LIBERTY MEDIA CORP /DE/, S-4/A, 1999-12-10

LIBERTY MEDIA CORP /DE/
S-4/A, 1999-12-10
CABLE & OTHER PAY TELEVISION SERVICES

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<PAGE>

As filed with the Securities and Exchange Commission on December 10, 1999

Registration No. 333-86491

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

AMENDMENT NO. 4
To
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------
LIBERTY MEDIA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 4841 84-1288730
State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification Number)
Incorporation or Code Number)
Organization)

9197 South Peoria Street
Englewood, Colorado 80112
(720) 875-5400
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)

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

Charles Y. Tanabe, Esq.
Liberty Media Corporation
9197 South Peoria Street
Englewood, Colorado 80112
(720) 875-5400
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)

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

Copy to:
Robert W. Murray Jr., Esq.
Lee D. Charles, Esq.
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022-6030
(212) 705-5000

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

Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after this Registration Statement is declared effective.

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE>

PROSPECTUS

Liberty Media Corporation
[LOGO OF LIBERTY MEDIA CORPORATION]

Offer to Exchange

$750,000,000 $500,000,000
7 7/8% Senior Notes due 2009 8 1/2% Senior Debentures due 2029
which have been registered under the which have been registered under the
Securities Act of 1933 Securities Act of 1933
for any and all outstanding for any and all outstanding
unregistered unregistered
7 7/8% Senior Notes due 2009 8 1/2% Senior Debentures due 2029

The terms of the new securities that we are offering in this prospectus are
substantially identical to the terms of the outstanding securities, except that
the new securities will be freely transferable and will not have covenants
regarding registration rights or additional interest.

Material Terms of the Exchange Offer

. The exchange offer will expire at 5:00 p.m., New York City time, on
January 13, 2000, unless it is extended. We do not currently intend to
extend the exchange offer.

. We do not intend to apply for listing of the new securities on any
securities exchange or to arrange for them to be quoted on any quotation
system.

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

Investing in the new securities involves risks. See "Risk Factors" beginning on
page 9.

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

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

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

The date of this prospectus is December , 1999.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 17
Capitalization........................................................... 18
Selected Historical Financial Data....................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Corporate History........................................................ 41
Business................................................................. 43
Management............................................................... 75
Relationship with AT&T and Certain Related Transactions.................. 90
The Exchange Offer....................................................... 98
Description of the Securities............................................ 107
Certain United States Federal Income Tax Considerations.................. 126
Plan of Distribution..................................................... 127
Legal Matters............................................................ 128
Experts.................................................................. 128
Where to Find More Information........................................... 128
Index to Financial Statements............................................ F-1
</TABLE>

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

We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the securities offered by this prospectus. This
prospectus, which forms a part of the registration statement, does not contain
all the information included in the registration statement. You may read and
copy the registration statement, including all of its exhibits, as set forth
under "Where to Find More Information."

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

This prospectus is based on information provided by us and other sources that
we believe to be reliable. This prospectus summarizes certain documents and
other information and we refer you to them for a more complete understanding of
what we discuss in this prospectus.

This prospectus includes information concerning The News Corporation Limited,
Time Warner Inc., TV Guide, Inc., Gemstar International Group Limited, USA
Networks, Inc., Sprint Corporation, Telewest Communications plc, General
Instrument Corporation, UnitedGlobalCom, Inc., Four Media Company, Todd-AO
Corporation, The Associated Group, Inc. and Teligent, Inc., all of which are
public companies that file reports and other information with the SEC in
accordance with the requirements of the Securities Act and the Securities
Exchange Act. Information contained in this prospectus concerning those
companies has been derived from the reports and other information filed by them
with the SEC. Liberty had no part in the preparation of those reports and other
information, nor are they incorporated by reference in this prospectus.You may
read and copy any reports and other information filed by those companies as set
forth under "Where to Find More Information."

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

You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorized any person to provide you
with different information. We are offering to exchange the old securities for
new securities only in jurisdictions where offers and sales are permitted.

ii
<PAGE>

PROSPECTUS SUMMARY

The following summary highlights selected information from this prospectus.
For a more complete understanding of Liberty and this exchange offer, we
encourage you to read this entire document, including the "Risk Factors"
section. All references to "Liberty," "we," "us" and words to similar effect
refer to Liberty Media Corporation and, unless the context indicates otherwise,
its consolidated subsidiaries. The term "notes" refers to the old notes and the
new notes, collectively, and the term "debentures" refers to the old debentures
and the new debentures, collectively. The notes and the debentures are
collectively referred to as the "securities."

Liberty Media Corporation

We are a leading media, entertainment and communications company with
interests in a diverse group of public and private companies that are market
leaders in their respective industries. Our subsidiaries and business
affiliates are engaged in a broad range of programming, communications,
technology and Internet businesses and have some of the most recognized and
respected brands. These brands include Encore, STARZ!, Discovery, TV Guide,
Fox, USA, QVC, CNN, TBS and Sprint PCS.

The media, entertainment and communications industries are currently
undergoing tremendous changes due in part to the growth of new distribution
technologies, led by the Internet and the implementation of digital
compression. The growth in distribution technologies has, in turn, created
strong demand for an ever increasing array of multimedia products and services.
Liberty is working with its subsidiaries and business affiliates to extend
their established brands, quality content and networks across multiple
distribution platforms to keep them at the forefront of these ongoing changes.

The following table lists our principal subsidiaries and business affiliates
and our direct equity interests or indirect attributed equity interests based
on ownership of capital stock. Our direct or attributed equity interest in a
particular company does not necessarily represent our voting interest in that
company. Our indirect attributed interest is determined by multiplying our
ownership interest in the holder of an equity interest by that equity holder's
ownership interest in the listed subsidiary or business affiliate. The
ownership percentages are approximate, calculated as of September 30, 1999 and,
in the case of convertible securities we hold, assume conversion to common
stock by us and, to the extent known by us, other holders. In some cases our
interest is subject to buy/sell procedures, rights of first refusal or other
obligations. See "Business."

<TABLE>
<CAPTION>
Subsidiary/Business Affiliate Attributed Ownership %
----------------------------- ----------------------
<S> <C>
Encore Media Group LLC ............................ 100%
Liberty Digital, Inc. ............................. 87%
Discovery Communications, Inc. .................... 49%
TV Guide, Inc. .................................... 44%
QVC Inc. .......................................... 43%
Flextech, plc...................................... 37%
Sprint PCS Group................................... 23%
Telewest Communications plc........................ 22%
USA Networks, Inc. ................................ 21%
General Instrument Corporation..................... 21%
Time Warner Inc. .................................. 9%
The News Corporation Limited....................... 8.5%
</TABLE>

1
<PAGE>

Business Strategy

Our business strategy is to maximize the value of Liberty by (1) working with
the management teams of our existing subsidiaries and business affiliates to
grow their established businesses and create new businesses and (2) identifying
and executing strategic transactions that improve the value or optimize the
efficiency of Liberty's assets. Key elements of our business strategy include
the following:

. Promoting the internal growth of our subsidiaries and business
affiliates;

. Maintaining significant involvement in governance;

. Participating with experienced management and strategic partners; and

. Executing strategic transactions that optimize the efficiency of our
assets.

Relationship with AT&T Corp.

We have been a subsidiary of AT&T Corp. since March 9, 1999. On that date,
AT&T acquired by merger our parent Tele-Communications, Inc. ("TCI"). As part
of that merger, AT&T issued AT&T common stock (NYSE: T) and Class A and Class B
Liberty Media Group common stock (NYSE: LMG.A and LMG.B). AT&T's Liberty Media
Group common stock is a tracking stock designed to reflect the economic
performance of the businesses and assets of AT&T attributed to the "Liberty
Media Group." We are included in the Liberty Media Group, and the businesses
and assets of Liberty and its subsidiaries constitute substantially all of the
businesses and assets of the Liberty Media Group. The AT&T common stock is
intended to reflect all other assets and businesses of AT&T, which we refer to
as the AT&T Common Stock Group. For a more detailed description of the
relationship between AT&T and Liberty, see "Relationship with AT&T and Certain
Related Transactions" on page 90.

We have a substantial degree of managerial autonomy from AT&T as a result of
our corporate governance arrangement with AT&T. Our board of directors is
controlled by persons designated by TCI prior to its acquisition by AT&T, and
our board will continue to be controlled by those persons, or others chosen by
them, until at least 2006. Our management consists of individuals who managed
the businesses of Liberty prior to the AT&T merger. We have entered into
agreements with AT&T which provide us with a level of financial and operational
separation from AT&T, define our rights and obligations as a member of AT&T's
consolidated tax group, enable us to finance our operations separately from
those of AT&T and provide us with certain programming rights with respect to
AT&T's cable systems. See "Relationship with AT&T and Certain Related
Transactions" starting on page 90.

Our principal executive offices are located at 9197 South Peoria Street,
Englewood, Colorado 80112. Our main telephone number is (720) 875-5400.

2
<PAGE>

Relationship of Liberty Media Corporation to the Liberty Media Group

Liberty Media Corporation and its consolidated subsidiaries are attributed to
the Liberty Media Group. The businesses and assets of Liberty and its
subsidiaries currently constitute substantially all of the businesses and
assets of the Liberty Media Group. The following diagram illustrates the assets
of AT&T that are attributed to the Liberty Media Group and to the AT&T Common
Stock Group. The following diagram also illustrates the assets of Liberty,
which is a holding company. For a more complete description of the relationship
of Liberty Media Corporation to AT&T and the Liberty Media Group, see
"Relationship with AT&T and Certain Related Transactions" starting on page 90.
For a discussion of Liberty's consolidated subsidiaries and principal business
affiliates, see "Business" starting on page 43.

[GRAPH APPEARS HERE]

3
<PAGE>

The Exchange Offer

On July 7, 1999, we completed the private offering of $750,000,000 aggregate
principal amount of our 7 7/8% senior notes due 2009 and $500,000,000 aggregate
principal amount of our 8 1/2% senior debentures due 2029. These securities
were not registered under the Securities Act and, therefore, they are subject
to significant restrictions on resale. Accordingly, when we sold these
securities, we entered into a registration rights agreement with the initial
purchasers that provides for the exchange offer. In the registration rights
agreement, we agreed to deliver to you this prospectus and to permit you to
exchange your old securities for new securities that have substantially
identical terms to the old securities except that the new securities will be
freely transferable and will not have covenants regarding registration rights
or additional interest. In order to exchange your old securities, you must
properly tender them and we must accept your tender. We will exchange all old
securities that are validly tendered and not validly withdrawn. The new
securities will be issued under the same indenture under which the old
securities were issued and, as a holder of new securities, you will be entitled
to the same rights under the indenture that you had as a holder of old
securities. The old notes and the new notes, on the one hand, and the old
debentures and the new debentures, on the other hand, will each be treated as a
single series of debt securities under the indenture.

Set forth below is a summary description of the terms of the exchange offer.
We refer you to "The Exchange Offer," beginning on page 98, for a more complete
description of the terms of the exchange offer.

Exchange Offer............. We are offering to exchange up to $750,000,000
aggregate principal amount of new notes for a like
aggregate principal amount of old notes and up to
$500,000,000 aggregate principal amount of new
debentures for a like aggregate principal amount
of old debentures. Old notes and old debentures
may be tendered only in integral multiples of
$1,000.

Resale of New Securities... We believe that the new securities issued in the
exchange offer may be offered for resale, resold
or otherwise transferred by you without compliance
with the registration and prospectus delivery
requirements of the Securities Act, provided that:

. you are acquiring the new securities in the
ordinary course of your business;

. you have no arrangements or understandings with
any person to participate in the exchange offer
for the purpose of distributing the new
securities; and

. you are not our "affiliate," within the meaning
of Rule 405 under the Securities Act.

If any of the statements above are not true and
you transfer any new securities without delivering
a prospectus that meets the requirements of the
Securities Act or without an exemption from
registration of your new securities from those
requirements, you may incur liability under the
Securities Act. We will not assume or indemnify
you against that liability.

Each broker-dealer that receives new securities
for its own account in exchange for old securities
that were acquired by such broker-dealer as a
result of market-making or other trading
activities may be a statutory underwriter and must
acknowledge that it will comply

4
<PAGE>

with the prospectus delivery requirements of the
Securities Act in connection with any resale of
the new securities. A broker-dealer may use this
prospectus for an offer to resell, resale or other
transfer of the new securities. See "Plan of
Distribution."

Consequences of Failure to
Exchange.................. If you do not exchange your old securities for new
securities, you will not be able to offer, sell or
otherwise transfer the old securities except:

. in compliance with the registration requirements
of the Securities Act and any other applicable
securities laws;

. pursuant to an exemption from the securities
laws; or

. in a transaction not subject to the securities
laws.

Old securities that remain outstanding after
completion of the exchange offer will continue to
bear a legend reflecting these restrictions on
transfer. In addition, upon completion of the
exchange offer, you will not be entitled to any
rights to have the resale of old securities
registered under the Securities Act, and we
currently do not intend to register under the
Securities Act the resale of any old securities
that remain outstanding after completion of the
exchange offer.

Expiration Date............ The exchange offer will expire at 5:00 p.m., New
York City time, on January 13, 2000, unless we
extend it. We do not currently intend to extend
the exchange offer.

Interest on the New
Securities................ Interest on the new securities will accrue at the
rate of 7 7/8% in the case of the new notes and at
the rate of 8 1/2% in the case of the new
debentures, from the date of the last periodic
payment of interest on the old securities or, if
no interest has been paid, from the original issue
date of the old securities. No additional interest
will be paid on old securities tendered and
accepted for exchange.

Conditions to the Exchange
Offer..................... The exchange offer is subject to customary
conditions, including that:

. the exchange offer does not violate applicable
law or any applicable interpretation of the SEC
staff;

. the old securities are validly tendered in
accordance with the exchange offer; and

. no action or proceeding would impair our ability
to proceed with the exchange offer.

Procedures for Tendering
Old Securities............ If you wish to accept the exchange offer, you must
complete, sign and date the letter of transmittal
and mail or otherwise deliver it, together with
your old securities to be exchanged and any other
required documentation, to The Bank of New York,
as exchange

5
<PAGE>

agent, at the address specified on the cover page
of the letter of transmittal. Alternatively, you
can tender your old securities by following the
procedures for book-entry transfer, as described
under "The Exchange Offer--Book-Entry Transfer."
Questions regarding the tender of old securities
or the exchange offer generally should be directed
to the exchange agent at one of its addresses
specified in "The Exchange Offer--Exchange Agent."

Guaranteed Delivery
Procedures................ If you wish to tender your old securities and you
cannot get the required documents to the exchange
agent by the expiration date, you may tender your
old securities according to the guaranteed
delivery procedures described under the heading
"The Exchange Offer--Guaranteed Delivery
Procedures."

Withdrawal Rights.......... You may withdraw the tender of your old securities
at any time before 5:00 p.m., New York City time,
on the expiration date of the exchange offer. To
withdraw, you must send a written notice of
withdrawal to the exchange agent at one of its
addresses specified in "The Exchange Offer--
Exchange Agent" before 5:00 p.m., New York City
time, on the expiration date of the exchange
offer.

Acceptance of Old
Securities and Delivery
of New Securities......... We will accept for exchange any and all old
securities that are properly tendered in the
exchange offer before 5:00 p.m., New York City
time, on the expiration date, as long as all of
the terms and conditions of the exchange offer are
met. We will deliver the new securities promptly
following the expiration date.

Certain Tax
Considerations............ We believe that the exchange of old securities for
new securities should not be a taxable transaction
for U.S. federal income tax purposes, but you
should see the discussion under "Certain United
States Federal Income Tax Considerations"
beginning on page 126 for more information.

Exchange Agent............. The Bank of New York is serving as exchange agent
for the exchange offer.

Use of Proceeds............ We will not receive any proceeds from the issuance
of the new securities. We are making the exchange
offer solely to satisfy our obligations under the
registration rights agreement.

6
<PAGE>

Terms of the New Securities

Set forth below is a summary description of the terms of the new securities.
We refer you to "Description of the Securities," beginning on page 107, for a
more complete description of the terms of the new securities.

Issuer..................... Liberty Media Corporation

Securities Offered......... $750,000,000 aggregate principal amount of 7 7/8%
Senior Notes due 2009 and $500,000,000 aggregate
principal amount of 8 1/2% Senior Debentures due
2029

Maturity Dates............. July 15, 2009 as to the new notes and July 15,
2029 as to the new debentures

Interest Payment Dates..... January 15 and July 15, commencing January 15,
2000

Form and Denominations of
Securities................
The new securities will be issued in denominations
of $1,000 and integral multiples thereof. The new
securities will be in book-entry form and will be
represented by one or more global securities,
deposited with, or on behalf of, The Depository
Trust Company. Interests in the global securities
will be shown on, and transfers will be effected
only through, records maintained by DTC and its
participants. See "Description of the Securities--
General" and "--Form, Denomination and
Registration."

Ranking.................... The new securities will be unsecured general
obligations and will rank equally with all of our
existing and future unsecured and unsubordinated
indebtedness. The new securities will effectively
rank junior to all of our secured indebtedness
with respect to the value of our assets securing
that indebtedness and to all of the liabilities,
including trade payables, of our subsidiaries.

Optional Redemption........ We may redeem the new notes and the new debentures
at any time before maturity in whole or in part at
the make-whole redemption prices described in this
prospectus. See "Description of the Securities--
Optional Redemption."

Certain Covenants.......... The indenture governing the securities contains
certain covenants, including covenants with
respect to:

.limitations on liens;

.limitations on sale and leasebacks; and

. limitations on certain merger, consolidation
and similar transactions.

These covenants are subject to a number of
important qualifications and exceptions. See
"Description of the Securities--Certain
Covenants."

7
<PAGE>

Summary Historical Financial Data

In the table below we provide you with selected historical consolidated
financial data of Liberty. We derived the historical consolidated financial
data from our consolidated financial statements included elsewhere in this
prospectus. The unaudited financial data at September 30, 1999, February 28,
1999, and September 30, 1998, and for the seven months ended September 30,
1999, the two months ended February 28, 1999, and the nine months ended
September 30, 1998, contain all adjustments, consisting only of normal
recurring accruals, that, in the opinion of our management, are necessary for a
fair presentation of our results for these periods. The interim results of
operations are not necessarily indicative of results that may be expected for
the full year.

Liberty has been a wholly owned subsidiary of TCI since August 1994. On March
9, 1999, AT&T acquired TCI in a merger transaction. For financial reporting
purposes, the merger of AT&T and TCI is deemed to have occurred on March 1,
1999. In connection with the merger, the assets and liabilities of Liberty were
adjusted to their respective fair values pursuant to the purchase method of
accounting. For periods prior to March 1, 1999, the assets and liabilities of
Liberty and the related consolidated results of operations are referred to
below as "Old Liberty," and for periods subsequent to February 28, 1999, the
assets and liabilities of Liberty and the related consolidated results of
operations are referred to as "New Liberty." In connection with the merger, TCI
effected an internal restructuring as a result of which certain assets and
approximately $5.5 billion in cash were contributed to Liberty.

The financial data presented below are not necessarily comparable from period
to period as a result of several transactions, including acquisitions and
dispositions of consolidated subsidiaries. For this and other reasons, you
should read the selected historical financial data provided below in
conjunction with our consolidated financial statements and accompanying notes
beginning on page F-1 and the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on
page 20.
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------- ------------------------------------------------------
Seven months Two months Nine months
ended ended ended Year ended December 31,
September 30, February 28, September 30, ---------------------------
1999 1999 1998 1998 1997 1996
------------- ------------ ------------- -------- ------- --------
(unaudited) (unaudited) (unaudited)
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenue................. $ 506 235 1,005 1,359 1,225 2,208
Operating loss.......... (728) (158) (188) (431) (260) (66)
Interest expense........ (87) (26) (62) (104) (40) (53)
Share of losses of
affiliates, net........ (597) (66) (828) (1,002) (785) (332)
Gain on dispositions,
net.................... 10 14 569 2,449 406 1,558
Net income (loss)....... (814) (70) (260) 622 (470) 741
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 499 31 199 228 100 434
Marketable securities... 2,949 125 55 159 248 59
Investments in
affiliates............. 15,939 3,971 2,831 3,079 2,359 1,519
Investment in Time
Warner, Inc............ 6,968 7,361 4,996 7,083 3,538 2,017
Investment in Sprint
Corporation............ 7,616 3,381 -- 2,446 -- --
Total assets............ 50,822 16,886 10,604 15,567 7,735 6,722
Debt including current
portion................ 2,194 2,087 2,175 2,096 785 555
Stockholder's equity.... 35,466 9,449 5,566 9,230 4,721 4,519
Other Data:
Ratio of earnings to
fixed charges (a)...... -- 5.12x -- 11.03x 2.06x 21.36x
</TABLE>
- -------
(a) The ratio of earnings to fixed charges of Liberty was less than 1.00x for
the seven-month period ended September 30, 1999, and for the nine-month
period ended September 30, 1998. Thus, earnings available for fixed charges
were inadequate to cover fixed charges for those periods. The amounts of
the coverage deficiencies for the seven-month period ended September 30,
1999, and for the nine-month period ended September 30, 1998, were $1,133
million and $348 million, respectively. The ratios of earnings to fixed
charges for the two-month period ended February 28, 1999, and the year
ended December 31, 1998, as adjusted to reflect the sale of the old
securities and the application of the net proceeds as described under "Use
of Proceeds," are 4.55x and 9.47x, respectively. The deficiency of earnings
to fixed charges for the seven months ended September 30, 1999, as adjusted
to reflect the sale of the old securities and the application of the
estimated net proceeds as described under "Use of Proceeds," was $1,143
million. For the ratio calculations, earnings available for fixed charges
consist of earnings (losses) before income taxes plus fixed charges,
distributions from and losses of less than 50%-owned affiliates with debt
not guaranteed by Liberty (net of earnings not distributed of less than
50%-owned affiliates) and minority interests in (earnings) losses of
consolidated subsidiaries. Fixed charges consist of:

. interest on debt, including interest related to debt guaranteed by Liberty
of less than 50%-owned affiliates where the investment in such affiliates
results in the recognition of a loss,
. Liberty's proportionate share of interest of 50%-owned affiliates,
. that portion of rental expense which Liberty believes to be representative
of interest (one-third of rental expense) and
. amortization of debt issuance costs.

8
<PAGE>

RISK FACTORS

An investment in the new securities involves risk. You should carefully
consider the following factors as well as the other information included in
this prospectus before deciding to accept the exchange offer. Any of the
following risks could have a material adverse effect on our business, financial
condition or results of operations or on the value of the new securities.

Our holding company structure could restrict access to funds of our
subsidiaries that may be needed to service the securities. Creditors of those
companies have a claim on their assets that is senior to that of holders of the
securities. Liberty is a holding company with no significant assets other than
its equity interests in its subsidiaries and cash, cash equivalents and
marketable securities. Liberty is the only company obligated to make payments
under the securities. Our subsidiaries are separate and distinct legal entities
and they have no obligation, contingent or otherwise, to pay any amounts due
under the securities or to make any funds available for any of those payments.
In addition, neither AT&T nor any of its subsidiaries other than Liberty have
any obligation to make payments under the securities or to make any funds
available for those payments.

All of the liabilities of our subsidiaries effectively rank senior to the
securities. A substantial portion of the consolidated liabilities of Liberty
consists of liabilities incurred by its subsidiaries. Moreover, the indenture
governing the securities does not limit the amount of indebtedness that may be
incurred by Liberty's subsidiaries in the future. The rights of Liberty and of
its creditors, including holders of the securities, to participate in the
distribution of assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to prior claims of the subsidiary's creditors,
including trade creditors, except to the extent Liberty may itself be a
creditor with recognized claims against the subsidiary. Where Liberty is itself
a creditor of a subsidiary, its claims will still be subject to the prior
claims of any secured creditor of that subsidiary and to the claims of any
holder of indebtedness that is senior to the claim held by Liberty. As of
September 30, 1999, the aggregate amount of the total liabilities of our
consolidated subsidiaries was approximately $12.9 billion, of which
approximately $11.6 billion was deferred income taxes.

We could be unable in the future to obtain a sufficient amount of cash with
which to service our financial obligations. Our ability to meet our debt
service requirements, including those with respect to the securities, is
dependent upon our ability to access cash. Liberty's sources of cash include
its available cash balances, net cash from the operating activities of its
subsidiaries, dividends and interest from its investments, availability under
credit facilities and proceeds from asset sales. Although at September 30,
1999, Liberty had cash and cash equivalents of approximately $500 million and
marketable securities of approximately $2.9 billion, there is no requirement in
the indenture governing the securities that any of Liberty's cash or cash
equivalents or proceeds from the sale of any of its marketable securities be
reserved for the payment of Liberty's obligations under the securities. We
cannot assure you that Liberty will maintain significant amounts of cash, cash
equivalents or marketable securities in the future.

Liberty obtained from one of its subsidiaries net cash of $5 million in 1998
and net cash of $4.1 million in the first nine months of 1999. Liberty did not
obtain cash, in the form of dividends, loans, advances or otherwise, from any
of its other operating subsidiaries during those periods. The ability of
Liberty's operating subsidiaries to pay dividends or to make other payments or
advances to Liberty depends on their individual operating results and any
statutory, regulatory or contractual restrictions to which they may be or may
become subject. Some of our subsidiaries are subject to loan agreements that
restrict sales of assets and prohibit or limit the payment of dividends or the
making of distributions, loans or advances to stockholders and partners.

Liberty generally does not receive cash, in the form of dividends, loans,
advances or otherwise, from its business affiliates. In this regard, we do not
have voting control over most of our business affiliates and cannot cause those
companies to pay dividends or make other payments or advances to their partners
or shareholders (including us).

9
<PAGE>

AT&T has no obligation to provide financing for our operations and we do not
expect AT&T to provide us with any financing during the term of the securities.
In addition, AT&T does not guarantee any of our indebtedness, and it will have
no obligations to the holders of the securities in the event of a payment
default or other default by Liberty.

We may secure future indebtedness of Liberty with the capital stock of our
subsidiaries or other securities, in which case that indebtedness will
effectively rank senior to the securities. The indenture does not restrict the
ability of Liberty to pledge shares of capital stock or other securities that
it owns to secure indebtedness. To the extent Liberty pledges shares of capital
stock or other securities to secure indebtedness, the indebtedness so secured
will effectively rank senior to the securities to the extent of the value of
the shares or other securities pledged. The indenture also does not restrict
the ability of Liberty's subsidiaries to pledge shares of capital stock or
other assets that they own to secure indebtedness.

We have entered into bank credit agreements that contain restrictions on how
we finance our operations and operate our business, which could impede our
ability to engage in transactions that would be beneficial for us. Liberty and
its subsidiaries are subject to significant financial and operating
restrictions contained in outstanding credit facilities. These restrictions
will affect, and in some cases significantly limit or prohibit, among other
things, our ability or the ability of our subsidiaries to:

. borrow more funds;

. pay dividends or make other distributions;

. make investments;

. engage in transactions with affiliates; or

. create liens.

The restrictions contained in these credit agreements could have the
following adverse effects on us, among others:

. we could be unable to obtain additional capital in the future to:

. fund capital expenditures or acquisitions that could improve the
value of Liberty;

. permit us to meet our loan and capital commitments to our business
affiliates or allow us to help fund their operating losses or future
development; or

. allow us to conduct necessary corporate activities;

. we could be unable to access the net cash of our subsidiaries to help
meet our own financial obligations;

. we could be unable to invest in companies in which we would otherwise
invest; and

. we could be unable to obtain lower borrowing costs that are available
from secured lenders or engage in advantageous transactions that
monetize our assets.

In addition, some of the credit agreements to which our subsidiaries are a
party require them to maintain financial ratios, including ratios of total debt
to operating cash flow and operating cash flow to interest expense. If Liberty
or its subsidiaries fail to comply with the covenant restrictions contained in
their credit agreements, that could result in a default which accelerates the
maturity of the indebtedness borrowed pursuant to those agreements. Such a
default could also result in indebtedness under other credit agreements and the
securities becoming due and payable due to the existence of cross-default or
cross-acceleration provisions of our credit agreements and in the indenture
governing the securities.

10
<PAGE>

We have agreements with AT&T that restrict our ability to incur debt and
impede our ability to use AT&T Liberty Media Group tracking stock to effect
acquisitions or engage in other transactions. Liberty has entered into an
Inter-Group Agreement with AT&T that restricts the amount of indebtedness that
Liberty may incur as a member of the Liberty Media Group. Under the Inter-Group
Agreement, no subsidiary of AT&T that is attributed to the Liberty Media Group
may incur any debt, other than the refinancing of debt without any increase in
amount, that would cause the total indebtedness of all the subsidiaries of AT&T
that are attributed to the Liberty Media Group at any time to be in excess of
25% of the total market capitalization of the Class A and Class B Liberty Media
Group tracking stock, unless the excess would not adversely affect the credit
rating of AT&T. See "Relationship with AT&T and Certain Related Transactions--
Relationship with AT&T--Inter-Group Agreement." To the extent we are unable to
incur additional debt due to this restriction, the effects set forth in the
preceding risk factor arising out of restrictions on our ability to borrow
funds will be exacerbated. The AT&T Liberty Media Group tracking stock is a
common stock of AT&T, and we cannot use that stock to effect acquisitions or
for any other purpose without the prior approval of the AT&T board of directors
or of a three person capital stock committee of the AT&T board of directors.
Only one member of that committee, Dr. Malone, is also a director of Liberty.
All of Liberty's common stock is owned by a subsidiary of AT&T.

We may make significant capital contributions and loans to our subsidiaries
and business affiliates to cover operating losses and fund development and
growth, which could limit the amount of cash available to pay Liberty's own
financial obligations. The development of video programming, communications,
technology and Internet businesses involves substantial costs and capital
expenditures. As a result, many of our business affiliates have incurred
operating and net losses to date and are expected to continue to incur
significant losses for the foreseeable future. Liberty's results of operations
include Liberty's and its consolidated subsidiaries' share of the net losses of
their affiliates. The share of net losses amounted to $785 million for 1997,
$1,002 million for 1998, $66 million for the two months ended February 28,
1999, and $597 million for the seven months ended September 30, 1999.

We may make significant capital contributions and loans to our existing and
future subsidiaries and business affiliates to help cover their operating
losses and fund the development and growth of their respective businesses and
assets. We have assisted, and may in the future assist, our subsidiaries and
business affiliates in their financing activities by guaranteeing bank and
other financial obligations. At September 30, 1999, we had guaranteed various
loans, notes payable, letters of credit and other obligations of certain of our
subsidiaries and business affiliates totaling $616 million. It is expected that
these commitments will be funded over the next two years.

To the extent Liberty makes loans and capital contributions to its
subsidiaries and business affiliates or Liberty is required to expend cash due
to a default by a subsidiary or business affiliate of any obligation guaranteed
by Liberty, there will be that much less cash available to Liberty with which
to pay its own financial obligations, including the securities.

If we fail to meet required capital calls to a subsidiary or business
affiliate, we could be forced to sell our interest in that company, our
interest in that company could be diluted or we could forfeit important
rights. We are parties to shareholder and partnership agreements that provide
for possible capital calls on shareholders and partners. Our failure to meet a
capital call, or other commitment to provide capital or loans to a particular
company, may have adverse consequences to us. These consequences may include,
among others, the dilution of our equity interest in that company, the
forfeiture of our right to vote or exercise other rights, the right of the
other shareholders or partners to force us to sell our interest at less than
fair value, the forced dissolution of the company to which we have made the
commitment or, in some instances, a breach of contract action for damages
against us. Our ability to meet capital calls or other capital or loan
commitments is subject to our ability to access cash. See "--We could be unable
in the future to obtain a sufficient amount of cash with which to service our
financial obligations" above.

11
<PAGE>

We are a member of the Liberty Media Group of AT&T, and, as a result, we may
incur substantial financial obligations on behalf of other members of that
group. We have entered into agreements with AT&T pursuant to which we have
agreed, on a joint and several basis with each other member of the Liberty
Media Group, to indemnify AT&T against any liabilities arising from the
operations and businesses of any of the members of the Liberty Media Group.
Hence, we may be obligated to indemnify AT&T against liabilities incurred by
members of the Liberty Media Group other than Liberty Media Corporation and its
consolidated subsidiaries. Although we anticipate that if we were required to
indemnify AT&T against such a liability we would seek reimbursement or
contribution from the other members of the Liberty Media Group, we cannot
assure you that those members would be financially capable of making that
reimbursement or contribution or that any indemnification obligation that
Liberty ultimately is required to fund will not be substantial. Liberty is also
jointly and severally liable with the other members of the Liberty Media Group
for any amounts owed by members of the Liberty Media Group to AT&T under a tax
sharing agreement, and those amounts could be substantial. See "Relationship
with AT&T and Certain Related Transactions."

Some of our officers have managerial obligations to other members of the
Liberty Media Group, which diverts their attention from Liberty. Some of the
officers of Liberty Media Corporation are also officers of other members of the
Liberty Media Group. Hence, to the extent those officers devote attention to
the operations of the other members of the Liberty Media Group, that attention
will be diverted from the assets and businesses of Liberty Media Corporation
and its consolidated subsidiaries.

We may use our assets and management time to effect acquisitions that only
benefit other members of the Liberty Media Group. Although we anticipate that
acquisitions involving companies that are attributed to the Liberty Media Group
will be effected through Liberty Media Corporation or its consolidated
subsidiaries, it is possible that some of these acquisitions will be effected
through other members of the Liberty Media Group. In addition to the diversion
of management's attention from the assets and business of Liberty Media
Corporation, acquisitions outside of Liberty Media Corporation and its
consolidated subsidiaries could have important consequences to the holders of
the securities, including the following:

. Liberty may provide cash or other assets with which to effect these
acquisitions; and

. Liberty may provide cash for the purpose of funding subsequent operating
losses or the development and growth of the businesses of the acquired
companies.

To the extent we use our cash or other assets for the foregoing purposes,
that cash and those assets, as well as the businesses acquired with them, will
not be available to satisfy our obligations under the securities. Hence, in any
bankruptcy proceeding owners of the securities will not have any claims against
those businesses or the cash or other assets used by Liberty to effect their
acquisition.

Liberty Media Group has announced the proposed acquisition of The Associated
Group, Inc. with shares of AT&T common stock and Liberty Media Group common
stock. If that transaction closes, a significant portion of the assets of
Associated Group will be contributed to another member of the Liberty Media
Group and only a portion of the assets of Associated Group will be contributed
to Liberty.

The liquidity and value of our interests in our business affiliates may be
adversely affected by shareholder agreements and similar agreements to which we
are a party. A significant portion of the equity securities we own is held
pursuant to stockholder agreements, partnership agreements and other
instruments and agreements that contain provisions that affect the liquidity,
and therefore the realizable value, of those securities. Most of these
agreements subject the transfer of the stock, partnership or other interests
constituting the equity security to consent rights or rights of first refusal
of the other stockholders or partners. In certain cases, a change in control of
Liberty or of the subsidiary holding our equity interest will give rise to
rights or remedies exercisable by other stockholders or partners, such as a
right to initiate or require the initiation of buy/sell procedures. Some of our
subsidiaries and business affiliates are parties to loan agreements that
restrict changes in ownership of the borrower without the consent of the
lenders. All of these provisions will restrict

12
<PAGE>

our ability to sell those equity securities and may adversely affect the price
at which those securities may be sold. For example, in the event buy/sell
procedures are initiated at a time when we are not in a financial position to
buy the initiating party's interest, we could be forced to sell our interest at
a price based on the value established by the initiating party, and that price
might be significantly less than what we might otherwise obtain.

We do not have the right to manage our business affiliates, which means we
cannot cause those affiliates to operate in a manner that is favorable to
Liberty. We do not have the right to manage the businesses or affairs of any of
our business affiliates in which we have less than a majority voting interest.
Rather, our rights, at most, may take the form of representation on the board
of directors or a partners' or similar committee that supervises management or
possession of veto rights over significant or extraordinary actions. The scope
of our veto rights varies from agreement to agreement. Although our board
representation and veto rights may enable us to prevent the sale by a business
affiliate in which we own less than a majority voting interest of assets or
prevent it from paying dividends or making distributions to its stockholders or
partners, they do not enable us to cause these actions to be taken.

Our business is subject to risks of adverse government regulation. In the
United States, the Federal Communications Commission regulates the providers of
satellite communications services and facilities for the transmission of
programming services, the cable television systems that carry such services,
and, to some extent, the availability of the programming services themselves
through its regulation of program licensing. Cable television systems and other
forms of video distribution in the United States are also regulated by
municipalities or other state and local government authorities. Cable
television companies are currently subject to federal rate regulation on the
provision of basic service, and continued rate regulation or other franchise
conditions could place downward pressure on the fees cable television companies
are willing or able to pay for programming services in which we have interests
and regulatory carriage requirements could adversely affect the number of
channels available to carry the programming services in which we have an
interest. In addition, Liberty's programming subsidiaries and business
affiliates may be limited in their ability to sell programming to AT&T's cable
television subsidiaries and affiliates as a result of federal regulations. See
"Business--Regulatory Matters."

The regulation of programming services, cable television systems, satellite
carriers and television stations is subject to the political process and has
been in constant flux over the past decade. Further material changes in the law
and regulatory requirements must be anticipated and there can be no assurance
that our business will not be adversely affected by future legislation, new
regulation or deregulation. See "Business--Regulatory Matters."

In addition, substantially every foreign country in which we have, or may in
the future make, an investment regulates, in varying degrees, the distribution
and content of programming services and foreign investment in programming
companies and wireline and wireless cable communications, satellite, telephony
and Internet services. Regulations or laws that exist at the time we make an
investment in a subsidiary or business affiliate may subsequently change, and
there can be no assurance that material and adverse changes in the regulation
of the services provided by our foreign subsidiaries and business affiliates
will not occur in the future. Regulation can take the form of price controls,
service requirements and programming and other content restrictions, among
others. Moreover, some countries where we have or may in the future acquire
interests in a cable television operator do not issue exclusive licenses or
franchises to provide multi-channel television services within a geographic
area, and in those instances we may be adversely affected by an overbuild by
one or more competing cable operators. In certain countries where multi-channel
television is less developed, there is minimal regulation of cable television
and other forms of video distribution, and, hence, the protections of the
distributor's investment available in the United States and other countries
(such as rights to renewal of licenses, franchises and pole attachment) may not
be available in these countries.

The Internet companies in which we have interests are subject, both directly
and indirectly, to various laws and governmental regulations relating to their
respective businesses. Due to the increasing popularity and use of commercial
online services and the Internet, it is possible that a number of laws and
regulations may be

13
<PAGE>

adopted with respect to commercial online services and the Internet. The
adoption of such laws or regulations in the future may decrease the growth of
such services and the Internet, which could in turn decrease the demand for the
services and products of the Internet companies in which we have interests and
increase such companies' costs of doing business or otherwise have an adverse
effect on their businesses, operating results and financial conditions.

Our operations are subject to constraints imposed by the Investment Company
Act. Our operations are primarily conducted through subsidiaries and business
affiliates, and certain of our investments in those companies have been made
with strategic partners where we have a less than 50% voting interest. Under
the Investment Company Act of 1940, a company that is deemed to be an
"investment company," and which is not exempt from the provisions of the
Investment Company Act, is required to register as an investment company under
the Investment Company Act. Registered investment companies are subject to
extensive, restrictive and potentially adverse regulation relating to, among
other things, operating methods, management, capital structure, dividends and
transactions with affiliates. Registered investment companies are not permitted
to operate their business in the manner Liberty operates its business, nor are
registered investment companies permitted to have many of the relationships
that Liberty has with its affiliated companies.

Liberty's current holdings in its subsidiaries and business affiliates are
such that Liberty is not an "investment company" required to register under the
Investment Company Act, and Liberty intends to conduct its business in a manner
designed to avoid becoming subject to regulation under the Investment Company
Act. To avoid regulation under the Investment Company Act, Liberty's operations
will to an extent be limited by concerns that it acquire investments in
companies that assure to it majority ownership or primary control of a
magnitude sufficient to cause Liberty not to fall within the definition of an
investment company. These considerations could require Liberty to dispose of
otherwise desirable assets at disadvantageous prices, structure transactions in
a manner that assures Liberty has a majority interest or primary control,
irrespective of whether such a structure is the one that is most desirable, or
avoid otherwise economically desirable transactions, including the addition of
strategic partners in Liberty's current majority-owned subsidiaries and
business affiliates that it primarily controls. In addition, events beyond our
control, including significant appreciation in the market value of certain of
our publicly traded investments that may be deemed investment securities, could
result in our becoming an inadvertent investment company. If Liberty were to
become an inadvertent investment company, it would have one year to divest of a
sufficient amount of investment securities and/or acquire other assets
sufficient to cause Liberty to no longer be an investment company subject to
registration under the Investment Company Act.

If it were established that Liberty is an unregistered investment company,
there would be a risk, among other material adverse consequences, that we could
become subject to monetary penalties or injunctive relief, or both, in an
action brought by the SEC, that we would be unable to enforce contracts with
third parties or that third parties could seek to obtain rescission of
transactions with us undertaken during the period it was established that we
were an unregistered investment company.

