     IBOPE: Instituto Brasileiro de Opiniao Publica e Estatistica.

     Indemnification Agreement: Indemnification Agreement to be entered into
among the Company, GLA, Hughes Communications and affiliates thereof, CBC, TVA
Communications, Darlene Investments, Inversiones Divtel, D.T., C.A., Grupo
Frecunencia Modulada Television and Grupo MVS.

     Indenture: The Indenture, dated as of November 26, 1996, among Tevecap,
Tevecap's Restricted Subsidiaries, Chase Manhattan Bank Trustee Ltd., as
trustee, and Chase Trust Bank, as paying agent in connection with the Notes.

     Independent Operators: Independent pay television system operators to which
TVA sells programming.

     Initial Purchasers: Chase Securities Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, Bear Stearns & Co. Inc. and Bozano, Simonsen Securities
Inc.

     Interactive services: Services commonly referred to as pay-on-demand,
shop-at-home, video games, ATM services, or such other interactive services as
video phone and telephony which can be more easily provided with the development
of high-capacity hybrid fiber optic/coaxial distribution networks.

     Irmaos Reis: Distribuidora Irmaos Reis S.A., a Brazilian corporation in
which Abril holds a 30.5% equity interest.


     Ku-Band: A satellite transmission system which provides a signal over the
"ku" bandwidth.

     License Subsidiaries: Companies that hold pay television licenses covering
the operation of certain of the Owned Systems.



                                       A-5



<PAGE>



     Local Operating Agreement: Local Operating Agreement, dated March 3, 1995,
between GLA and Tevecap.

     LOS: An unobstructed "Line of Sight" from any of the Company's MMDS
headends to a subscriber's antenna.

     MOM: Metro Goldwyn Mayer, Inc.

     Ministry of Communications: The Brazilian Ministry of Communications,
authorized to regulate the Brazilian subscription television industry pursuant
to the Brazilian Telecommunications Code of 1962.

     MMDS (Multi-channel multi-point distribution system): A one-way radio
transmission of television channels over microwave frequencies from a fixed
station transmitting to multiple receiving facilities located at fixed points.

     MMDS license: A license that is granted by the applicable governing body
pursuant to its authority under the communications laws of a particular country
for the purpose of providing MMDS services for a specific franchise/license
area.

     MTV Brasil: MTV Brasil Ltda., a Brazilian limitada in which Abril holds a
50.0% equity interest and Viasem Brasil Holdings Ltda. (an indirect subsidiary
of Viacom International) holds the remaining 50% equity interest.

     Multicanal: Multicanal Participacoes S.A., a Cable service provider in
Brazil.

     NBC: National Broadcasting Company, Inc.

     NDS: News Digital Systems Limited, a wholly-owned subsidiary of News
Corporation.

     Net Brasil: Net Brasil S.A., a Cable and MMDS service provider in Brazil.

     Net Sat: Net Sat Servicos Ltda., TVA's competitor in DBS Service, in which
Globo Par has a controlling interest and whose other equity holders include News
Corporation, a subsidiary of The News Corporation Limited, and Grupo Televisa,
S.A. of Mexico

     News Corporation: News Corporation plc.

     Operating Ventures: Canbras TVA and TV Filme, two of TVA's minority-owned
ventures.

     Owned Systems: TVA Sistema, TVA Sul and Galaxy Brasil.

     PanAmSat: PanAmSat Corporation, the current owner and operator of the
PAS-III satellite.

     Pay-per-view: Payment made for individual programs rather than a monthly
subscription for a whole channel or group of channels. Currently only offered in
Brazil by TVA through DIRECTV, and envisioned as a means of providing certain
popular sporting events or major motion pictures for which customers may be
prepared to make a special payment.

     Penetration rate: The measurement of the take-up of Cable services. The
penetration rate as of a given date is calculated by dividing the number of
subscribers connected to a system on such date by the total number of homes
passed in such system.



                                       A-6



<PAGE>



     Programming Ventures: HBO Brasil Partners and ESPN Brasil Ltda.

     RBS: RBS Participacoes S.A., a Cable and MMDS service provider in Brazil.

     Real Plan: A Brazilian Government stabilization program, announced in
December 1993, aimed at curtailing inflation and building a foundation for
sustained economic growth.

     Registration Rights Agreement: The Registration Rights Agreement, dated as
of November 26, 1996, pursuant to which Tevecap and the Guarantors agreed to
file with the United States Securities and Exchange Commission the Exchange
Offer Registration Statement on an appropriate form under the Securities Act
with respect to an offer to exchange the Notes for Exchange Notes.

     Regulatory Put: A provision in the Stockholders Agreement pursuant to which
an Event Put is triggered if the amount of capital stock held by a Stockholder
(other than Abril) exceeds the amount allowed under an appropriate legal
restriction

     Revenue per subscriber: Total revenue derived from a subscriber television
system divided by the average number of subscribers for that period.

     SAP: Second Audio Programming, which provides the option of audio in a
second language for the programming on channels for which it is offered.