Year 2000 technology problems could cause interruptions in our business. Many
existing computer programs were designed and developed without considering the
upcoming change in the century, which could lead to the failure of computer
applications or create erroneous results by or at the Year 2000. The Year 2000
issue is a broad business issue, the impact of which extends beyond traditional
computer hardware and software to possible failure of a wide variety of
automated systems and instrumentation, including equipment that we use and
equipment used by third parties with whom we do business.

We are in the process of assessing and remediating potential risks to our
business related to the Year 2000 issue. Although we believe that, as a result
of these efforts, our critical systems are or will be substantially Year 2000
ready, we cannot assure you that this will be the case. In addition, the
ability of third parties with whom we do business and many of the companies in
which we have interests to address adequately their Year 2000 issues is outside
our control. Our failure or the failure of such third parties to address
adequately their respective Year 2000 issues may have a material adverse effect
on our business, financial condition and results of operations.

14
<PAGE>

For a detailed discussion of our Year 2000 assessment and compliance efforts,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."

We are dependent on a limited number of potential customers for carriage of
our programming services. The cable television and direct-to-home satellite
industries are currently undergoing a period of consolidation. As a result, the
number of potential buyers of our programming services and those of our
business affiliates is decreasing. AT&T's cable television subsidiaries and
affiliates, which as a group comprise one of the two largest operators of cable
television systems in the United States, are collectively the largest single
customer of Liberty's programming companies. With respect to some of our
programming services and those of our business affiliates, this is the case by
a significant margin. The existing agreements between AT&T's cable television
subsidiaries and affiliates and the program suppliers owned or affiliated with
Liberty were entered into prior to the AT&T merger. There can be no assurance
that our owned and affiliated program suppliers will be able to negotiate
renewal agreements with AT&T's cable television subsidiaries and affiliates.
Although AT&T has agreed to extend any existing affiliation agreement of
Liberty and its affiliates that expires on or before March 9, 2004 to a date
not before March 9, 2009, that agreement is conditioned on mutual most favored
nation terms being offered and the arrangements being consistent with industry
practice. For more information about our relationship with AT&T, see
"Relationship with AT&T and Certain Related Transactions."

The absence of a public market for the new securities could limit
opportunities to sell your securities in the future. The new securities will
constitute new issues of securities with no established trading market. If a
trading market does not develop or is not maintained, holders of the new
securities may experience difficulty in reselling the new securities or may be
unable to sell them at all. We cannot assure you that an active public or other
market for the new securities will develop or be maintained. If a market for
the new securities develops, it may be discontinued at any time. Although the
initial purchasers of the old securities have advised us that they currently
intend to make a market in the new securities, they are not obligated to do so
and may discontinue market-making activity at any time without notice. In
addition, any market-making activity by the initial purchasers will be subject
to the limits imposed by the Securities Act and the Securities Exchange Act and
may be limited during the exchange offer. We do not intend to apply for the
listing of the new securities on any securities exchange or automated quotation
system.

The liquidity of any market for the new securities will depend upon the
number of holders of the new securities, our operating performance, the
interest of securities dealers in making a market in the new securities and
other factors. A liquid trading market may not develop for the new securities.
Furthermore, the market price for the new securities may be subject to
substantial fluctuations. Factors such as the following may have a significant
effect on the market price of the new securities:

. actual or anticipated fluctuations in our operating results;

. our perceived business prospects;

. general economic conditions, including prevailing interest rates; and

. the market for similar securities.

The issuance of the new securities may adversely affect the market for the
old securities. If old securities are tendered for exchange and accepted in the
exchange offer, the trading market, if any, for the untendered and tendered but
unaccepted old securities could be adversely affected.

Your failure to participate in the exchange offer could limit opportunities
to sell your securities in the future. We issued the old securities in a
private offering exempt from the registration requirements of the Securities
Act. Accordingly, you may not offer, sell or otherwise transfer your old
securities except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption from the securities laws, or in a transaction not subject to the
securities laws. If you do not exchange your old securities for new securities
in the exchange offer, or if you do not properly tender

15
<PAGE>

your old securities in the exchange offer, your old securities will continue to
be subject to these transfer restrictions after the completion of the exchange
offer. In addition, after completion of the exchange offer, you will no longer
be able to obligate us to register the old securities under the Securities Act.

Some persons who participate in the exchange offer must deliver a prospectus
in connection with resales of the new securities. Based on certain no-action
letters issued by the SEC staff, we believe that, in general, you may offer for
resale, resell or otherwise transfer the new securities without compliance with
the registration and prospectus delivery requirements of the Securities Act.
However, in some instances described in this prospectus under "The Exchange
Offer," you will remain obligated to comply with the registration and
prospectus delivery requirements of the Securities Act to transfer your new
securities. In these instances, if you transfer any new security without
delivering a prospectus meeting the requirements of the Securities Act or
without an exemption from registration of your new securities under the
Securities Act, you may incur liability under the Securities Act. We do not and
will not assume, or indemnify you against, this liability.

This prospectus contains forward looking statements concerning future events
that are subject to risks, uncertainties and assumptions. Certain statements
made in this prospectus under the captions entitled "Prospectus Summary," "Risk
Factors," "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this prospectus are
forward-looking statements. These forward-looking statements are based on our
current expectations and projections about future events. When used in this
prospectus, the words "believe," "anticipate," "intend," "estimate," "expect"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such words. These forward-
looking statements are subject to risks, uncertainties and assumptions about us
and our subsidiaries and business affiliates, including, among other things,
the following:

. general economic and business conditions and industry trends;

. the continued strength of the industries in which we are involved;

. uncertainties inherent in our proposed business strategies;

. our future financial performance, including availability, terms and
deployment of capital;

. availability of qualified personnel;

. changes in, or our failure or inability to comply with, government
regulations and adverse outcomes from regulatory proceedings;

. changes in the nature of key strategic relationships with partners and
business affiliates;

. uncertainties inherent in the change over to the year 2000;

. rapid technological changes;

. our inability to obtain regulatory or other necessary approvals of any
strategic transactions; and

. social, political and economic situations in foreign countries where we
do business.

Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this prospectus. In light of
these risks, uncertainties and other assumptions, the forward-looking events
discussed in this prospectus might not occur.

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<PAGE>

USE OF PROCEEDS

We will not receive any cash proceeds from the issuance of the new securities
in exchange for the old securities. We are making this exchange offer solely to
satisfy our obligations under the registration rights agreement. In
consideration for issuing the new securities, we will receive old securities in
aggregate value equal to the value of the new securities. The old securities
surrendered in exchange for the new securities will be retired and canceled.
Accordingly, the issuance of the new securities will not result in any change
in our indebtedness.

We received approximately $1,235,000,000 in net proceeds from the sale of the
old securities, after deducting discounts but before deducting other offering
expenses. We used these net proceeds to repay:

. $500 million of outstanding indebtedness under a $500 million secured
revolving credit facility. entered into by Communication Capital Corp.,
an indirect wholly owned subsidiary of Liberty. This facility had a
stated maturity date of August 15, 2000, and loans bore interest, at the
election of the borrower, at either a base rate plus a margin ranging
from 0.0% to 0.125% or LIBOR plus a margin ranging from 0.5% to 1.125%.

. $580 million of outstanding indebtedness under a $640 million guaranteed
revolving credit facility, entered into by LMC Capital LLC, an indirect
wholly owned subsidiary of Liberty. This facility had a stated maturity
date of December 31, 1999, and loans bore interest, at the election of
the borrower, at either a base rate or LIBOR plus a margin ranging from
0.250% to 0.750%.

. $155 million of outstanding indebtedness under separate unsecured
revolving credit facilities, entered into by Liberty, that provide for
borrowings in the aggregate principal amount of $1.2 billion. This
facility has a stated maturity date of December 31, 1999, and loans bore
interest, at the election of the borrower, at either a base rate or
LIBOR plus a margin ranging from 0.250% to 0.750%.

Following these repayments, the credit facilities entered into by Communication
Capital Corp. and LMC Capital LLC were terminated. Amounts repaid under
Liberty's unsecured revolving credit facilities may be reborrowed in the
future.

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<PAGE>

CAPITALIZATION

The following table sets forth our consolidated capitalization as of
September 30, 1999. This table should be read in conjunction with Liberty's
consolidated financial statements and the related notes included elsewhere in
this prospectus. See "Index to Financial Statements."

<TABLE>
<CAPTION>
September 30, 1999
------------------
(in millions)
<S> <C>
Cash and cash equivalents.................................... $ 499
=======
Marketable securities........................................ 2,949
=======
Long-term debt (including current portion):
Bank credit facilities..................................... $ 926
Other debt................................................. 33
7 7/8% Senior Notes due 2009............................... 741
8 1/2% Senior Debentures due 2029.......................... 494
-------
Total debt............................................... $ 2,194
-------
Stockholder's equity:
Common stock............................................... --
Additional paid-in capital................................. $33,787
Accumulated other comprehensive earnings, net of taxes..... 2,407
Retained earnings (deficit)................................ (814)
-------
35,380
-------
Due to related parties..................................... 86
-------
Total stockholder's equity............................... 35,466
-------
Total capitalization..................................... $37,660
=======
</TABLE>

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<PAGE>

SELECTED HISTORICAL FINANCIAL DATA

Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 499 31 199 228 100 434 179 72
Marketable securities... 2,949 125 55 159 248 59 -- --
Investments in
affiliates............. 15,939 3,971 2,831 3,079 2,359 1,519 1,932 835
Investment in Time
Warner, Inc............ 6,968 7,361 4,996 7,083 3,538 2,017 945 654
Investment in Sprint
Corporation............ 7,616 3,381 -- 2,446 -- -- -- --
Total assets............ 50,822 16,886 10,604 15,567 7,735 6,722 5,605 3,482
Debt including current
portion................ 2,194 2,087 2,175 2,096 785 555 516 98
Stockholder's equity.... 35,466 9,449 5,566 9,230 4,721 4,519 3,731 2,386

Other Data:
Ratio of earnings to
fixed charges (a)...... -- 5.12x -- 11.03x 2.06x 21.36x 3.86x 9.20x
</TABLE>
- -------
(a) The ratio of earnings to fixed charges of Liberty was less than 1.00x for
the seven-month period ended September 30, 1999, and for the nine-month
period ended September 30, 1998. Thus, earnings available for fixed charges
were inadequate to cover fixed charges for such period. The amounts of the
coverage deficiencies for the seven-month period ended September 30, 1999,
and for the nine-month period ended September 30, 1998, were $1,133 million
and $348 million, respectively. The ratios of earnings to fixed charges for
the two-month period ended February 28, 1999, and the year ended December
31, 1998, as adjusted to reflect the sale of the old securities and the
application of the net proceeds as described under "Use of Proceeds," are
4.55x and 9.47x, respectively. The deficiency of earnings to fixed charges
for the seven months ended September 30, 1999, as adjusted to reflect the
sale of the old securities and the application of the estimated net
proceeds as described under "Use of Proceeds," was $1,143 million. For the
ratio calculations, earnings available for fixed charges consist of
earnings (losses) before income taxes plus fixed charges, distributions
from and losses of less than 50%-owned affiliates with debt not guaranteed
by Liberty (net of earnings not distributed of less than 50%-owned
affiliates) and minority interests in (earnings) losses of consolidated
subsidiaries. Fixed charges consist of:

. interest on debt, including interest related to debt guaranteed by Liberty
of less than 50%-owned affiliates where the investment in such affiliates
results in the recognition of a loss,

. Liberty's proportionate share of interest of 50%-owned affiliates,

. that portion of rental expense which Liberty believes to be representative
of interest (one-third of rental expense) and

. amortization of debt issuance costs.

19
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information concerning our
results of operations and financial condition. This discussion should be read
in conjunction with our consolidated financial statements and accompanying
notes beginning on page F-1.

Liberty's domestic subsidiaries generally operate or hold interests in
businesses which provide programming services including production, acquisition
and distribution through all available formats and media of branded
entertainment, educational and informational programming and software. In
addition, certain of Liberty's subsidiaries hold interests in businesses
engaged in wireless telephony, electronic retailing, direct marketing and
advertising sales relating to programming services, infomercials and
transaction processing. Liberty also has significant interests in foreign
affiliates, which operate in cable television, programming and satellite
distribution.

Liberty's consolidated subsidiaries at September 30, 1999, include Encore
Media Group, Liberty Digital, Inc. (formerly named TCI Music, Inc.), Pramer
S.C.A. and TCI Cablevision of Puerto Rico. These businesses are majority or
wholly owned and, accordingly, the results of operations of these businesses
are included in the consolidated results of Liberty for the periods in which
they were majority or wholly owned.

A significant portion of Liberty's operations are conducted through entities
in which Liberty holds a 20%-50% ownership interest. These businesses are
accounted for using the equity method of accounting and, accordingly, are not
included in the consolidated results of Liberty except as they affect Liberty's
interest in earnings or losses of affiliates for the period in which they were
accounted for using the equity method. Included in Liberty's investments in
affiliates at September 30, 1999 are USA Networks, Inc., Discovery
Communications, Inc., TV Guide, Inc., QVC Inc., Flextech, plc and Telewest
Communications plc.

Liberty holds interests in companies that are neither consolidated
subsidiaries nor affiliates accounted for using the equity method. The most
significant of these include Time Warner and Sprint Corporation. The Time
Warner stock and Sprint Corporation tracking stock that Liberty holds are
classified as available-for-sale securities and are carried at fair value.
Unrealized holding gains and losses on these securities are carried net of
taxes as a component of accumulated other comprehensive earnings in
stockholder's equity. Realized gains and losses are determined on a specific-
identification basis.

As a result of AT&T's acquisition of TCI by merger on March 9, 1999, the
shares of each series of TCI common stock were converted into shares of a class
of AT&T common stock, subject to applicable exchange ratios. The AT&T merger
has been accounted for using the purchase method. Accordingly, Liberty's assets
and liabilities have been recorded at their respective fair values therefore
creating a new cost basis. For financial reporting purposes the AT&T merger is
deemed to have occurred on March 1, 1999. Accordingly, for periods prior to
March 1, 1999, the assets and liabilities of Liberty and the related
consolidated financial statements are sometimes referred to herein as "Old
Liberty," and for periods subsequent to February 28, 1999, the assets and
liabilities of Liberty and the related consolidated financial statements are
sometimes referred to herein as "New Liberty." "Liberty" refers to both New
Liberty and Old Liberty.

Summary Of Operations

Liberty's programming businesses include Encore Media Group which provides
premium programming distributed by cable, direct-to-home satellite and other
distribution media throughout the United States. Additionally, Liberty Digital
is included in Liberty's financial results. Liberty Digital, through its
subsidiaries and affiliates, is principally engaged in programming,
distributing and marketing digital and analog music services to homes,
businesses and over the Internet. Also included in Liberty's financial results
through March 1, 1999, are those of TV Guide (formerly named United Video
Satellite Group, Inc.) which, during the period it was consolidated, was
engaged in the business of providing satellite-delivered video, audio, data,
and program

20
<PAGE>

promotion services to cable television systems, direct-to-home satellite dish
users, radio stations and private network users throughout the United States.
Effective March 1, 1999, Liberty began accounting for its investment in TV
Guide under the equity method of accounting. To enhance the reader's
understanding, separate financial data has been provided below for Encore Media
Group, Liberty Digital and TV Guide due to the significance of those
operations. The table sets forth, for the periods indicated, certain financial
information and the percentage relationship that certain items bear to revenue.
Liberty holds significant equity investments, the results of which are not a
component of operating income, but are discussed below under "--Investments in
Affiliates Accounted for Under the Equity Method." Other items of significance
are discussed separately below.

Nine months ended September 30, 1999, compared to nine months ended September
30, 1998

General Information

Due to the consummation of the AT&T merger, Liberty's 1999 statements of
operations include information reflecting the seven month period ended
September 30, 1999, and the two month period ended February 28, 1999. Also,
prior to March 1, 1999, Liberty consolidated the operations of TV Guide, and
subsequent to February 28, 1999, Liberty accounted for its ownership interests
in TV Guide under the equity method. (See note 6 to the accompanying September
30, 1999 consolidated financial statements.) The following discussion of
Liberty's results of operations includes a section that addresses the combined
operating results of "Old Liberty" and "New Liberty," collectively "Combined
Liberty."

<TABLE>
<CAPTION>
New Liberty Old Liberty
--------------------- ------------------------------------------
Seven months Two months Nine months
ended % of ended % of ended % of
September 30, total February 28, total September 30, total
1999 revenue 1999 revenue 1998 revenue
------------- ------- ------------ ------- ------------- -------
(dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Encore Media Group
Revenue............................................ $ 372 100% $ 101 100% $ 388 100%
Operating, selling, general and administrative..... 279 75 60 59 318 82
Stock compensation................................. 4 1 3 3 18 5
Depreciation and amortization...................... 104 28 1 1 5 1
----- ---- ----- --- ----- ---
Operating income (loss)........................... $ (15) (4)% $ 37 37% $ 47 12%
===== ==== ===== === ===== ===
Liberty Digital
Revenue............................................ $ 51 100% $ 15 100% $ 63 100%
Operating, selling, general and administrative..... 47 92 14 93 59 94
Stock compensation................................. 205 402 -- -- -- --
Depreciation and amortization...................... 25 49 4 27 17 27
----- ---- ----- --- ----- ---
Operating loss.................................... $(226) (443)% $ (3) (20)% $ (13) (21)%
===== ==== ===== === ===== ===
TV Guide
Revenue............................................ $ -- -- $ 97 100% $ 443 100%
Operating, selling, general and administrative..... -- -- 76 79 350 79
Stock compensation................................. -- -- -- -- -- --
Depreciation and amortization...................... -- -- 10 10 21 5
----- ---- ----- --- ----- ---
Operating income.................................. $ -- -- $ 11 11% $ 72 16%
===== ==== ===== === ===== ===
Other
Revenue............................................ $ 83 (a) $ 22 (a) $ 111 (a)
Operating, selling, general and administrative..... 82 38 116
Stock compensation................................. 223 180 245
Depreciation and amortization...................... 265 7 44
----- ----- -----
Operating loss.................................... $(487) $(203) $(294)
- --------------------------------------------------
===== ===== =====
</TABLE>
- --------
(a) Not meaningful.

21
<PAGE>

In order to provide a meaningful basis for comparing the nine months ended
September 30, 1999 and 1998 for purposes of the following table and discussion,
the operating results of Combined Liberty for the seven months ended September
30, 1999 have been combined with the operating results of Combined Liberty for
the two months ended February 28, 1999, and the operating results for the nine
months ended September 30, 1998. Depreciation, amortization and certain other
line items included in the operating results of Combined Liberty are not
comparable between periods as the seven month successor period ended September
30, 1999, includes the effects of purchase accounting adjustments related to
the AT&T merger, and prior periods do not. The combining of predecessor and
successor accounting periods is not acceptable under generally accepted
accounting principles.

<TABLE>
<CAPTION>
Combined Liberty
--------------------------------------------
Nine months Nine months
ended % of ended % of
September 30, total September 30, total
1999 revenue 1998 revenue
------------- ------- ------------- -------
(dollar amounts in millions)
<S> <C> <C> <C> <C>
Encore Media Group
Revenue.......................... $ 473 100% $ 388 100%
Operating, selling, general and
administrative.................. 339 72 318 82
Stock compensation............... 7 1 18 5
Depreciation and amortization.... 105 22 5 1
----- ---- ----- ---
Operating income................ $ 22 5% $ 47 12%
===== ==== ===== ===
Liberty Digital
Revenue.......................... $ 66 100% $ 63 100%
Operating, selling, general and
administrative.................. 61 92 59 94
Stock compensation............... 205 311 -- --
Depreciation and amortization.... 29 44 17 27
----- ---- ----- ---
Operating loss.................. $(229) (347)% $ (13) (21)%
===== ==== ===== ===
TV Guide
Revenue.......................... $ 97 100% $ 443 100%
Operating, selling, general and
administrative.................. 76 79 350 79
Stock compensation............... -- -- -- --
Depreciation and amortization.... 10 10 21 5
----- ---- ----- ---
Operating income................ $ 11 11% $ 72 16%
===== ==== ===== ===
Other
Revenue.......................... $ 105 (a) $ 111 (a)
Operating, selling, general and
administrative.................. 120 116
Stock compensation............... 403 245
Depreciation and amortization.... 272 44
----- -----
Operating loss.................. $(690) $(294)
===== =====
</TABLE>
- --------
(a) Not meaningful.

Consolidated Subsidiaries

Encore Media Group. The majority of Encore Media Group's revenue is derived
from the delivery of movies to subscribers under affiliation agreements between
Encore Media Group and cable operators and satellite direct-to-home
distributors. Encore Media Group entered into a 25-year affiliation agreement
in 1997 with TCI. TCI cable systems subsequently acquired by AT&T in the AT&T
merger operate under the name AT&T Broadband & Internet Services. Revenue from
AT&T Broadband accounted for approximately 61% of total revenue during 1998.
Under this affiliation agreement with AT&T Broadband, Encore Media Group
receives fixed monthly payments in exchange for unlimited access to all of the
existing Encore and STARZ!

22
<PAGE>

services. The payment from AT&T Broadband is adjusted, in certain instances, if
AT&T acquires or disposes of cable systems or if Encore Media Group's
programming costs increase above certain specified levels. Encore Media Group's
other affiliation agreements generally provide for payments based on the number
of subscribers that receive Encore Media Group's services.

Revenue from AT&T Broadband increased 13% to $179 million during the first
nine months of 1999, compared to the same period of 1998, pursuant to the terms
of the AT&T/Encore Media Group affiliation agreement. Under this agreement, the
amount paid by AT&T Broadband does not vary with the number of subscription
units from AT&T Broadband. This category also includes revenue from cable
systems that have been contributed by AT&T to joint ventures and are subject to
the AT&T/Encore Media Group affiliation agreement. Revenue from cable
affiliates other than AT&T Broadband increased 35% to $108 million during the
first nine months of 1999, compared to the same period of 1998 mainly due to
20% and 38% increases in subscription units for Encore and STARZ! services,
respectively, combined with increases in rates charged. MOVIEplex and Thematic
Multiplex subscribers from cable affiliates other than AT&T Broadband increased
by 1.7 million or 63% and 1.7 million or 425%, respectively, during the first
nine months of 1999 compared to the same period in 1998, contributing to the
increase in revenue. Revenue from satellite providers and other distribution
technologies increased 25% to $186 million during the first nine months of
1999, from $149 million during the first nine months of 1998, due to 15%, 13%
and 27% increases in STARZ!, Encore and Thematic Multiplex subscription units,
respectively, partially offset by subscriber volume and penetration discounts.

Programming and other operating expenses increased by 7% during the first
nine months in 1999, compared to the same period in 1998, primarily due to
increased first run exhibitions on Encore and the Thematic Multiplex channels.
Sales and marketing expenses increased by 6% during the first nine months of
1999, compared to the same period in 1998, due to the "New Encore" national
awareness campaign during 1999. The majority of Encore Media Group's national
consumer awareness campaign will continue into the fourth quarter of 1999;
therefore, operating expenses are expected to be higher during the fourth
quarter in 1999. The "New Encore" campaign is branding Encore as a first-run
premium pay service.

The fluctuations in depreciation, amortization and stock compensation are a
direct result of the effects of purchase accounting adjustments related to the
AT&T merger.

Liberty Digital. Liberty Digital's revenue is derived from its audio
business, which is engaged in programming, distributing and marketing a digital
music service, Digital Music Express(R) (DMX Service). This service provides
continuous, commercial free, CD-quality music programming to homes and
businesses. Liberty Digital's results of operations also include its
interactive media business, which is engaged in the development of interactive
television businesses and the management of investments in interactive
programming content and interactive television businesses.

Revenue increased 5% to $66 million for the nine months ended September 30,
1999 from $63 million for the corresponding period in 1998. The increase in
revenue is primarily due to increased residential and commercial subscribers in
its audio business offset by reduced revenue due to the sale of Liberty
Digital's video and Internet businesses. Additionally, revenue for the nine
months ended September 30, 1999 included a $3 million settlement from
PRIMESTAR, Inc., a provider of digital satellite television programming
services, for the loss of future revenue after the DMX Service was terminated
from distribution to PRIMESTAR customers on April 28, 1999, as a result of the
acquisition of PRIMESTAR by Hughes Electronic Corp.

Operating, selling, general and administrative expenses increased 3% to $61
million for the nine months ended September 30, 1999, from $59 million for the
corresponding period in 1998. The increase in expenses is primarily due to
increased affiliation fees in Liberty Digital's audio business as well as
increases in selling, general and administrative expenses due to increased
personnel, occupancy and promotional expenses associated with the audio
business's expansion.

23
<PAGE>

Depreciation and amortization increased 71% to $29 million for the nine
months ended September 30, 1999, from $17 million for the corresponding period
in 1998. The increase is a result of the effects of purchase accounting
adjustments related to the AT&T merger.

The amount of expense associated with stock compensation is generally based
on the vesting of the related stock options and stock appreciation rights and
the market price of the underlying common stock. The expense reflected in the
table is based on the market price of the underlying stock as of September 30,
1999, and is subject to future adjustment based on market price fluctuations
and, ultimately, on the final determination of market value when the rights are
exercised.

TV Guide. On March 1, 1999, United Video Satellite Group and News Corp.
completed a transaction whereby United Video Satellite Group acquired News
Corp.'s TV Guide properties in exchange for stock of United Video Satellite
Group and cash, creating a broader platform for offering television guide
services to consumers and advertisers. United Video Satellite Group was renamed
TV Guide. Upon consummation, Liberty began accounting for its interest in TV
Guide using the equity method of accounting and, accordingly, the results of
operations of TV Guide were no longer included in the consolidated financial
results of Liberty as of that date.

Other. Included in this information are the results of Liberty Media
International, Inc.'s consolidated subsidiaries, TCI Cablevision of Puerto Rico
and Pramer, and corporate expenses of Liberty. Revenue decreased 5% from $111
million for the nine months ended September 30, 1998, to $105 million for the
nine months ended September 30, 1999. The acquisition of Pramer in August 1998
accounted for a $43 million increase in revenue in the first nine months of
1999. This increase was offset by a decrease in revenue from the sale of
Netlink Wholesale, Inc. during January 1999 and the sale in February 1999 of
CareerTrack, Inc., a subsidiary that was a provider of business and educational
seminars and related publications.

Operating, selling, general and administrative expenses increased 3% to $120
million for the nine months ended September 30, 1999, from $116 million for the
corresponding period in 1998. The increase in expenses due to the acquisition
of Pramer was more than offset by the decrease in expenses as a result of the
sales of Netlink and CareerTrack. Corporate expenses for the nine months ended
September 30, 1999, included $12 million in costs associated with the AT&T
merger.

Depreciation and amortization increased 518% to $272 million for the nine
months ended September 30, 1999 from $44 million during the same period in
1998. The increase is a result of the effects of purchase accounting
adjustments related to the AT&T merger.

The amount of expense associated with stock compensation is generally based
on the vesting of the related stock options and stock appreciation rights and
the market price of the underlying common stock. The expense reflected in the
table is based on the market price of the underlying common stock as of
September 30, 1999 and is subject to future adjustment based on market price
fluctuations and, ultimately, on the final determination of market value when
the rights are exercised.

Other Income and Expense. Interest expense was $87 million, $26 million and
$62 million for the seven month period ending September 30, 1999, the two month
period ending February 28, 1999, and the nine months ended September 30, 1998,
respectively. The increase in interest expense during the 1999 periods is a
result of increased borrowings by Liberty during 1999.

Dividend and interest income was $171 million, $10 million and $49 million
for the seven month period ending September 30, 1999, the two month period
ending February 28, 1999 and the nine months ending September 30, 1998,
respectively. The increase in dividend and interest income during 1999
primarily represents dividends and interest income from the investment of the
$5.5 billion received in connection with the AT&T merger.

24
<PAGE>

Aggregate gains from dispositions and issuance of equity by affiliates and
subsidiaries during the seven month period ended September 30, 1999, the two
month period ended February 28, 1999, and the nine months ended September 30,
1998 were $10 million, $386 million and $665 million, respectively. Liberty
recognized a gain of $372 million (before deducting deferred income taxes of
$147 million) during the two months ended February 28, 1999, in connection with
the acquisition by United Video Satellite Group of the TV Guide properties. In
September 1997, Time Warner exercised an option to acquire the business of
Southern Satellite Systems, Inc. from Liberty. Pursuant to this option, Time
Warner acquired the business of Southern Satellite, effective January 1, 1998,
for $213 million in cash. Time Warner had paid Liberty shares of Time Warner
Series LMCN-V common stock, which are convertible into 12.8 million shares of
Time Warner common stock, valued at $306 million, for the option. Liberty
recognized a $515 million pre-tax gain in connection with these transactions in
the first quarter of 1998.

Investments in Affiliates Accounted for Under the Equity Method

Liberty's share of losses of affiliates was $597 million, $66 million and
$828 million during the seven month period ending September 30, 1999, the two
month period ending February 28, 1999, and the nine months ending September 30,
1998, respectively.

Discovery. Discovery's revenue increased $198 million or 27% from $737
million for the nine months ended September 30, 1998, to $935 million for the
same period in 1999. The increase in revenue resulted from increases in rates
charged to affiliates and increases in advertising rates due to higher ratings
and a generally strong advertising sales market. Subscriber growth at
Discovery's international and developing networks also contributed to the
increase in revenue. Earnings before interest, taxes, depreciation and
amortization ("Operating Cash Flow") increased by $39 million or 83% from $47
million for the nine months ended September 30, 1998, to $86 million for the
nine months ended September 30, 1999. The increase in Operating Cash Flow was
due to the increase in revenue offset by increases in programming and marketing
expenses. Marketing expenses have increased as Discovery continued the rollout
of Animal Planet and launched other developing networks. Discovery's net loss
increased $31 million or 41% from $76 million for the nine months ended
September 30, 1998, to $107 million for the nine months ended September 30,
1999. The increase in net loss is due to increased interest expense and launch
amortization due to the company's efforts to increase launch support related to
developing networks. Liberty's share of Discovery's net loss was approximately
$154 million, $8 million and $41 million for the seven month period ended
September 30, 1999, the two month period ended February 28, 1999 and the nine
months ended September 30, 1998, respectively. Liberty's share of losses for
the seven month period ended September 30, 1999, included $109 million in
amortization related to purchase accounting adjustments associated with
Liberty's investment in Discovery in connection with the AT&T merger.

USA Networks, Inc. Revenue increased $432 million or 23% for the nine months
ended September 30, 1999, from $1,867 million for the nine months ended
September 30, 1998, to $2,299 million for the same period in 1999. The increase
was due to increased advertising revenue from the Networks and Television
Production businesses of USA Networks and higher continuity (off-air) sales, as
well as the launch of Home Shopping en Espanol in the electronic retailing
sector. The inclusion of revenue from the Hotel Reservations Network since its
acquisition on May 10, 1999, also contributed to the increase in revenue.
Operating Cash Flow increased $77 million or 24% from $324 million for the nine
months ended September 30, 1998, to $401 million for the nine months ended
September 30, 1999. The increase in Operating Cash Flow was largely due to the
increase in revenue offset by increased cost of goods sold at the electronic
retailing unit due to the increased sales and increased Internet services
expenses as USA Networks continued to rollout new web sites. Net income
decreased from $26 million for the nine months ended September 30, 1998, to a
net loss of $10 million for the nine months ended September 30, 1999,
representing a decrease of $36 million. The decrease in net income is primarily
due to an increase in minority interests in earnings of subsidiaries due to
ownership changes at USA Networks, Inc. Liberty's share of USA Networks, Inc.'s
net earnings (loss) was approximately $(13) million, $10 million and $11
million for the seven month period ended September 30, 1999, the two month
period ended February 28, 1999 and the nine months ended September 30, 1998,
respectively. Liberty's

25
<PAGE>

share of losses for the seven month period ended September 30, 1999, included
$37 million in amortization related to purchase accounting adjustments
associated with Liberty's investment in USA Networks in connection with the
AT&T merger.

QVC. Revenue increased by $311 million or 19% for the nine months ended
September 30, 1999, from $1,648 million for the nine months ended September 30,
1998, to $1,959 million for the same period of 1999. The increase in revenue is
due to increased subscribers as well as increases in the average sales per home
for each of QVC's domestic, U.K. and German operations. Operating Cash Flow
increased by 29% or $85 million from $292 million for the nine months ended
September 30, 1998 to $377 million for the same period in 1999, due to the
revenue increase and the corresponding increase in cost of goods sold, offset
further by higher variable costs and additional costs associated with QVC's
expansion in the UK and Germany. Net income increased by $52 million or 58% to
$142 million for the nine months ended September 30, 1999, as compared to $90
million for the same period in 1998. The increase in net income was due to the
increase in Operating Cash Flow offset by increased income tax expense.
Liberty's share of QVC's net earnings (loss) was approximately $(17) million,
$13 million and $38 million for the seven month period ended September 30,
1999, the two month period ended February 28, 1999, and the nine months ended
September 30, 1998, respectively. Liberty's share of losses for the seven month
period ended September 30, 1999 included $64 million in amortization related to
purchase accounting adjustments associated with Liberty's investment in QVC in
connection wit the AT&T merger.

Fox/Liberty Networks. Liberty's share of Fox/Liberty Networks' net loss was
approximately $48 million, $1 million and $76 million for the seven month
period ended September 30, 1999, the two month period ended February 28, 1999
and the nine months ended September 30, 1998, respectively. Liberty's share of
losses for the nine months ended September 30, 1998, includes previously
unrecognized losses of Fox/Liberty Networks of approximately $64 million.
Losses of Fox/Liberty Networks were not recognized in prior periods due to the
fact that Liberty's investment in Fox/Liberty Networks was less than zero. On
July 15, 1999, News Corp. acquired Liberty's 50% interest in Fox/Liberty
Networks. (See note 3 to the accompanying September 30, 1999 consolidated
financial statements).

Telewest. Revenue increased $329 million or 54% from $604 million for the
nine months ended September 30, 1998, to $933 million for the same period in
1999. The increase was primarily due to the acquisition of General Cable plc
and Birmingham Cable Corporation Limited in September 1998 and increased cable
penetration due to the success of Telewest's low-cost bundled television and
telephony services introduced during 1998. Operating Cash Flow increased $94
million or 64% from $148 million for the nine months ended September 30, 1998,
to $242 million for the nine months ended September 30, 1999. The increase in
Operating Cash Flow was largely due to the increase in revenue and economies of
scale resulting from the enlarged operations. Telewest's net loss increased
$286 million or 82% from $350 million for the nine months ended September 30,
1998, to $636 million for the nine months ended September 30, 1999. The
increase in net loss was due to increased interest expense of $139 million and
increased foreign currency transaction losses of $79 million. Telewest
experiences unrealized foreign currency transaction losses on its U.S. dollar
denominated debentures resulting from the translation of the debentures into UK
pounds sterling and the adjustment of a related foreign currency option
contract to market value. Liberty's share of Telewest's net losses was
approximately $154 million, $38 million and $90 million for the seven month
period ended September 30, 1999, the two month period ended February 28, 1999,
and the nine months ended September 30, 1998, respectively. Liberty's share of
losses for the seven month period ended September 30, 1999, included $51
million in amortization related to purchase accounting adjustments associated
with Liberty's investment in Telewest in connection with the AT&T merger.

PCS Ventures. Liberty's share of losses from its investment in the PCS
Ventures was $510 million during the nine months ended September 30, 1998. At
that time, the PCS Ventures included Sprint Spectrum Holding Company, L.P. and
MinorCo, L.P. (collectively, "Sprint PCS") and PhillieCo Partnership I, L.P.
The partners of each of the Sprint PCS partnerships were subsidiaries of
Sprint, Comcast Corporation, Cox Communications, Inc. and Liberty. The partners
of PhillieCo were subsidiaries of Sprint, Cox and Liberty.

26
<PAGE>

Liberty had a 30 % partnership interest in each of the Sprint PCS partnerships
and a 35% partnership interest in PhillieCo.

On November 23, 1998, Liberty, Comcast, and Cox exchanged their respective
interests in Sprint PCS and PhillieCo for shares of Sprint PCS Group stock,
which tracks the performance of Sprint's PCS Group (consisting initially of the
PCS Ventures and certain PCS licenses which were separately owned by Sprint).
Through November 23, 1998, Liberty accounted for its interest in the PCS
Ventures using the equity method of accounting; however, as a result of the
foregoing exchange, Liberty's less than 1% voting interest in Sprint and the
transfer of its Sprint Securities to a trust prior to the AT&T merger, Liberty
no longer exercises significant influence with respect to its investment in the
PCS Ventures. Accordingly, Liberty accounts for its investment in the Sprint
PCS Group stock as an available-for-sale security. (See note 5 to the
accompanying September 30, 1999 consolidated financial statements.)

Year Ended December 31, 1998 compared to December 31, 1997 and December 31,
1996

General Information

Due to a number of transactions that were completed during the three year
period ended December 31, 1998, the results of operations during this period
are not comparable from year to year. These transactions resulted in the
consolidation or deconsolidation of several entities:

. Effective February 1, 1998, Turner-Vision, Inc. contributed the assets,
obligations and operations of its retail C-band satellite business to
Superstar/Netlink Group LLC, a consolidated subsidiary of TV Guide, in
exchange for an approximate 20% ownership interest in Superstar/Netlink.
As a result of this transaction, Turner-Vision's results of operations
have been included in the consolidated financial results of TV Guide,
and therefore the consolidated results of Liberty, as of February 1,
1998.

. Effective January 1, 1998, Time Warner exercised an option to acquire
the business of Southern Satellite and accordingly the results of
operations of that business were no longer included in the consolidated
financial results of Liberty as of that date.

. During October 1997, Liberty Media International sold a portion of its
interest in Cablevision S.A. As a result, effective October 1, 1997,
Liberty ceased to consolidate Cablevision and began to account for its
investment in Cablevision using the equity method of accounting.

. Effective July 1, 1997, as a result of the merger of Liberty Digital
(then named TCI Music) and DMX, LLC, Liberty Digital's results of
operations have been included in the consolidated financial results of
Liberty (see note 11 to the accompanying December 31, 1998 consolidated
financial statements).

. In January 1997, Liberty Media International's voting interest in
Flextech was reduced to 50% and Liberty ceased to consolidate Flextech
and began to account for its investment in Flextech using the equity
method of accounting.

. Effective December 1996, Home Shopping Network, Inc. merged with Silver
King Communications, Inc. As a result of this merger, Liberty no longer
had voting control of Home Shopping Network and accordingly, Liberty
ceased to consolidate Home Shopping Network and began to account for its
investment in Home Shopping Network using the equity method of
accounting.

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<PAGE>

The table below sets forth, for the periods indicated, certain financial
information and percentage relationship that certain items bear to revenue.

<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
% of % of % of
total total total
Amount revenue Amount revenue Amount revenue
------ ------- ------ ------- ------ -------
(dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Encore Media Group
Revenue........................ $ 541 100% $ 350 100% $ 195 100%
Operating, selling, general and
administrative................ 445 82 382 109 290 149
Stock compensation............. 58 11 60 17 17 9
Depreciation and amortization.. 8 1 4 1 3 2
----- --- ----- --- ------ ---
Operating income (loss)....... $ 30 6% $ (96) (27)% $ (115) (60)%
===== === ===== === ====== ===
TV Guide
Revenue........................ $ 598 100% $ 508 100% $ 410 100%
Operating, selling, general and
administrative................ 475 79 404 80 343 84
Depreciation and amortization.. 28 5 19 4 16 4
----- --- ----- --- ------ ---
Operating income.............. $ 95 16% $ 85 16% $ 51 12%
===== === ===== === ====== ===
Other
Revenue........................ $ 220 (a) $ 367 (a) $1,603 (a)
Operating, selling, general and
administrative................ 223 280 1,475
Stock compensation............. 460 236 (23)
Depreciation and amortization.. 93 100 153
----- --- ----- --- ------ ---
Operating loss................ $(556) $(249) $ (2)
===== === ===== === ====== ===
</TABLE>
- --------
(a) Not meaningful.

Consolidated Subsidiaries

Encore Media Group. Revenue generated from Encore Media Group increased to
$541 million in 1998 from $350 million in 1997. This increase of $191 million,
or 55%, was primarily attributable to higher revenue from AT&T Broadband,
consistent with the terms of the affiliation agreement with AT&T Broadband, and
the increases in the distribution of Encore and STARZ! services to cable
operators other than AT&T Broadband and direct-to-home satellite providers
combined with increases in rates charged. Revenue generated from Encore Media
Group increased to $350 million in 1997 from $195 million in 1996. This
increase of $155 million, or 79%, can be attributed to higher revenue from AT&T
Broadband during the year as a result of an increase in units and the AT&T
Broadband/Encore Media Group affiliation agreement, and an increase in the
number of Encore and Multiplex units distributed to other cable operators and
direct broadcast satellite operators, when compared to 1996.

Operating, selling, general and administrative expenses increased to $445
million in 1998 from $382 million in 1997. The increase of $63 million, or 16%,
is the result of an increase in the first run program license fees during 1998
compared to 1997. Operating, selling, general and administrative expenses
increased to $382 million in 1997 from $290 million in 1996. This increase of
$92 million, or 32%, was caused by an increase in programming costs due to
Encore and Multiplex purchasing more recent programming, the transition to
digital technology, and an increase in national marketing and advertising
expenses.

TV Guide. Revenue increased 18% to $598 million in 1998 from $508 million in
1997, which in turn represented an increase of 24% from $410 million in 1996.
The increase in revenue in 1998 over 1997 was primarily due to the acquisition
of Turner-Vision's retail C-band operations which were consolidated with those
of Superstar/Netlink effective February 1, 1998 and increased advertising and
service fee revenue. These

28
<PAGE>

increases were partially offset by a decrease in commission revenue from
Superstar/Netlink acting as a service agent in the direct broadcast satellite
market. The increase in revenue in 1997 over 1996 was attributable to the
acquisitions of the retail C-band operations of Liberty's Netlink USA division
which were consolidated with those of Superstar/Netlink's retail operations
effective April 1, 1996. The remainder of the increase in 1997 was due to
increased advertising and fee service revenue.

Operating, selling and general and administrative expenses consist primarily
of costs for programming content for the C-band operations and personnel costs.
Operating, selling, general and administrative expenses increased 18% to $475
million in 1998 from $404 million in 1997. Operating, selling, general and
administrative expenses increased 18% to $404 million in 1997 from $343 million
in 1996. The increase in 1998 over 1997 was primarily attributable to
additional expenses due to the inclusion of Turner-Vision, increased personnel
costs due to internal growth and increased legal fees related to litigation and
periodic filings with the SEC, and increased costs associated with Prevue
Channel's new format under the TV Guide Brand. The increase in operating,
selling, general and administrative expenses in 1997 over 1996 was largely
attributable to additional expenses due to the C-band retail operations of
Netlink USA and increased personnel costs resulting from internal growth.

Depreciation and amortization consists primarily of depreciation of leased
transponders, electronic and other equipment and amortization of intangible
assets resulting from acquisitions and patents. Depreciation and amortization
increased $9 million to $28 million in 1998 from $19 million in 1997 which in
turn represented an increase of 19% from $16 million in 1996. The increase in
1998 over 1997 was attributable to the amortization of intangibles resulting
from the acquisition of Turner-Vision and increased depreciation resulting from
the acquisition of certain equipment to support the various Prevue products.
The increase in depreciation and amortization in 1997 over 1996 was largely due
to increased depreciation resulting from the acquisition of equipment to
support the various Prevue products.

Other. Included in this information are the results of Liberty Media
International, Liberty Digital and Home Shopping Network. Revenue decreased to
$220 million in 1998 from $367 million in 1997. Liberty Media International's
revenue decreased from $220 million in 1997 to $65 million in 1998. This $154
million decrease was attributable to the deconsolidation of Cablevision.
Cablevision represented $173 million in revenue during 1997. Additionally,
revenue decreased as a result of the sale of the business of Southern
Satellite. The business of Southern Satellite contributed $31 million to
revenue during 1997. In August 1998, Liberty Media International purchased
Pramer, which contributed an additional $17 million in revenue from the date of
acquisition to December 31, 1998. Revenue decreased to $367 million in 1997
from $1,603 million in 1996. This $1,236 million decrease is primarily
attributable to the deconsolidation of Home Shopping Network into an equity
method investment in December 1996. Revenue generated in 1996 by Home Shopping
Network through the date of deconsolidation amounted to $984 million. Effective
January 1, 1997, Liberty Media International ceased to consolidate the
operations of Flextech. Flextech represented $94 million in revenue during
1996.

Operating, selling, general and administrative expenses decreased to $223
million in 1998 from $280 million in 1997. The primary reason for this decrease
is the deconsolidation of Cablevision in October, 1997. Cablevision accounted
for approximately $105 million of operating expenses in 1997. Operating,
selling, general and administrative expenses decreased to $280 million in 1997
from $1,475 million in 1996. The decrease of $1,195 million was primarily
attributable to the deconsolidation of Home Shopping Network which accounted
for about $911 million in operating, selling and general and administrative
expense in 1996. An additional decrease was caused in operating, selling,
general and administrative expenses in 1997 because of the deconsolidation of
Flextech. Flextech represented $126 million in operating, selling, general and
administrative expenses during 1996.

The decrease of $53 million in depreciation and amortization expense in 1997
was attributable to the deconsolidation of Home Shopping Network in December
1996 and Flextech effective January 1, 1997.

29
<PAGE>

The $224 million and $259 million increase in stock compensation in 1998 and
1997, respectively, is primarily attributable to Liberty corporate expenses.
The amount of expense associated with stock compensation is based on the
vesting of the related stock options and stock appreciation rights and the
market price of the underlying common stock as of the date of the financial
statements. The expense is subject to future adjustment based on vesting and
market price fluctuations and, ultimately, on the final determination of market
value when the rights are exercised.

Other Income and Expense. Interest expense was $104 million, $40 million and
$53 million for 1998, 1997 and 1996, respectively. The increase in interest
expense of $64 million from 1997 to 1998 was a result of additional borrowing
on Liberty's credit facilities during 1998. There was a $13 million decrease in
interest expense from 1996 to 1997. Because the operations of Home Shopping
Network have not been included in Liberty's consolidated financial results
since December 20, 1996 interest expense related to Home Shopping Network
accounted for a majority of this decrease.

Dividend and interest income was $65 million, $59 million and $35 million for
1998, 1997 and 1996, respectively. Dividend and interest income for 1998
primarily represents dividends received of approximately $21 million on a
series of Time Warner common stock designated as Series LMCN-V Common Stock and
$31 million in dividends received on a new series of 30 year non-convertible 9%
preferred stock of Fox Kids Worldwide, Inc. During 1997 dividends received from
the Time Warner Series LMCN-V Common Stock and the Fox Kids Worldwide preferred
stock amounted to $19 million and $14 million, respectively. During 1997,
Liberty also recognized an additional $14 million in interest income relating
to short-term investments. The increase in dividend and interest income from
1996 to 1997 is due to the increase in both the Fox Kids Worldwide preferred
stock and Time Warner Series LMCN-V Common Stock dividends.

Aggregate gains from dispositions and issuance of equity by affiliates and
subsidiaries during 1998, 1997 and 1996 were $2,554 million, $406 million and
$1,558 million, respectively. As a result of the exchange by Liberty, Comcast
and Cox of their respective interests in Sprint PCS and PhillieCo Partnership
I, L.P. for shares of Sprint PCS Group stock, Liberty recorded a non-cash gain
of $1.9 billion (before deducting deferred income tax expense of $647 million)
during 1998 based on the difference between the carrying amount of Liberty's
interest in the PCS Ventures and the fair value of the Sprint securities
received. Pursuant to an option from Liberty, Time Warner acquired the business
of Southern Satellite, effective January 1, 1998 for $213 million in cash. Time
Warner had paid Liberty shares of Time Warner Series LMCN-V Common Stock, which
are convertible into 12.8 million shares of Time Warner common stock, valued at
$306 million for the option. Liberty recognized a $515 million pre-tax gain in
connection with these transactions in 1998. Effective September 1, 1998,
Telewest and General Cable PLC consummated a merger in which holders of General
Cable received Telewest shares and cash for each share of General Cable held.
As a result of the merger, Liberty recognized a non-cash gain of $60 million
(excluding related tax expense of $21 million) during 1998. Liberty recognized
a gain of $38 million in 1998 from the increase in Superstar/Netlink's equity,
net of the dilution of its interest in Superstar/Netlink, that resulted from
the above described transaction with Turner-Vision.

On August 1, 1997, Liberty IFE, Inc., a wholly owned subsidiary of Liberty,
which held non-voting Class C common stock of International Family
Entertainment, Inc. and $23 million of International Family Entertainment 6%
convertible secured notes due 2004, convertible into International Family
Entertainment Class C common stock, contributed its International Family
Entertainment Class C common stock and International Family Entertainment 6%
convertible secured notes to Fox Kids Worldwide in exchange for the Fox Kids
Worldwide preferred stock. As a result of the exchange, Liberty recognized a
pre-tax gain of approximately $304 million during 1997.

On October 10, 1996, Time Warner and Turner Broadcasting System, Inc.
consummated a merger in which Liberty received shares of Time Warner Series
LMCN-V Common Stock, which are convertible into approximately 101.2 million
shares of Time Warner common stock, in exchange for its Turner Broadcasting

30
<PAGE>

System holdings. As a result of the merger, Liberty recognized a pre-tax gain
of approximately $1.5 billion in 1996.

Investments in Affiliates Accounted for Under the Equity Method

Liberty's share of losses of affiliates was $1,002 million, $785 million and
$332 million during 1998, 1997 and 1996, respectively.

Discovery. Revenue increased $234 million or 27% to $1,094 million in 1998
from $860 million in 1997, which in turn represented a $192 million or 29%
increase over revenue of $668 million in 1996. The increase in revenue for each
of the respective periods was due to increases in the number of subscribers at
Discovery's various networks along with an increase in the average per
subscriber affiliate fee. Advertising revenue also contributed to the increases
due to the increase in subscribers combined with an increase in ratings.

Operating Cash Flow increased $80 million or 267% to $110 million in 1998
from $30 million in 1997, which in turn represented a decrease of $41 million
or 58% from Operating Cash Flow of $71 million in 1996. The increase in
Operating Cash Flow from 1998 to 1997 was due to the revenue growth at the
developed domestic and international networks offset by a smaller corresponding
increase in operating expenses at those networks. The decrease from 1996 to
1997 was due to continued growth in the developed domestic and international
networks offset by the launch of an array of new networks and services. Late in
1996 and during 1997, Discovery launched Animal Planet, the Travel Channel,
BBC/Discovery joint venture networks, Your Choice TV, the digital networks and
retail operations. The launch of these networks and services caused Operating
Cash Flow to decrease due to large marketing support payments and significant
start-up costs.

Discovery's net loss increased by $19 million or 36% to $72 million in 1998
from $53 million in 1997, which in turn represented a decrease of $56 million
from net income of $3 million in 1996. The increase in the net loss from 1997
to 1998 was due to the improvement in Operating Cash Flow offset by an increase
in interest expense, launch amortization and stock compensation as well as the
write off of Your Choice TV. The increase in the net loss from 1996 to 1997 was
due to the decrease in Operating Cash Flow as well as increases in launch
amortization, interest expense and stock compensation. Liberty's share of
losses was $39 million and $29 million, for each of 1998 and 1997, respectively
and Liberty's share of earnings for 1996 was less than $1 million.

USA Networks, Inc. Revenue increased $1,372 million or 109% to $2,634 million
in 1998 from $1,262 million in 1997, which in turn represented a $1,187 million
increase over revenue of $75 million in 1996. The increase in revenue from 1997
to 1998 was due to the Universal and Ticketmaster transactions being completed
by USA Networks during 1998 (see note 5 to the accompanying December 31, 1998
consolidated financial statements). The increase from 1996 to 1997 was
primarily due to a $1 billion increase in electronic retailing revenue and a
$156 million increase in ticketing revenue.

Operating Cash Flow increased $272 million to $464 million in 1998 from $192
million in 1997, which in turn represented an increase of $173 million over
Operating Cash Flow of $19 million in 1996. The increase in Operating Cash Flow
from 1997 to 1998 was due to the Universal and Ticketmaster transactions. The
increase from 1996 to 1997 was due to the revenue increase offset by an
increase in operating costs of $898 million and $144 million related to
electronic retailing and ticketing operations, respectively.

Net income increased by $64 million to $77 million in 1998 from $13 million
in 1997, which in turn represented an increase of $20 million from a net loss
of $7 million in 1996. The increase in net income from 1997 to 1998 was due to
the increase in Operating Cash Flow along with one-time transactional gains
offset by significant increases in depreciation, amortization, interest and
income tax expenses. The increase from 1996 to 1997 was also due to the
increase in Operating Cash Flow offset by increases in depreciation,
amortization, interest and income tax expenses. Liberty's share of earnings
(loss) of USA Networks and related investments was $30 million, $5 million and
($1) million for 1998, 1997, and 1996, respectively.

31
<PAGE>

QVC Inc. Revenue increased $321 million or 15% to $2,403 million in 1998 from
$2,082 million in 1997, which in turn represented a $246 million increase or
13% over revenue of $1,836 million in 1996. The respective increase in revenue
for the years ended December 31, 1998 and 1997 were primarily attributable to
the effects of 5.6% and 7.4% increases, respectively, in the average number of
homes receiving QVC services in the U.S. and 11.8% and 13.7% increases,
respectively, in the average number of homes receiving QVC services in the
United Kingdom.

Operating Cash Flow increased $96 million or 28% to $434 million in 1998 from
$338 million in 1997, which in turn represented a $38 million or 13% increase
over Operating Cash Flow of $300 million in 1996. The increase in Operating
Cash Flow was caused by the increase in revenue offset by increases in cost of
goods sold and variable costs associated with the increased sales. Start-up
costs of QVC Germany also contributed $3 million and $26 million to the
respective increases in offsetting costs for the years ended December 31, 1998
and 1997.

Net income increased 110% or $78 million to $149 million in 1998 from $71
million in 1997, which in turn represented an increase of $18 million or 34%
over net income of $53 million in 1996. The increases in net income were due to
the increases in Operating Cash Flow offset by increases in depreciation,
amortization and income tax expenses in each of the respective periods
presented. Liberty's share of earnings was $64 million, $30 million and $23
million for 1998, 1997 and 1996, respectively.

Fox/Liberty Networks. Revenue increased 39% or $183 million to $655 million
in 1998 from $472 million in 1997, which in turn represented an increase of
226% or $327 million from $145 million in 1996. A large portion of the increase
in revenue is due to the acquisition of Affiliated Regional Communications by
Fox/Liberty Networks on March 13, 1997 which increased the number of
consolidated subsidiaries and their respective operations. Had the acquisition
of Affiliated Regional Communications been completed for all periods presented,
revenue would have increased $128 million and $30 million for 1998 and 1997,
respectively. The increases in revenue were attributable to continued
subscriber growth at the regional sports networks and the FX network along with
increased advertising revenue due to increased subscribers and ratings.

Operating Cash Flow increased $94 million to $79 million in 1998 from a
deficit of $15 million in 1997, which in turn represented an increase of $69
million from a deficit of $84 million in 1996. The increases in Operating Cash
Flow were caused by the revenue growth coupled with an increase in operating
expenses. The increases in operating expenses for all periods presented were
due to an increase in the number of professional events, primarily Major League
Baseball games, as well as increased programming rights fees of regional sports
networks due to renegotiated and newly entered into sports rights agreements.

Fox/Liberty Networks net loss decreased by $16 million or 21% to $62 million
in 1998 from $78 million in 1997, which in turn represented a decrease of $39
million or 33% from a net loss of $117 million in 1996. The decrease in the net
loss was due to the improvement in Operating Cash Flow offset primarily by
interest expense. In 1998, interest expense increased to $113 million from $49
million due to additional indebtedness that was entered into in the latter half
of 1997. Liberty's share of losses was $83 million for 1998 and zero for both
1997 and 1996, as Liberty's basis in the investment was less than zero (see
note 5 to the accompanying December 31, 1998 consolidated financial
statements).

PCS Ventures. Liberty's share of losses from its investment in the PCS
Ventures was $629 million, $493 million and $133 million in 1998, 1997 and
1996, respectively. The increase in the share of losses in each year was
attributed primarily to increases in:

. selling, general and administrative costs associated with Sprint PCS's
efforts to increase its customer base,

. depreciation expense resulting from capital expenditures made to expand
its PCS network and

. interest expense associated with higher amounts of outstanding debt.

32
<PAGE>

Telewest. Telewest accounted for $134 million, $145 million and $109 million
of Liberty's share of its affiliates' losses during 1998, 1997 and 1996,
respectively. The increase in the share of losses in each year was primarily
attributable to the net effects of:

. changes in foreign currency transaction losses,

. an increase in Operating Cash Flow resulting from revenue growth and

. an increase in interest expense.

Telewest issued debentures in connection with a previous merger transaction.
Changes in the exchange rate used to translate the Telewest debentures into
U.K. pounds sterling and the adjustment of a foreign currency option contract
to market value caused Telewest to experience foreign currency transaction
gains/losses that affected Liberty's share of Telewest's losses.

Liquidity and Capital Resources

Liberty's sources of funds include its available cash balances, net cash from
operating activities, dividend and interest receipts, proceeds from asset sales
and availability under certain credit facilities. Liberty is a holding company
and as such is generally not entitled to the cash resources or cash generated
by operations of its subsidiaries and business affiliates. Liberty is primarily
dependent upon its financing activities to generate sufficient cash resources
to meet its cash requirements. See "Risk Factors--Our holding company structure
could restrict access to funds of our subsidiaries that may be needed to
service the securities. Creditors of those companies have a claim on their
assets that is senior to that of holders of the securities."

In connection with the AT&T merger and other related transactions, Liberty
received approximately $5.5 billion in cash. Also, upon consummation of the
AT&T merger, through a new tax sharing agreement between Liberty and AT&T,
Liberty became entitled to the benefit of all of the net operating loss
carryforwards available to the entities included in TCI's consolidated income
tax return as of the date of the AT&T merger. In addition, under the tax
sharing agreement, Liberty will receive a cash payment from AT&T in periods
when it generates taxable losses and those taxable losses are utilized by AT&T
to reduce the consolidated income tax liability. Additionally, certain warrants
held by TCI were transferred to Liberty in exchange for $176 million in cash.

At September 30, 1999, Liberty and its consolidated subsidiaries had bank
credit facilities which provided for borrowings of up to $1,059 million.
Borrowings under these facilities of $926 million were outstanding at September
30, 1999. Certain assets of Liberty's consolidated subsidiaries serve as
collateral for borrowings under these bank credit facilities. Also, these bank
credit facilities contain provisions which limit additional indebtedness, sale
of assets, liens, guarantees, and distributions by the borrowers. On July 7,
1999, Liberty received net cash proceeds of approximately $741 million and $494
million from the issuance of the old notes and the old debentures,
respectively. The proceeds were used to repay outstanding borrowings under
certain of Liberty's credit facilities, two of which were subsequently
terminated. See note 7 to the accompanying September 30, 1999 consolidated
financial statements of Liberty.

On November 16, 1999, Liberty received net cash proceeds of $854 million from
the issuance of its 4% Senior Exchangeable Debentures due 2029. The
exchangeable debentures are exchangeable, at the holders' option, for the value
of 11.4743 shares of Sprint PCS stock for each $1,000 original principal amount
of the debentures.

There are restrictions on incurrence of debt of Liberty Media Group and
therefore on Liberty, through an Inter-Group Agreement with AT&T. Liberty Media
Group may not incur any debt that would cause the total indebtedness of Liberty
Media Group at any time to be in excess of 25% of the total market
capitalization of the Liberty Media Group tracking stock, if the excess would
adversely affect the credit rating of AT&T. See "Relationship with AT&T and
Certain Related Transactions--Relationship with AT&T--Inter-Group Agreement--
There are Restrictions on the Incurrence of Debt and Other Financial
Obligations."

33
<PAGE>

Various partnerships and other affiliates of Liberty accounted for under the
equity method finance a substantial portion of their acquisitions and capital
expenditures through borrowings under their own credit facilities and net cash
provided by their operating activities.

On April 8, 1999, substantially all of Liberty Media International's 4 1/2%
convertible subordinated debentures were converted into shares of Liberty Media
Group tracking stock. Since substantially all of the debenture holders elected
to convert, no payment of interest and no adjustment in respect of interest was
made.

On July 15, 1999, News Corp. acquired Liberty's 50% interest in Fox/Liberty
Networks in exchange for 51.8 million News Corp. American Depository Receipts
("ADRs") representing preferred limited voting ordinary shares of News Corp.
Liberty also acquired from News Corp. 28.1 million additional ADRs representing
preferred limited voting ordinary shares of News Corp. for approximately $695
million. As a result of these transactions and subsequent open market
purchases, Liberty owns approximately 82.7 million ADRs representing preferred
limited voting shares of News Corp., or approximately 8.5% of News Corp.'s
diluted outstanding shares. News Corp. has historically paid cash dividends on
its common stock and it is anticipated that it will continue to do so. Holders
of the ADRs are entitled to receive dividends ratably with News Corp. common
stock, and, consequently, Liberty would receive cash dividends on the ADRs
received in the above described transactions. However, there can be no
assurance that such dividends will continue to be paid.

As of September 30, 1999, Liberty held shares of Time Warner Series LMCN-V
common stock, which are convertible into 114 million shares of Time Warner
common stock. Holders of Time Warner Series LMCN-V common stock are entitled to
receive dividends ratably with Time Warner common stock. Liberty has received
approximately $5 million in cash dividends quarterly from Time Warner. It is
anticipated that Time Warner will continue to pay dividends on its common stock
and consequently that Liberty will receive dividends on the Time Warner Series
LMCN-V common stock it holds. However, there can be no assurance that such
dividends will continue to be paid.

Liberty receives approximately $8 million in cash dividends quarterly on the
Fox Kids Worldwide preferred stock. This preferred stock pays quarterly
dividends at the annual rate of 9% of the liquidation value of $1,000 per
share. If Fox Kids Worldwide does not declare or pay a quarterly dividend, that
dividend will be added to the liquidation value and the dividend rate will
increase to 11.5% per annum until all accrued and unpaid dividends are paid.
News Corp. has undertaken to fund all amounts needed by Fox Kids Worldwide to
pay any amounts it is required to pay under the certificate of designations for
the Fox Kids Worldwide preferred stock, including payment of the liquidation
value of that stock upon any optional or mandatory redemption of that stock.

Pursuant to a proposed final judgment agreed to by TCI, AT&T and the United
States Department of Justice on December 30, 1998, Liberty transferred all of
its beneficially owned securities of Sprint to a trust prior to the AT&T
merger. The final judgment, which was entered by the United States District
Court for the District of Columbia on August 23, 1999, requires the trustee, on
or before May 23, 2002, to dispose of a portion of the Sprint securities held
by the trust sufficient to cause Liberty to own beneficially no more than 10%
of the outstanding Sprint PCS Group stock that would be outstanding on a fully
diluted basis on such date. On or before May 23, 2004, the trustee must divest
the remainder of the Sprint securities held by the trust. The final judgment
requires the trustee to vote the Sprint securities beneficially owned by
Liberty in the same proportion as other holders of Sprint PCS Group stock so
long as such securities are held by the trust. The final judgment also
prohibits the acquisition by Liberty of additional Sprint securities, with
certain exceptions, without the prior written consent of the Department of
Justice.

During the seven month period ended September 30, 1999, the unrealized
depreciation, net of taxes, of the fair value of Liberty's shares of Time
Warner Series LMCN-V common stock was $522 million, based upon the market value
of the Time Warner common stock into which the Time Warner Series LMCN-V common
stock is convertible. During the seven month period ended September 30, 1999,
the unrealized appreciation, net

34
<PAGE>

of taxes, of the fair value of the Sprint PCS Group stock held by Liberty was
$2,379 million based upon the market value of such shares.

Liberty has guaranteed notes payable and other obligations of certain
affiliates. At September 30, 1999, the U.S. dollar equivalent of the amounts
borrowed pursuant to these guaranteed obligations aggregated approximately $496
million.

Flextech has undertaken to finance the working capital requirements of a
joint venture that it has formed with BBC Worldwide Limited, and is obligated
to provide this joint venture with a primary credit facility of (Pounds)88
million ($145 million) and, subject to certain restrictions, a standby credit
facility of (Pounds)30 million ($49 million). As of September 30, 1999, this
joint venture had borrowed (Pounds)45 million ($74 million) under the primary
credit facility. If Flextech defaults in its funding obligation to the joint
venture and fails to cure the default within 42 days after receipt of notice
from BBC Worldwide, BBC Worldwide is entitled, within the following 90 days, to
require that Liberty assume all of Flextech's funding obligations to the joint
venture.

Liberty intends to continue to develop its entertainment and information
programming services and has made certain financial commitments related to the
acquisition of programming. As of September 30, 1999, Encore Media Group's
future minimum obligation related to certain film licensing agreements was $887
million. The amount of the total obligation is not currently estimable because
such amount is dependent upon the number of qualifying films released
theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying films.
Continued development may require additional financing and it cannot be
predicted whether Encore Media Group will obtain such financing. If additional
financing cannot be obtained by Encore Media Group, Encore Media Group or
Liberty could attempt to sell assets but there can be no assurance that asset
sales, if any, can be consummated at a price and on terms acceptable to
Liberty.

Cash Flows from Operating Activities

Cash flows from operating activities for the seven month period ended
September 30, 1999 were $105 million. Cash flows used in operating activities
for the two month period ended February 28, 1999 were $107 million and cash
flows from operating activities for the nine months ended September 30, 1998
were $55 million. Improved Operating Cash Flow for Encore Media Group
contributed to the higher cash flows from operating activities for the seven
month period ended September 30, 1999. Dividends and interest income from the
investment of the $5.5 billion received in the AT&T merger contributed $39
million to cash flows from operating activities during the seven month period
ended September 30, 1999. Additionally, Liberty received $19 million from AT&T
pursuant to the AT&T tax sharing agreement during the seven month period ended
September 30, 1999. Cash used during the two month period ended February 28,
1999 included payments related to stock appreciation rights of $126 million.

Cash flows from operating activities for the years ended December 31, 1998,
1997 and 1996 were $26 million, $149 million and $85 million, respectively. Due
to a number of transactions during the three-year period ended December 31,
1998, the results of operations, and consequently cash flows from operating
activities, during this period are not comparable from year to year. These
transactions resulted in the consolidation or deconsolidation of several
entities, as discussed above in the "Summary of Operations".

Cash Flows from Investing Activities

Investing cash flows were primarily used in the purchase of marketable
securities during the seven month period ended September 30, 1999. Liberty made
purchases of marketable securities of $7 billion and sales and maturities of
marketable securities of $4 billion during the seven month period ended
September 30, 1999. Liberty is a holding company and as such it uses investing
cash flows to make contributions and investments in entities in which Liberty
holds a 50% or less ownership interest. Cash flows from investing activities
were used for investments in and loans to affiliates amounting to $1,952
million, $51 million and $1,243 million during

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the seven month period ended September 30, 1999, the two month period ended
February 28, 1999, and the nine months ended September 30, 1998, respectively.
Additionally, Liberty had cash proceeds from dispositions of $343 million
during the nine months ended September 30, 1998.

Liberty made investments in and loans to affiliates and others of $1.4
billion, $580 million and $536 million during the years ended December 31,
1998, 1997 and 1996, respectively. Cash proceeds received in investing cash
flows for the years ended December 31, 1998, 1997 and 1996 were $423 million,
$268 million and $170 million, respectively. Liberty invested $92 million, $41
million and $168 million in acquisitions during the years ended December 31,
1998, 1997 and 1996, respectively.

Cash Flows from Financing Activities

Liberty is primarily dependent on financing activities to generate sufficient
cash resources to meet its cash requirements. Financing cash flows consist
primarily of borrowings and repayments of debt. Liberty had borrowings of
$2,216 million, $155 million and $1,661 million and repayments of $2,166
million, $145 million and $479 million during the seven month period ended
September 30, 1999, the two month period ended February 28, 1999, and the nine
months ended September 30, 1998, respectively.

During the years ended December 31, 1998, 1997 and 1996, Liberty had
borrowings of $2.2 billion, $661 million and $465 million, respectively, and
repayments of $609 million, $341 million and $628 million, respectively. Cash
transfers to TCI during the years ended December 31, 1998 and 1997 were $215
million and $428 million, respectively. Cash transfers from TCI for the year
ended December 31, 1996 were $372 million.

Market Risk

Liberty is exposed to market risk in the normal course of its business
operations due to its investments in different foreign countries and ongoing
investing and financial activities. Market risk refers to the risk of loss
arising from adverse changes in foreign currency exchange rates, interest rates
and stock prices. The risk of loss can be assessed from the perspective of
adverse changes in fair values, cash flows and future earnings. Liberty has
established policies, procedures and internal processes governing its
management of market risks and the use of financial instruments to manage its
exposure to such risks.

Contributions to Liberty's foreign affiliates are denominated in foreign
currency. Liberty therefore is exposed to changes in foreign currency exchange
rates. Currently, Liberty does not hedge any foreign currency exchange risk
because of the long-term nature of its interests in foreign affiliates. Liberty
attempts to limit its exposure to changing foreign currency exchange rates
through operations and financial market actions, but Liberty continually
evaluates its foreign currency exposure (primarily the Argentine Peso, British
Pound Sterling, Japanese Yen and French Franc) based on current market
conditions and the business environment.

Liberty is exposed to changes in interest rates primarily as a result of its
borrowing and investment activities, which include fixed and floating rate
investments and borrowings used to maintain liquidity and fund its business
operations. The nature and amount of Liberty's long-term and short-term debt
are expected to vary as a result of future requirements, market conditions, and
other factors. As of September 30, 1999, the majority of Liberty's debt was
composed of fixed rate debt resulting from the July 1999 issuance of the old
notes and the old debentures for net proceeds of approximately $1.2 billion.
The proceeds were used to repay floating rate debt, which reduced Liberty's
exposure to interest rate risk associated with rising variable interest rates.
Had market interest rates been 1% higher throughout the year ended December 31,
1998 and the nine months ended September 30, 1999, Liberty would have recorded
approximately $14 million and $11 million of additional interest expense for
the year ended December 31, 1998 and the nine months ended September 30, 1999,
respectively. At September 30, 1999, the fair values of the old notes and the
old debentures were $754 million and $504 million, respectively.

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<PAGE>

Liberty is exposed to changes in stock prices primarily as a result of its
significant holdings in publicly traded securities. Liberty continually
monitors changes in stock markets, in general, and a change in the stock prices
of its significant holdings, specifically. Changes in stock prices can be
expected to vary as a result of general market conditions, technological
changes, specific industry changes and other factors. Equity collars and equity
swaps are used to hedge investment positions subject to fluctuations in stock
prices.

In order to illustrate the effect of changes in stock prices on Liberty we
provide the following sensitivity analysis. Had the stock price of our
investments accounted for as available-for-sale securities been 10% lower at
December 31, 1998, and September 30, 1999, the value of such securities would
have been lower by $1,029 million and $1,648 million, respectively. Our
unrealized gains, net of taxes would have also been lower by $622 million and
$996 million, respectively. Had the stock price of our publicly traded
investments accounted for using the equity method been 10% lower at December
31, 1998, and September 30, 1999, there would have been no impact on the
carrying value of such investments.

Liberty measures the market risk of its derivative financial instruments
through comparison of the blended rates achieved by those derivative financial
instruments to the historical trends in the underlying market risk hedged. With
regard to interest rate swaps, Liberty monitors the fair value of interest rate
swaps as well as the effective interest rate the interest rate swap yields, in
comparison to historical interest rate trends. Liberty believes that any losses
incurred with regard to interest rate swaps would be offset by the effects of
interest rate movements on the underlying hedged facilities. With regard to
equity collars and hedges, Liberty monitors historical market trends relative
to values currently present in the market. Liberty believes that any unrealized
losses incurred with regard to equity collars and swaps would be offset by the
effects of fair value changes on the underlying hedged assets. These measures
allow Liberty's management to measure the success of its use of derivative
instruments and to determine when to enter into or exit from derivative
instruments.

Accounting Standards

. fair values of existing assets, liabilities, or firm commitments,

. variability of cash flows of forecasted transactions, or

. foreign currency exposures of net investments in foreign operations.

Although our management has not completed its assessment of the impact of
Statement 133 on Liberty's consolidated results of operations and financial
position, management estimates that the impact of Statement 133 will not be
significant.

Year 2000

Liberty, in conjunction with TCI, and following the AT&T merger, AT&T, has
implemented enterprise-wide, comprehensive efforts to assess and remediate its
computer systems and related software and equipment to ensure such systems,
software and equipment recognize, process and store information in the year
2000 and thereafter.

Liberty's year 2000 remediation efforts include an assessment of its most
critical systems. The majority of these efforts have been focused on our
operating subsidiaries, primarily Liberty Digital, Encore Media Group

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and TCI Cablevision of Puerto Rico. The most critical systems for these
operating subsidiaries include their customer service systems, product delivery
systems and billing systems.

We continue our efforts to verify the year 2000 readiness of our significant
suppliers and vendors and continue to communicate with significant business
partners and affiliates to assess such partners and affiliates' year 2000
status.

AT&T has a year 2000 Program Management Office (the "PMO") to organize and
manage its year 2000 remediation efforts. The PMO is responsible for overseeing
the process and standards of controlling data and reporting Liberty's year 2000
remediation efforts. At September 30, 1999, the PMO was comprised of a
133-member, full-time staff, accountable to executive management of AT&T.

The PMO has defined a four-phase approach to determining the year 2000
readiness of our systems, software and equipment. This approach is intended to
provide a detailed method for tracking the evaluation, repair and testing of
our critical systems, software and equipment. Phase 1, Assessment, involved the
inventory of all critical systems, software and equipment and the
identification of any year 2000 issues. Phase 1 also involved the preparation
of the workplans needed for remediation. Phase 2, Remediation, involved
repairing, upgrading and/or replacing any non-compliant critical equipment and
systems. Phase 3, Testing, involves testing our critical systems, software, and
equipment for year 2000 readiness, or in certain cases, relying on test results
provided to us. Phase 4, Implementation, involves placing remediated systems,
software and equipment into production or service.

At September 30, 1999, Liberty's overall progress by phase was as follows:

<TABLE>
<CAPTION>
Percentage of Expected Completion
year 2000 Projects Date --
Phase Completed by Phase* All year 2000 Projects
--------------------------------- ------------------- ----------------------
<S> <C> <C>
Phase 1-Assessment............... 100% Completed
Phase 2-Remediation.............. 100% Completed
Phase 3-Testing.................. 99% October 1999
Phase 4-Implementation........... 99% November 1999
</TABLE>
--------
* The percentages set forth above were calculated by dividing the number of
year 2000 projects that have completed a given phase by the total number
of year 2000 projects.

The completion information set forth above is based on Liberty's current
expectations and information, and could be subject to change if circumstances
arise which impact the year 2000 readiness of a critical product or service.
The information could be subject to change in the event of unforeseen changes
in status information provided by Liberty's critical vendors. The information
also could change as a result of continuing efforts to verify, validate and
audit the program processes and procedures. Further, due to the uncertainties
inherent in any year 2000 program, no assurances can be given as to whether
Phase 4 will be completed by the dates indicated above. Liberty has attempted
to plan for unforeseen circumstances by implementing:

.contingency plans as described below,

.audit and other controls, and

.processes to monitor the year 2000 readiness status of critical outside
parties.

We have completed the inventory assessment, testing and implementation of
critical systems with embedded technologies that impact our operations.

During 1999, we are continuing our survey of significant third-party vendors
and suppliers whose systems, services or products are important to our
operations, including billing systems for TCI Cablevision of Puerto

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Rico. We have received information that critical systems, services or products
supplied to us by third parties are either year 2000 ready or are expected to
be year 2000 ready by the fourth quarter of 1999.

In addition to the survey process described above, our management has
identified our most critical supplier/vendor relationships and has instituted a
verification process to determine the vendors' year 2000 readiness. Such
verification includes, as deemed necessary, reviewing vendors' test and other
data and engaging in regular conferences with vendors' year 2000 teams. For
those vendors and suppliers who do not expect to be year 2000 ready by December
31, 1999, or are deemed to be critical to our operations, contingency planning
efforts are underway to make such changes as are required to continue critical
operations. The majority of our current vendors are either year 2000 ready, or
are expected to be year 2000 ready by year end. Liberty generally has required
any new vendors to provide assurances that their products and services are year
2000 ready. For those critical vendors that may not be year 2000 ready by year
end, contingency plans will be implemented.

Significant market value is associated with our investments in certain public
and private corporations, partnerships and other businesses. Accordingly, we
are monitoring the public disclosure of such publicly-held business entities to
determine their year 2000 readiness, including Time Warner and Sprint. In
addition, we have surveyed and monitored the year 2000 status of certain
privately held business entities in which we have significant investments. For
updated information related to such companies' year 2000 programs, please refer
to the most recent periodic filings with the SEC of Time Warner and Sprint. See
"Where to Find More Information."

Year 2000 expenses and capital expenditures incurred during the nine months
ended September 30, 1999, were each less than $1 million. Our management
currently estimates the remaining costs to be less than $1 million, bringing
the total estimated cost associated with our year 2000 remediation efforts to
be not less than $2 million (including less than $1 million for replacement of
noncompliant information technology ("IT") systems). Although no assurances can
be given, management currently expects that (1) cash flow from operations will
fund the costs associated with year 2000 compliance and (2) the total projected
cost associated with our year 2000 program will not be material to our
financial position, results of operations or cash flows.

AT&T is a widely distributed enterprise in which allocation of certain
resources, including IT support, is decentralized. Accordingly, AT&T does not
consolidate an IT budget. Therefore, total estimated year 2000 costs as a
percentage of an IT budget are not available. There are currently no planned IT
projects being deferred due to year 2000 costs.

The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. Management
believes that our year 2000 program will significantly reduce our risks
associated with the changeover to the year 2000. As part of its year 2000
readiness efforts, Liberty has implemented certain contingency plans to
minimize the effect of any potential year 2000 related disruptions. The risks
and the uncertainties discussed below and the associated contingency plans
relate to systems, software, equipment, and services that we have deemed
critical in regard to customer service, product delivery, revenue stream or
public safety.

Product delivery could be adversely impacted by the failure of certain
equipment and software to deliver the audio signals and the related commercials
at Liberty Digital and load and play movie tapes at Encore Media Group. If this
were to happen, we anticipate Liberty Digital would be able to use alternative
equipment to manually deliver the audio signals and the related commercials and
Encore Media Group would be able to manually load and play the movie tapes to
avoid disruption of delivery.

Customer service networks and/or automated voice response systems failure
could prevent access to customer account information and disable or slow the
processing of music-on-demand requests. If this were to happen, we anticipate
Liberty Digital and TCI Cablevision of Puerto Rico would have its customer
service

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<PAGE>

representatives answer telephone calls from customers in the event of outages
and could retrieve needed customer information manually from the billing
service provider.

Billing systems services failure could result in a loss of customer records
which could disrupt the ability to bill customers for a protracted period. We
anticipate Liberty Digital will prepare electronic backup records of its
customer billing information prior to the year 2000 to allow for any necessary
data recovery.

We own investments in numerous cable programming operators and other
businesses. The market value of our investment in these entities could be
adversely impacted by material failures of such entities to address year 2000
remediation issues (including supplier and vendor issues) related to their
programming services and businesses. Further, due to tax and strategic
considerations, we have a limited ability to dispose of these investments if
year 2000 issues develop. Therefore, as a contingency plan, we have undertaken
an extensive effort to verify and in certain cases assist in the year 2000
remediation efforts of companies in which we have significant investments.

Security and fire protection systems failure could leave facilities
vulnerable to intrusion and destruction. In the event of such a failure we
would expect to return such systems to normal functioning by turning the power
off and then on again ("power off/on"). We also plan to have additional
security staff on site where needed and plans to implement a backup plan for
communicating with local fire and police departments. Also, certain personal
computers interface with and control elevators, escalators, wireless systems,
public access systems and certain telephony systems. In the event such
computers do not operate properly, conducting a power off/on is expected to
result in the computers resuming normal functioning. If a power off/on does not
result in normal functioning, management expects to resolve any problem by
resetting the computer to a pre-designated date which precedes the year 2000.

We have not and cannot estimate the financial impact of any or all of the
above worst-case scenarios due to the numerous uncertainties and variables
associated with such scenarios.

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<PAGE>

CORPORATE HISTORY

Liberty's former parent, TCI, began acquiring interests in programming
businesses in the late 1970s in an effort to ensure quality content for
distribution on its cable television systems. TCI's early programming interests
included those in Black Entertainment Television (since renamed BET Network),
Turner Broadcasting System (since acquired by Time Warner), Cable Educational
Network (since renamed Discovery Communications, Inc.), QVC Network, Inc.,
International Family Entertainment, Inc. and several regional sports networks.

TCI formed Liberty's predecessor, which we refer to as "LMC", for the purpose
of spinning off to TCI's shareholders, by means of an exchange offer, TCI's
interests in most of its cable television programming businesses and certain of
its affiliated cable television systems. TCI retained a significant interest in
LMC through its ownership of preferred stock, and effected the spinoff due to
concerns over proposals that were then pending before Congress that, if
enacted, would impose horizontal limits on the number of subscribers that could
be served by a single cable operator and vertical limits on the ownership by
cable operators of interests in cable programming services.

LMC began trading on March 28, 1991 with a fully diluted equity market
capitalization of approximately $190 million. At that time, its assets included
interests in cable television systems serving approximately 1.6 million
subscribers, regional sports networks and eight national programming services,
including QVC, Black Entertainment Television and The Family Channel. Over the
next three years LMC increased its programming assets by acquiring interests in
and developing companies that produced branded programming content, including
Encore Media Corporation, the Home Shopping Network and two national and
several regional sports networks.