     SBT: TVSBT--Canal 4 de Sao Paulo S.A., a Brazilian national off-air channel

     Securities Act: United States Securities Act of 1933, as amended.

     Smart Card: Encoded card placed in a decoder used for Ku-Band service. The
Smart Card is used to regulate access to Ku-Band services.

     SMC: SMC Marketing Ltda., a Brazilian limitada, wholly owned by HBO
Partners, that distributes HBO programming in Brazil.

     Sony: Sony Pictures Entertainment, Inc.

     Stockholders: HABC II, CPL, Robert Civita, Abril, the Chase Parties and
Falcon International.

     Stockholders  Agreement:  Stockholders  Agreement,  dated December 6, 1995,
among the Stockholders.

     Subsidiary Guarantees:  Guarantees executed by each of Tevecap's Restricted
Subsidiaries (as defined in the Indenture).

     SurFin: SurFin Ltd., a corporation organized under the laws of the Bahamas,
the (direct and indirect) shareholders of which are Tevecap, holding 20.5%,
DIRECTV International Inc., a subsidiary of Hughes Communications, holding
39.3%, Darlene Investments, holding 20.4%, and Grupo Frecuencia Modulada
Television, holding 19.8%.

     SurFin Credit Facility: A three year $150.0 million credit facility between
SurFin and Citicorp USA, Inc., as administrative agent, under a syndicated
credit agreement, dated September 24, 1996.

     Tambore Facility: TVA's Ku-Band uplink center located in the city of
Tambore in greater Sao Paulo.



                                       A-7



<PAGE>



     Telecommunications Code: The Brazilian Telecommunications Code of 1962, as
amended.

     Telephony: The provision of telephone service.

     Tevecap: Tevecap S.A.

     Time Warner: Time Warner Entertainment Company, L.P.

     Trunk: The "transportation" component within a Cable and/or broadband
network architecture that carries the system product to the distribution portion
of the architecture, which in turn goes to customers' homes.

     TV Cabo Santa Branca: TV Cabo Santa Branca Comercio Ltda., a Brazilian
limitada. in which Tevecap holds a 36% equity interest and Canbras Par holds a
64.0% equity interest.

     TV Filme: TV Filme, Inc., a Delaware corporation in which Tevecap currently
holds a 14.3% equity interest, Warburg, Pincus Investors, L.P. currently holds a
41.2% equity interest, members of the Lins family currently hold a 16.2% equity
interest, and public stockholders currently hold a 28.3% equity interest. Upon
exercise of a warrant with a nominal exercise price, Tevecap's ownership
interest will increase to 16.7%.

     TV Filme Service Area: Brasilia, Belem and Goiania.

     TV Group: The operations of TVA excluding the operations and results of
Galaxy Brasil.

     TV Homes: The number of households in a given area possessing at least one
television set.

     TV Show Time: Televisao Show Time Ltda., a Brazilian limitada in which the
estate of Matias Machline and an associate currently hold a 53.0% equity
interest and in which the remaining 47.0% is currently held by various Abril
shareholders.

     TVA: Tevecap S.A. and its consolidated subsidiaries and affiliates.

     TVA Brasil: TVA Brasil Radioenlaces S.A., a Brazilian limitada in which the
estate of Matias Machline currently holds a 50.0% equity interest and in which
the remaining 50.0% is currently held by various Abril shareholders.

     TVA Communications: TVA Communications Ltd., a British Virgin Islands
company wholly-owned by Tevecap, through which Tevecap holds a 10.0% equity
interest in Galaxy Latin America.

     TVA Curitiba: TVA Curitiba Servicos em Telecommunicacoes Ltda., a Brazilian
limitada in which Tevecap held an 80.0% equity interest and Leonardo Petrelli
held a 20.0% equity interest prior to TVA Curitiba's merger into TVA Parana
Ltda. and the reorganization of TVA Parana Ltda. as a subsidiary of TVA Sul
Participacoes S. A. in October 1996.

     TV Globo: A provider of off-air programming in Brazil and an affiliate of
Globo.

     TVA Sistema: TVA Sistema de Televisao S.A., a Brazilian corporation in
which Tevecap holds a 98.0% equity interest and the estate of Matias Machline
holds a 2.0% equity interest.

     TVA Sul: The operations of TVA Parana Ltda., TV Alfa Cabo Ltda., TVA Cabo
Camboriu Ltda., TCC TV a Cabo Ltda., TVA Sul Santa Catarina, Ltda. and TVA Cabo
Foz do Iguacu Ltda., which are wholly-owned subsidiaries of TVA Sul
Participacoes S.A., a Brazilian corporation in which Tevecap holds an 87.0%
equity interest and Leonardo Petrelli Neto holds the remaining 13.0% equity
interest.



                                       A-8



<PAGE>



     UHF: Broadcast of a television signal at an ultra-high frequency over a
given geographical area. 

     VCR: Video cassette recorders.

     Viacom International: Viacom International (Netherlands B.V.).



                                       A-9