On August 4, 1994, TCI reacquired the public's interest in LMC by means of a
merger, and LMC again became a wholly owned subsidiary of TCI. TCI determined
to reacquire LMC largely because the FCC adopted in 1994 vertical and
horizontal cable and programming regulations that a combined TCI and LMC could
fit within. At the time LMC was reacquired by TCI, LMC's fully diluted equity
market capitalization had grown to approximately $3.2 billion. At that time,
Liberty had interests in cable television systems serving approximately 3.2
million subscribers, 11 national programming services, including Encore, STARZ!
and QVC and two national and 13 regional sports networks.

In the fourth quarter of 1994, TCI reorganized its businesses into four
divisions: (1) Domestic Cable and Communications, (2) Programming, (3)
International Cable and Programming and (4) Technology/Venture Capital. This
business-line reorganization was effected in an effort to better focus
management expertise in the various areas into which TCI had evolved, and to
gain greater market recognition of the value of TCI's four lines of businesses.
In an effort to further gain market recognition of what TCI believed to be
hidden values in its asset base, in August 1995, TCI divided its common stock
into two tracking stocks, with one series of tracking stock intended to reflect
the separate performance of a newly created "Liberty Media Group." The assets
attributed to the Liberty Media Group were comprised primarily of the assets of
TCI's Programing division. The other series of tracking stock was intended to
reflect the separate performance of the "TCI Group," which was comprised of the
three other divisions of TCI.

The Liberty Media Group tracking stock began trading on August 10, 1995 with
a fully diluted equity market capitalization of approximately $4.5 billion. At
that time, Liberty's assets included interests in more than 30 national cable
programming services, three national and 15 regional sports networks and
various other businesses involved in television programming production and
distribution. Over the course of the next three years, Liberty continued to
expand its interests in programming services and leveraged several of its
interests to obtain the benefits of scale and liquidity. This included
Liberty's acquisition of an approximately 9% interest in Time Warner in
exchange for its interest in Turner Broadcasting System and the exchange of its
shares in International Family Entertainment for a preferred stock interest in
Fox Kids Worldwide.

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<PAGE>

In August 1997, TCI created a third class of tracking stock intended to track
the separate performance of the "TCI Ventures Group," which was comprised of
the International Cable and Programming division and the Technology/Venture
Capital division of TCI.

On March 9, 1999, TCI was acquired by AT&T in a merger transaction in which
the holders of TCI Group tracking stock received AT&T common stock and holders
of Liberty Media Group tracking stock and TCI Ventures Group tracking stock
received shares of AT&T's Liberty Media Group tracking stock. In the merger
with AT&T, the holders of TCI's Liberty Media Group and TCI Ventures Group
tracking stocks received shares of AT&T's Liberty Media Group tracking stock
with a value of approximately $24 billion and $13 billion, respectively, based
on the closing price of AT&T's Liberty Media Group tracking stock on the New
York Stock Exchange on March 10, 1999 (which was the first day of trading). At
the time of the merger, Liberty's assets included interests in more than 50
national cable programming services, six national, 25 regional and six
international sports networks, 23 digital networks, ten Internet businesses,
over 65 international programming services, and cable and cable telephony
systems in Europe, Latin America and Japan.

As a result of the merger with AT&T, TCI and Liberty became subsidiaries of
AT&T. In connection with the merger, most of the assets formerly attributed to
the TCI Ventures Group were transferred to Liberty. Other assets that had been
attributed to the TCI Ventures Group were transferred to TCI in exchange for a
cash contribution of approximately $5.5 billion to Liberty. As a result of
these asset transfers, Liberty obtained interests in foreign distribution
companies, interests in certain foreign programming businesses and interests in
Internet and technology companies as well as approximately $5.5 billion cash
and the right to the U.S. federal income tax benefits of a net operating tax
loss carryforward possessed by TCI at the time of its merger with AT&T. In
addition, certain transaction agreements were entered into in connection with
the merger which provide Liberty with a level of financial and operational
separation from AT&T and certain programming rights with respect to AT&T's
cable systems. See "Relationship with AT&T and Certain Related Transactions."

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<PAGE>

BUSINESS

Overview

Our management team, led by Dr. John C. Malone, our Chairman, and Mr. Robert
R. Bennett, our President and Chief Executive Officer, has extensive expertise
in creating and developing new businesses and opportunities for our
subsidiaries and business affiliates and in building scale, brand power and
market leadership. This expertise dates back to the mid-1980s when members of
our management were instrumental in identifying and executing strategic
transactions to provide TCI, Liberty's former parent, with quality programming
for its cable television systems. Today, our management team continues to
leverage its expertise and industry relationships on behalf of our subsidiaries
and business affiliates to identify and execute strategic transactions that
improve the value of their businesses and that allow us to take full advantage
of new developments in consumer and technological trends.

Business Strategy

Promoting the internal growth of our subsidiaries and business affiliates. We
actively seek to foster the internal growth of our subsidiaries and business
affiliates by working with their management teams to expand their established
businesses and create new businesses, often by extending their existing brands
across multiple distribution platforms or effecting transactions that enhance
the scale of their operations. Our emphasis is on the creation and development
of multiple sources of revenue that enhance cash flow. We also seek to use our
extensive industry experience and relationships to provide our subsidiaries and
business affiliates with strategic alliances, greater visibility and improved
positioning in their respective markets. While the form of our participation in
our subsidiaries and business affiliates may change over time as a result of
acquisitions, mergers and other strategic transactions, we generally seek to
retain a significant long-term interest in their successors.

Maintaining significant involvement in governance. We seek to add
considerable value to our subsidiaries and business affiliates through our
strategic, operational and financial advice. To ensure Liberty can exert
significant influence over management where we own less than a majority voting
interest in a business affiliate, we often seek representation at the board of
directors level and contractual rights that assure our participation in
material decision making. These contractual rights will typically include
participation in budget decisions, veto rights over significant corporate
actions and rights of first refusal with respect to significant dispositions of
stock by management or strategic partners.

Participating with experienced management and strategic partners. We seek to
participate in companies with experienced management teams that are led by
strong entrepreneurs, and partner with strategic investors

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<PAGE>

that are engaged in complementary businesses with a demand for the products and
services of our subsidiaries and business affiliates. Our existing business
affiliates are led by such entrepreneurs as Barry Diller of USA Networks, Inc.,
Rupert Murdoch of News Corp. and John Hendricks of Discovery Communications,
Inc., while our existing strategic partners include Comcast Corporation, News
Corp. and Time Warner.

Executing strategic transactions that optimize the efficiency of our
assets. We seek to identify and execute acquisitions, consolidations and other
strategic transactions that rationalize our participation in the businesses of
our subsidiaries and business affiliates. We often undertake transactions of
this nature to obtain the benefits of scale and liquidity as well as to further
diversify Liberty's businesses. In pursuing new acquisition opportunities, we
focus on businesses that have attractive growth characteristics and offer
strategic benefits to our existing subsidiaries and business affiliates. We
employ a conservative capital structure in managing our assets and
rationalizing our businesses. We also seek to enhance our financial flexibility
by utilizing multiple sources of capital and preserving liquidity through our
ownership of a mix of public and private assets.

Business Operations

Liberty is engaged principally in three fundamental areas of business:

. Programming, consisting principally of interests in video programming
services;

. Communications, consisting principally of interests in cable television
systems and other communications systems; and

. Internet services and technology.

Recent Developments

On December 6, 1999, Liberty entered into an agreement with Four Media
Company with respect to a transaction pursuant to which the Liberty Media Group
will acquire all of the outstanding common stock of Four Media in exchange for
approximately $123 million in cash and the issuance of approximately 3.2
million shares of AT&T Class A Liberty Media Group tracking stock. Four Media
is a leading provider of technical and creative services to owners, producers
and distributors of television programming, feature films and other
entertainment products both domestically and internationally. The transaction
with Four Media is subject to the approval of Four Media's shareholders, as
well as other customary closing conditions.

On September 30, 1999, Liberty purchased 4.93 million class B shares of
UnitedGlobalCom, Inc. for approximately $493 million in cash. UnitedGlobalCom
is the largest global broadband communications provider of video, voice and
data services with operations in over 20 countries throughout the world. As
part of the transaction, Liberty has agreed to form a 50/50 joint venture or
similar arrangement with United Pan-Europe Communications N.V.,
UnitedGlobalCom's European subsidiary, to own the UnitedGlobalCom shares and to
evaluate content and distribution opportunities together in Europe. Liberty
will contribute to the joint venture its 4.93 million class B shares of
UnitedGlobalCom and United Pan-Europe will contribute its 2.78 million class A
shares of UnitedGlobalCom. Liberty expects to assign 50% of its interest in the
joint venture to Microsoft Corporation. In addition to its 25% interest,
Liberty will receive approximately $144 million of redeemable preferred
interests in the joint venture. When formed, the joint venture will own
approximately 14.5% of the total outstanding shares of UnitedGlobalCom on a
fully diluted basis. The joint venture and its members will be bound by voting
and standstill agreements with UnitedGlobalCom and certain of its controlling
shareholders.

On July 30, 1999, Liberty announced that it has entered into letters of
intent with respect to transactions pursuant to which the Liberty Media Group
will acquire controlling interests in Todd-AO Corporation and Soundelux
Entertainment Group, which are leading providers of location-based
entertainment technology and audio post-production services, in exchange for
the issuance of the approximately 4.4 million shares of AT&T Class A Liberty
Media Group tracking stock. As a result of the transaction with Todd-AO,
Liberty will own

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approximately 60% of the equity and approximately 94% of the voting power of
Todd-AO. As a result of the transaction with Soundelux, Liberty will own
approximately 55% of the equity and approximately 92% of the voting power of
Soundelux. The transaction with Todd-AO is subject to the delivery of a
fairness opinion by a financial advisor, the approval of Todd-AO's shareholders
and other appropriate corporate approvals. The transaction with Soundelux is
conditioned on, among other things, the consummation of Liberty's transaction
with Todd-AO.

On May 28, 1999, Liberty entered into a merger agreement with AT&T, A-Group
Merger Corp., a wholly owned subsidiary of AT&T, and The Associated Group,
Inc., pursuant to which Associated Group will be acquired by and become a
member of the Liberty Media Group through the merger of A-Group Merger Corp.
into Associated Group. Associated Group is principally engaged in the ownership
and operation of interests in various communications-related businesses.
Associated Group's two primary assets are approximately 21.4 million shares of
stock of Teligent, Inc., a full-service, facilities-based communications
company, in which Associated Group has an approximate 40% interest, and
TruePosition, Inc., a subsidiary of Associated Group which provides location
services for wireless carriers and users designed to determine the location of
any wireless transmitters, including cellular and PCS telephones. In connection
with the consummation of the merger, Liberty will obtain the assets and
businesses of Associated Group, excluding Teligent, and a member of the Liberty
Media Group other than Liberty will obtain Associated Group's interest in
Teligent. In the merger, shares of Associated Group common stock will be
converted into shares of AT&T common stock and shares of AT&T Class A Liberty
Media Group tracking stock, subject to the applicable exchange ratios. The
transaction with Associated Group is subject to the approval of Associated
Group's stockholders, as well as other customary closing conditions.

Programming

Programming networks distribute their services through a number of
distribution technologies, including cable television, direct-to-home
satellite, broadcast television and the Internet. Programming services may be
delivered to subscribers as part of a video distributor's basic package of
programming services for a fixed monthly fee, or may be delivered as a
"premium" programming service for an additional monthly charge. Whether a
programming service is on a basic or premium tier, the programmer generally
enters into separate multi-year agreements, known as "affiliation agreements,"
with those distributors that agree to carry the service. Basic programming
services derive their revenues principally from the sale of advertising time on
their networks and from per subscriber license fees received from distributors.
Premium services do not sell advertising and primarily generate their revenues
from subscriber fees.

Basic programming services have benefited from strong industry dynamics and
fundamentals in recent years and, according to Paul Kagan Associates, Inc.,
have experienced a 20% compounded annual growth rate in their revenues over the
past 10 years. Revenues of premium programming services have also grown
significantly. Subscriptions to pay television services increased significantly
during this period, as more programming choices and distribution formats became
available. With the growth in subscriptions and demand for programming options,
many programming networks have been able to impose significant rate increases
when entering into or renegotiating their affiliation agreements. The global
proliferation of multi-channel distribution technologies and new distribution
technologies, such as the Internet, are expected to continue to expand the
demand for quality, branded programming services. In addition, existing
distributors are upgrading their networks to provide digital and multimedia
services, which will increase channel capacity as well as demand for
programming services. According to Paul Kagan Associates, Inc., digital
subscribers in the United States should increase to 43.4 million by 2006
accounting for 60.4% of total cable subscribers, up from 5.9 million
subscribers in 1998. In response to the expected increase in demand for
programming services, programming service providers are expanding their service
offerings, including through additional channel launches and the development of
new multimedia and interactive services. The programming companies in which
Liberty has interests are actively involved in this expansion and development.

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<PAGE>

Consolidated Subsidiaries

Encore Media Group LLC

Encore Media Group LLC is a leading provider of cable and satellite-delivered
premium movie networks in the United States. It currently owns and operates 13
full-time domestic movie channels, including Encore, which airs first-run
movies and classic contemporary movies, STARZ!, a first-run premium movie
service, ten digital movie services programmed by theme, and MOVIEplex, a
"theme by day" channel featuring a different Encore or Encore Thematic
Multiplex channel each day, on a weekly rotation. Through the use of thematic
multiplexing--that is, the creation of multiple channels of programming by
reorganizing the movies by theme--Encore Media Group is well positioned to take
advantage of the increasing channel capacities created by compressed digital
distribution systems. In addition, Encore Media Group currently has agreements
in place with most of the major program distributors and many smaller
distributors to carry its thematic multiplex services in digital packages. As
digital service becomes more widely available, these services will be available
to most cable homes.

Encore Media Group currently has access to approximately 5,000 movies through
long-term licensing agreements and owns exclusive rights to the studio first-
run output from Disney's Hollywood Pictures, Touchstone and Miramax, as well as
Universal, New Line and Fine Line. Unlike vertically integrated programmers,
Encore Media Group is not committed to or dependent on any one source of film
productions. As a result, it has affiliations with every major Hollywood
studio, either through long-term output agreements or library access
arrangements. Encore Media Group's most significant long-term output agreements
are with Universal Pay Television, Inc., New Line Television, Inc. and Walt
Disney Pictures, and these output agreements expire between 2003 and 2007.
Encore Media Group also engages in original programming production.

The table below sets forth certain information about each of Encore Media
Group's domestic programming services.
<TABLE>
<CAPTION>
Liberty's
Subscribers/Units/1/ Attributed
at 9/30/99 Year Ownership %
Entity (000's) Launched at 9/30/99
- ------------------------------------- -------------------- -------- -----------
<S> <C> <C> <C>
Encore Media Group LLC............... 100%
Encore............................. 13,410 1991 100%
MOVIEplex.......................... 7,006 1995 100%
Thematic Multiplex (aggregate
units)............................ 23,101/2/ 1994 100%
Love Stories
Westerns
Mystery
Action
True Stories
WAM! America's Kidz Network
STARZ!............................. 9,708 1994 100%
STARZ! Multiplex (aggregate
units)............................ 5,728/2/
STARZ! Theater................... 1996 100%
STARZ! Family.................... 1999 100%
STARZ! Cinema.................... 1999 100%
BET Movies/STARZ!................ 1997 88%
</TABLE>
- --------
(1) Each premium service to which a household subscribes is counted as one
"unit." For example, one household subscribing to four services would be
counted as four "units."
(2) Digital services.

Encore Media Group's business objective is to be the premier provider of
movie services. Its strategies for achieving its objective include: (1)
continuing to strengthen its core business assets in an effort to promote the
premium television category and increase cash flow from operations, (2) driving
demand for digital services to

46
<PAGE>

enable cable operators and direct broadcast satellite providers to position
themselves as a viable alternative to video stores through a combination of
pay-per-view channels, thematic multiplexing and multiple time scheduled feeds,
and (3) leveraging the strength of its brand by extending its franchises into
other forms of media, including online applications, such as e-commerce.

Ownership Interest. Liberty owns 100% of Encore Media Group. Liberty's
ownership in Encore Media Group began with an investment in its predecessor in
1991 when Encore was launched as a low-priced movie channel that cable
operators could offer individually or packaged with higher-priced services such
as HBO and Showtime. Since December 31, 1992, Encore's subscribers have grown
from approximately 3.5 million to almost 13.5 million at September 30, 1999,
and Encore Media Group's program offerings have grown from one movie channel in
1991 to its current slate of 13 full-time movie channels.

Pramer S.C.A.

Pramer S.C.A. is the largest owner and distributor of cable television
programming services in Argentina. Pramer currently owns eight programming
services and distributes them throughout Argentina. Pramer also distributes
nine additional programming services, including two of Argentina's four
terrestrial broadcast stations, throughout Argentina. Of the 17 programming
services owned and/or distributed by Pramer, nine of them are distributed
throughout Latin America. Pramer intends to continue to develop and acquire
branded programming services and to further expand the carriage of its
programming to distribution networks outside Argentina. The table below sets
forth certain information about each of Pramer's owned programming services.

Ownership Interest. Liberty's ownership in Pramer evolved out of a 1995
transaction in which Liberty Media International, Inc., a wholly owned
subsidiary of Liberty, acquired an equity interest in Cablevision S.A. from its
founding stockholders. As part of the transaction, Liberty Media International
was granted a right of first refusal to purchase the programming assets of
Pramer, which at that time were owned by the former Cablevision stockholders.
In August 1998, Liberty Media International exercised this right and purchased
100% of Pramer's issued and outstanding common stock for $32 million in cash
and $65 million in notes payable. Liberty made an $11 million payment on the
notes on October 1, 1998 and the remainder is due in 20 equal monthly
installments beginning October 15, 1998.

Business Affiliates

Discovery Communications, Inc.

Discovery Communications, Inc. is the largest originator of documentary,
nonfiction programming in the world. Since the 1985 launch of its flagship
domestic cable service and brand, Discovery Channel, Discovery has grown into a
global media enterprise with 1998 revenues exceeding $1 billion. It currently
operates programming services reaching more than 160 million people across six
continents.

Discovery's programming, products and services derive from the following four
business units:

. Discovery Networks, U.S., which is comprised of Discovery Channel, The
Learning Channel, Animal Planet, The Travel Channel and a package of
seven digital services;

47
<PAGE>

. Discovery Networks, International, which extends Discovery's programming
globally and currently reaches more than 73 million subscribers in 147
foreign countries in 24 languages;

. Discovery Enterprises Worldwide, which includes Discovery's brand
extension business in retail, online, video, multimedia, publishing,
licensing and education; and

. Discovery Themed Entertainment, which seeks to extend Discovery's
documentary platform into destination experiences, including touring
exhibits, live shows and attractions, events and site-based media.

Discovery's business objective is to be the premier global creator and
distributor of nonfiction entertainment content, including products, programs
and destination experiences, across all significant media platforms. Its
strategies for achieving its objective include:

. leveraging the strength of its brand by exploiting it over several
platforms, including television, retail and the Internet,

. capitalizing on the global reach of its programming business through the
introduction of additional branded products and services in foreign
markets,

. developing universally distributed networks that appeal strongly to
significant advertising categories (such as travel, health and youth),
and

. continuing to preserve and strengthen its core business assets.

The table below sets forth certain information about Discovery's programming
services.

<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 9/30/99 Year Ownership %
Entity (000's) Launched at 9/30/99
- --------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
Discovery Communications, Inc................ 49%
Discovery Channel.......................... 77,304 1985 49%
The Learning Channel....................... 71,290 1980 49%
Animal Planet.............................. 52,968 1996 49%
Discovery People........................... 10,900 1997 49%
Travel Channel............................. 33,064 1987 49%
Discovery Digital Services................. 5,177(/1/) 49%
Discovery Civilization................... 1996 49%
Discovery Health......................... 1998 49%
Discovery Home & Leisure................. 1996 49%
Discovery Kids........................... 1996 49%
Discovery Science........................ 1996 49%
Discovery Wings.......................... 1998 49%
Discovery en Espanol..................... 1998 49%
Animal Planet Asia......................... 5,510 1998 25%
Animal Planet Europe....................... 6,022 1998 49%
Animal Planet Latin America................ 6,135 1998 25%
Discovery Asia............................. 32,319 1994 49%
Discovery India............................ 12,004 1996 49%
Discovery Japan............................ 1,249 1996 49%
Discovery Europe........................... 18,892 1989 49%
Discovery Turkey........................... 600 1997 49%
Discovery Germany.......................... 420 1996 25%
Discovery Italy/Africa..................... 1,103 1996 49%
Discovery Latin America.................... 11,522 1996 49%
Discovery Latin America Kids Network....... 8,070 1996 49%
People & Arts (Latin America).............. 8,840 1995 25%
Discovery Channel Online................... Online 1995 49%
</TABLE>
- --------
(1) Digital services.

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<PAGE>

Ownership Interest. Liberty holds a 49.3% interest in Discovery with Cox
Communications, Inc., Advance/Newhouse Communications and Discovery's founder
and Chairman, John S. Hendricks, holding interests of 24.65%, 24.65% and 1.4%,
respectively. Liberty's involvement in Discovery dates back to 1986, when TCI
provided Discovery with $25 million of capital in furtherance of TCI's strategy
of supporting quality, cable-exclusive programming companies.

Terms of Ownership. Discovery is organized as a close corporation managed by
its stockholders rather than a board of directors. Generally, all actions to be
taken by Discovery require the approval of the holders of a majority of
Discovery's shares, subject to certain exceptions, including certain
fundamental actions, which require the approval of the holders of at least 80%
of Discovery's shares. The stockholders of Discovery have agreed that they will
not be required to make additional capital contributions to Discovery unless
they all consent. They have also agreed not to own another basic programming
service carried by domestic cable systems that consists primarily of
documentary, science and nature programming, subject to certain exceptions.

Each stockholder has been granted preemptive rights on share issuances by
Discovery. Any proposed transfer of Discovery shares by a stockholder will be
subject to rights of first refusal in favor of the other stockholders, subject
to certain exceptions, with Liberty's right of first refusal being secondary
under certain circumstances. In addition, Liberty is not permitted to hold in
excess of 50% of Discovery's stock unless its increased ownership results from
exercises of its preemptive rights or rights of first refusal.

Flextech, plc

Flextech, through its subsidiaries and affiliates, creates, packages and
markets entertainment and information programming for distribution on cable
television, direct-to-home satellite and digital terrestrial television
providers throughout the United Kingdom and parts of continental Europe. By
acquiring interests in and establishing alliances among providers of a variety
of entertainment programming, Flextech has been able to achieve significant
economies of scale and establish itself as a major low-cost provider of
European television programming. Flextech has interests in 14 cable and
satellite channels, 13 of which are distributed in the United Kingdom market.
In addition to managing its five wholly owned programming services, Flextech
currently provides management services to two joint ventures that it has formed
with BBC Worldwide Limited, which operate several subscription television
channels, and to Discovery Europe, Animal Planet Europe, Discovery Home and
Leisure (formerly The Learning Channel) and HSN Direct International Limited.
For its management and consultancy services, Flextech receives a management fee
and, in some cases, a percentage of the programming company's gross revenues.
Flextech also holds interests in programming production and distribution
companies and a terrestrial broadcast network. Flextech's ordinary shares trade
on the London Stock Exchange under the symbol "FLXT."

The table below sets forth certain information about each of Flextech's
programming services.

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<PAGE>

Flextech's business objective is to develop, package and market regionally
appealing television programming at the lowest practicable cost. To achieve its
objective, Flextech's strategy has been to spread production costs over
multiple revenue sources. Through co-management of several thematic programming
services, Flextech's programming channels have been able to share operating
costs, including those associated with marketing, administration, affiliate
relations, financial services and technical operations. In addition, by
acquiring interests in and creating alliances with established content
producers, Flextech has been able to secure a steady supply of programming
capable of being distributed over various distribution platforms.

Ownership Interest. Liberty holds a 37% equity interest in Flextech,
representing a 50% voting interest. Liberty's involvement with Flextech
developed out of programming investments made by TCI in the United Kingdom and
continental Europe beginning in 1988. TCI found that the United Kingdom, like
other parts of Europe, lacked the size necessary to sustain a large number of
niche-oriented programming services. Attracted by Flextech's business model of
co-managing several programming services to achieve economies of scale, TCI
chose Flextech as the vehicle to pursue its European programming strategy in
1994 by consolidating its U.K. and European programming investments and merging
those investments into Flextech.

Terms of Ownership. Liberty has the right to cast 50% of the votes on most
matters that are presented to Flextech's shareholders due to its ownership of a
special voting share. This special voting right will expire on the earlier of
April 14, 2000 and the occurrence of certain events that involve a decline in
Liberty's ownership of ordinary shares of Flextech. Liberty has the right to
appoint three of the 15 members of Flextech's board of directors for so long as
it has the special voting right, and will thereafter have the right to appoint
two members for so long as it owns at least 25% of Flextech's ordinary shares.
In addition, the appointment of some of Flextech's senior executive officers,
including its managing director and its chief executive, requires Liberty's
approval.

Liberty has granted a tag-along sale right to a shareholder of Flextech that,
at August 15, 1999, owned 6.7% of Flextech's ordinary shares. The tag-along
right will apply if Liberty sells more than 10% of its Flextech stock. In
addition, Liberty has agreed to purchase that shareholder's initial equity
stake in Flextech for not less than current market value if Flextech's ordinary
shares cease to be traded on the London Stock Exchange due to actions taken by
Liberty.

Liberty has undertaken to Flextech and BBC Worldwide Limited that it will
not, subject to certain exceptions, acquire an interest in excess of 20% in any
entity that competes with certain of the channels of two joint ventures that
Liberty has formed with BBC Worldwide Limited. The non-compete will terminate
on March 31, 2007 or, if earlier, at such time as Liberty's contingent funding
obligation to the joint ventures terminates or Liberty owns not more than 10%
of the ordinary shares of Flextech. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

The News Corporation Limited

News Corp. is a diversified international communications company principally
engaged in:

. the production and distribution of motion pictures and television
programming;

. television, satellite and cable broadcasting;

. publication of newspapers, magazines and books;

. production and distribution of promotional and advertising products and
services;

. development of digital broadcasting; development of conditional access
and subscriber management systems; and

. the provision of computer information services.

50
<PAGE>

News Corp.'s operations, are located in the United States, Canada, the United
Kingdom, Australia, Latin America and the Pacific Basin. News Corp.'s preferred
limited voting ordinary shares trade on the Australian Stock Exchange under the
symbol "NCPDP," and are represented on the New York Stock Exchange by ADRs
under the symbol "NWS.A."

Ownership Interest. In July 1999, Liberty sold to News Corp. its 50% interest
in their jointly owned Fox/Liberty Networks programming venture, in exchange
for 51.8 million News Corp. ADRs representing preferred limited voting ordinary
shares of News Corp., valued at approximately $1.425 billion, or approximately
$27.52 per ADR. In a related transaction, Liberty acquired from News Corp. 28.1
million additional ADRs representing preferred limited voting ordinary shares
of News Corp. for approximately $695 million, or approximately $24.74 per ADR.
As a result of these transactions and subsequent open market purchases, Liberty
owns approximately 82.7 million ADRs representing preferred limited voting
ordinary shares of News Corp. or approximately 8.5% of News Corp.'s diluted
outstanding shares.

Liberty's involvement in sports programming originated in 1988 when TCI began
to pursue a strategy of creating regional sports networks. In April 1996,
Liberty and News Corp. formed Fox/Liberty Networks, a joint venture to hold
Liberty's national and regional sports networks and News Corp.'s FX, a general
entertainment network which also carries various sporting events. Also in 1996,
Liberty and News Corp. formed an alliance to hold their respective
international sports interests (the "International Interests"). These include
Fox Sports World Espanol, a Spanish language sports network, distributed in the
United States and in Latin America, as well as Fox Sports Americas (Latin
America) and Fox Sports Middle East. As part of their agreement relating to the
acquisition by News Corp. of Liberty's interest in Fox/Liberty Networks,
Liberty and News Corp. agreed that, during a specified period following the
second anniversary of the closing date of this transaction, each will have the
right to cause News Corp. to acquire and Liberty to sell to News Corp. the
International Interests in exchange for News Corp. ADRs with an aggregate value
at April 1, 1999 of approximately $100 million plus an additional number of
ADRs representing the aggregate number of News Corp. shares which could have
been purchased by reinvesting in ADRs each cash dividend declared on such
number of shares between the closing of the sale of Liberty's interest in
Fox/Liberty Networks and the sale of the International Interests. Between the
closing of the sale of Liberty's interest in Fox/Liberty Networks and the sale
of the International Interests, Liberty has further agreed to make capital
contributions in respect of the International Interests in the amount of $100
million, as and when requested by News Corp.

Terms of Ownership. In connection with the acquisition by News Corp. of
Liberty's interest in Fox/Liberty Networks, certain agreements were entered
into regarding Liberty's ability to transfer News Corp. shares and other
matters. Under these agreements, the ADRs and the underlying News Corp. shares
issued to Liberty are subject to a lock-up of either two years (as to 51.8
million ADRs) or nine months (as to 28.1 million ADRs), subject to certain
exceptions. Liberty is entitled to certain registration rights with respect to
its News Corp. shares. In addition, Liberty has agreed that it will not engage,
directly or indirectly, in any sports programming service in the United States
and its territories (excluding Puerto Rico) and Canada, subject to certain
exceptions, until July 2004.

QVC Inc.

QVC Inc. is one of the two largest home shopping companies in the United
States. QVC markets and sells a wide variety of consumer products and
accessories primarily by means of televised shopping programs on the QVC
network and via the Internet through iQVC. QVC also operates shopping networks
in Germany, the United Kingdom and Ireland. QVC purchases, or obtains on
consignment, products from domestic and foreign manufacturers and wholesalers,
often on favorable terms based on the volume of the transactions. QVC does not
depend upon any one particular supplier for any significant portion of its
inventory.

QVC distributes its television programs, via satellite, to affiliated video
program distributors for retransmission to subscribers. Generally, there are no
additional charges to U.S. subscribers for the distribution of QVC. In return
for carrying QVC, each domestic programming distributor receives an allocated
portion,

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<PAGE>

based upon market share, of up to 5% of the net sales of merchandise sold to
customers located in the programming distributor's service area.

QVC has stated that it intends to continue introducing new products and
product lines and to recruit additional programming distributors in an effort
to enlarge both its audience and its sales.

The table below sets forth certain information about QVC's programming
interests.

<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 9/30/99 Year Ownership %
Entity (000's) Launched at 9/30/99
- ------------------------- ----------- -------- -----------
<S> <C> <C> <C>
QVC Inc.................. 43%
QVC Network............. 65,988 1986 43%
QVC-The Shopping Channel
(U.K. and Ireland)..... 7,561 1993 34%
QVC-Germany............. 14,908 1996 43%
iQVC.................... Online 1995 43%
</TABLE>

Ownership Interest. Liberty owns approximately 43% of QVC, and Comcast owns
the remaining 57%. Liberty's involvement in the televised home shopping
business originated in 1986 when TCI began acquiring ownership interests in QVC
Networks, Inc. in exchange for agreeing to carry QVC's programming to a
specified number of subscribers. During the same period, TCI also invested in
another home shopping channel, CVN Companies, Inc. In October 1989, CVN and QVC
merged which resulted in TCI owning approximately 34% of the combined company.
In August 1994, Liberty and Comcast purchased all of the remaining equity
interests in QVC not owned by them, resulting in their current ownership
interests.

Terms of Ownership. QVC is managed on a day-to-day basis by Comcast and
Comcast has the right to appoint all of the members of the QVC board of
directors. Liberty's interests are represented by two members on QVC's five-
member management committee. Generally, QVC's management committee votes on
every matter submitted, or required to be submitted, to a vote of the QVC
board, and Liberty and Comcast are required to use their best efforts to cause
QVC to follow the direction of any resolution of the management committee.
Liberty also has veto rights with respect to certain fundamental actions
proposed to be taken by QVC.

Liberty has been granted a tag-along right that will apply if Comcast
proposes to transfer control of QVC and Comcast may require Liberty to sell its
QVC stock as part of the transaction, under certain circumstances and subject
to certain conditions. In addition, under certain circumstances, Liberty will
have the right, exercisable after February 9, 2000, to initiate a put/call
procedure with Comcast in respect of Liberty's interest in QVC. Prior to
February 9, 2000, however, neither Liberty nor Comcast may directly or
indirectly transfer their interests in QVC, except under certain conditions.

Liberty and Comcast have certain mutual rights of first refusal and mutual
rights to purchase the other party's QVC stock following certain events,
including change of control events affecting them. Both also have registration
rights.

Time Warner Inc.

Time Warner is one of the largest media and entertainment companies in the
world. Time Warner classifies its business interests into four fundamental
areas:

. Cable Networks, consisting principally of interests in cable television
programming, including the following networks: CNN, Cartoon Network,
Headline News, TNT, Turner Classic Movies, TBS Superstation, CNNfn, HBO,
Cinemax, Comedy Central and TVKO;

. Publishing, consisting principally of interests in magazine publishing,
book publishing and direct marketing;

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<PAGE>

. Entertainment, consisting principally of interests in filmed
entertainment, television production, television broadcasting, recorded
music and music publishing; and

. Cable, consisting principally of interests in cable television systems
which, as of December 31, 1998, reached over 12 million subscribers.

Time Warner's common stock trades on the New York Stock Exchange under the
symbol "TWX."

Ownership Interest. Liberty currently owns an approximate 9% interest in Time
Warner. Liberty's interest in Time Warner evolved from a 1987 transaction in
which TCI led a consortium of cable operators in providing Turner Broadcasting
System with an aggregate cash infusion of approximately $560 million. Motivated
by its belief that the continued development of quality cable programming was a
critical element in driving its cable distribution business, TCI invested
approximately $250 million in Turner Broadcasting System in exchange for two
series of preferred stock. The terms of the preferred stock and agreements
entered into in connection with the investment provided the holders with
significant control rights, including representation on the Turner Broadcasting
System board and veto rights over extraordinary transactions, and with rights
of first refusal on certain dispositions of Turner Broadcasting System stock
held by Ted Turner. In 1996, Time Warner acquired Turner Broadcasting System in
a merger transaction.

In connection with the Turner Broadcasting System/Time Warner merger, Time
Warner, Turner Broadcasting System, TCI and Liberty entered into an Agreement
Containing Consent Order (the "FTC Consent Decree") with the Federal Trade
Commission ("FTC"). The FTC Consent Decree effectively prohibits Liberty and
its affiliates from owning voting securities of Time Warner other than
securities that have limited voting rights. Pursuant to the FTC Consent Decree,
among other things, Liberty agreed to exchange the shares of Time Warner common
stock it was to receive in the Turner Broadcasting System/Time Warner
combination for shares of a separate series of Time Warner common stock with
limited voting rights designated as Series LMCN-V Common Stock. The Series
LMCN-V Common Stock entitles the holder to one one-hundredth (1/100th) of a
vote for each share with respect to the election of directors. Liberty holds
approximately 114 million shares of such stock, which represent less than 1% of
the voting power of Time Warner's outstanding common stock. The Series LMCN-V
Common Stock is not transferable, except in limited circumstances, and is not
listed on any securities exchange. Each share of the Series LMCN-V Common Stock
is convertible at Liberty's option into one share of ordinary Time Warner
common stock, at any time when such conversion would not violate the federal
communications laws, subject to the FTC Consent Decree, and is mandatorily
convertible into ordinary Time Warner common stock upon transfer to a non-
affiliate of Liberty. Further, while shares of ordinary Time Warner common
stock are redeemable by action of the Time Warner board of directors under
certain circumstances, to the extent necessary to prevent the loss of certain
types of governmental licenses or franchises, shares of Series LMCN-V Common
Stock are not redeemable under these circumstances.

In March 1999, Liberty entered into a seven-year "cashless collar" with a
financial institution with respect to 15 million shares of Time Warner common
stock, secured by 15 million shares of its approximately 114 million shares of
Time Warner Series LMCN-V Common Stock. In effect, Liberty purchased a put
option that gives it the right to require its counterparty to buy 15 million
Time Warner shares from Liberty in approximately seven years for $67.45 per
share. Liberty simultaneously sold a call option giving the counterparty the
right to buy the same shares from Liberty in approximately seven years for
$158.33 per share. Since the purchase price of the put option was equal to the
proceeds from the sale of the call option, the collar transaction had no cash
cost to Liberty. As a result of this transaction, Liberty has effectively
locked in the value of these 15 million Time Warner shares at between $1
billion and $2.4 billion in the future, regardless of potential fluctuations in
the stock price.

TV Guide, Inc.

TV Guide, Inc., formerly known as United Video Satellite Group, Inc., is a
media and communications company and the market leader in the program listings
guide business. TV Guide is engaged predominantly in providing print, passive
and interactive program listings guides to households, distributing programming
to

53
<PAGE>

cable television systems and direct-to-home satellite providers, and marketing
satellite-delivered programming to C-band satellite dish owners. TV Guide
markets and distributes its products in the United States to over 100 million
cable and satellite homes each week, and also markets its products
internationally in over 40 countries. TV Guide Magazine, TV Guide Channel, TV
Guide Interactive and TV Guide Online are the largest print, electronic,
interactive and Internet guidance products in the world. TV Guide's Class A
common stock trades on the National Market tier of The Nasdaq Stock Market
under the symbol "TVGIA."

TV Guide is organized into three primary business units:

. TV Guide Magazine Group,

. TV Guide Entertainment Group and

. United Video Group.

The TV Guide Magazine Group publishes and distributes TV Guide magazine, the
most widely circulated paid weekly magazine in the United States, to households
and newsstands. In addition, the TV Guide Magazine Group provides customized
monthly television programming guides for cable and satellite operators in the
United States and internationally. The TV Guide Entertainment Group supplies
satellite-delivered on-screen program promotion and guide services, including
TV Guide Channel and Sneak Prevue, to cable television systems and other multi-
channel video programming distributors, both nationally and internationally.
The TV Guide Entertainment Group also offers interactive television technology
that allows television viewers to retrieve on demand continuously updated
program guide information through their cable television systems and provides
TV Guide Online, an Internet-based program listings guide. The United Video
Group provides direct-to-home satellite services, satellite distribution of
video entertainment services, software development and systems integration
services and satellite transmission services for private networks. This group
owns TV Guide's 80% interest in Superstar/Netlink Group LLC, which markets
satellite entertainment programming packages to C-band satellite dish owners in
North America. Its retail subscriber base was approximately one million at
September 30, 1999. The United Video Group also markets and distributes three
independent superstations--WGN (Chicago), KTLA (Los Angeles) and WPIX (New
York)--to cable television systems and other multi-channel video programming
distributors, and offers six Denver-based broadcast television stations and
programming packages to satellite master antenna television systems.

TV Guide's business objective is, among other things, to be the dominant
provider of program listings guides for traditional and emerging distribution
platforms. Its strategies for achieving its objective include:

. extending its brand by exploiting it over several platforms, including
home shopping, e-commerce and database marketing,

. capitalizing on the success of TV Guide Channel, TV Guide Interactive
and TV Guide Sneak Prevue through the introduction of customized
programming and service promotion on a localized platform,

. capitalizing on cross-platform advertising and promotion opportunities
by taking advantage of audience exposure across multiple platforms
(print, cable, satellite and Internet), and

. continuing to develop product and brand extensions that will leverage
its distribution footprint, including interactive services, home
shopping, e-commerce and data base marketing.

In October 1999, TV Guide announced that it had entered into a definitive
merger agreement with Gemstar International Group Limited, pursuant to which TV
Guide would become a wholly owned subsidiary of Gemstar. Under the merger
agreement, TV Guide shareholders would receive 0.6573 shares of Gemstar common
stock for each share of TV Guide class A and class B common stock. The exchange
ratio is not subject to adjustment. TV Guide shareholders would, in the
aggregate, receive approximately 45% of the fully diluted shares of the
combined company. Consummation of the transaction is subject to limited
conditions, including approval by the shareholders of each company and the
satisfaction of regulatory requirements. Each of Liberty and News Corp. has
entered into a voting agreement to vote in favor of the transaction and it is
anticipated that the transaction will close in the second half of 2000. Upon
consummation of the transaction,

54
<PAGE>

the company is expected to be renamed TV Guide International Inc. and the board
of directors will be expanded to twelve members, of which 6 members will be
persons designated by the board of directors of TV Guide prior to the merger.

Gemstar develops, markets and licenses proprietary technologies and systems
that simplify and enhance consumers' interaction with electronics products and
other platforms that deliver video, programming information and other data.
Gemstar seeks to have its technologies widely licensed, incorporated and
accepted as the technologies and systems of choice by

. consumer electronics manufacturers,

. service providers such as owners or operators of cable systems,
telephone networks, Internet service providers, direct broadcast
satellite providers, wireless systems and other multi-channel video
programming distributors,

. software developers and

. consumers.

Gemstar's first proprietary system, VCR Plus+, was introduced in 1990 and is
widely accepted as an industry standard for programming VCRs. VCR Plus+ enables
consumers to record a television program simply by entering a number--the
PlusCode number--into a VCR or television equipped with the VCR Plus+
technology. Gemstar is also a leading provider of electronic program guide
services, which allow a user to view a television program guide on screen,
obtain details about a program, sort programs by themes or categories, and
select programs for tuning or recording, all through the remote control.
Gemstar's common stock trades on the National Market tier of The Nasdaq Stock
Market under the symbol "GMST."

The table below sets forth certain information about TV Guide's programming
services and other assets.

<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 9/30/99 Year Ownership %
Entity (000's) Launched at 9/30/99
- --------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
TV Guide, Inc................................ 44%
TV Guide Channel........................... 49,827 1988 44%
TV Guide Interactive....................... 2,300/1/ /2/ 44%
TV Guide Sneak Prevue...................... 33,743 1991 32%
UVTV....................................... 60,789/3/ N/A 44%
Superstar/Netlink.......................... 1,005 N/A 35%
TV Guide Magazine.......................... 11,000/4/ N/A 44%
TV Guide Online............................ Online 44%
The Television Games Network............... N/A 1999 43%
Infomedia S.A.............................. N/A 1991 33%/5/
</TABLE>
- --------
(1) Digital service.
(2) TV Guide's original interactive service was launched in the early 1990s,
followed by the current digital version.
(3) Aggregate number of units. UVTV uplinks three superstations (WGN, KTLA, and
WPIX) and six Denver broadcast stations. One household subscribing to six
services would be counted as six "units."
(4) Magazine circulation--includes subscription and newsstand distribution.
(5) In May 1999, TV Guide acquired a 75% stake in Infomedia S.A., Luxembourg,
and has an option to buy the remaining 25%. Infomedia S.A. is a leading
provider of television program listings in Europe, offering program
schedules and related information for more than 300 channels in 13
languages to clients in 29 countries throughout Europe and North Africa.

Ownership Interest. TV Guide is jointly controlled by Liberty and News Corp.,
with each owning approximately 44% of its equity and 49% of its voting power.
Liberty's interest in TV Guide began in January 1996 when TCI acquired a
controlling interest in United Video Satellite Group, Inc. ("UVSG"), a provider
of

55
<PAGE>

satellite-delivered video, audio, data and program promotion services to cable
television systems, satellite dish owners, radio stations and private network
users primarily throughout North America. TCI believed that the availability of
electronic program guide services was becoming an increasingly important
element of video programming delivery due to developments in digital and other
technologies that were increasing the volume and variety of video programming.
As a result of the transaction, UVSG became a majority-controlled subsidiary of
TCI. In January 1998, TCI increased its equity interest in UVSG to
approximately 73% and its voting interest to approximately 93%. On March 1,
1999, UVSG acquired Liberty's 40% interest in Superstar/Netlink Group and its
100% interest in Netlink USA, which uplinks the signals of six Denver-based
broadcast television stations, in exchange for shares of UVSG common stock. On
the same date, UVSG acquired News Corp.'s TV Guide properties in exchange for
cash and shares of UVSG common stock. By combining UVSG's passive and
interactive electronic program listing guides with TV Guide's well-recognized
magazine and brand name, UVSG became a leading provider of program listing
guides. Following this transaction, UVSG changed its name to TV Guide, Inc.

Terms of Ownership. Pursuant to a stockholders agreement between Liberty and
News Corp., each of them is entitled to designate one director to the ten-
member TV Guide board for each 12.5% of the outstanding shares of TV Guide
Class B common stock owned by such party, with the remaining directors being
designated by the TV Guide board. So long as Liberty or News Corp., as the case
may be, is entitled to designate at least one director to TV Guide's board of
directors, the other party is subject to certain restrictions on its ability to
sell any of its shares of TV Guide common stock or to convert any of its shares
of TV Guide Class B common stock (10 votes per share) into shares of TV Guide
Class A common stock (one vote per share) unless it first offers to sell the
stock to the other party. Upon the consummation of Gemstar's acquisition of TV
Guide, a new agreement among Liberty, News Corp., Henry C. Yuen, Chairman and
Chief Executive Officer of Gemstar, and Gemstar will take effect.

For so long as there continues to be at least two stockholders that each own
in the aggregate at least 30% of the outstanding TV Guide Class B common stock,
such stockholders are required to vote their shares on all matters submitted to
a vote of TV Guide's stockholders only as shall be mutually agreed upon by such
stockholders and, if they are unable to agree on how to vote with respect to a
proposal, they will each be obligated to vote against that proposal. In
addition, Liberty and News Corp. have mutual rights of first refusal, tag-along
rights on transfers of significant interests and registration rights. Liberty
and News Corp. have further agreed that, for so long as they both are entitled
to appoint at least one of TV Guide's directors, TV Guide will be the exclusive
vehicle through which they will each conduct program guide businesses
worldwide, subject to certain limited exceptions.

USA Networks, Inc.

USA Networks is a diversified media and electronic commerce company that is
engaged in seven principal areas of business:

. Networks and Television Production, which operates the USA Network, a
general entertainment basic cable television network, The Sci-Fi
Channel, which features science fiction, horror, fantasy and science-
fact oriented programming, and Studios USA, which produces and
distributes television programming;

. Electronic Retailing, which primarily consists of Home Shopping Network
and America's Store, which are engaged in the electronic retailing
business;

. Broadcasting, which owns and operates television stations;

. Ticketing Operations, which includes Ticketmaster, the leading provider
of automated ticketing services in the United States, and Ticketmaster
Online, Ticketmaster's exclusive agent for online ticket sales;

. Hotel Reservations, consisting of Hotel Reservations Network, a leading
consolidator of hotel rooms for resale in the consumer market in the
United States;

56
<PAGE>

. Internet Services, which represents USA Networks' online retailing
networks business and local city guide business; and

. Filmed Entertainment, which primarily represents USA Networks' domestic
theatrical film distribution and production businesses.

USA Networks' common stock trades on the National Market tier of The Nasdaq
Stock Market under the symbol "USAI."

The table below sets forth certain information about USA Networks' assets.
Liberty's attributed ownership interest in USA Networks assumes the conversion
or exchange by Liberty of direct and indirect interests in various USA Networks
and HSN securities for USA Networks common stock, and the conversion or
exchange of certain securities owned by Universal Studios, Inc. and certain of
its affiliates for USA Networks common stock.

<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 9/30/99 Year Ownership %
Entity (000's) Launched at 9/30/99
- ---------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
USA Networks, Inc. ........................... 21%
HSN......................................... 73,031/1/ 1985 21%
America's Store............................. 7,278/1/ 1986 21%
ISN......................................... Online 1995 21%
HSN en Espanol.............................. 2,700 1998 11%
HOT (Germany)............................... 23,800 1996 9%
Shop Channel (Japan)........................ 6,500 1996 41%
SciFi Channel............................... 58,400 1992 21%
USA Network................................. 76,900 1980 21%
USA Broadcasting............................ 37,409/2/ 1986 21%
Ticketmaster................................ N/A 21%
Studios USA................................. N/A 21%
USA Films................................... N/A 21%
Hotel Reservations Network.................. Online 1991 21%
Ticketmaster Online-CitySearch.............. Online 1998 11%/3/
</TABLE>
- --------
(1) Includes broadcast households and cable subscribers.
(2) A group of UHF and low power television stations which operate in 12 of the
top 22 broadcast markets in the United States, including 7 of the top 10
markets which reach approximately 31% of television households in the
United States.
(3) Assumes consummation of pending transactions.

Ownership Interest. Liberty's interest in USA Networks consists of shares of
USA Networks common stock held by Liberty and its subsidiaries, shares of USA
Networks common stock held by certain entities in which Liberty has an equity
interest but only limited voting rights, and securities of certain subsidiaries
of USA Networks which are exchangeable for shares of USA Networks common stock.
Assuming the exchange of these securities and the conversion or exchange of
certain securities owned by Universal Studios, Inc. ("Universal") and certain
of its affiliates for USA Networks common stock, Liberty and Universal would
own approximately 21% and 45%, respectively, of USA Networks. In general, until
the occurrence of certain events and with the exception of certain negative
controls, Mr. Barry Diller has voting power over Liberty's interest in USA
Networks, as more fully described below under "--Terms of Ownership."

Liberty's ownership in USA Networks began in 1993 when it purchased a
controlling stake in Home Shopping Network, Inc., which at the time was
principally engaged in the sale of merchandise to viewers of its home shopping
programming. In connection with that acquisition, Liberty also obtained an
option to acquire a controlling interest in Silver King Communications, Inc.,
an owner and operator of broadcast television stations. In August 1995, Liberty
formed an alliance with Mr. Barry Diller that resulted in a significant shift
in Liberty's strategy for Home Shopping Network and Silver King. As part of
this alliance, Liberty contributed its

57
<PAGE>

control option relating to Silver King to a new corporation in which it
retained substantially all of the equity interests and ceded control over the
voting securities of Silver King held by the corporation to Mr. Diller, except
with respect to certain fundamental matters. At the same time, Mr. Diller
agreed to join Home Shopping Networks' board of directors. In December 1996,
Silver King and Home Shopping Network were combined to form HSN, Inc., which
also acquired Savoy Pictures Entertainment, Inc., a television broadcasting and
filmed entertainment company, and Ticketmaster Group, Inc., a leading provider
of automated ticketing services. In February 1998, HSN, Inc. acquired certain
assets from Universal USA Networks, consisting of USA Network and Sci-Fi
Channel, and the domestic television production and distribution business of
Universal. Following this transaction, HSN, Inc. changed its name to USA
Networks, Inc. In connection with this transaction, Liberty contributed $300
million in cash to a subsidiary of USA Networks (the "LLC") in exchange for
equity shares of that subsidiary ("LLC Shares") (which are generally
exchangeable for USA Networks common stock on a one-for-one basis). The LLC
holds all of the assets acquired from Universal and all of the businesses of
HSN, Inc. and its subsidiaries, other than the broadcasting business.

Terms of Ownership. In connection with the Universal transaction, USA
Networks, Universal, Liberty and Mr. Diller entered into several agreements
involving governance matters relating to USA Networks and stockholder
arrangements. With respect to governance matters, Mr. Diller generally has full
authority to operate the day-to-day business affairs of USA Networks and has an
irrevocable proxy over all USA Networks securities owned by Universal, Liberty
and certain of their affiliates for all matters except for certain fundamental
changes. However, each of Liberty, Universal and Mr. Diller has veto rights
with respect to certain fundamental changes relating to USA Networks and its
subsidiaries (including the LLC). If Mr. Diller and Universal agree to certain
fundamental changes that Liberty does not agree to, Universal will be entitled
to purchase Liberty's entire equity interest in USA Networks, subject to
certain conditions, at a price determined by an independent appraiser taking
into account a number of agreed upon factors.

Pursuant to FCC law and regulations, Liberty is not currently permitted to
have a designee on the board of directors of USA Networks. However, at such
time as Liberty is no longer subject to such prohibition, Liberty will have the
right to designate up to two directors if its stock ownership in USA Networks
remains at certain levels. Liberty currently has the right to designate up to
two directors to the LLC board and will continue to have that right for so long
as it is not permitted to designate directors of USA Networks and continues to
maintain certain ownership levels.

Each of Universal and Liberty has a preemptive right with respect to future
issuances of USA Networks's capital stock, subject to certain limitations.
Liberty has agreed with Universal that Liberty will not beneficially own more
than approximately 21% of the equity of USA Networks until the earlier of such
time as Liberty beneficially owns less than 5% of the shares of USA Networks
securities or the date that Universal beneficially owns fewer shares than
Liberty beneficially owns. Also, Liberty has agreed not to propose to the board
of directors of USA Networks the acquisition by Liberty of the outstanding USA
Networks securities or to otherwise influence the management of USA Networks,
including by proposing or supporting certain transactions relating to USA
Networks that are not supported by USA Networks' board of directors.

Liberty is subject to a number of agreements that limit or control its
ability to transfer its USA Network securities. As long as Mr. Diller is Chief
Executive Officer of USA Networks, Liberty generally cannot transfer shares of
USA Networks stock prior to August 24, 2000, subject to certain exceptions.
Each of Universal and Mr. Diller has a right of first refusal with respect to
certain sales of USA Networks securities by the other party. Liberty's rights
in this regard are secondary to any Universal right of refusal on transfers by
Mr. Diller. Each of Liberty and Mr. Diller also generally has a right of first
refusal with respect to certain transfers by the other party and tag-along sale
rights on certain sales of USA Networks stock by the transferring stockholder
and in the event Universal transfers a substantial amount of its USA Networks
stock. Liberty, Universal and Mr. Diller are each entitled to registration
rights relating to their USA Networks securities and have agreed to certain put
and call arrangements, pursuant to which one party has the right to sell (or
the other party has the right to acquire) shares of USA Networks stock held by
another party, at a price determined by an independent appraiser taking into
account a number of agreed upon factors.

58
<PAGE>

Other Programming Assets

The table below sets forth certain information about some of Liberty's other
programming interests.

<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 9/30/99 Year Ownership
Entity (000's) Launched % at 9/30/99 Partner(s)
- ------------------------ ----------- -------- ------------ ------------------------------
<S> <C> <C> <C> <C>
BET Holdings II, Inc.... 35% Robert Johnson
BET Cable Network...... 57,111 1980 35%
BET Action Pay-Per-
View.................. 10,563/1/ 1990 35%
BET on Jazz............ 4,638 1996 35%

Canales n............... 13/2/ 1998 100% --

Court TV................ 35,493 1991 50% Time Warner Inc.

E! Entertainment 58,033 1990 10% Comcast Corporation, The Walt
Television.............
Style.................. 3,121 1998 10% Disney Company, MediaOne
Group, Inc.

Fox Kids Worldwide, N/A N/A /3/ The News Corporation Limited,
Inc.................... former stockholders of Saban
Entertainment, Inc.
International
Channel/4/............. 8,255 1990 90% JJS II Communications, LLC

Jupiter Programming Co.,
Ltd. (Japan)........... 50% Sumitomo Corporation
Cable Soft Network..... 2,309 1989 50%
CNBC Asia Business News
Japan................. N/A 1997 10%
Golf Network........... 1,780 1996 44%
Discovery Japan........ 1,249 1996 49%
J-Sports............... 656 1998 67%
Shop Channel........... 6,500 1996 41%

MultiThematiques,
S.A. .................. 30% Canal + S.A., Havas Images,
Canal Jimmy (France)... 2,127 1991 30% Part'Com
Canal Jimmy (Italy).... 515 1997 30%
Cine Cinemas (France).. 709 1991 30%
Cine Cinemas (Italy)... 164 1997 30%
Cine Classics
(France).............. 626 1991 30%
Cine Classics (Spain).. 176 1995 15%
Cine Classics (Italy).. 164 1997 30%
Forum Planete
(France).............. 1,171 1997 30%
Planete (France)....... 2,897 1988 30%
Planete (Poland)....... 1,836 1996 30%
Planete (Germany)...... 412 1997 30%
Planete (Italy)........ 515 1997 30%
Seasons (France)....... 99 1996 30%
Seasons (Spain)........ 29 1997 30%
Seasons (Germany)...... 12 1997 30%
Seasons (Italy)........ 36 1997 30%

</TABLE>

59
<PAGE>

<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 9/30/99 Year Ownership
Entity (000's) Launched % at 9/30/99 Partner(s)
- ------------------------ ----------- -------- ------------ ------------------------------
<S> <C> <C> <C> <C>
Odyssey................. 26,995 1998 33% Hallmark Entertainment, The
Jim Henson Company, National
Interfaith Cable Coalition,
Inc.
Premium Movie 840 1995 20% Twentieth Century Fox Films,
Partnership Universal Studios, Paramount
(Australia)............ Pictures, Columbia TriStar
Sony Pictures Entertainment
Telemundo Network/5/.... N/A N/A 50% Inc.
Telemundo Station N/A N/A 25% Sony Pictures Entertainment
Group/6/............... Inc., Station Partners, LLC
Torneos y Competencias,
S.A. (Argentina)/7/.... N/A N/A 40% CEI CitiCorp Holdings S.A.
</TABLE>
- --------
(1) Number of subscribers to whom service is available.
(2) Digital services.
(3) Liberty's interest consists of shares of 30-year 9% preferred stock which
have a stated aggregate value of $345 million and are not convertible into
common stock.
(4) International Channel provides news, sports, music, movies and general
entertainment programming from around the world in more than 20 different
languages.
(5) Telemundo Network is a 24-hour broadcast network serving 61 markets in the
United States, including the 37 largest Hispanic markets.
(6) Telemundo Station Group, Inc. owns and operates eight full power UHF
broadcast stations and 15 low power television stations serving some of the
largest Hispanic markets in the United States and Puerto Rico. Although
Liberty has an approximately 25% equity interest in Telemundo Station
Group, Inc., its voting power is less than 5% to meet certain regulatory
requirements.
(7) Torneos y Competencias, S.A. is Argentina's dominant sports programming
service. It also owns a minority interest in Telefe and Canal Azul, general
entertainment broadcast channels in Buenos Aires, Argentina. Canal Azul has
also become an international superchannel, providing programming to the
United States and, via cable, to outlying areas of Argentina.

Communications

Cable television systems deliver multiple channels of television programming
to subscribers who pay a monthly fee for the service. Video, audio and data
signals are received over-the-air or via satellite delivery by antennas,
microwave relay stations and satellite earth stations and are modulated,
amplified and distributed over a network of coaxial and fiber optic cable to
the subscribers' television sets. Cable television providers in most markets
are currently upgrading their cable systems to deliver new technologies,
products and services to their customers. These upgraded systems allow cable
operators to expand channel offerings, add new digital video services, offer
high-speed data services and, where permitted, provide telephony services. The
implementation of digital technology significantly enhances the quantity and
quality of channel offerings, allows the cable operator to offer video-on-
demand, additional pay-per-view offerings, premium services and incremental
niche programming. Upgraded systems also enable cable networks to transmit data
and gain access to the Internet at significantly faster speeds, up to 100 times
faster, than data can be transmitted over conventional dial-up connections.
Lastly, cable providers have been developing the capability to provide
telephony services to residential and commercial users at rates well below
those offered by incumbent telephone providers. Each of these businesses
represents a significant opportunity for cable providers to increase their
revenue and operating cash flow from the traditional pay television services
currently offered today.

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<PAGE>

Telephony providers offer local, long distance, switched services, private
line and advanced networking features to customers who pay a monthly fee for
the service, generally based on usage. Wireless telecommunications networks use
a variety of radio frequencies to transmit voice and data in place of, or in
addition to, standard landline telephone networks. Wireless telecommunications
technologies include two-way radio applications, such as cellular, personal
communications services, specialized mobile radio and enhanced specialized
mobile radio networks, and one-way radio applications, such as paging services.
Each application operates within a distinct radio frequency block. As a result
of advances in digital technology, digital-based wireless system operators are
able to offer enhanced services, such as integrated voicemail, enhanced custom-
calling and short-messaging, high-speed data transmissions to and from
computers, advanced paging services, facsimile services and Internet access
service. The wireless industry has benefited in recent years from increasing
demand for its services and industry experts expect this demand to continue to
increase. According to International Data Corporation, subscribers to wireless
communications services in the United States are expected to increase to over
118 million by 2003, up from approximately 64.4 million subscribers at the end
of 1998. Wireless subscribers generally are charged for service activation,
monthly access, air time, long distance calls and custom-calling features.
Wireless system operators pay fees to local exchange companies for access to
their networks and toll charges based on standard or negotiated rates. When
wireless operators provide service to roamers from other systems, they
generally charge roamer air time usage rates, which usually are higher than
standard air time usage rates for their own subscribers, and additionally may
charge daily access fees.

Consolidated Subsidiaries

TCI Cablevision of Puerto Rico, Inc.

TCI Cablevision of Puerto Rico, Inc. is one of the largest providers of cable
television services in Puerto Rico. It owns and operates cable television
franchises, serving the communities of Luquillo, Arecibo, Florida, Caguas,
Humacao, Cayey and Barranquitas.

On September 21, 1998, hurricane Georges struck Puerto Rico and caused
considerable property damage to the area in general, including TCI Cablevision
of Puerto Rico's cable television systems. However, all of TCI Cablevision of
Puerto Rico's systems have been rebuilt, and as of September 30, 1999,
approximately 99% of its pre-hurricane basic customers were receiving cable
television services. TCI Cablevision of Puerto Rico estimates that it will
regain 100% of its pre-hurricane customer base during the fourth quarter of
1999.

At September 30, 1999, the Puerto Rico cable systems passed an aggregate of
approximately 288,000 homes and served approximately 109,000 basic subscribers,
resulting in a penetration rate of approximately 38%. As of that date,
approximately 38% of TCI Cablevision of Puerto Rico's network had been rebuilt
utilizing 550 MHz bandwidth capacity, with the remainder consisting of 450 MHz.
By the end of 1999, 100% of the network is expected to be upgraded to 550 MHz.
At September 30, 1999, TCI Cablevision of Puerto Rico operated from five
headends, and provided subscribers with 63 channels.

A significant portion of TCI Cablevision of Puerto Rico's cable network
consists of fiber-optic and coaxial cable. This infrastructure allows TCI
Cablevision of Puerto Rico to offer enhanced entertainment information and
telecommunications services and, when and to the extent permitted by law, cable
telephony services. TCI Cablevision of Puerto Rico currently offers its
subscribers pay-per-view events and premium movies and as it introduces new
revenue generating products and services, such as interactive services, TCI
Cablevision of Puerto Rico expects to aggressively market those products and
services to its subscribers in areas with sufficient bandwidth capacity. TCI
Cablevision of Puerto Rico expects to begin offering high speed data
transmission services and Internet access using high speed cable modems to its
subscribers in November 1999.

Business Affiliates

Sprint PCS Group

Sprint Corporation operates the only 100% digital PCS wireless network in the
United States with licenses to provide service nationwide utilizing a single
frequency band and a single technology. Sprint owns licenses to

61
<PAGE>

provide service to the entire United States population, including Puerto Rico
and the U.S. Virgin Islands. At December 31, 1998, Sprint, together with
certain affiliates, operated PCS systems in 45 of the 50 largest U.S.
metropolitan areas. Since the end of 1997, the number of metropolitan markets
served by Sprint has doubled to 280 and the number of its customers has more
than tripled to 3.35 million. Sprint attributes this business and its assets to
Sprint's "Sprint PCS Group." The Sprint PCS Group stock is intended to reflect
the performance of the Sprint PCS Group. The Series 1 Sprint PCS Group stock
trades on the New York Stock Exchange under the symbol "PCS."

The business objective of the Sprint PCS Group is to expand network coverage
and increase market penetration by aggressively marketing competitively priced
PCS products and services under the "Sprint" and "Sprint PCS" brand names.

On October 5, 1999, Sprint announced that it had entered into a definitive
merger agreement with MCI WorldCom, Inc., pursuant to which Sprint would be
merged with and into MCI WorldCom. Under the merger agreement, each share of
Sprint's FON common stock would be exchanged for $76.00 of MCI WorldCom common
stock, subject to a collar, and each share of Sprint PCS Group stock would be
exchanged for one share of a new MCI WorldCom PCS tracking stock of the
corresponding series and 0.1547 shares of MCI WorldCom common stock. The terms
of each series of MCI WorldCom PCS tracking stock would be equivalent to those
of the corresponding Sprint security and would track the performance of the PCS
business of the surviving company. The merger would be tax free to stockholders
of Sprint and accounted for as a purchase. Consummation of the merger is
subject to the approvals of the stockholders of Sprint and MCI WorldCom as well
as customary regulatory approvals. It is anticipated that the merger will close
in the second half of 2000. Upon consummation of the merger, the company is
expected to be renamed WorldCom and its board of directors will have 16
members, 10 from MCI WorldCom and 6 from Sprint.

Ownership Interest. Liberty owns approximately 23% (on a fully diluted basis)
of the Sprint PCS Group stock through its ownership of shares of Series 2
Sprint PCS Group stock (which have limited voting rights) and certain warrants
and shares of convertible preferred stock exercisable for or convertible into
these shares.

Liberty's interest in the business that makes up the Sprint PCS Group began
in 1994 when TCI, Comcast Corporation, Cox Communications, Inc. and Sprint
Corporation determined to engage in the wireless communications business
through a series of limited partnerships known collectively as "Sprint PCS." In
November 1998, Sprint Corporation assumed ownership and management control of
Sprint PCS and issued a new class of Sprint stock, the "Sprint PCS Common
Stock," which was issued in three series, to track the performance of Sprint's
combined wireless operations. In exchange for its approximate 30% limited
partnership interest in Sprint PCS, TCI received shares of Series 2 Sprint PCS
Group stock, shares of Sprint PCS preferred stock and warrants to purchase
shares of Series 2 Sprint PCS Group stock.

Pursuant to a proposed final judgment agreed to by TCI, AT&T and the United
States Department of Justice on December 30, 1998 in connection with the AT&T
merger, all of the Sprint securities held by TCI were deposited in a trust with
an independent trustee, pursuant to a trust agreement approved by the
Department of Justice and the FCC. Liberty holds trust certificates evidencing
its beneficial interest in the assets of the trust. The final judgment, which
was entered by the United States District Court for the District of Columbia on
August 23, 1999, requires the trustee, on or before May 23, 2002, to dispose of
a portion of the Sprint securities held by the trust sufficient to cause
Liberty to own beneficially no more than 10% of the outstanding Sprint PCS
Group stock that would be outstanding on a fully diluted basis on such date. On
or before May 23, 2004, the trustee must divest the remainder of the Sprint
securities held by the trust.

The trust agreement grants the trustee the sole right to sell the Sprint
securities beneficially owned by Liberty and provides that all decisions
regarding such divestiture will be made by the trustee without discussion or
consultation with AT&T or Liberty; however, the trustee is required to consult
with the board of directors of Liberty (other than AT&T representatives and
John C. Malone) regarding such divestiture. The trustee has the

62
<PAGE>

power and authority to accomplish such divestiture only in a manner reasonably
calculated to maximize the value of the Sprint securities beneficially owned by
Liberty.

The trust agreement provides for the trustee to vote the Sprint securities
beneficially owned by Liberty in the same proportion as other holders of Sprint
PCS Group stock so long as such securities are held by the trust. The final
judgment also prohibits the acquisition by Liberty of additional Sprint
securities without the prior written consent of the Department of Justice,
subject to limited exceptions.

Terms of Ownership. Liberty was granted registration rights with respect to
its Sprint PCS holdings. These registration rights are currently exercisable by
the trustee. If Liberty's shares of Series 2 Sprint PCS Group stock are
transferred, the transferred shares become shares of full voting Series 1
Sprint PCS Group stock.

Telewest Communications plc

Telewest is a leading provider of cable television and residential and
business cable telephony services in the United Kingdom. Telewest provides
cable television services over a broadband network and uses its network,
together with twisted-pair copper wire connections for final delivery to the
customer premises, to provide telephony services to its customers. The
broadband network enables Telewest to deliver a wide variety of both television
and telephony services to its customers and to provide customers with a wide
range of interactive and integrated entertainment, telecommunications and
information services as they become more widely available in the future. By
offering both television and telephony service, Telewest is able to spread the
costs of its network over two revenue sources as well as take advantage of
various efficiencies such as cross marketing. Telewest has installed its own
telephone switches, which permits it to minimize fees otherwise charged by
public telephone companies and to offer a variety of value-added services
without relying on public telephone operators for implementation. Telewest also
offers home access to the Internet in all of its franchises. Telewest's
ordinary shares trade on the London Stock Exchange under the symbol "TWT.L,"
and are represented by ADRs in the United States, where they trade on the
National Market tier of The Nasdaq Stock Market under the symbol "TWSTY."

Telewest owns and operates 37 cable franchises and has a minority equity
interest in an affiliated company which owns and operates four affiliated
franchises. As of September 30, 1999, these owned and operated and affiliated
franchises covered approximately 34% of the homes in the United Kingdom in
areas for which cable franchises have been awarded. At that date, these
franchises together included approximately 6.1 million homes and over 400,000
businesses, of which approximately 5.9 million and approximately 383,000 were
Telewest's equity homes and equity businesses, respectively. As of September
30, 1999, the network in these franchises had passed approximately 4.5 million
of Telewest's equity homes (approximately 4.2 million of which had been passed
and marketed) and Telewest had approximately 1.1 million equity cable
television customers, 1.5 million equity residential telephone lines and
274,000 equity business telephone lines. As of September 30, 1999, Telewest's
owned and operated franchises served more than 1.0 million cable subscribers
and 1.3 million telephone customers, and its affiliated franchise provided
Telewest with an additional 98,000 subscribers and 101,000 telephone customers.
According to Telewest, approximately 62% of its customers subscribe for both
cable television and cable telephony services.

Telewest believes that it is well positioned in key growth markets and will
benefit from the growing demand for voice, video, data and Internet services.
Telewest plans to introduce digital services in 1999, offering greater
opportunity for the development of differentiated products and exploitation of
the full potential of interactive, broadband cable. Telewest's business
objective is to be the premier provider of telephony, television, multimedia,
data, Internet and e-commerce services in the United Kingdom. Its strategies
for achieving its objective include:

. leveraging the scale and scope of its business to provide new content
and services,

. increasing market share and generating additional revenue from existing
customers through the development of innovative and targeted products
and the launch of digital services and high-speed Internet service
delivered via cable modem technology, and

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. capitalizing on the growing demand for advanced business voice and data
services, digital television and high-speed Internet access through its
high capacity local networks and its national backbone network.

Ownership Interest. Liberty owns approximately a 22% interest in Telewest
through a limited liability company, which is 50% owned by Liberty and 50%
owned by MediaOne Group, Inc. MediaOne owns an approximately 22% interest in
Telewest through the limited liability company. In addition, MediaOne owns an
approximately 8% interest in Telewest outside the limited liability company.

Liberty's involvement with Telewest developed out of investments in the cable
business made by TCI in the United Kingdom beginning in 1986. In April 1992, U
S WEST, Inc. and TCI contributed substantially all of their respective U.K.
cable interests to a joint venture in which each held a 50% interest. TCI and U
S WEST combined substantially all of their respective U.K. cable interests in
an effort to obtain cost and other efficiencies inherent in a larger network,
as well as to gain greater access to the capital markets. The combination also
permitted TCI to gain the benefits of U S WEST's telephony experience, and U S
WEST to gain the benefits of TCI's cable television experience. Telewest was
formed in anticipation of its initial public offering (which was effected in
November 1994) to acquire the assets of the TCI/U S WEST joint venture.
Subsequent to Telewest's initial public offering, TCI contributed its interests
in Telewest to Liberty Media International, and Liberty Media International and
U S WEST contributed all of their respective equity ownership interests in
Telewest to the limited liability company referred to above. In June 1998,
MediaOne separated from U S WEST and, in connection with that transaction,
succeeded to all of U S WEST's rights and obligations relating to its Telewest
investment.

Terms of Ownership. Liberty and MediaOne have been granted preemptive rights
on share issuances by Telewest which enable them to collectively maintain a
majority of the voting rights in Telewest. Liberty and MediaOne have agreements
with respect to the voting of shares of Telewest beneficially owned by them and
the manner in which they will cause their designees to the Telewest board of
directors to vote. In general, Liberty and MediaOne have agreed that, on any
matter requiring shareholder approval, they will vote their Telewest shares
together in such manner as may be agreed by them. As a result, Liberty and
MediaOne together generally will be able to influence materially the outcome of
any matter requiring shareholder approval. In addition, each of Liberty and
MediaOne has veto rights with respect to certain fundamental matters affecting
Telewest for so long as each holds 15% or more of the outstanding Telewest
ordinary shares. Further, for so long as each of them beneficially owns at
least 15% of the outstanding Telewest ordinary shares, each is entitled to
appoint two members to the 10-member Telewest board of directors, and they have
agreed that on any matter requiring board approval, they will cause the
directors designated by them to vote together as agreed by them.

Each of Liberty and MediaOne has agreed not to transfer its Telewest shares
prior to December 31, 1999, and thereafter, any proposed transfer will be
subject to rights of first refusal in favor of the other party, in each case
subject to certain exceptions. In addition, each of Liberty and MediaOne has
the right to trigger a put/call procedure in the event the other is deemed to
undergo a change of control.

Each of Liberty and MediaOne has agreed with Telewest, subject to certain
exceptions, not to acquire interests in other cable television or cable
telephony companies in the United Kingdom, and Telewest has agreed to certain
restrictions on its ability to engage in businesses in the United Kingdom
outside of cable television, cable telephony and wireless telephony.

In May 1999, as part of a series of agreements entered into with AT&T in
connection with AT&T's proposed acquisition of MediaOne, Microsoft Corporation
agreed to purchase MediaOne's interest in Telewest through a tax-free exchange
of Microsoft shares, subject to certain conditions, including receipt of the
consent of Liberty and the closing of the proposed business combination between
AT&T and MediaOne. It is expected that if this purchase is completed, Microsoft
will succeed to all of MediaOne's rights and obligations set forth above.

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<PAGE>

Other Communications Assets

The table below sets forth certain information about Liberty's other
communications assets. In the table below:

. ""Homes in Service Area" refers to the number of homes to which the
relevant operating company is permitted by law to offer its services.
Not all service areas are granted exclusively to the respective
operating company.

. ""Homes Passed" refers to the homes that can be connected to a cable
distribution system without further extension of the distribution
network.

. ""Basic Subscribers" refers to subscribers to a cable or other
television distribution system who receive the basic television service
and who are usually charged a flat monthly rate for a specific number of
channels.

<TABLE>
<CAPTION>
Homes in Liberty's
Service Homes Basic Attributed
Area at Passed at Subscribers Ownership
9/30/99 9/30/99 at 9/30/99 % at
Entity (000's) (000's) (000's) 9/30/99 Partner(s)
- ----------------------------------- -------- --------- ----------- ---------- --------------------------------
<S> <C> <C> <C> <C> <C>
Metropolis-Intercom, S.A. (Chile).. 1,600 1,084 269 30% Cordillera Communicaciones,
Ltda, Compania de
Telecomunicaciones de Chile S.A.

Cablevision S.A. (Argentina)....... 4,000 3,388 1,451 28% CEI CitiCorp Holdings S.A.,
Telefonica Internacional S.A.

Jupiter Telecommunications
Co., Ltd. (Japan)................. 4,801 3,516 472 40% Sumitomo Corporation

Princes Holdings Limited
(Ireland)......................... 490 384 155 50% Independent Newspapers plc

Sky Latin America LLC/1/........... N/A N/A 761 10% Organizacoes Globo, Grupo
Televisa, S.A., News Corp.
</TABLE>
- --------
(1) Satellite-delivered television platform currently serving Mexico, Brazil,
Chile and Columbia.

Internet Services and Technology

The Internet has emerged as a significant global communications and commerce
medium, enabling millions of people worldwide to share information, create
community among individuals with similar interests and conduct business
electronically. International Data Corporation projects that the number of
Internet users will increase from approximately 100 million at the end of 1998
to approximately 320 million by the end of 2002. In addition to its emergence
as a significant global communications medium, the Internet has features and
functions that are unavailable in traditional media, which enable online
merchants to communicate effectively with customers and advertisers to target
users with specific needs and interests. As a result, the Internet has emerged
as an attractive medium for advertising and electronic commerce. According to
International Data Corporation, worldwide commerce revenue on the Internet is
expected to increase from approximately $32 billion at the end of 1998 to more
than $425 billion in 2002. Jupiter Communications, a new media research firm
that specializes in online research and analysis, estimates that the amount of
advertising dollars spent on the Internet is expected to increase from
approximately $1.9 billion in 1998 to $7.7 billion by 2002, a compound annual
growth rate of 42%.

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Consolidated Subsidiaries

Liberty Digital, Inc.

Liberty Digital, Inc. (formerly known as TCI Music, Inc.) is a diversified
new media company with investments in Internet content and interactive
television businesses, as well as music services delivered to commercial and
residential customers via cable, satellite, the Internet and other platforms.
Liberty Digital's series A common stock trades on the National Market tier of
The Nasdaq Stock Market under the symbol "LDIG."

As of September 30, 1999, the assets of Liberty Digital consisted primarily
of the following:

<TABLE>
<CAPTION>
Liberty
Digital's
Ownership
Entity % Business
- --------------------------------- ---------- -------------------------------------------------
<S> <C> <C>
AT&T Access Agreement............ N/A Certain programming rights with respect to AT&T's
cable systems

Academic Systems Corporation..... 5% Provider of higher education multimedia
instruction manuals

ACTV, Inc.
(Nasdaq: IATV)................... 12%/1/ Producer of tools for interactive programming for
television and Internet platforms

DMX, LLC......................... 100% Programs, markets and distributes the premium
digital audio service, Digital Music Express

Drugstore.com, Inc.
(Nasdaq: DSCM)................... 1% Online pharmacy and sundries

HomeGrocer.com, Inc.............. 1% Online grocery store

iBeam Broadcasting Corporation... 8% Satellite delivery of streaming media from
programmers to Internet service providers

Interactive Pictures Corporation
Interactive photographic technology for the
(Nasdaq: IPIX)................... 4% Internet

iVillage, Inc.
(Nasdaq: IVIL)................... 3% Internet and on-line provider of branded
communications and information services for adult
women

Kaleidoscope Interactive, LLC.... 50% Online provider of information and services
related to health concerns and disabilities

Kaleidoscope Network, Inc........ 12% 24-hour cable network that provides video
programming related to health concerns and
disabilities

KPCB Java Fund, L.P. ............ 6% Investor in Java application development

Lifescape, LLC................... 15% Online provider of information concerning
substance abuse, addictions and health problems

MedScholar Digital Network, LLC.. 50% Provider of continuous medical education services
to healthcare professionals

</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
Liberty
Digital's
Ownership
Entity % Business
- ------------------------ ---------- -------------------------------------------------
<S> <C> <C>
MTVN Online L.P. ....... 10% Online music venture with MTV Networks

Online Retail Partners.. 21% Creates e-commerce partnerships with brick-and-
mortar retailers

Pogo.com, Inc........... 19% Online game service targeting family Internet
game players

priceline.com
Incorporated
(Nasdaq: PCLN).......... 2% E-commerce service allowing consumers to make
offers on products and services
Quokka Sports, Inc.
(Nasdaq: QKKA).......... 3% Internet provider of live digital sports
entertainment

Replay Networks, Inc. .. 1% Producer of technology that allows customers to
customize television viewing

Sportsline USA, Inc.
(Nasdaq: SPLN).......... 3% Internet provider of branded interactive sports
information, programming and merchandise

The Lightspan 13%
Partnership, Inc. ..... Developer of educational programming

TiVo Inc.
(Nasdaq: TIVO).......... 1% Producer of technology that allows customers to
customize television viewing
</TABLE>
- --------
(1) Liberty Digital also holds warrants to purchase additional shares of ACTV,
Inc. common stock, which it may exercise over a period of one to five
years. Exercise of these warrants would increase Liberty Digital's
ownership to approximately 25%.

Ownership Interest. Liberty owns an approximately 87% interest in Liberty
Digital, and a member of the Liberty Media Group that is not part of Liberty
Media Corporation or its consolidated subsidiaries owns an additional
approximately 8% interest in Liberty Digital.

Liberty's interest in Liberty Digital began in 1997 when TCI Music was formed
as a wholly owned subsidiary of TCI for the purpose of entering into a business
combination with DMX, LLC. DMX currently programs, markets and distributes the
premium digital audio music service known as Digital Music Express, to more
than 29 million subscribers in the United States. In December of 1997, TCI
Music acquired The Box Worldwide, Inc., which programs and distributes an
interactive music video television programming service to cable and broadcast
television systems via satellite delivery, and SonicNet, Inc., a leading
Internet music network consisting of a group of music web sites. TCI Music
acquired The Box to serve as the platform for music video and acquired SonicNet
to provide music-related content to DMX and The Box and to position itself to
take advantage of developments in music distribution through the Internet.

In July 1999, TCI Music entered into an Internet music alliance with MTV
Networks, a division of Viacom, Inc., to form and operate an online music
venture, MTVN Online L.P. As part of that transaction, TCI Music contributed to
MTVN Online certain of its music-related assets and businesses, including
substantially all of the assets and businesses of The Box and SonicNet, subject
to certain exceptions. In return, TCI Music received a 10% interest in MTVN
Online. We believe that MTVN Online creates a stronger platform from which to
pursue an online music business. In connection with this transaction, TCI Music
and Liberty each agreed not to compete with MTVN Online in its online music
video business or in the music video business generally, subject to certain
exceptions.

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<PAGE>

In September 1999, TCI Music and Liberty completed a transaction pursuant to
which Liberty and certain of its affiliates contributed to TCI Music
substantially all of their respective Internet content and interactive
television assets and a combination of cash and notes receivable equal to $150
million, in exchange for preferred and common stock of TCI Music. As part of
the transaction, Liberty also assigned to TCI Music certain of its rights under
an agreement with AT&T, which provides for certain programming rights with
respect to AT&T's cable systems. See "Relationship with AT&T and Certain
Related Transactions--Relationship with AT&T--Intercompany Agreement--
Interactive Video Services." In connection with this transaction, TCI Music
changed its name to Liberty Digital, Inc. In addition, Liberty adopted a policy
that Liberty Digital would be its primary vehicle to pursue corporate
opportunities relating to interactive programming and content related services
in the United States and Canada, subject to certain exceptions.

Business Affiliates

General Instrument Corporation

General Instrument Corporation is a leading worldwide provider of integrated
and interactive broadband access solutions and, with its strategic partners and
customers, GI seeks to advance the convergence of the Internet,
telecommunications and video entertainment industries. To that end, GI makes
products that allow video, voice and data to be delivered over cable, digital
satellite and telephony networks. GI is a leading supplier of digital and
analog set-top terminals and systems for wired and wireless cable television
networks, as well as hybrid fiber/coaxial network transmission systems used by
cable television operators. GI also provides digital satellite television
systems for programmers, direct-to-home satellite networks and private networks
for business communications. Through its limited partnership interest in Next
Level Communications L.P., GI provides next-generation broadband access
solutions for local telephone companies. GI also has audio and Internet/data-
delivery systems among its product lines. GI has facilities in Asia, Europe,
Latin America, and the United States. GI's common stock trades on the New York
Stock Exchange under the symbol "GIC."

In September 1999, GI announced that it had entered into a definitive merger
agreement with Motorola, Inc. for the merger of GI and Motorola. Under the
merger agreement, each share of GI common stock would be exchanged for 0.575
shares of Motorola common stock. Consummation of the transaction is subject to
certain conditions, including customary regulatory and stockholder approvals.
In connection with the merger, Liberty entered into an agreement with Motorola,
pursuant to which Liberty has agreed to vote its shares of GI common stock in
favor of the transaction and Motorola granted to Liberty certain registration
rights with respect to the shares of Motorola common stock to be acquired by
Liberty upon consummation of the transaction. Following the merger, which is
expected to be completed by the first quarter of 2000, GI stockholders will
hold approximately 17% of Motorola.

Motorola is a global leader in providing integrated communications solutions
and embedded electronic solutions. These include:

. software-enhanced wireless telephone, two-way radio, messaging and
satellite communications products and systems, as well as networking and
Internet access products, for consumers, network operators, and
commercial, government and industrial customers,

. embedded semiconductor solutions for customers in networking,
transportation, wireless communications and imaging and entertainment
markets, and

. embedded electronic systems for automotive, communications, imaging,
manufacturing systems, computer and consumer markets.

Motorola's common stock trades on the New York Stock Exchange under the symbol
"MOT."

Ownership Interest. Liberty currently holds an 18% interest in GI, and is the
largest stockholder of GI. Liberty also holds warrants to purchase
approximately 21.4 million additional shares of GI common stock at

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<PAGE>

$14.25 per share. The warrants vest at specified dates, with the number of
warrants vesting on each such date relating to the number of advanced digital
set-top terminals purchased by AT&T and certain of its affiliates. If the
warrants do not vest on the specified date, the warrants will terminate. If any
warrants terminate solely because AT&T fails to purchase the required number of
advanced digital set-top terminals, AT&T will pay to Liberty an amount equal to
$8.25 for each warrant terminated, adjusted as appropriate for any changes in
the capitalization of GI. Warrants to purchase 4.9 million shares are currently
vested, and assuming Liberty's exercise of such vested warrants, its ownership
interest in GI would increase to 21%.

Liberty's relationship with GI began in December 1997 when National Digital
Television Center, Inc., a wholly owned subsidiary of TCI ("NDTC"), entered
into an agreement with GI to purchase advanced digital set-top terminals. In
connection with NDTC's purchase commitment, GI granted the warrants specified
above. In July 1998, TCI acquired 21.4 million restricted shares of GI common
stock in exchange for:

. certain of the assets of NDTC's set-top authorization business,

. the license of certain related software to GI,

. a $50 million promissory note from TCI to GI and

. a nine year revenue guarantee from TCI in favor of GI.

In connection with the AT&T merger, the shares of GI common stock and the note
payable were contributed to Liberty. In April 1999, Liberty acquired an
additional 10 million shares of GI from Forstmann Little & Co. for $280
million. This purchase by Liberty increased Liberty's ownership in GI to
approximately 18% and made Liberty the largest stockholder of GI.

Terms of Ownership. In general, Liberty has certain registration rights with
respect to the GI shares it currently holds and those that it has a right to
acquire upon exercise of the GI warrants. In addition, a portion of Liberty's
GI shares are non-transferable until July 2001 and Liberty is further
restricted in its ability to knowingly transfer a portion of its GI shares to a
competitor of GI until December 2002 or, in some cases, prior to that date if a
change of control occurs with respect to GI.

Other Assets

Liberty also holds an approximately 19% interest in Antec Corporation, an
international communications technology company specializing in the design and
engineering of hybrid fiber/coaxial broadband networks and the development and
distribution of products for these broadband networks. Antec provides its
customers, primarily cable system operators, with products and services that
enable reliable, high-speed, two-way broadband transmission of video,
telephony, and data. In addition, Antec has developed a full line of
technologically advanced fiber optic products to capitalize on current and
future upgrades of cable systems employing hybrid fiber/coaxial technology
capable of providing state-of-the-art video, voice and data services. Antec's
common stock trades on the National Market tier of The Nasdaq Stock Market
under the symbol "ANTC."

Regulatory Matters

Domestic Programming

In the United States, the FCC regulates the providers of satellite
communications services and facilities for the transmission of programming
services, the cable television systems that carry such services, and, to some
extent, the availability of the programming services themselves through its
regulation of program licensing. Cable television systems in the United States
are also regulated by municipalities or other state and local government
authorities. Cable television companies are currently subject to federal rate
regulation on the provision of basic service, and continued rate regulation or
other franchise conditions could place downward pressure on the fees cable
television companies are willing or able to pay for programming services in
which Liberty has interests and regulatory carriage requirements could
adversely affect the number of channels available to carry the programming
services in which we have an interest.

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<PAGE>

Regulation of Program Licensing. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") directed the FCC to promulgate
regulations regarding the sale and acquisition of cable programming between
multi-channel video programming distributors (including cable operators) and
satellite-delivered programming services in which a cable operator has an
attributable interest. The legislation and the implementing regulations adopted
by the FCC preclude virtually all exclusive programming contracts between cable
operators and satellite programmers affiliated with any cable operator (unless
the FCC first determines the contract serves the public interest) and generally
prohibit a cable operator that has an attributable interest in a satellite
programmer from improperly influencing the terms and conditions of sale to
unaffiliated multi-channel video programming distributors. Further, the 1992
Cable Act requires that such affiliated programmers make their programming
services available to cable operators and competing multi-channel video
programming distributors such as multi-channel multi-point distribution systems
and direct broadcast satellite distributors on terms and conditions that do not
unfairly discriminate among distributors. The Telecommunications Act of 1996
has extended these rules to programming services in which telephone companies
and other common carriers have attributable ownership interests. The FCC
recently revised its program licensing rules, by implementing a damages remedy
in situations where the defendant knowingly violates the regulations and by
establishing a timeline for the resolution of such complaints, among other
things.

Regulation of Carriage of Programming. Under the 1992 Cable Act, the FCC has
adopted regulations prohibiting cable operators from requiring a financial
interest in a programming service as a condition to carriage of such service,
coercing exclusive rights in a programming service or favoring affiliated
programmers so as to restrain unreasonably the ability of unaffiliated
programmers to compete.

Regulation of Ownership. The 1992 Cable Act required the FCC, among other
things, (a) to prescribe rules and regulations establishing reasonable limits
on the number of channels on a cable system that will be allowed to carry
programming in which the owner of such cable system has an attributable
interest and (b) to consider the necessity and appropriateness of imposing
limitations on the degree to which multi-channel video programming distributors
(including cable operators) may engage in the creation or production of video
programming. In 1993, the FCC adopted regulations limiting carriage by a cable
operator of national programming services in which that operator holds an
attributable interest to 40% of the first 75 activated channels on each of the
cable operator's systems. The rules provide for the use of two additional
channels or a 45% limit, whichever is greater, provided that the additional
channels carry minority-controlled programming services. The regulations also
grandfather existing carriage arrangements that exceed the channel limits, but
require new channel capacity to be devoted to unaffiliated programming services
until the system achieves compliance with the regulations. These channel
occupancy limits apply only up to 75 activated channels on the cable system,
and the rules do not apply to local or regional programming services. These
rules may limit carriage of the programming companies in which Liberty has
interests on certain systems of affiliated cable operators. In the same
rulemaking, the FCC concluded that additional restrictions on the ability of
multi-channel distributors to engage in the creation or production of video
programming were then unwarranted.

Regulation of Carriage of Broadcast Stations. The 1992 Cable Act granted
broadcasters a choice of must carry rights or retransmission consent rights.
The rules adopted by the FCC generally provided for mandatory carriage by cable
systems of all local full-power commercial television broadcast signals
selecting must carry rights and, depending on a cable system's channel
capacity, non-commercial television broadcast signals. Such statutorily
mandated carriage of broadcast stations coupled with the provisions of the
Cable Communications Policy Act of 1984, which require cable television systems
with 36 or more "activated" channels to reserve a percentage of such channels
for commercial use by unaffiliated third parties and permit franchise
authorities to require the cable operator to provide channel capacity,
equipment and facilities for public, educational and government access
channels, could adversely affect some or substantially all of the programming
companies in which Liberty has interests by limiting the carriage of such
services in cable systems with limited channel capacity. The FCC recently
initiated a proceeding asking to what extent cable operators must carry all
digital signals transmitted by broadcasters. The imposition of such additional
must carry regulation, in conjunction

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with the current limited cable system channel capacity, would make it likely
that cable operators will be forced to drop cable programming services, which
may have an adverse impact on the programming companies in which Liberty has
interests.

Closed Captioning Regulation. The Telecommunications Act of 1996 also
required the FCC to establish rules and an implementation schedule to ensure
that video programming is fully accessible to the hearing impaired through
closed captioning. The rules adopted by the FCC will require substantial closed
captioning over an eight to ten year phase-in period with only limited
exemptions. As a result, the programming companies in which Liberty has
interests are expected to incur significant additional costs for closed
captioning.

Copyright Regulation. Satellite carriers, such as TV Guide's UVTV division,
retransmit the broadcast signals of "superstations," such as KWGN and WGN, and
of network stations to home satellite dish owners for private home viewing
under statutory license pursuant to the Satellite Home Viewer Act of 1994 (the
"SHV Act"), which license is scheduled to expire on December 31, 1999. Although
bills, which, among other things, would extend the license granted under the
SHV Act and change the eligibility criteria for receipt of network station
signals, have been introduced in Congress, if the license granted under the SHV
Act is not further extended, satellite carriers will be required to negotiate
private licenses for the retransmission of copyright material to home satellite
dish owners after 1999. Under the House of Representatives bill, the license
granted under the SHV Act would be extended by five years, and under the Senate
bill, such license would be extended by six years. Satellite carriers may only
distribute the signals of network broadcast stations, as distinguished from
superstations, to "unserved households" that are outside the Grade B contours
of a primary station affiliated with such network. The FCC released new rules
on February 2, 1999 for determining whether households are unserved. TV Guide
entered into an agreement with the National Association of Broadcasters, the
ABC, CBS, FOX and NBC networks, their affiliate associations, and several
hundred broadcast stations, effective May 1, 1998, to identify by zip code
those geographic areas which are "unserved" by network affiliated stations.
Depending upon the implementation of the agreement and such identification, TV
Guide may be required, after expiration of a transition period, to disconnect a
substantial number of existing subscribers. Under the SHV Act, satellite
carriers must pay a monthly fee of 27c per subscriber for the secondary
transmission of distant superstations and distant network stations. However,
both the House of Representatives and the Senate have recently passed bills
which, among other things, include a provision that would decrease the royalty
fee for distant superstations by 30% and distant network stations by 45%. To
the extent that satellite carriers transmit superstation or network station
signals to cable operators, such cable operators pay the copyright fee under
the separate compulsory license.

Satellites and Uplink. In general, authorization from the FCC must be
obtained for the construction and operation of a communications satellite. The
FCC authorizes utilization of satellite orbital slots assigned to the United
States by the World Administrative Radio Conference. Such slots are finite in
number, thus limiting the number of carriers that can provide satellite
transponders and the number of transponders available for transmission of
programming services. At present, however, there are numerous competing
satellite service providers that make transponders available for video services
to the cable industry.

Proposed Changes in Regulation. The regulation of programming services, cable
television systems, satellite carriers and television stations is subject to
the political process and has been in constant flux over the past decade.
Further material changes in the law and regulatory requirements must be
anticipated and there can be no assurance that Liberty's business will not be
adversely affected by future legislation, new regulation or deregulation.

Domestic Telephony

The FCC regulates the licensing, construction, operation, acquisition, resale
and interconnection arrangements of domestic wireless telecommunications
systems. The activities of wireless service providers, such as the Sprint PCS
Group, are subject to regulation in varying degrees, depending on the
jurisdiction, by state and local regulatory agencies as well. The FCC, in
conjunction with the U.S. Federal Aviation

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<PAGE>

Administration, also regulates tower marking and lighting, and FCC
environmental rules may cause certain PCS network facilities to become subject
to regulation under the National Environmental Policy Act.

International Cable, Telephony and Programming

Some of the foreign countries in which Liberty has, or proposes to make, an
investment regulate, in varying degrees, (a) the granting of cable and
telephony franchises, the construction of cable and telephony systems and the
operations of cable, other multi-channel television operators and telephony
operators and service providers, as well as the acquisition of, and foreign
investments in, such operators and service providers, and (b) the distribution
and content of programming and Internet services and foreign investment in
programming companies. Regulations or laws may cover wireline and wireless
telephony, satellite and cable communications and Internet services, among
others. Regulations or laws that exist at the time Liberty makes an investment
in a foreign subsidiary or business affiliate may thereafter change, and there
can be no assurance that material and adverse changes in the regulation of the
services provided by Liberty's subsidiaries and business affiliates will not
occur in the future. Regulation can take the form of price controls, service
requirements and programming and other content restrictions, among others.
Moreover, some countries do not issue exclusive licenses to provide multi-
channel television services within a geographic area, and in those instances
Liberty may be adversely affected by an overbuild by one or more competing
cable operators. In certain countries where multi-channel television is less
developed, there is minimal regulation of cable television, and, hence, the
protections of the cable operator's investment available in the United States
and other countries (such as rights to renewal of franchises and utility pole
attachment) may not be available in these countries.

Internet Services

The Internet companies in which we have interests are subject, both directly
and indirectly, to various laws and governmental regulations relating to their
respective businesses. There are currently few laws or regulations directly
applicable to access to or commerce on commercial online services or the
Internet. For example, the Digital Millennium Copyright Act, enacted into law
in 1998, protects certain qualifying online service providers from copyright
infringement liability, the Internet Tax Freedom Act, also enacted in 1998,
placed a three year moratorium on new state and local taxes on Internet access
and commerce, and under the Communications Decency Act, an Internet service
provider will not be treated as the publisher or speaker of any information
provided by another information content provider. However, due to the
increasing popularity and use of commercial online services and the Internet,
it is possible that a number of laws and regulations may be adopted with
respect to commercial online services and the Internet. Such laws and
regulations may cover issues such as user privacy, defamatory speech, copyright
infringement, pricing and characteristics and quality of products and services.
The adoption of such laws or regulations in the future may slow the growth of
commercial online services and the Internet, which could in turn cause a
decline in the demand for the services and products of the Internet companies
in which we have interests and increase such companies' costs of doing business
or otherwise have an adverse effect on their businesses, operating results and
financial conditions. Moreover, the applicability to commercial online services
and the Internet of existing laws governing issues such as property ownership,
libel and personal privacy is uncertain and could expose these companies to
substantial liability.

Competition

Programming. The business of distributing programming for cable and satellite
television is highly competitive, both in the United States and in foreign
countries. The programming companies in which we have interests directly
compete with other programmers for distribution on a limited number of
channels. Once distribution is obtained, our programming services and our
business affiliates' programming services compete, in varying degrees, for
viewers and advertisers with other cable and off-air broadcast television
programming services as well as with other entertainment media, including home
video (generally video rentals), pay-per-

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<PAGE>

view services, online activities, movies and other forms of news, information
and entertainment. The programming companies in which we have interests also
compete, to varying degrees, for creative talent and programming content. Our
management believes that important competitive factors include the prices
charged for programming, the quantity, quality and variety of the programming
offered and the effectiveness of marketing efforts. In addition, HSN and QVC
operate in direct competition with businesses that are engaged in retail
merchandising.

Communications. The cable television systems and other forms of media
distribution in which we have interests directly compete for viewer attention
and subscriptions in local markets with other providers of entertainment, news
and information, including other cable television systems in those countries
that do not grant exclusive franchises, broadcast television stations, direct-
to-home satellite companies, satellite master antenna television systems,
multi-channel multi-point distribution systems and telephone companies, other
sources of video programs (such as videocassettes) and additional sources for
entertainment news and information, including the Internet. Cable television
systems also face strong competition from all media for advertising dollars.
Our management believes that important competitive factors include fees charged
for basic and premium services, the quantity, quality and variety of the
programming offered, the quality of signal reception, customer service and the
effectiveness of marketing efforts.

In addition, there is substantial competition in the domestic wireless
telecommunications industry, and it is expected that such competition will
intensify as a result of the entrance of new competitors and the increasing
pace of development of new technologies, products and services. Each of the
markets in which the Sprint PCS Group competes is served by other two-way
wireless service providers, including cellular and PCS operators and resellers.
A majority of the markets will have five or more commercial mobile radio
service providers and each of the top 50 metropolitan markets have at least one
other PCS competitor in addition to two cellular incumbents. Many of these
competitors have been operating for a number of years and currently service a
significant subscriber base.

Internet Services and Technology. The markets for Internet services, online
content and products are relatively new, intensely competitive and rapidly
changing. Since the Internet's commercialization in the early 1990's, the
number of Internet companies and web sites competing for consumers' attention
and spending has proliferated with no substantial barriers to entry, and we
expect that competition will continue to intensify in the future. The Internet
companies and web sites in which we have interests compete, directly and
indirectly, for members, visitors, advertisers, content providers and
merchandise sales with many categories of companies, including:

. other Internet companies and web sites targeted to the respective
audiences of the Internet companies and web sites in which we have
interests;

. publishers and distributors of traditional off-line media (such as
television, radio and print), including those targeted to the respective
audiences of the Internet companies and web sites in which we have
interests, many of which have made, or may in the future make,
significant acquisitions of or investments in Internet companies and/or
have established, or may in the future establish, web sites;

. general purpose consumer online services such as America Online and
Microsoft Network, each of which provides access to content and services
targeted to the respective audiences of the Internet companies and web
sites in which we have interests;

. vendors of information, merchandise, products and services distributed
through other means, including retail stores, mail, facsimile and
private bulletin board services; and

. web search and retrieval services and other high-traffic web sites.

Liberty anticipates that the number of such competitors will increase in the
future.

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<PAGE>

The technology companies in which we have interests compete with a
substantial number of foreign and domestic companies, and the rapid
technological changes occurring in such companies' markets are expected to lead
to the entry of new competitors. The ability of the technology companies in
which we have interests to anticipate technological changes and introduce
enhanced products on a timely basis will be a significant factor in their
ability to expand and remain competitive. Existing competitors' actions and new
entrants may have an adverse impact on these companies' sales and
profitability.

Employees

As of September 30, 1999, Liberty had approximately 40 employees and
Liberty's consolidated subsidiaries had an aggregate of approximately 1,434
employees. None of our employees are represented by a labor union or covered by
a collective bargaining agreement. We believe that our employee relations are
good.

Properties

With the exception of its corporate offices in Englewood, Colorado (which
Liberty leases), Liberty does not own or lease any real or personal property
other than through its interests in its subsidiaries and business affiliates.
Liberty's subsidiaries and business affiliates own or lease the fixed assets
necessary for the operation of their respective businesses, including office
space, transponder space, headends, cable television and telecommunications
distribution equipment, telecommunications switches and customer equipment
(including converter boxes). Liberty's management believes that its current
facilities are suitable and adequate for its business operations for the
foreseeable future.

Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine
litigation incidental to Liberty's business, to which Liberty or any of its
subsidiaries is a party or of which any of their property is subject.

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<PAGE>

MANAGEMENT

Directors and Executive Officers

The following table sets forth certain information concerning our directors
and executive officers, as of December 1, 1999.

<TABLE>
<CAPTION>
Date of
Name Birth Position
---- -------- --------
<S> <C> <C>
John C. Malone.......... 3/7/41 Chairman of the Board and Director

Robert R. Bennett....... 4/19/58 President, Chief Executive Officer and Director

Gary S. Howard.......... 2/22/51 Executive Vice President, Chief Operating Officer and Director

David B. Koff........... 12/26/58 Senior Vice President

Charles Y. Tanabe....... 11/27/51 Senior Vice President and General Counsel

Peter N. Zolintakis..... 7/10/57 Senior Vice President

Vivian J. Carr.......... 12/13/47 Vice President and Secretary

Kathryn S. Douglass..... 3/5/65 Vice President and Controller

David J.A. Flowers...... 5/17/54 Vice President and Treasurer

Paul A. Gould........... 9/27/45 Director

Jerome H. Kern.......... 6/1/37 Director

John C. Petrillo........ 4/30/49 Director

Larry E. Romrell........ 12/30/39 Director

Daniel E. Somers........ 12/9/47 Director

John D. Zeglis.......... 5/2/47 Director
</TABLE>

The following is a five-year employment history for our directors and
executive officers, including any directorships held in public companies.

John C. Malone has served as Chairman of the Board and one of our directors
since 1990. Dr. Malone has also served, since December 1996, as Chairman of the
Board and a director of TCI Satellite Entertainment, Inc. Dr. Malone served as
Chairman of the Board of TCI from November 1996 to March 1999, as Chief
Executive Officer of TCI from January 1994 to March 1999, and as President of
TCI from January 1994 to March 1997. Dr. Malone served as Chief Executive
Officer of TCI Communications, Inc., the domestic cable subsidiary of TCI prior
to the AT&T merger ("TCIC"), from March 1992 to October 1994, and as President
of TCIC from 1973 to October 1994. Dr. Malone is also a director of AT&T, The
Bank of New York, TCI, TCI Satellite Entertainment, Inc. and At Home
Corporation.

Robert R. Bennett has served as our President and Chief Executive Officer and
one of our directors since April 1997. Mr. Bennett served as Executive Vice
President of TCI from April 1997 to March 1999. Mr. Bennett served as our
Executive Vice President and Chief Financial Officer, Secretary and Treasurer
from June 1995 through March 1997, and as our Senior Vice President from
September 1991 to June 1995. Mr. Bennett also served as acting Chief Financial
Officer of Liberty Digital, Inc. from June 1997 to July 1997. Mr. Bennett is a
director of TV Guide, Inc. and Chairman of the Board of Liberty Digital, Inc.

Gary S. Howard has served as our Executive Vice President, Chief Operating
Officer and one of our directors since July 1998. Mr. Howard has also served as
Chief Executive Officer of TCI Satellite Entertainment, Inc. since December
1996. Mr. Howard served as Executive Vice President of TCI from December 1997
to March 1999; as Chief Executive Officer, Chairman of the Board and a director
of TV Guide, Inc. from June 1997 to March 1999; and as President and Chief
Executive Officer of TCI Ventures Group, LLC

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<PAGE>

from December 1997 to March 1999. Mr. Howard served as President of TV Guide,
Inc. from June 1997 to September 1997; as President of TCI Satellite
Entertainment, Inc. from February 1995 through August 1997; as Senior Vice
President of TCIC from October 1994 to December 1996; and as Vice President of
TCIC from December 1991 through October 1994. Mr. Howard is a director of TV
Guide, Inc., Liberty Digital, Inc. and TCI Satellite Entertainment, Inc.

David B. Koff has served as a Senior Vice President of Liberty since February
1998. Mr. Koff has also served as Vice President and Assistant Secretary of
Liberty Digital, Inc. since January 1998. Mr. Koff served as Vice President--
Corporate Development of Liberty from August 1994 to February 1998, and as
special counsel to Liberty from March 1993 to August 1994. Mr. Koff also served
as interim President and Chief Executive Officer of Liberty Digital, Inc. from
May 1997 to January 1998. Mr. Koff is a director of Liberty Digital, Inc.

Charles Y. Tanabe has served as a Senior Vice President and General Counsel
of Liberty since January 1999. Prior to joining Liberty, Mr. Tanabe was a
member of Sherman & Howard L.L.C., a law firm based in Denver, Colorado, for
more than five years.

Peter N. Zolintakis has served as Senior Vice President of Tax Strategy of
Liberty since November 1998. Prior to joining Liberty, Mr. Zolintakis was a
partner of PricewaterhouseCoopers, where he specialized, for more than five
years, in the tax issues relating to corporate mergers, acquisitions,
divestitures and restructurings for clients primarily in the cable television
and high technology industries.

Vivian J. Carr has served as a Vice President of Liberty since June 1993 and
was appointed Secretary of Liberty in August 1994. Ms. Carr served as Director
of Investor Relations of Liberty from March 1991 to June 1993.

Kathryn S. Douglass has served as a Vice President of Liberty since September
1997 and as Controller of Liberty since September 1993. Ms. Douglass served as
Accounting Manager of Liberty from October 1991 to September 1993.

David J.A. Flowers has served as a Vice President and Treasurer of Liberty
since April 1997. Mr. Flowers served as Vice President--Portfolio Manager of
Liberty from June 1995 to April 1997. Prior to joining Liberty, Mr. Flowers
held several positions at Toronto Dominion Bank from August 1989 to June 1995,
including Managing Director in its Media Finance Group.

Paul A. Gould has served as one of our directors since March 1999. Mr. Gould
has also served as a Managing Director and Executive Vice President of Allen &
Company Incorporated, an investment banking services company, for more than the
last five years. Mr. Gould served as a director of TCI from December 1996 to
March 1999 and of Liberty from November 1992 to August 1994. Mr. Gould is a
director of Ascent Entertainment Group, Inc., TCI and Sunburst Hospitality
Corporation.

Jerome H. Kern has served as one of our directors since March 1999. Mr. Kern
served as Vice Chairman and as a consultant of TCI from June 1998 to March
1999. Prior to joining TCI, Mr. Kern was Special Counsel with the law firm of
Baker & Botts, L.L.P. from July 1996 to June 1998, and a senior partner of
Baker & Botts, L.L.P. from September 1992 to July 1996. Mr. Kern served as a
director of TCIC from December 1993 to August 1994. Mr. Kern is a director of
TCI.

John C. Petrillo has served as one of our directors since March 1999. Mr.
Petrillo has served as Executive Vice President of Corporate Strategy and
Business Development for AT&T since May 1996. Mr. Petrillo was the President of
AT&T's Business Communications Services from 1993 to 1995 and also served as
AT&T Vice President of Strategic Planning from 1991 to 1993, AT&T Vice
President of Business Communications Services in 1990, AT&T Services Vice
President in 1987 and AT&T Director of Personnel in 1986. Mr. Petrillo is a
director of TCI and At Home Corporation.

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<PAGE>

Larry E. Romrell has served as one of our directors since March 1999. Mr.
Romrell has also served as a consultant to Liberty since March 1999. Mr.
Romrell served as Executive Vice President of TCI from January 1994 to March
1999 and since March 1999 has served as a consultant to TCI. Mr. Romrell also
served, from December 1997 to March 1999, as Executive Vice President and Chief
Executive Officer of TCI Business Alliance and Technology Co., a subsidiary of
TCI prior to the AT&T merger that oversaw and developed TCI's technology
activities; from December 1997 to March 1999, as Senior Vice President of TCI
Ventures Group, LLC; and, from September 1994 to October 1997, as President of
TCI Technology Ventures, Inc., a subsidiary of TCI prior to the AT&T merger
that invested in and developed companies engaged in advancing
telecommunications technology. Mr. Romrell served as Senior Vice President of
TCIC from 1991 to October 1994. Mr. Romrell is a director of TV Guide, Inc. and
General Communication, Inc.

Daniel E. Somers has served as one of our directors since March 1999. Mr.
Somers has also served as Acting Co-Chief Executive Officer of AT&T Broadband &
Internet Services since October 6, 1999 and as Senior Executive Vice President
and Chief Financial Officer of AT&T since May 1997. Prior to joining AT&T, Mr.
Somers served as Chairman and Chief Executive Officer of Bell Cablemedia, plc
from 1995 to 1997, and as Executive Vice President and Chief Financial Officer
of Bell Canada International, Inc. from 1992 to 1995. Mr. Somers is a member of
AT&T's Executive Council and Operations Group. He is also a director of TCI and
Lubrizol Corporation.

John D. Zeglis has served as one of our directors since October 11, 1999. Mr.
Zeglis has also served as President of AT&T since November 1997. Mr. Zeglis
served as Vice Chairman of AT&T from June to November 1997, General Counsel and
Senior Executive Vice President of AT&T from 1996 to 1997, and Senior Vice
President and General Counsel of AT&T from 1986 to 1996. He is also a director
of AT&T, Helmerich and Payne Corporation, Sara Lee Corporation and Illinova
Corporation.

The executive officers named above will serve in such capacities until the
next annual meeting of our board of directors, or until their respective
successors have been duly elected and have been qualified, or until their
earlier death, resignation, disqualification or removal from office. There is
no family relationship between any of the directors.

Board Composition

Our certificate of incorporation (the "Liberty Charter") provides for a
classified board of directors of not less than three members, with the exact
number of directors to be fixed by resolution of our board. The Liberty Charter
further provides for the number of directors to always be a multiple of three,
divided evenly among three classes. The number of directors on our board is
currently nine. Of the nine members of our board, three are elected by the
holders of our Class A common stock, voting as a separate class (the "Class A
Directors"), three are elected by the holders of our Class B common stock,
voting as a separate class (the "Class B Directors"), and three are elected by
the holders of our Class C common stock, voting as a separate class (the "Class
C Directors"). Currently, all of our common stock is owned by AT&T; however,
the Class B Directors and the Class C Directors were designated by TCI prior to
the AT&T merger.

The Class A Directors, whose terms expire at the annual meeting of
stockholders in 2000, are John D. Zeglis, Daniel E. Somers and John C.
Petrillo. The Class B Directors, whose terms expire at the annual meeting of
stockholders in 2006, are Larry E. Romrell, Jerome H. Kern and Gary S. Howard.
The Class C Directors, whose terms expire at the annual meeting of stockholders
in 2009, are John C. Malone, Paul A. Gould and Robert R. Bennett. At each
annual meeting of our stockholders, the successors of that class or classes of
directors whose term(s) expire at that meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held, in the case of
the Class A Directors, in the following year, in the case of the Class B
Directors, in the seventh year following the year of such election and, in the
case of the Class C Directors, in the tenth year following the year of such
election. The directors of each class will hold office until their respective
death, resignation or removal and until their respective successors are elected
and qualified.

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<PAGE>

Committees of the Board

Our board of directors has established an Executive Committee, whose members
are the Class C Directors. The Executive Committee has been granted and may
exercise all the powers and authority of the board in the management of our
business and affairs, except as specifically prohibited by the General
Corporation Law of the State of Delaware (the "DGCL"), the Liberty Charter or
Liberty's bylaws. The Executive Committee does not have power or authority to:
(1) approve or adopt, or recommend to the stockholders, any action or matter
expressly required by the DGCL to be submitted to stockholders for approval, or
(2) adopt, amend or repeal any of Liberty's bylaws.

The board, by resolution passed by a majority of the whole board present at
any meeting at which a quorum is present (provided that any such majority must
include a majority of the Class B Directors and Class C Directors) may from
time to time establish certain other committees of the board, consisting of one
or more directors of Liberty. Any committee so established will have the powers
delegated to it by resolution of the board, subject to applicable law and the
Liberty Charter.

Compensation of Directors

No member of our board of directors receives any compensation for serving on
our board. However, all members of our board are reimbursed for travel expenses
incurred to attend any meetings of our board or any committee thereof.

Compensation of Executive Officers

The following tables set forth information relating to compensation (which
compensation includes grants of stock options and stock appreciation rights
("SARs") in respect of securities of TCI and certain of its affiliates) for (1)
our Chief Executive Officer, (2) our four other most highly compensated
executive officers, whose salary and bonus from Liberty exceeded $100,000 for
the fiscal year ended December 31, 1998, and (3) two additional executive
officers who would have been included in (2) above but for the fact that they
were not serving as executive officers of Liberty at the end of or for the full
fiscal year ended December 31, 1998 (collectively, our "named executive
officers").

Prior to the AT&T merger, each of our named executive officers held options
(and SARs granted in tandem with those options) to purchase shares of one or
more series of TCI tracking stock, including TCI Group tracking stock, Liberty
Media Group tracking stock and TCI Ventures Group tracking stock. In the AT&T
merger, each option to purchase shares of TCI Group tracking stock was
converted into an option to purchase a number of shares of AT&T common stock
determined by multiplying the number of shares of TCI Group tracking stock
subject to such option by 1.16355 (as adjusted for a subsequent 3-for-2 stock
split), in the case of options to purchase shares of Series A TCI Group
tracking stock, and by 1.27995 (as adjusted for a subsequent 3-for-2 stock
split), in the case of options to purchase shares of Series B TCI Group
tracking stock. The per share exercise price of each AT&T common stock option
is equal to the exercise price per share of the corresponding TCI Group
tracking stock option on March 9, 1999, divided by the applicable split-
adjusted exchange ratio (1.16355 or 1.27995). Each option to purchase shares of
TCI's Liberty Media Group tracking stock was converted into an option to
purchase a number of shares of AT&T's Liberty Media Group tracking stock equal
to the number of shares of TCI's Liberty Media Group tracking stock subject to
such option, at the same per share exercise price in effect for each such
option on March 9, 1999. As a result of a subsequent 2-for-1 stock split, the
number of shares of AT&T's Liberty Media Group tracking stock subject to each
AT&T Liberty Media Group tracking stock option has been doubled and the per
share exercise price of each such option has been divided by two. At the time
of the AT&T merger, each option to purchase shares of TCI Ventures Group
tracking stock was converted into an option to purchase a number of shares of
AT&T's Liberty Media Group tracking stock determined by multiplying the number
of shares of TCI Ventures Group tracking stock subject to such option by 1.04
(as adjusted for the subsequent 2-for-1 stock split). The per share exercise
price of each AT&T Liberty Media Group tracking stock option is equal to the
exercise price per share of the corresponding TCI Ventures Group tracking stock
option on March 9, 1999, divided by the split-adjusted exchange ratio of 1.04.

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<PAGE>

Summary Compensation Table. The following table sets forth information
concerning the compensation paid to the named executive officers by Liberty for
the fiscal year ended December 31, 1998. Compensation for Messrs. Tanabe and
Zolintakis reflects the annual compensation that would have been paid to them
had they been serving as executive officers of Liberty since the beginning of
1998 based on 1999 annual compensation levels.

Summary Compensation Table

<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
------------- ---------------------------------------------------
Securities
Restricted Underlying
Other Annual Stock Award Options/ SARs All Other
Name and Principal Salary Compensation ($ in (# in Compensation
Position with Liberty Year ($) ($) thousands) thousands) ($)
- ------------------------ ---- -------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Bennett....... 1998 $559,354 $10,473(1) $7,738(2) 6,000(4) $36,540(5)(6)
President and Chief
Executive Officer
John C. Malone.......... 1998 $950,000 $ -- $ -- -- $15,000(6)
Chairman of the Board
Gary S. Howard.......... 1998 $533,769 $ -- $ -- 5,000(4) $15,000(6)
Executive Vice President
and Chief Operating
Officer
Charles Y. Tanabe....... 1998 $500,000 $ -- $ -- 1,200(4) $15,000(6)
Senior Vice President
and General Counsel
Peter N. Zolintakis..... 1998 $500,000 $ -- $1,978(3) 1,200(4) $15,000(6)
Senior Vice President
David B. Koff........... 1998 $275,000 $ -- $ -- 1,200(4) $14,985(6)
Senior Vice President
David J.A. Flowers...... 1998 $250,000 $ -- $ -- 250(4) $10,000(6)
Vice President and
Treasurer
</TABLE>
- --------
(1) Consists of additional compensation paid by Liberty in an amount equal to
premium payments made in 1998 by Mr. Bennett on split dollar, whole life
insurance policies. The additional compensation may be paid in the sole
discretion of the Compensation Committee exercised annually.

(2) On June 23, 1998, pursuant to the Tele-Communications, Inc. 1998 Incentive
Plan (the "1998 Incentive Plan"), Mr. Bennett was granted 200,000
restricted shares of Series A TCI Group tracking stock. These restricted
shares, as adjusted for the AT&T merger and subsequent AT&T stock split,
became 232,710 restricted shares of AT&T common stock. The restricted
shares vest as to 50% of the shares in June 2002 and as to the remaining
50% in June 2003. At the end of 1998, the restricted shares had an
aggregate value of $11,062,500, based upon the closing sales price per
share of the Series A TCI Group tracking stock on the National Market tier
of The Nasdaq Stock Market ("Nasdaq") on December 31, 1998. Cash dividends
on the restricted shares of AT&T common stock are paid to Mr. Bennett.

(3) On November 15, 1998, pursuant to the 1998 Incentive Plan, Mr. Zolintakis
was granted 50,000 restricted shares of Series A TCI Group tracking stock.
These restricted shares, as adjusted for the AT&T merger and subsequent
AT&T stock split, became 58,177 restricted shares of AT&T common stock. All
of the restricted shares vest in November 2000. At the end of 1998, the
restricted shares had an aggregate value of $2,765,625, based upon the
closing sales price per share of the Series A TCI Group tracking stock on
Nasdaq on December 31, 1998. Cash dividends on the restricted shares of
AT&T common stock are paid to Mr. Zolintakis.

(4) On December 29, 1998, pursuant to the 1998 Incentive Plan, these executive
officers were granted options in tandem with SARs to acquire shares of
TCI's Series A Liberty Media Group tracking stock. In the AT&T merger,
those options and tandem SARs were converted into options and rights with
respect to AT&T Class A Liberty Media Group tracking stock at an exercise
price of $21.62, as adjusted for a

79
<PAGE>

subsequent two-for-one stock split. The options and tandem SARs vest evenly
over five years on each anniversary of the date of grant. The options and
tandem SARs expire on December 29, 2008, subject to earlier termination in
certain events. Notwithstanding the vesting schedule as set forth in the
option agreements, the options and SARs will immediately vest and become
exercisable if the grantee's employment with Liberty terminates by reason
of disability or the grantee dies while employed by Liberty.

(5) Includes $21,540 which consists of the amount of premiums paid by Liberty
in fiscal 1998 pursuant to split dollar, whole life insurance policies for
the insured executive officer. Liberty will pay a portion of the premiums
annually until the first to occur of:

. 10 years from the date of the policy;

. the insured executive's death;

. the premiums are waived under a waiver of premium provision;

. the policy is terminated as set forth below; and

. premiums are prepaid in full for the 10-year period as set forth below.

The insured executive has granted an assignment of policy benefits in favor
of Liberty in the amounts of the premiums paid by Liberty. At the end of
such 10-year period or upon acceleration of premiums as described below,
the entire policy vests to the sole benefit of the insured executive and
Liberty will remove or cancel the assignment in its favor against the
policy. In the event of a change of control of Liberty, liquidation of
Liberty or sale of substantially all of the assets of Liberty, the policy
will immediately be prepaid in full through the tenth year, prior to such
event. Similarly, if the insured executive is dismissed for any reason
(except for conviction of a felony class miscarriage of responsibilities as
a Liberty officer), Liberty will immediately prepay and fully fund the
policy through the tenth year. Upon any of the foregoing events, the policy
will vest to the sole benefit of the insured executive. If, however, the
insured executive voluntarily chooses to terminate employment (and that
decision is not a result of pressure from Liberty to resign or a
resignation related to an adverse change in Liberty or its affiliates)
without cause, Liberty will have no further obligation to fund premiums,
but the policy will vest to the sole benefit of the insured executive.

(6) Amounts represent contributions to the TCI 401(k) Stock Plan (the "TCI
Stock Plan"). The TCI Stock Plan provides benefits upon an employee's
retirement which generally is when the employee reaches 65 years of age.
TCI Stock Plan participants may contribute up to 10% of their
compensation and TCI (by annual resolution of the TCI Board of Directors)
may contribute up to a matching 100% of the participants' contributions.
Participant contributions to the TCI Stock Plan are fully vested upon
contribution.

Generally, participants acquire a vested right in TCI contributions as
follows:

<TABLE>
<CAPTION>
Years of service Vesting Percentage
---------------- ------------------
<S> <C>
Less than 1................... 0%
1-2........................... 33%
2-3........................... 66%
3 or more..................... 100%
</TABLE>

With respect to TCI contributions made to the TCI Stock Plan in 1998,
Messrs. Bennett, Malone, Howard, Koff and Flowers are fully vested.

Directors who are not employees of TCI are ineligible to participate in the
TCI Stock Plan. Under the terms of the TCI Stock Plan, employees are
eligible to participate after three months of service.

Effective July 1, 1999, the named executive officers no longer participated
in the TCI Stock Plan. Instead, these officers participate in the Liberty
Media 401(k) Savings Plan. See "--Liberty Media 401(k) Savings Plan."

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<PAGE>

Option and SAR Grants in Last Fiscal Year. The following table sets forth
information regarding stock options granted in tandem with SARs to each of the
named executive officers during the year ended December 31, 1998 (numbers of
securities and dollar amounts present value in thousands).

Option and SAR Grants in the Last Fiscal Year

<TABLE>
<CAPTION>
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base Grant
Options Employees in Price Expiration Date Present
Name Granted (1) 1998 ($/Sh) Date Value (2)
- ---- ----------- ------------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Robert R. Bennett.... 6,000 35% $21.62 12/29/08 $170,520
Gary S. Howard....... 5,000 30% $21.62 12/29/08 $142,100
David B. Koff........ 1,200 7% $21.62 12/29/08 $ 34,104
Charles Y Tanabe..... 1,200 7% $21.62 12/29/08 $ 34,104
Peter N. Zolintakis.. 1,200 7% $21.62 12/29/08 $ 34,104
David J.A. Flowers... 250 1% $21.62 12/29/08 $ 7,105
</TABLE>
- --------
(1) On December 29, 1998, pursuant to the 1998 Incentive Plan, officers and
other employees of Liberty were granted options in tandem with SARs to
acquire TCI's Series A Liberty Media Group tracking stock. In the AT&T
merger, those options and tandem SARs were converted into options and
rights with respect to a total of 16,927,000 shares of AT&T Class A
Liberty Media Group tracking stock at an exercise price of $21.62, as
adjusted for a subsequent two-for-one stock split. The options and tandem
SARs vest evenly over five years on each anniversary of the date of grant.
The options and tandem SARs expire on December 29, 2008, subject to
earlier termination in certain events. Notwithstanding the vesting
schedule as set forth in the option agreements, the options and SARs will
immediately vest and become exercisable if the grantee's employment with
Liberty terminates by reason of disability or the grantee dies while
employed by Liberty.

(2) The values shown are based on the Black-Scholes model and are stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:

. a 6.15% discount rate;

. a volatility factor based upon the historical trading pattern of AT&T
Class A Liberty Media Group tracking stock;

. the 10-year option term; and

. the closing price of AT&T Class A Liberty Media Group tracking stock on
June 30, 1999.

The actual value an executive may realize will depend upon the extent to
which the stock price exceeds the exercise price on the date the option is
exercised. Accordingly, the value, if any, realized by an executive would
not necessarily be the value determined by the model.

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<PAGE>

Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values. The
following table sets forth information concerning exercises of stock options
and SARs by the named executive officers during the year ended December 31,
1998 (numbers of securities and dollar amounts in thousands).

Aggregated Option/SAR Exercises in the Last Fiscal Year and
Fiscal Year-End Option/SAR Values

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired Value December 31, 1998 (#) December 31, 1998
on Exercise Realized Exercisable/ ($) Exercisable/
Name (#)(1)(2) ($) Unexercisable (2) Unexercisable
- ---- ----------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Robert R. Bennett
Exercisable
TCI Group Series A..... -- -- 41 $ 1,679
TCI Liberty Media Group
Series A.............. -- -- 818 $28,224
TCI Ventures Group
Series A.............. -- -- 35 $ 574
Unexercisable
TCI Group Series A..... -- -- 60 $ 2,396
TCI Liberty Media Group
Series A.............. -- -- 3,936 $38,638
TCI Ventures Group
Series A.............. -- -- 52 $ 816

John C. Malone
Exercisable
TCI Group Series A..... 50 $1,575 1,070 $46,056
TCI Liberty Media Group
Series A.............. -- -- 912 $33,885
TCI Ventures Group
Series A.............. -- -- 960 $16,760
TCI Ventures Group
Series B.............. -- -- 560 $ 7,213
Unexercisable
TCI Group Series A..... -- -- 280 $11,394
TCI Liberty Media Group
Series A.............. -- -- 242 $ 8,285
TCI Ventures Group
Series A.............. -- -- 240 $ 3,901
TCI Ventures Group
Series B.............. -- -- 2,240 $28,851

Gary S. Howard
Exercisable
TCI Group Series A..... -- -- 161 $ 6,834
TCI Liberty Media Group
Series A.............. -- -- 79 $ 2,989
TCI Ventures Group
Series A.............. -- -- 138 $ 2,364
Unexercisable
TCI Group Series A..... -- -- 49 $ 1,977
TCI Liberty Media Group
Series A.............. -- -- 2,506 $ 7,235
TCI Ventures Group
Series A.............. -- -- 42 $ 684

Charles Y. Tanabe
Unexercisable
TCI Liberty Media Group
Series A.............. -- -- 600 $ 1,688

Peter N. Zolintakis
Unexercisable
TCI Liberty Media Group
Series A.............. -- -- 600 $ 1,688

David B. Koff
Exercisable
TCI Group Series A..... -- -- 4 $ 164
TCI Liberty Media Group
Series A.............. 10 $ 223 116 $ 4,033
TCI Ventures Group
Series A.............. -- -- 12 $ 198
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired Value December 31, 1998 (#) December 31, 1998
on Exercise Realized Exercisable/ ($) Exercisable/
Name (#)(1)(2) ($) Unexercisable (2) Unexercisable
- ---- ----------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Unexercisable
TCI Group Series A..... -- -- 4 $ 143
TCI Liberty Media Group
Series A.............. -- -- 753 $6,734
TCI Ventures Group
Series A.............. -- -- 3 $ 49

David J.A. Flowers
Exercisable
TCI Liberty Media Group
Series A.............. -- -- 150 $5,218
Unexercisable
TCI Liberty Media Group
Series A.............. -- -- 275 $5,296
</TABLE>
- --------
(1) Represents the number of shares underlying the SARs which were exercised in
1998.
(2) Amounts have not been adjusted for the AT&T merger or any stock splits
subsequent to December 31, 1998.

Employment Contracts

In connection with the AT&T merger, an employment agreement between Dr.
Malone and TCI was assigned to Liberty. The term of Dr. Malone's employment
agreement is extended daily so that the remainder of the employment term is
five years. The employment agreement was amended in June 1999 to provide for,
among other things, an annual salary of $2,600, subject to increase upon
approval of Liberty's board. Additionally, the employment agreement provides
for personal use of Liberty's aircraft and flight crew, limited to an aggregate
value of $200,000 per year, and payment or reimbursement of professional fees
and expenses incurred by Dr. Malone for estate and tax planning services.

Dr. Malone's employment agreement provides, among other things, for deferral
of a portion (not in excess of 40%) of the monthly compensation payable to him.
The deferred amounts will be payable in monthly installments over a 20-year
period commencing on the termination of Dr. Malone's employment, together with
interest thereon at the rate of 8% per annum compounded annually from the date
of deferral to the date of payment.

Dr. Malone's employment agreement also provides that, upon termination of his
employment by Liberty (other than for cause, as defined in the agreement) or if
Dr. Malone elects to terminate the agreement because of a change in control of
Liberty, all remaining compensation due under the agreement for the balance of
the employment term shall be immediately due and payable.

Dr. Malone's agreement provides that, during his employment with Liberty and
for a period of two years following the effective date of his termination of
employment with Liberty, unless termination results from a change in control of
Liberty, he will not be connected with any entity in any manner specified in
the agreement, which competes in a material respect with the business of
Liberty. The agreement provides, however, that Dr. Malone may own securities of
any corporation listed on a national securities exchange or quoted in The
Nasdaq Stock Market to the extent of an aggregate of 5% of the amount of such
securities outstanding.

For a period of 12 months following a change in control, as defined in Dr.
Malone's employment agreement, Liberty's ability to terminate Dr. Malone's
employment for cause will be limited to situations in which Dr. Malone has
entered a plea of guilty to, or has been convicted of, the commission of a
felony offense.

Dr. Malone's agreement also provides that in the event of termination of his
employment with Liberty, he will be entitled to receive 240 consecutive monthly
payments of $15,000 (increased at the rate of 12% per annum compounded annually
from January 1, 1988 to the date payment commences), the first of which will be

83
<PAGE>

payable on the first day of the month succeeding the termination of Dr.
Malone's employment. In the event of Dr. Malone's death, his beneficiaries will
be entitled to receive the foregoing monthly payments.

Liberty pays a portion of the annual premiums on three whole-life insurance
policies of which Dr. Malone is the insured and trusts for the benefit of
members of his family are the owners. The portion that Liberty pays is equal to
the "PS-58" costs, which represent the costs to buy one-year term insurance
coverage as set forth in IRS Pension Service Table No. 58. For the year ending
December 31, 1999, such amount will be $447,931. Liberty is the designated
beneficiary of the proceeds of such policies less an amount equal to the
greater of the cash surrender value thereof at the time of Dr. Malone's death
and the amounts of the premiums paid by the policy owners.

Dr. Malone deferred a portion of his monthly compensation under his previous
employment agreement. The obligation to pay that deferred compensation was
assumed by Liberty in connection with the AT&T merger. The compensation that he
deferred (together with interest on that compensation at the rate of 13% per
annum compounded annually from the date of deferral to the date of payment)
will continue to be payable under the terms of the previous agreement. The rate
at which interest accrues on the previously deferred compensation was
established in 1983 pursuant to the previous agreement.

Liberty Media 401(k) Savings Plan

Liberty maintains an employee benefit plan known as the Liberty Media 401(k)
Savings Plan. This plan is intended to be a qualified employee plan under
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986. An employee
must be an employee of Liberty or of an employer owned 80% or more by Liberty
(a "Participating Employer") and must complete three months of continuous
employment and be at least 18 years of age to participate in the plan. Credit
will be given for service with TCI, Liberty and their affiliates for
eligibility and vesting service under the plan. The employee will commence
participation as of the first payroll period following the employee's
completion of the eligibility requirements and his or her enrollment in the
plan.

Upon commencing participation, the participant may elect to make pre-tax
contributions, after-tax contributions, or both to the plan. All participant
contributions are made by payroll deduction and all participant contributions
may not exceed 10% of the participant's wages from the Participating Employer.
Pre-tax participant contributions are not subject to income tax when
contributed to the plan, but will be subject to FICA taxes when contributed to
the plan. Those pre-tax participant contributions (and earnings) will be taxed
to the participant when the participant receives a distribution from the plan.
Pre-tax participant contributions are limited to $10,000 for each year (as
adjusted for cost of living increases). After-tax participant contributions are
subject to income taxes and FICA taxes when contributed to the plan, but
earnings on those contributions will not be taxed to the participant until the
participant receives a distribution from the plan.

A participant may change the amount of his or her participant contributions
as of any prospective payroll period. Participant contributions always are 100%
vested. The participant may direct the investment of his or her participant
contributions, and earnings on those amounts, into a variety of investment
options, including the AT&T Class A Liberty Media Group Common Stock Fund and
the AT&T Common Stock Fund (the "Employer Stock Funds").

Only the first $160,000 (as adjusted in 2000 and thereafter for cost of
living increases) of any participant's wages is taken into account for all
purposes under the plan, as required by law.

Generally, Liberty will make a matching contribution to the plan for each
plan year equal to 100% of each participant's participant contributions to the
plan, unless Liberty, in its discretion, decides upon a different percentage
for the matching contribution. All Liberty contributions to the plan are
invested solely in the AT&T Class A Liberty Media Group Common Stock Fund.

84
<PAGE>

Liberty contributions to the plan become 33% vested after one year of
service, 66% vested after two years of service, and 100% vested after three
years of service. Generally, a year of service will be credited for each
twelve-month period of employment completed by the participant. In addition, a
participant will be 100% vested in his or her Liberty contributions upon
attaining normal retirement age (age 65), upon becoming totally disabled, or
upon the participant's death while employed with a Participating Employer.

Liberty contributions to the plan (and earnings on those contributions) on
behalf of a participant are not taxable to the participant until those amounts
are distributed from the plan. Liberty receives a deduction for the amounts it
contributes to the plan.

A participant can withdraw his or her participant contributions and Liberty
contributions while he or she remains employed only in the following limited
circumstances: upon attaining age 59 1/2, the participant may request a
withdrawal of all or any portion of his or her Liberty contributions account
(including earnings on such contributions) and his or her pre-tax participant
contributions account (including earnings on such contributions). A participant
may withdraw any portion of his or her after-tax participant contributions at
any time. Upon experiencing a financial hardship, a participant may request a
withdrawal of his or her pre-tax participant contributions (but not the
earnings on such contributions) in an amount necessary to meet the financial
need. A participant who takes a hardship withdrawal may not contribute to the
plan for 12 months after the withdrawal, and there are limitations on the
maximum salary reduction amounts that may be made in the year following the
year of the hardship withdrawal.

Upon terminating employment with Liberty, the participant may receive a
distribution of his or her entire vested account in the plan. If the vested
account equals $5,000 or less, the distribution will be made as soon as
administratively reasonable after the participant's termination of employment
occurs. If the participant's vested account exceeds $5,000, the participant
must consent to the distribution and such distribution will be made as soon as
administratively reasonable after the participant's consent to the distribution
is received. The participant must commence distributions from the plan by April
1 of the year following the year in which occurs the later of the participant's
attainment of age 70 1/2 or the participant's retirement.

Distributions will be made in cash, however, the participant may elect to
receive that portion of his or her vested account which is invested in the
Employer Stock Funds in whole shares of those Employer Stocks. Any qualified
distribution from the plan may be rolled over to an IRA or other qualified plan
upon the election of the participant.

A 10% federal penalty tax may be imposed on the taxable amount of certain
early distributions from the plan. The early distribution penalty tax does not
apply to distributions made on account of: the death or disability of the
participant, the participant's attainment of age 55 and separation from
service, the participant's payment of certain medical expenses, payment to an
alternate payee under a qualified domestic relations order, or the
participant's attainment of age 59 1/2.

Security Ownership of Management

The following table sets forth information with respect to the ownership by
each director and each of the named executive officers of Liberty and by all
directors and executive officers of Liberty as a group of shares of AT&T common
stock and Class A and Class B Liberty Media Group tracking stock, all of which
are equity securities of AT&T Corp., which owns 100% of the outstanding common
stock of TCI, which in turn indirectly owns 100% of the outstanding common
stock of Liberty. The table also sets forth information with respect to the
ownership by each director and each of the named executive officers of Liberty
and by all directors and executive officers of Liberty as a group of shares of
series A common stock of Liberty Digital, Inc., a subsidiary of Liberty. The
table also sets forth information with respect to the ownership by each
director and each of the named executive officers of Liberty and by all
directors and executive officers of Liberty as a group of shares of TCI's Class
B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock. The AT&T
Liberty Media Group tracking stock is intended to reflect the separate
performance of the businesses and assets attributed to the Liberty Media Group.
Liberty is included in the Liberty Media Group, and the businesses and assets
of Liberty and its subsidiaries constitute substantially all of the businesses
and assets of the Liberty Media Group. See "Relationship with AT&T and Certain
Related Transactions--Relationship with AT&T."

85
<PAGE>

The AT&T charter provides that, except as otherwise required by New York law
or any special voting rights of AT&T preferred stock, the holders of AT&T
common stock, AT&T Liberty Media Group tracking stock and AT&T preferred stock,
if any, entitled to vote with the common shareholders, vote together as one
class. No separate class vote is required for the approval of any matter except
as described in the next sentence. The following circumstances require the
separate class approval of the AT&T Liberty Media Group tracking stock:

. any amendment to the AT&T charter that would change the total number of
authorized shares or the par value of AT&T Liberty Media Group tracking
stock or that would adversely change the rights of AT&T Liberty Media
Group tracking stock;
. a Covered Disposition, which generally includes a sale or transfer by
AT&T of its equity interest in Liberty or Liberty Media Group LLC or a
grant of a pledge or other security interest in the equity interest of
AT&T in Liberty or Liberty Media Group LLC; and
. any merger or similar transaction in which AT&T Liberty Media Group
tracking stock is converted, reclassified or changed into or otherwise
exchanged for any consideration unless specified requirements are met
that are generally intended to ensure that the rights of the holders are
not materially altered and the composition of the holders is not
changed.

In a separate shareholder vote with respect to any of the foregoing matters,
the ownership of AT&T Class A Liberty Media Group and AT&T Class B Liberty
Media Group tracking stock indicated in the table below as beneficially owned
by (1) Dr. Malone would entitle him to cast 32.63% of the votes on such matter
and (2) by all directors and executive officers as a group would entitle them
to cast, in the aggregate, 32.96% of the votes on such matter. No other person
named in the table below had the right, at June 30, 1999, to cast 1% or more of
the votes on any such matter.

The following information is given as of June 30, 1999 and, in the case of
percentage ownership information, is based on 3,196,236,144 shares of AT&T
common stock, 1,156,716,104 shares of AT&T Class A Liberty Media Group tracking
stock, 108,430,704 shares of AT&T Class B Liberty Media Group tracking stock,
24,061,232 shares of Liberty Digital series A common stock and 1,552,490 shares
of TCI Class B Preferred Stock outstanding on that date. Shares of AT&T common
stock, AT&T Class A and Class B Liberty Media Group tracking stock and Liberty
Digital, Inc. series A common stock issuable upon exercise or conversion of
convertible securities are deemed to be outstanding for the purpose of
computing the percentage ownership and overall voting power of persons
beneficially owning such convertible securities, but have not been deemed to be
outstanding for the purpose of computing the percentage ownership or overall
voting power of any other person. So far as is known to Liberty, the persons
indicated below have sole voting power with respect to the shares indicated as
owned by them except as otherwise stated in the notes to the table.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Ownership of Voting
Name of Beneficial Owner Title of Class (in thousands) Class Power
- ------------------------ -------------- -------------- ------- ------
<S> <C> <C> <C> <C>
John C. Malone.......... AT&T common stock 34,826(/1/)(/2/) 1.09% 2.67%
Class A Liberty Media Group 3,220(/1/)(/2/) *
Class B Liberty Media Group 73,068(/1/)(/2/)(/3/) 67.03%
Liberty Digital Series A 0
TCI Class B Preferred 274(/4/) 17.62% *
Robert R. Bennett....... AT&T common stock 265(/5/)(/6/) * *
Class A Liberty Media Group 2,851(/5/) *
Class B Liberty Media Group 0
Liberty Digital Series A 40(/7/) * *
TCI Class B Preferred 1 * *
Gary S. Howard.......... AT&T common stock 44(/8/)(/9/) * *
Class A Liberty Media Group 227(/8/)(/9/) *
Class B Liberty Media Group 0
Liberty Digital Series A 0
TCI Class B Preferred 0
</TABLE>

86
<PAGE>

<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Ownership of Voting
Name of Beneficial Owner Title of Class (in thousands) Class Power
- ------------------------ -------------- -------------- ------- ------
<S> <C> <C> <C> <C>
Paul A. Gould........... AT&T common stock 0 *
Class A Liberty Media Group 753(/10/) *
Class B Liberty Media Group 214 *
Liberty Digital Series A 0
TCI Class B Preferred 12 * *

Jerome H. Kern.......... AT&T common stock 936(/11/)(/12/) * *
Class A Liberty Media Group 1,010(/11/)(/12/) *
Class B Liberty Media Group 0
Liberty Digital Series A 0
TCI Class B Preferred 0

John C. Petrillo........ AT&T common stock 198(/13/) * *
Class A Liberty Media Group 0
Class B Liberty Media Group 0
Liberty Digital Series A 0
TCI Class B Preferred 0

Larry E. Romrell........ AT&T common stock 292(/14/)(/15/) * *
Class A Liberty Media Group 1,181(/14/)(/15/) *
Class B Liberty Media Group 2 *
Liberty Digital Series A 0
TCI Class B Preferred 0

Daniel E. Somers........ AT&T common stock 120(/16/) * *
Class A Liberty Media Group 0
Class B Liberty Media Group 0
Liberty Digital Series A 0
TCI Class B Preferred 0

David B. Koff........... AT&T common stock 0 *
Class A Liberty Media Group 370(/17/) *
Class B Liberty Media Group 0
Liberty Digital Series A 40(/18/) * *
TCI Class B Preferred 0

Charles Y. Tanabe....... AT&T common stock 0 *
Class A Liberty Media Group 0
Class B Liberty Media Group 0
Liberty Digital Series A 0
TCI Class B Preferred 0

Peter N. Zolintakis..... AT&T common stock 58(/19/) * *
Class A Liberty Media Group 88 *
Class B Liberty Media Group 0
Liberty Digital Series A 0
TCI Class B Preferred 0

David J. A. Flowers..... AT&T common stock 1 * *
Class A Liberty Media Group 372(/20/) *
Class B Liberty Media Group 0
Liberty Digital Series A 0
TCI Class B Preferred 0

John D. Zeglis.......... AT&T common stock 516(/21/) * *
Class A Liberty Media Group 0
Class B Liberty Media Group 0
Liberty Digital Series A 0
TCI Class B Preferred 0
</TABLE>

87
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
All directors and
executive officers as a
group (15 persons)..... AT&T common stock 37,257(/22/)(/23/) 1.17% 2.76%
Class A Liberty Media Group 10,384(/3/)(/22/)(/23/) *
Class B Liberty Media Group 73,284(/22/)(/23/) 67.22%
Liberty Digital Series A 80(/24/) 1.71% *
TCI Class B Preferred 287(/4/) 18.46% *
</TABLE>
- --------
*Less than one percent
(1) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 162,897 shares of AT&T common stock; (b)
3,194,600 shares of AT&T Class A Liberty Media Group tracking stock; and
(c) 582,400 shares of AT&T Class B Liberty Media Group tracking stock.

(2) Includes 1,004,620 shares of AT&T common stock, 25,452 shares of AT&T
Class A Liberty Media Group tracking stock and 1,704,718 shares of AT&T
Class B Liberty Media Group tracking stock held by Dr. Malone's wife, Mrs.
Leslie Malone, as to which Dr. Malone has disclaimed beneficial ownership.

(3) In connection with the AT&T merger, TCI assigned to Liberty its rights
under a call agreement with Dr. Malone and Dr. Malone's wife (the
"Malones") and a call agreement with the Estate of Bob Magness, the Estate
of Betsy Magness, Gary Magness (individually and in certain representative
capacities) and Kim Magness (individually and in certain representative
capacities) (collectively, the "Magness Group"). As a result, Liberty has
the right, under certain circumstances, to acquire the AT&T Class B
Liberty Media Group tracking stock owned by the Malones and the Magness
Group. Further, in connection with the AT&T merger, TCI assigned to
Liberty its rights under a shareholders agreement with the Magness Group
and the Malones, pursuant to which, among other things, Dr. Malone has an
irrevocable proxy, under certain circumstances, to vote the AT&T Class B
Liberty Media Group tracking stock or any super voting class of equity
securities issued by Liberty held by the Magness Group. See "Relationship
with AT&T and Certain Related Transactions--Other Related Party
Transactions--Certain Rights to Purchase Liberty Media Group Tracking
Stock," below for additional information related to the call agreements
and the shareholders' agreement.

As a result of certain provisions of the shareholders' agreement referred
to above, Dr. Malone's beneficial ownership of AT&T Class B Liberty Media
Group tracking stock includes 23,895,583 shares held by the Magness Group.

(4) Includes 6,900 shares of TCI Class B Preferred Stock held by Dr. Malone's
wife, Mrs. Leslie Malone, as to which Dr. Malone has disclaimed beneficial
ownership.

(5) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 15,475 shares of AT&T common stock; and (b)
2,808,872 shares of AT&T Class A Liberty Media Group tracking stock.

(6) Includes 232,710 restricted shares of AT&T common stock, none of which are
currently vested.

(7) Assumes the exercise in full of stock options to acquire 40,000 shares of
Liberty Digital series A common stock, all of which are currently
exercisable.

(8) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 28,842 shares of AT&T common stock; and (b)
178,183 shares of AT&T Class A Liberty Media Group tracking stock.

(9) Includes 11,103 restricted shares of AT&T common stock and 11,350
restricted shares of AT&T Class A Liberty Media Group tracking stock, none
of which are currently vested.

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<PAGE>

(10) Includes beneficial ownership of 57,300 shares of AT&T Class A Liberty
Media Group tracking stock which may be acquired within 60 days pursuant
to stock options granted in tandem with stock appreciation rights.

(11) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 296,705 shares of AT&T common stock; and
(b) 629,551 shares of AT&T Class A Liberty Media Group tracking stock.

(12) Includes 481,267 restricted shares of AT&T common stock and 75,670
restricted shares of AT&T Class A Liberty Media Group tracking stock,
none of which are currently vested.

(13) Includes beneficial ownership of 195,944 shares of AT&T common stock
which may be acquired within 60 days pursuant to stock options.

(14) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 136,833 shares of AT&T common stock; and
(b) 1,004,292 shares of AT&T Class A Liberty Media Group tracking stock.

(15) Includes 149,456 restricted shares of AT&T common stock and 75,268
restricted shares of AT&T Class A Liberty Media Group tracking stock,
none of which are currently vested.

(16) Includes beneficial ownership of 118,998 shares of AT&T common stock
which may be acquired within 60 days pursuant to stock options.

(17) Includes beneficial ownership of 364,979 shares of AT&T Class A Liberty
Media Group tracking stock which may be acquired within 60 days pursuant
to stock options granted in tandem with stock appreciation rights.

(18) Assumes the exercise in full of stock options to acquire 40,000 shares of
Liberty Digital series A common stock, all of which are currently
exercisable.

(19) Includes 58,177 restricted shares of AT&T common stock, none of which are
currently vested.

(20) Includes beneficial ownership of 370,000 shares of AT&T Class A Liberty
Media Group tracking stock which may be acquired within 60 days pursuant
to stock options granted in tandem with stock appreciation rights.

(21) Includes beneficial ownership of 507,446 shares of AT&T common stock
which may be acquired within 60 days pursuant to stock options.

(22) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 1,463,140 shares of AT&T common stock; (b)
8,897,777 shares of AT&T Class A Liberty Media Group tracking stock; and
(c) 582,400 shares of AT&T Class B Liberty Media Group tracking stock.

(23) Includes 932,713 restricted shares of AT&T common stock and 162,288
restricted shares of AT&T Class A Liberty Media Group tracking stock,
none of which are currently vested.

(24) Assumes the exercise in full of stock options to acquire 80,000 shares of
Liberty Digital series A common stock, all of which are currently
exercisable.

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<PAGE>

RELATIONSHIP WITH AT&T AND CERTAIN RELATED TRANSACTIONS

Relationship with AT&T

Liberty is a wholly owned subsidiary of TCI, all of the common stock of which
is owned by AT&T. The businesses and assets of Liberty and its subsidiaries
constitute substantially all of the businesses and assets of AT&T's Liberty
Media Group, which was created in connection with the AT&T merger. The assets
attributed to the Liberty Media Group that are not also currently assets of
Liberty consist of 90,000 shares of common stock of The Associated Group, Inc.,
and interests in each of the "Covered Entities" and their respective properties
and assets. The Covered Entities are the following subsidiaries of AT&T: LMC
AGI, Inc., Liberty SP, Inc. and LMC Interactive, Inc. At such time as all of
the equity in, or all of the assets of, a company identified as a Covered
Entity are held by Liberty, that company will cease to be a Covered Entity. Two
companies that were identified in AT&T's certificate of incorporation as
Covered Entities have since been transferred to Liberty.

Neither Liberty SP, Inc. nor LMC AGI, Inc. currently has any significant
assets. LMC Interactive, Inc.'s assets consist of an 8% interest in Liberty
Digital. See "Business--Internet Services and Technology--Consolidated
Subsidiaries--Liberty Digital, Inc."

The Liberty Media Group also includes any proceeds of issuances or sales of
AT&T's Liberty Media Group tracking stock and any dividends or distributions
from Liberty or a Covered Entity.

AT&T's Liberty Media Group tracking stock, which is intended to reflect the
separate performance of the Liberty Media Group, is capital stock of AT&T. It
is not stock of Liberty.

In connection with the AT&T merger, a number of agreements were entered into
and governance arrangements put in place that address the relationship between
AT&T and Liberty.

Liberty Organizational Documents. The Liberty Charter provides that Liberty
will have three classes of directors, each of which is to have the same number
of directors, as follows:

. the Class A Directors, who are elected for a term of one year;

. the Class B Directors, who are elected for a term of seven years; and

. the Class C Directors, who are elected for a term of ten years.

The current Class B Directors and Class C Directors were designated by TCI
prior to the AT&T merger and, unless they resign, die or are otherwise removed,
will comprise two-thirds of the Liberty board until at least 2006. The members
of the Liberty board are only removable for cause (as defined in the Liberty
Charter) and, in the event of the death or resignation of a director in any
class, the remaining directors of that class are to choose a successor.

Under Delaware law, the Liberty board manages the business and affairs of
Liberty. In accordance with the Liberty Charter and bylaws, action by the
Liberty board generally requires the affirmative vote of a majority of the
directors present at a meeting at which a quorum is present, which majority
must include a majority of the Class B Directors and Class C Directors.

The officers of Liberty include the executive officers who were formerly in
charge of overseeing the businesses of TCI's former Liberty Media Group and TCI
Ventures Group. See "Management." The Liberty Charter provides that officers of
Liberty may only be removed by the Liberty board by the affirmative vote
described above. Similar governance arrangements were instituted with respect
to each of the Covered Entities.

Contribution Agreement. Liberty is a party to a Contribution Agreement
entered into immediately prior to the AT&T merger. The Contribution Agreement
provides that, in the event of a Triggering Event, Liberty will be obligated to
transfer all of its assets and liabilities to Liberty Media Group LLC, an
entity controlled by

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Liberty's current management through Liberty Management LLC, the managing
member, unless the Triggering Event is waived by Liberty Management LLC. The
subsidiary of AT&T that holds the stock of the Covered Entities and Liberty is
also a party to the Contribution Agreement and is obligated under the same
circumstances to contribute the Contributed Entities or their assets to Liberty
Media Group LLC. A Triggering Event will occur if the incumbent Class B and
Class C directors, and their successors, cease to constitute a majority of the
Liberty board, or Liberty Management LLC reasonably determines that such event
is reasonably likely to occur.

AT&T Tracking Stock Amendment. AT&T's certificate of incorporation was
amended in connection with the AT&T merger in order to authorize the AT&T
Liberty Media Group tracking stock. Of particular relevance to Liberty is a
provision that requires a separate class vote of the holders of Liberty Media
Group tracking stock to authorize a Covered Disposition, which generally
includes a sale or transfer by AT&T of its equity interest in Liberty or
Liberty Media Group LLC or a grant of a pledge or other security interest in
the equity interest of AT&T in Liberty or Liberty Media Group LLC. Such
separate approval would not be required in connection with a redemption
permitted by AT&T's amended certificate of incorporation of all of the
outstanding Liberty Media Group tracking stock in exchange for all of the
shares of common stock of a subsidiary of AT&T that holds all of the assets and
liabilities of the Liberty Media Group and satisfies certain other
requirements.

AT&T's amended certificate of incorporation also provides that neither the
Liberty Media Group nor the AT&T Common Stock Group will have any duty,
responsibility or obligation to refrain from any of the following:

. engaging in the same or similar activities or lines of business as any
member of the other group;

. doing business with any potential or actual supplier or customer of any
member of the other group; or

. engaging in, or refraining from, any other activities whatsoever
relating to any of the potential or actual suppliers or customers of any
member of the other group.

Further, neither the Liberty Media Group nor the AT&T Common Stock Group will
have any duty, responsibility or obligation:

. to communicate or offer any business or other corporate opportunity to
any other person (including any business or other corporate opportunity
that may arise that either group may be financially able to undertake,
and that are, from their nature, in the line of more than one group's
business and are of practical advantage to more than one group);

. to provide financial support to the other group (or any member thereof);
or

. otherwise to assist the other group.

The foregoing provisions of the AT&T certificate of incorporation do not
prevent any member of the Liberty Media Group (including Liberty) from entering
into written agreements with AT&T or any other member of the AT&T Common Stock
Group to define or restrict any aspect of the relationship between the groups.

Inter-Group Agreement. AT&T, for itself and on behalf of the members of the
Common Stock Group, on the one hand, and Liberty, Liberty Media Group LLC and
each Covered Entity, for themselves and on behalf of the members of the Liberty
Media Group, on the other hand, entered into the Inter-Group Agreement, in
connection with the AT&T merger. A summary of the material provisions of the
Inter-Group Agreement is set forth below.

Neither the AT&T Common Stock Group Nor the Liberty Media Group Is Required
to Offer Financial Support or Corporate Opportunities to the Other. In general,
neither the AT&T Common Stock Group nor the Liberty Media Group will have any
obligation or responsibility to provide financial support or offer

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corporate opportunities to the other group or to otherwise assist the other
group. Generally, neither group will have any rights to the tradenames,
trademarks or other intellectual property rights of the other group.

There are Restrictions on the Incurrence of Debt and Other Financial
Obligations. Neither the Liberty Media Group nor the AT&T Common Stock Group
may incur any debt or other obligation, including any preferred equity
obligation, that has or purports to have recourse to any member, or to the
assets of any member, of the other group. In addition, unless otherwise
expressly agreed between the two groups, no member of the Liberty Media Group
or the AT&T Common Stock Group may enter into any agreement, or incur any other
liability or obligation, that binds or purports to bind or impose any
liabilities or obligation on any member of the other group. AT&T may not
attribute any debt or other obligation to, or create, authorize or issue any
AT&T preferred stock that is attributed to, the Liberty Media Group without the
consent of the Liberty board.

The Liberty Media Group may not incur any debt, other than the refinancing of
debt without any increase in amount, that would cause the total indebtedness of
the Liberty Media Group at any time to be in excess of 25% of the total market
capitalization of the Liberty Media Group tracking stock, if the excess debt
would adversely affect the credit rating of AT&T. Prior to incurring any debt
that would exceed the 25% threshold, the Liberty Media Group is required to
consult with AT&T and, if requested by AT&T, with two nationally recognized
credit rating agencies to be selected by each of Liberty and AT&T to determine
if the incurrence of the excess debt would adversely affect the credit rating
of AT&T.

Each Group is Solely Responsible for its Costs and Liabilities;
Indemnification. Each of the Liberty Media Group and the AT&T Common Stock
Group will be solely responsible for all claims, obligations, liabilities and
costs arising from that group's operations and businesses, whether arising
before or after the AT&T merger.

Each of the Liberty Media Group and the AT&T Common Stock Group is required
to indemnify the other group and to hold the other group harmless against all
claims, liabilities, losses and expenses, including attorneys' fees, allocated
to the indemnifying group in accordance with the previous paragraph.

AT&T May Generally Not Allocate Corporate Overhead Expenses to the Liberty
Media Group. The AT&T Common Stock Group may not allocate general overhead
expenses to the Liberty Media Group, except (1) to the extent that the Liberty
Media Group receives specific services pursuant to services agreements or
similar arrangements between the AT&T Common Stock Group and the Liberty Media
Group and (2) if the Liberty Media Group uses the same independent accounting
firm as AT&T, an allocable share of the fees and expenses of such firm for
AT&T's annual audits.

Liberty Has a Limited Ability to Issue its own Stock. Liberty may issue
shares of its common stock and may authorize and issue shares of its preferred
stock only if, after giving effect to the issuance, AT&T would still be able to
include Liberty on its consolidated federal income tax return and Liberty would
remain a "Qualified Subsidiary" for purposes of the tax-free distribution rules
of Section 355 of the Code. Currently, Liberty would deconsolidate from AT&T if
Liberty issued an amount of shares that would result in neither AT&T nor a
subsidiary of AT&T owning at least 80% of the total combined voting power of
all classes of stock of Liberty entitled to vote and 80% of the fair market
value of all classes of stock of Liberty. For purposes of the preceding
sentence, "stock" does not include stock which is not entitled to vote, which
is limited and preferred as to dividends and does not participate in corporate
growth to any significant extent, which has redemption and liquidation rights
which do not exceed the issue price of such stock (except for a reasonable
redemption or liquidation premium), and which is not convertible into another
class of stock.

Any Proceeds from the Issuance of AT&T Liberty Media Group Tracking Stock
will be Contributed to Liberty. The net proceeds of any issuance or sale of
AT&T Liberty Media Group tracking stock are generally required to be
contributed by AT&T to Liberty. The parties have entered into a supplement to
the Inter-Group Agreement to provide an exception to this requirement and to
make alternative arrangements for the proposed acquisition of The Associated
Group, Inc.

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AT&T will Include in its SEC Reports Combined Financial Statements of the
Liberty Media Group. For so long as AT&T Liberty Media Group tracking stock is
outstanding, AT&T will include in its filings with the SEC combined financial
statements of the Liberty Media Group.

AT&T will Not Take Any Actions Involving the Equity of Liberty. AT&T has
also agreed that it will not, and will not permit any member of the AT&T
Common Stock Group to, directly or indirectly:

. sell, transfer, dispose of or otherwise convey, whether by merger,
consolidation, sale or contribution of assets or stock, or otherwise,
any direct or indirect equity interest of AT&T in Liberty;

. incur any indebtedness secured by, or pledge or grant a lien, security
interest or other encumbrance on, any direct or indirect equity interest
of AT&T in Liberty; or

. create any derivative instrument whose value is based on any direct or
indirect equity interest of AT&T in Liberty;

except that the foregoing will not apply to:

. any of the foregoing approved by the Liberty board by the affirmative
vote described under "--Liberty Organizational Documents" above;

. AT&T's issuance or sale of its own securities, other than indebtedness
secured by any direct or indirect equity interest of AT&T in Liberty and
other than any security convertible into or exercisable or exchangeable
for, or any derivative instrument whose value is based on, any direct or
indirect equity interest of AT&T in Liberty; or

. AT&T's participation in any merger, consolidation, exchange of shares or
other business combination transaction in which AT&T, or its successors,
continues immediately following the transaction to hold the same
interest in the business, assets and liabilities comprising the Liberty
Media Group that it held immediately prior to the transaction, other
than as a result of any action by Liberty or any other person included
in the Liberty Media Group.

AT&T has also agreed that for so long as any AT&T Liberty Media Group
tracking stock is outstanding, AT&T will not, and will not permit any member
of the AT&T Common Stock Group to, intentionally take any action that AT&T
knows would have the effect of deconsolidating Liberty from the AT&T
consolidated group for federal income tax purposes. This restriction will not
apply to certain dispositions or redemptions expressly contemplated by AT&T's
amended certificate of incorporation or to a Covered Disposition approved by
the separate class vote of the holders of AT&T Liberty Media Group tracking
stock.

Intercompany Agreement. In connection with the AT&T merger, AT&T, on behalf
of itself and the members of the Common Stock Group, and Liberty, on behalf of
itself and the members of the Liberty Media Group, entered into an
Intercompany Agreement, the material provisions of which are described below.

Preferred Vendor Status. Liberty will be granted preferred vendor status
with respect to access, timing and placement of new programming services. This
means that AT&T will use its reasonable efforts to provide digital basic
distribution of new services created by Liberty and its affiliates, on mutual
"most favored nation" terms and conditions and otherwise consistent with
industry practices, subject to the programming meeting standards that are
consistent with the type, quality and character of AT&T's cable services as
they may evolve over time.

Extension of Term of Affiliation Agreements. AT&T will agree to extend any
existing affiliation agreement of Liberty and its affiliates that expires on
or before March 9, 2004, to a date not before March 9, 2009, if most favored
nation terms are offered and the arrangements are consistent with industry
practice.

Interactive Video Services. AT&T will enter into arrangements with Liberty
for interactive video services under one of the following two arrangements,
which will be at the election of AT&T:

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. Pursuant to a five-year arrangement, renewable for an additional four-
year period on then-current most favored nation terms, AT&T will make
available to Liberty capacity equal to one 6 megahertz channel (in
digital form and including interactive enablement, first screen access
and hot links to relevant web sites--all to the extent implemented by
AT&T cable systems) to be used for interactive, category-specific video
channels that will provide entertainment, information and merchandising
programming. The foregoing, however, will not compel AT&T to disrupt
other programming or other channel arrangements. The suite of services
are to be accessible through advanced set-top devices or boxes deployed
by AT&T, except that, unless specifically addressed in a mutually
acceptable manner, AT&T will have no obligation to deploy set-top
devices or boxes of a type, design or cost materially different from
that it would otherwise have deployed. The content categories may
include, among others, music, travel, health, sports, books, personal
finance, automotive, home video sales and games; or

. AT&T may enter into one or more mutually agreeable ventures with Liberty
for interactive, category-specific video channels that will provide
entertainment, information and merchandising programming. Each venture
will be structured as a 50/50 venture for a reasonable commercial term
and provide that AT&T and Liberty will not provide interactive services
in the category(s) of interactive video services provided through the
venture for the duration of such term other than the joint venture
services in the applicable categories. When the distribution of
interactive video services occurs through a venture arrangement, AT&T
will share in the revenue and expense of the provision of the
interactive services pro rata to its ownership interest in lieu of the
commercial arrangements described in the preceding paragraph. At the
third anniversary of the formation of any such venture, AT&T may elect
to purchase the ownership interest of Liberty in the venture at fair
market value. The parties will endeavor to make any such transaction tax
efficient to Liberty.

Tax Sharing Agreement. Liberty, for itself and each member of the Liberty
Media Group, is a party to a tax sharing agreement that provides, among other
things, that:

. to the extent that the inclusion of the Liberty Media Group within the
consolidated U.S. federal income tax return (or any combined,
consolidated or unitary tax return) filed by a member of the AT&T Common
Stock Group increases tax liability for any period, the Liberty Media
Group will be responsible for paying the AT&T Common Stock Group an
amount equal to the increased tax liability; and

. to the extent that the Liberty Media Group's inclusion within the
consolidated U.S. federal income tax return (or any combined,
consolidated or unitary tax return) filed by a member of the AT&T Common
Stock Group reduces tax liability for any period, the AT&T Common Stock
Group will be responsible for paying the Liberty Media Group an amount
equal to the reduced tax liability.

The net operating loss for U.S. federal income tax purposes of the affiliated
group of which TCI was the common parent at the time of the AT&T merger (the
"TCI Affiliated Group") will be allocated to the Liberty Media Group (the
"Allocated NOL") to offset any obligations it would otherwise incur under the
tax sharing agreement for periods subsequent to March 9, 1999 (the date of the
AT&T merger). If the Liberty Media Group is deconsolidated for U.S. federal
income tax purposes from the affiliated group of which AT&T is the parent
corporation, the AT&T Common Stock Group will be required to pay the Liberty
Media Group an amount equal to the product of (a) the amount of the Allocated
NOL that has not been used as an offset to the Liberty Media Group's
obligations under the tax sharing agreement, and that has been, or is
reasonably expected to be, utilized by the AT&T Common Stock Group and (b) 35%.
Certain other tax carryovers of the TCI Affiliated Group will be allocated to
the AT&T Common Stock Group to offset any obligations it would otherwise incur
under the tax sharing agreement for periods subsequent to the AT&T merger on
March 9, 1999. In general, with respect to the TCI Affiliated Group, for
periods ending on or prior to March 9, 1999:

. the Liberty Media Group will pay the TCI Group any portion of regular
tax liability attributable to TCI's former Liberty Media Group or TCI
Ventures Group;

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. any regular tax losses or other tax attributes may be used by the
Liberty Media Group or the TCI Group without compensation to any other
group; and

. if the TCI Affiliated Group has an alternative minimum tax liability,
the group, if any, generating alternative minimum tax losses will be
paid for such losses to the extent that such losses reduce alternative
minimum tax liability of the TCI Affiliated Group but the Liberty Media
Group will not otherwise be required to pay its share of such
alternative minimum tax liability.

Facilities and Services Agreement. TCI and Liberty entered into a facilities
and services agreement effective upon the consummation of the AT&T merger.
Pursuant to the agreement, TCI provides Liberty with administrative and
operational services necessary for the conduct of its business, including, but
not limited to, such services as are generally performed by TCI's accounting,
finance, corporate, legal and tax departments. In addition, the agreement
provides Liberty with office space at TCI's facilities, permits Liberty to
obtain certain liability, property and casualty insurance under TCI's policies
and allows for the reciprocal use by TCI and Liberty of each other's aircraft.
Pursuant to the agreement, Liberty reimburses TCI for all direct expenses
incurred by TCI in providing services thereunder and a pro rata share of all
indirect expenses incurred by TCI in connection with the rendering of such
services, including a pro rata share of the salary and other compensation of
TCI employees performing services for Liberty and rental expenses for the
office space of TCI used by Liberty. The obligations of TCI to provide services
under the Agreement will continue in effect (A) until terminated by Liberty at
any time on not less than 180 days' notice to TCI, or by TCI at any time after
December 31, 2001, on not less than six months' notice to Liberty; or (B) until
March 31, 2000, with respect to the services of personnel and December 31,
2001, with respect to all other services. Liberty was allocated less than $1
million, $2 million and $11 million, respectively, in corporate and general and
administrative costs by TCI, for the seven months ended September 30, 1999, the
two months ended February 28, 1999 and the year ended December 31, 1998.

Other Related Party Transactions

Affiliation Agreements. TCI is party to affiliation agreements pursuant to
which it purchases programming from subsidiaries and affiliates of Liberty.
Certain of these agreements provide for penalties and charges in the event the
supplier's programming is not carried on TCI's cable systems or not delivered
to a contractually specified number of customers. Charges to TCI for such
programming is generally based on customary rates and often provide for
payments to TCI by Liberty's subsidiaries and business affiliates for marketing
support. In July 1997, TCI entered into a 25 year affiliation agreement with
Encore Media Group pursuant to which TCI is obligated to pay monthly fixed
amounts in exchange for unlimited access to Encore and STARZ! programming. Also
in 1997, in connection with the merger of Liberty Digital and DMX, TCI
transferred to Liberty Digital the right to receive all revenue from sales of
DMX music services to TCI's residential and commercial subscribers, net of an
amount equal to 10% of revenue from such sales to residential subscribers and
net of the revenue otherwise payable to DMX as license fees under TCI's
existing affiliation agreements. Liberty received $125 million, $43 million and
$162 million in revenue for programming services provided to TCI for the seven
months ended September 30, 1999, the two months ended February 28, 1999, and
the year ended December 31, 1998, respectively.

Business Relationships with Directors. In connection with the AT&T merger,
Liberty paid Jerome H. Kern, a director of Liberty, the sum of $10 million for
his services in negotiating the merger agreement and completing the merger.
Liberty also paid Paul A. Gould, a director of Liberty, the sum of $1 million
for his services on the special committee of TCI's board of directors in
evaluating the AT&T merger and the consideration to be received by TCI's
stockholders.

From time to time, Liberty retains Peter Kern and/or Gemini Associates, Inc.,
a company controlled by Peter Kern, to act as an advisor on certain business
transactions. Peter Kern is the son of Jerome H. Kern, a director of Liberty.
In connection with these engagements, Peter Kern and Gemini Associates received
approximately $1.0 million from Liberty in each of 1998 and 1999, and
approximately $300,000 from TCI in 1998.

Mr. Kern was Special Counsel with the law firm of Baker & Botts, L.L.P. from
July 1996 to June 1998. Liberty has retained Baker & Botts to perform various
legal services from time to time for Liberty and certain of its subsidiaries
and business affiliates during its last fiscal year as well as its current
fiscal year.

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Indemnification of Certain of Our Employees. In connection with the AT&T
merger, certain employees (including directors and executive officers) of
Liberty who were officers or directors of TCI prior to the AT&T merger received
undertakings of indemnification from TCI with respect to the effects of U.S.
federal excise taxes that may become payable by them as a result of the AT&T
merger and the resulting change in control of TCI. Pursuant to the Inter-Group
Agreement, each of the Liberty Media Group and the AT&T Common Stock Group are
responsible for all obligations to their respective officers and employees.
Accordingly, following the AT&T merger, these tax protection undertakings to
Liberty Media Group officers and employees became Liberty's obligations.

Certain Rights to Purchase Liberty Media Group Tracking Stock. On February 9,
1998, in connection with the settlement of certain legal proceedings relative
to the Estate of Bob Magness (the "Magness Estate"), the late founder and
former Chairman of the Board of TCI, TCI entered into a call agreement with Dr.
Malone and Dr. Malone's wife (together with Dr. Malone, the "Malones"), and a
call agreement with the Estate of Bob Magness, the Estate of Betsy Magness,
Gary Magness (individually and in certain representative capacities) and Kim
Magness (individually and in certain representative capacities) (collectively,
the "Magness Group"). Under these call agreements, each of the Magness Group
and the Malones granted to TCI the right to acquire all of the shares of TCI's
common stock owned by them ("High Voting Shares") that entitle the holder to
cast more than one vote per share (the "High-Voting Stock") upon Dr. Malone's
death or upon a contemplated sale of the High-Voting Shares (other than a
minimal amount) to third parties. In either such event, TCI had the right to
acquire such shares at a price equal to the then market price of shares of
TCI's common stock of the corresponding series that entitled the holder to cast
no more than one vote per share (the "Low-Voting Stock"), plus a 10% premium,
or in the case of a sale, the lesser of such price and the price offered by the
third party. In addition, each call agreement provides that if TCI were ever to
be sold to a third party, then the maximum premium that the Magness Group or
the Malones would receive for their High-Voting Shares would be the price paid
for shares of the relevant series of Low-Voting Stock by the third party, plus
a 10% premium. Each call agreement also prohibits any member of the Magness
Group or the Malones from disposing of their High-Voting Shares, except for
certain exempt transfers (such as transfers to related parties or to the other
group or public sales of up to an aggregate of 5% of their High-Voting Shares
after conversion to the respective series of Low-Voting Stock) and except for a
transfer made in compliance with TCI's purchase right described above. TCI paid
$150 million to the Malones and $124 million to the Magness Group in
consideration of their entering into the call agreements, of which an aggregate
of $140 million was allocated to and paid by Liberty.

Also in February 1998, TCI, the Magness Group and the Malones entered into a
shareholders' agreement which provides for, among other things, certain
participation rights by the Magness Group with respect to transactions by Dr.
Malone, and certain "tag-along" rights in favor of the Magness Group and
certain "drag-along" rights in favor of the Malones, with respect to
transactions in the High-Voting Stock. Such agreement also provides that a
representative of Dr. Malone and a representative of the Magness Group will
consult with each other on all matters to be brought to a vote of TCI's
shareholders, but if a mutual agreement on how to vote cannot be reached, Dr.
Malone will vote the High-Voting Stock owned by the Magness Group pursuant to
an irrevocable proxy granted by the Magness Group.

In connection with the AT&T merger, Liberty became entitled to exercise TCI's
rights and became subject to its obligations under the call agreement and the
shareholders' agreement with respect to the AT&T Liberty Media Group Class B
tracking stock acquired by the Malones and the Magness Group as a result of the
AT&T merger. If Liberty were to exercise its call right under the call
agreement with the Malones or the Magness Group, it may also be required to
purchase High-Voting Shares of the other group if such group exercises its
"tag-along" rights under the shareholders' agreement.

Other Transactions. National Digital Television Center, a subsidiary of TCI
("NDTC"), leases transponder facilities to certain Liberty subsidiaries.
Charges by NDTC for such arrangements were $14 million for the seven months
ended September 30, 1999, $4 million for the two months ended February 28, 1999
and $25 million for the year ended December 31, 1998.

In addition, effective as of December 16, 1997, NDTC, on behalf of TCI and
other cable operators that may be designated from time to time by NDTC, entered
into an agreement (the "Digital Terminal Purchase Agreement") with General
Instrument Corporation to purchase advanced digital set-top terminals during
the calendar years 1998, 1999 and 2000. In connection with the Digital Terminal
Purchase Agreement, GI granted

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to NDTC warrants to purchase shares of GI common stock, a portion of which
become exercisable each year if a sufficient number of set-top terminals is
purchased during that year. The 1998 purchase commitment of 1.5 million set-top
terminals was met, resulting in warrants to purchase 4,928,000 shares of GI
common stock vesting on January 1, 1999. The purchase commitment for 1999 is
1,750,000 set-top terminals, of which 930,000 set-top terminals were purchased
during the first six months of 1999. If this commitment is satisfied, warrants
to purchase an additional 5,750,000 shares of GI common stock will vest on
January 1, 2000. The purchase commitment for 2000 is 3,250,000 set-top
terminals, which, if satisfied, will result in warrants to purchase an
additional 10,678,000 shares of GI common stock vesting on January 1, 2001. In
connection with the AT&T merger, the GI warrants were transferred to Liberty in
exchange for approximately $176 million in cash. The AT&T Common Stock Group
has agreed to pay the Liberty Media Group $8.25, adjusted as appropriate for
any change in the capitalization of GI, for each warrant that does not vest as
a result of any purchase commitment not having been met. In addition, no member
of the AT&T Common Stock Group may amend or modify the Digital Terminal
Purchase Agreement without the prior written consent of the Liberty Media
Group.

Pursuant to a merger agreement among AT&T, Liberty, A-Group Merger Corp. and
The Associated Group, Inc., Associated Group will be acquired by and become a
member of the Liberty Media Group. Associated Group is principally engaged in
the ownership and operation of interests in various communications-related
businesses. Associated Group's two primary assets are approximately 21.4
million shares of stock of Teligent, Inc., a full-service, facilities-based
communications company, in which Associated Group has an approximate 40%
interest, and TruePosition, Inc., a subsidiary of Associated Group which
provides location services for wireless carriers and users designed to
determine the location of any wireless transmitters, including cellular and PCS
telephones. On December 2, 1999, the closing price of Teligent's stock was
$55.50. Associated Group also owns:

. approximately 19.7 million shares of AT&T common stock,

. approximately 23.4 million shares of AT&T Class A Liberty Media Group
tracking stock,

. approximately 5.3 million shares of AT&T Class B Liberty Media Group
tracking stock,

. five radio broadcasting stations, and

. interests in companies that operate cellular telephone systems in the
United States and Mexico.

In the merger, shares of Associated Group common stock will be converted into
shares of AT&T common stock and shares of AT&T Class A Liberty Media Group
tracking stock, subject to the applicable exchange ratios. Immediately prior to
the merger, Liberty will deliver an amount of cash to AT&T for the repayment of
certain indebtedness to Associated Group immediately following the merger. As
soon as reasonably practicable after the merger, AT&T and Liberty will cause:

. the surviving entity to be converted into a limited liability company
under Delaware law;

. all shares of AT&T common stock and AT&T Liberty Media Group tracking
stock owned by the surviving entity to be retired; and

. the assets of the surviving entity (except for its interests in
Teligent) to be transferred to Liberty.

Pursuant to an asset purchase agreement with CSG Systems International, Inc.,
a member of the former TCI Ventures Group acquired warrants to purchase shares
of common stock of CSG, related registration rights and a right to receive a
contingent cash payment of $12,000,000. In connection with the AT&T merger,
these warrants and rights were transferred to a subsidiary of Liberty. On April
13, 1999, the CSG warrants were exercisable for 3,000,000 shares of common
stock of CSG, and AT&T purchased these warrants for $25.075 per share, or an
aggregate purchase price of $75,225,000. The related registration rights were
also assigned to AT&T on that date. The vesting of the CSG warrants is
contingent on AT&T meeting certain subscriber commitments to CSG. If any
warrants do not vest, a Liberty subsidiary must repurchase the unvested
warrants from AT&T, with interest at 6% from April 12, 1999. Liberty has
guaranteed the obligation of its subsidiary to repurchase any unvested
warrants.

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THE EXCHANGE OFFER

Purpose of the Exchange Offer

We issued and sold the old securities on July 7, 1999 in a private
placement. In connection with that issuance and sale, we entered into a
registration rights agreement with the initial purchasers of the old
securities. In the registration rights agreement we agreed to:

. file with the SEC a registration statement within 90 days of the
original issue date of the old securities relating to an offer to
exchange the old securities for the new securities;

. use our reasonable best efforts to cause the registration statement to
be declared effective under the Securities Act within 180 days of the
original issue date of the old securities,

. use our best efforts to keep the registration statement effective until
the closing of the exchange offer, and

. use our best efforts to cause the exchange offer to be completed not
later than 210 days following the original issue date of the old
securities.

The exchange offer being made by this prospectus is intended to satisfy our
obligations under the registration rights agreement. If we fail to timely
comply with these obligations, we will be required to pay additional interest
to holders of old securities until we have complied with these obligations.
See "Description of the Securities--Registration Rights; Additional Interest."

Once the exchange offer is complete, we will have no further obligation to
register any of the old securities not tendered to us in the exchange offer.
See "Risk Factors--Your failure to participate in the exchange offer could
limit opportunities to sell your securities in the future."

Effect of the Exchange Offer

Based on interpretations by the SEC staff set forth in Exxon Capital
Holdings Corporation (available April 13, 1989), Morgan Stanley & Co.
Incorporated (available June 5, 1991), Shearman & Sterling (available July 7,
1993) and other no-action letters issued to third parties, we believe that you
may offer for resale, resell and otherwise transfer the new securities issued
to you in the exchange offer without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided:

. you are acquiring the new securities in the ordinary course of your
business;

. you have no arrangements or understandings with any person to
participate in the new offer for the purpose of distributing the new
securities; and

. you are not our "affiliate," within the meaning of Rule 405 under the
Securities Act.

If you are not able to make these representations, you are a "restricted
holder." As a restricted holder, you will not be able to participate in the
exchange offer, you may not rely on the interpretations of the SEC staff set
forth in the no-action letters referred to above and you may only sell your
old securities in compliance with the registration and prospectus delivery
requirements of the Securities Act or under an exemption from the registration
requirements of the Securities Act or in a transaction not subject to the
Securities Act.

In addition, each broker-dealer that is not a restricted holder that
receives new securities for its own account in exchange for old securities
that it acquired as a result of market-making activities or other trading
activities may be a statutory underwriter and must acknowledge in the letter
of transmittal that it will deliver a prospectus meeting the requirements of
the Securities Act upon any resale of such new securities. This prospectus may
be used by those broker-dealers to resell new securities they receive pursuant
to the exchange offer. We have agreed that, for a period of 90 days after the
completion of the exchange offer, we will make this prospectus available to
any broker-dealer for use by the broker-dealer in any resale. By acceptance of
this exchange offer, each broker-dealer that receives new securities under the
exchange offer agrees to notify us prior to using this prospectus in a sale or
transfer of new securities. See "Plan of Distribution."

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Except as described above, this prospectus may not be used for an offer to
resell, resale or other transfer of new securities.

To the extent old securities are tendered and accepted in the exchange
offer, the principal amount of old securities that will be outstanding will
decrease with a resulting decrease in the liquidity in the market for the old
securities. Old securities that are still outstanding following the completion
of the exchange offer will continue to be subject to transfer restrictions.

Terms of the Exchange Offer

Upon the terms and subject to the conditions of the exchange offer described
in this prospectus and in the accompanying letter of transmittal, we will
accept for exchange all old securities validly tendered and not withdrawn
before 5:00 p.m., New York City time, on the expiration date. We will issue
$1,000 principal amount of new notes in exchange for each $1,000 principal
amount of old notes accepted in the exchange offer and $1,000 principal amount
of new debentures in exchange for each $1,000 principal amount of old
debentures accepted in the exchange offer. You may tender some or all of your
old securities pursuant to the exchange offer. However, old securities may be
tendered only in integral multiples of $1,000 principal amount.

The new securities will be substantially identical to the old securities,
except that:

. the offering of the new securities has been registered under the Act;

. the new securities will not be subject to transfer restrictions; and

. the new securities will be issued free of any covenants regarding
registration rights and free of any provision for additional interest.

The new securities will evidence the same debt as the old securities and
will be issued under and be entitled to the benefits of the same indenture
under which the old securities were issued. The old notes and the new notes,
on the one hand, and the old debentures and the new debentures, on the other
hand, will each be treated as a single series of debt securities under the
indenture. For a description of the terms of the indenture and the new
securities, see "Description of the Securities."

The exchange offer is not conditioned upon any minimum aggregate principal
amount of old securities being tendered for exchange. As of the date of this
prospectus, an aggregate of $750 million principal amount of old notes is
outstanding and an aggregate of $500 million principal amount of old
debentures is outstanding. This prospectus is being sent to all registered
holders of old securities. There will be no fixed record date for determining
registered holders of old securities entitled to participate in the exchange
offer.

We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Act and the Securities Exchange Act and the
rules and regulations of the SEC. Holders of old securities do not have any
appraisal or dissenters rights under law or under the indenture in connection
with the exchange offer. Old securities that are not tendered for exchange in
the exchange offer will remain outstanding and continue to accrue interest and
will be entitled to the rights and benefits their holders have under the
indenture relating to the old securities.

We will be deemed to have accepted for exchange validly tendered old
securities when we have given oral or written notice of the acceptance to the
exchange agent. The exchange agent will act as agent for the tendering holders
of old securities for the purposes of receiving the exchange securities from
us and delivering the new securities to the tendering holders. Subject to the
terms of the registration rights agreement, we expressly reserve the right to
amend or terminate the exchange offer, and not to accept for exchange any old
securities not previously accepted for exchange, upon the occurrence of any of
the conditions specified below under "--Conditions." All old securities
accepted for exchange will be exchanged for new securities promptly following
the expiration date. If we decide for any reason to delay for any period our
acceptance of any old securities for exchange, we will extend the expiration
date for the same period.

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If we do not accept for exchange any tendered old securities because of an
invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, such unaccepted old securities will be returned,
without expense, to the holder tendering them or the appropriate book-entry
will be made, in each case, as promptly as practicable after the expiration
date.

We are not making, nor is our board of directors making, any recommendation
to you as to whether to tender or refrain from tendering all or any portion of
your old securities in the exchange offer. No one has been authorized to make
any such recommendation. You must make your own decision whether to tender in
the exchange offer and, if you decide to do so, you must also make your own
decision as to the aggregate amount of old securities to tender after reading
this prospectus and the letter of transmittal and consulting with your
advisers, if any, based on your own financial position and requirements.

Expiration Date; Extensions; Amendments

The term "expiration date" means 5:00 p.m., New York City time, on January
13, 2000, unless we, in our sole discretion, extend the exchange offer, in
which case the term "expiration date" shall mean the latest date and time to
which the exchange offer is extended.

If we determine to extend the exchange offer, we will notify the exchange
agent of any extension by oral or written notice. We will notify the registered
holders of old securities of the extension no later than 9:00 a.m., New York
City time, on the business day immediately following the previously scheduled
expiration date.

We reserve the right, in our sole discretion:

. to delay accepting for exchange any old securities,

. to extend the exchange offer or to terminate the exchange offer and to
refuse to accept old securities not previously accepted if any of the
conditions set forth below under "--Conditions" have not been satisfied
by the expiration date, or

. subject to the terms of the registration rights agreement, to amend the
terms of the exchange offer in any manner.

Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of old securities. If we amend the exchange offer in a manner that we
determine to constitute a material change, we will promptly disclose the
amendment in a manner reasonably calculated to inform the holders of the old
securities of the amendment.

Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the exchange offer, we will have no obligation to publish, advertise or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.

During any extension of the exchange offer, all old securities previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange. We will return any old securities that we do not accept for exchange
for any reason without expense to the tendering holder as promptly as
practicable after the expiration or earlier termination of the exchange offer.

Interest on the New Securities and the Old Securities

Any old notes not tendered or accepted for exchange will continue to accrue
interest at the rate of 7 7/8% per annum, and any old debentures not tendered
or accepted for exchange will continue to accrue interest at the rate of 8 1/2%
per annum, in each case in accordance with their terms. The new notes will
accrue interest at the rate of 7 7/8% per annum from the date of the last
periodic payment of interest on the old notes or, if no interest has been paid,
from the original issue date of the old notes. The new debentures will accrue
interest at the rate

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of 8 1/2% per annum from the date of the last periodic payment of interest on
the old debentures or, if no interest has been paid, from the original issue
date of old debentures. Interest on the new notes and the new debentures and
any old notes and old debentures not tendered or accepted for exchange will be
payable semi-annually in arrears on January 15 and July 15 of each year,
commencing on January 15, 2000.

Procedures for Tendering

Only a registered holder of old securities may tender those securities in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the letter of transmittal, have the signatures thereon guaranteed if
required by the letter of transmittal, and mail or otherwise deliver such
letter of transmittal, together with all other documents required by the letter
of transmittal, to the exchange agent at one of the addresses set forth below
under "--Exchange Agent," before 5:00 p.m., New York City time, on the
expiration date. In addition, either:

. the exchange agent must receive, before the expiration date, a timely
confirmation of a book-entry transfer of the tendered old securities
into the exchange agent's account at The Depository Trust Company ("DTC"
or the "depositary") according to the procedure for book-entry transfer
described below; or

. the holder must comply with the guaranteed delivery procedures described
below.

A tender of old securities by a holder that is not withdrawn prior to the
expiration date will constitute an agreement between that holder and us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.

The method of delivery of old securities, letters of transmittal and all
other required documents to the exchange agent, including delivery through DTC,
is at the holder's election and risk. Instead of delivery by mail, we recommend
that holders use an overnight or hand delivery service. If delivery is by mail,
we recommend that holders use certified or registered mail, properly insured,
with return receipt requested. In all cases, holders should allow sufficient
time to assure delivery to the exchange agent before the expiration date.
Holders should not send letters of transmittal or other required documents to
us. Holders may request their respective brokers, dealers, commercial banks,
trust companies or other nominees to effect the above transactions for them.

Any beneficial owner whose old securities are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender those securities should contact the registered holder promptly and
instruct it to tender on the beneficial owner's behalf.

We will determine, in our sole discretion, all questions as to the validity,
form, eligibility (including time of receipt), acceptance of tendered old
securities and withdrawal of tendered old securities, and our determination
will be final and binding. We reserve the absolute right to reject any and all
old securities not properly tendered or any old securities the acceptance of
which would, in the opinion of us or our counsel, be unlawful. We also reserve
the absolute right to waive any defects or irregularities or conditions of the
exchange offer as to any particular old securities either before or after the
expiration date. Our interpretation of the terms and conditions of the exchange
offer as to any particular old securities either before or after the expiration
date, including the instructions in the letter of transmittal, will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old securities for exchange must be cured within
such time as we shall determine. Although we intend to notify holders of any
defects or irregularities with respect to tenders of old securities for
exchange, neither we nor the exchange agent nor any other person shall be under
any duty to give such notification, nor shall any of them incur any liability
for failure to give such notification. Tenders of old securities will not be
deemed to have been made until all defects or irregularities have been cured or
waived. Any old securities received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the exchange agent to the tendering holders or, in
the case of old securities delivered by book-entry transfer within DTC, will be
credited

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to the account maintained within DTC by the participant in DTC which delivered
such old securities, unless otherwise provided in the letter of transmittal,
as soon as practicable following the expiration date.

In addition, we reserve the right in our sole discretion (a) to purchase or
make offers for any old securities that remain outstanding after the
expiration date, (b) as set forth below under "--Conditions," to terminate the
exchange offer and (c) to the extent permitted by applicable law, purchase old
securities in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the exchange offer.

By signing, or otherwise becoming bound by, the letter of transmittal, each
tendering holder of old securities (other than certain specified holders) will
represent to us that:

. it is acquiring the new securities in the ordinary course of its
business;

. it has no arrangements or understandings with any person to participate
in the exchange offer for the purpose of distributing the new
securities; and

. it is not our "affiliate," within the meaning of Rule 405 under the
Securities Act, or, if it is our affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable.

If the tendering holder is a broker-dealer that will receive new securities
for its own account in exchange for old securities that were acquired as a
result of market-making activities or other trading activities, it may be
deemed to be an "underwriter" within the meaning of the Securities Act. Any
such holder will be required to acknowledge in the letter of transmittal that
it will deliver a prospectus in connection with any resale of these new
securities. However, by so acknowledging and by delivering a prospectus, the
holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.

Book-Entry Transfer

The exchange agent will establish a new account or utilize an existing
account with respect to the old securities at DTC promptly after the date of
this prospectus, and any financial institution that is a participant in DTC's
systems may make book-entry delivery of old securities by causing DTC to
transfer these old securities into the exchange agent's account in accordance
with DTC's procedures for transfer. However, the exchange for the old
securities so tendered will only be made after timely confirmation of this
book-entry transfer of old securities into the exchange agent's account, and
timely receipt by the exchange agent of an agent's message and any other
documents required by the letter of transmittal. The term "agent's message"
means a message transmitted by DTC to, and received by, the exchange agent and
forming a part of a book-entry confirmation, that states that DTC has received
an express acknowledgment from a participant in DTC tendering old securities
that are the subject of the book-entry confirmation stating (1) the aggregate
principal amount of old securities that have been tendered by such
participant, (2) that such participant has received and agrees to be bound by
the terms of the letter of transmittal and (3) that we may enforce such
agreement against the participant.

Although delivery of old securities must be effected through book-entry
transfer into the exchange agent's account at DTC, the letter of transmittal,
properly completely and validly executed, with any required signature
guarantees, or an agent's message in lieu of the letter of transmittal, and
any other required documents, must be delivered to and received by the
exchange agent at one of its addresses listed below under "--Exchange Agent,"
before 5:00 p.m., New York City time, on the expiration date, or the
guaranteed delivery procedure described below must be complied with.

Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.

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All references in this prospectus to deposit or delivery of old securities
shall be deemed to also refer to DTC's book-entry delivery method.

Guaranteed Delivery Procedures

Holders who wish to tender their old securities and (1) whose old securities
are not immediately available or (2) who cannot deliver a confirmation of book-
entry transfer of old securities into the exchange agent's account at DTC, the
letter of transmittal or any other required documents to the exchange agent
prior to the expiration date or (3) who cannot complete the procedure for book-
entry transfer on a timely basis, may effect a tender if:

. the tender is made through an eligible institution;

. before the expiration date, the exchange agent receives from the
eligible institution a properly completed and duly executed notice of
guaranteed delivery, by facsimile transmission, mail or hand delivery,
listing the principal amount of old securities tendered, stating that
the tender is being made thereby and guaranteeing that, within three New
York Stock Exchange, Inc. trading days after the expiration date, a duly
executed letter of transmittal together with a confirmation of book-
entry transfer of such old securities into the exchange agent's account
at DTC, and any other documents required by the letter of transmittal
and the instructions thereto, will be deposited by such eligible
institution with the exchange agent; and

. the properly completed and executed letter of transmittal and a
confirmation of book-entry transfer of all tendered old securities into
the exchange agent's account at DTC and all other documents required by
the letter of transmittal are received by the exchange agent within
three New York Stock Exchange, Inc. trading days after the expiration
date.

Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old securities according to the
guaranteed delivery procedures described above.

Withdrawal of Tenders

Except as otherwise provided in this prospectus, tenders of old securities
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
expiration date.

For a withdrawal to be effective, the exchange agent must receive a written
or facsimile transmission notice of withdrawal at one of its addresses set
forth below under "--Exchange Agent." Any notice of withdrawal must:

. specify the name of the person who tendered the old securities to be
withdrawn;

. identify the old securities to be withdrawn, including the principal
amount of such old securities;

. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old securities were tendered and
include any required signature guarantees; and

. specify the name and number of the account at DTC to be credited with
the withdrawn old securities and otherwise comply with the procedures of
DTC.

We will determine, in our sole discretion, all questions as to the validity,
form and eligibility (including time of receipt) of any notice of withdrawal,
and our determination shall be final and binding on all parties. Any old
securities so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer and no new securities will be
issued with respect thereto unless the old securities so withdrawn are validly
retendered. Properly withdrawn old securities may be retendered by following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the expiration date.

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Any old securities that are tendered for exchange through the facilities of
DTC but that are not exchanged for any reason will be credited to an account
maintained with DTC for the old securities as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer.

Conditions

Despite any other term of the exchange offer, we will not be required to
accept for exchange, or to issue new securities in exchange for, any old
securities, and we may terminate the exchange offer as provided in this
prospectus prior to the expiration date, if:

. the exchange offer, or the making of any exchange by a holder of old
securities, would violate applicable law or any applicable
interpretation of the SEC Staff; or

. the old securities are not tendered in accordance with the exchange
offer; or

. you do not represent that you are acquiring the new securities in the
ordinary course of your business and that you have no arrangement or
understanding with any person to participate in a distribution of the
new securities and you do not make any other representations as may be
reasonably necessary under applicable SEC rules, regulations or
interpretations to render available the use of an appropriate form for
registration of the new securities under the Securities Act; or

. any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer.

These conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any of these conditions or may
be waived by us, in whole or in part, at any time and from time to time in our
reasonable discretion. Our failure at any time to exercise any of the foregoing
rights shall not be deemed a waiver of the right and each right shall be deemed
an ongoing right which may be asserted at any time and from time to time.

If we determine in our reasonable judgment that any of the conditions are not
satisfied, we may:

. refuse to accept and return to the tendering holder any old securities
or credit any tendered old securities to the account maintained within
DTC by the participant in DTC which delivered the old securities, or

. extend the exchange offer and retain all old securities tendered before
the expiration date, subject to the rights of holders to withdraw the
tenders of old securities (see "--Withdrawal of Tenders" above), or

. waive the unsatisfied conditions with respect to the exchange offer
prior to the expiration date and accept all properly tendered old
securities that have not been withdrawn or otherwise amend the terms of
the exchange offer in any respect as provided under "--Expiration Date;
Extensions; Amendments." If a waiver constitutes a material change to
the exchange offer, we will promptly disclose the waiver by means of a
prospectus supplement that will be distributed to the registered
holders, and we will extend the exchange offer for a period of five to
ten business days, depending upon the significance of the waiver and the
manner of disclosure to the registered holders, if the exchange offer
would otherwise expire during such five to ten business day period.

In addition, we will not accept for exchange any old securities tendered, and
we will not issue new securities in exchange for any of the old securities, if
at that time any stop order is threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.

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Exchange Agent

The Bank of New York has been appointed as the exchange agent for the
exchange offer. All signed letters of transmittal and other documents required
for a valid tender of your old securities should be directed to the exchange
agent at one of the addresses set forth below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent addressed as follows:

BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:

The Bank of New York The Bank of New York
101 Barclay Street, Floor 7E 101 Barclay Street, Floor 7E
New York, New York 10286 Corporate Trust Services Window
Attention: Gertrude Jeanpierre New York, New York 10286
Reorganization Section Attention: Gertrude Jeanpierre

BY FACSIMILE (for Eligible Institutions only):

(212) 815-6339
The Bank of New York
Attention: Gertrude Jeanpierre
Confirm by Telephone: (212) 815-5920
For Information Call: (212) 815-5920

Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.

Fees and Expenses

We will bear the expenses of soliciting tenders. We have not retained any
dealer-manager in connection with the exchange offer and will not make any
payments to brokers, dealers or others soliciting acceptance of the exchange
offer. The principal solicitation is being made by mail; however, additional
solicitation may be made by facsimile, telephone or in person by our officers
and employees.

We will pay the expenses to be incurred in connection with the exchange
offer. These expenses include fees and expenses of the exchange agent and the
trustee, accounting and legal fees, printing costs, and related fees and
expenses.

Transfer Taxes

Holders who tender their old securities for exchange will not be obligated to
pay any transfer taxes in connection with the exchange offer.

Accounting Treatment

We will record the new securities in our accounting records at the same
carrying values as the old securities on the date of the exchange. Accordingly,
we will recognize no gain or loss, for accounting purposes, as a result of the
exchange offer. The expenses of the exchange offer and the unamortized expenses
relating to the issuance of the old securities will be amortized over the term
of the new securities.

Consequences of Failure to Exchange

Holders of old securities who do not exchange their old securities for new
securities pursuant to the exchange offer will continue to be subject to the
restrictions on transfer of the old securities as set forth in the legend
printed thereon as a consequence of the issuance of the old securities pursuant
to an exemption from the Securities Act and applicable state securities laws.
Old notes not exchanged pursuant to the exchange offer will

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continue to accrue interest at 7 7/8% per annum, old debentures not exchanged
pursuant to the exchange offer will continue to accrue interest at 8 1/2% per
annum, and the old notes and old debentures will otherwise remain outstanding
in accordance with their respective terms. Holders of old securities do not
have any appraisal or dissenters' rights under the Delaware General Corporation
Law in connection with the exchange offer.

In general, the old securities may not be offered or sold unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. Upon completion of the exchange offer, holders of old securities will not
be entitled to any rights to have the resale of old securities registered under
the Securities Act, and we currently do not intend to register under the
Securities Act the resale of any old securities that remain outstanding after
completion of the exchange offer.

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DESCRIPTION OF THE SECURITIES

We issued the old securities and will issue the new securities under an
indenture dated as of July 7, 1999, between Liberty, as issuer, and The Bank of
New York, as trustee, as supplemented by a first supplemental indenture dated
July 7, 1999 between Liberty and the trustee. The indenture and first
supplemental indenture are collectively referred to in this prospectus as the
"indenture." The old notes and the new notes have substantially identical terms
and will constitute a single series of securities under the indenture. The old
debentures and the new debentures also have substantially identical terms and
will constitute another series of securities under the indenture. The
difference between the old securities and the new securities is that the offer
and sale of the new securities have been registered under the Securities Act
and, therefore, the new securities will not bear legends restricting their
transfer and will not be entitled to registration under the Securities Act or
other rights relating to such registration. If the exchange offer is completed,
holders of any remaining old securities will vote together with holders of the
applicable new securities for all relevant purposes under the indenture.

Upon the issuance of the new securities, the indenture will be subject to and
governed by the Trust Indenture Act of 1939. The terms of the new securities
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act. A copy of the indenture has been filed as
an exhibit to the registration statement of which this prospectus is a part.
Capitalized terms used and not otherwise defined in this section have the
meanings ascribed to them in the indenture.

General

The indenture does not limit the aggregate principal amount of senior debt
securities that may be issued under the indenture and provides that Liberty may
issue senior debt securities from time to time in one or more series. The
senior debt securities that Liberty may issue under the indenture, including
the old securities and the new securities, are collectively referred to in this
section as the "senior debt securities."

The 7 7/8% senior notes due 2009 and the 8 1/2% senior debentures due 2029
constitute separate series of senior debt securities under the indenture. The
old notes and the new notes are collectively referred to in this prospectus as
the "notes," and the old debentures and the new debentures are collectively
referred to in this prospectus as the "debentures," and together with the
notes, as the "securities." If the exchange offer is consummated, holders of
old notes and old debentures who do not exchange their old notes and old
debentures for new notes and new debentures will vote together as separate
series of senior debt securities with holders of the new notes and new
debentures, respectively, for all relevant purposes under the indenture. In
that regard, the indenture requires that certain actions by the holders under
the notes and debentures, respectively (including acceleration following an
event of default), must be taken, and certain rights must be exercised, by
specified minimum percentages of the aggregate principal amount of the notes
and debentures, respectively, outstanding . In determining whether holders of
the requisite percentage in principal amount have given any notice, consent or
waiver or taken any other action permitted under the indenture, any old notes
and old debentures which remain outstanding after the exchange offer will be
aggregated with the new notes and new debentures, respectively, and the holders
of the old notes and new notes and the holders of the old debentures and new
debentures will each vote together as a single series for all purposes.
Accordingly, all references in this section to specified percentages in
aggregate principal amount of the outstanding senior debt securities of a
series will be deemed to mean, at any time after the exchange offer is
consummated, the percentages in aggregate principal amount of the old notes and
new notes, on the one hand, and the old debentures and new debentures, on the
other hand, then outstanding.

The securities are unsecured senior obligations of Liberty and are initially
limited to an aggregate principal amount of $750,000,000 of notes and
$500,000,000 of debentures. Liberty may "reopen" any security series and issue
additional securities of that series. The notes and the debentures bear
interest at the rate per annum shown above from the date of original issuance
or from the most recent date to which interest has been paid or duly provided
for, payable semiannually on January 15 and July 15 of each year, each of which
is referred to in

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this prospectus as an "interest payment date," commencing January 15, 2000 to
the persons in whose names the securities are registered at the close of
business on the January 1 or July 1 next preceding the interest payment date.
Interest payable on January 15, 2000 with respect to each $1,000 principal
amount of notes and debentures will be $41.125 and $44.389, respectively.
Interest payable at maturity, or upon any earlier date of redemption, will be
payable to the person to whom principal shall be payable on that date. Interest
on the securities will be calculated on the basis of a 360-day year of twelve
30-day months. The maturity dates for the notes and the debentures are July 15,
2009 and July 15, 2029, respectively. If any interest payment date, redemption
date or maturity date would otherwise be a day that is not a business day, the
related payment of principal and interest will be made on the next succeeding
business day as if it were made on the date the payment was due, and no
interest will accrue on the amounts so payable for the period from and after
the interest payment date, the redemption date or the maturity date, as the
case may be, to the next succeeding business day. A business day means a day
other than a Saturday, Sunday or other day on which banking institutions in New
York, New York are authorized or obligated by law, regulation or executive
order to close. The securities are not subject to any sinking fund. For a
discussion of the circumstances in which the interest rate on the securities
may be adjusted, see "--Registration Rights; Additional Interest."

The indenture does not contain any provision that would limit the ability of
Liberty to incur indebtedness or to substantially reduce or eliminate Liberty's
assets or that would afford the holders of the securities protection in the
event of a decline in Liberty's credit quality or a takeover, recapitalization
or highly leveraged or similar transaction involving Liberty. In addition,
subject to the limitations set forth under "--Successor Corporation," Liberty
may, in the future, enter into certain transactions, including the sale of
substantially all of its assets or the merger or consolidation of Liberty, that
would increase the amount of Liberty's indebtedness or substantially reduce or
eliminate Liberty's assets, which may have an adverse effect on Liberty's
ability to service its indebtedness, including the securities.

Each security will be issued in book-entry form (a "book-entry security") in
minimum denominations of $1,000 and integral multiples thereof. Each book-entry
security will be represented by one or more global securities in fully
registered form, registered in the name of The Depository Trust Company, which
is referred to in this prospectus as "DTC" or the "depositary," or its nominee.
Beneficial interest in the global securities will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. See "--Form, Denomination and Registration." Except in the
limited circumstances described in this prospectus, book-entry securities will
not be exchangeable for securities issued in fully registered form
("certificated securities").

Book-entry securities may be transferred or exchanged only through the
depositary. See "--Form, Denomination and Registration." Registration of
transfer or exchange of certificated securities will be made at the office or
agency, maintained by Liberty for this purpose in the Borough of Manhattan, The
City of New York, currently the office of the trustee at 101 Barclay Street,
New York, N.Y. 10286. Neither Liberty nor the trustee will charge a service
charge for any registration of transfer or exchange of securities, but Liberty
may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with the transfer or exchange (other
than exchanges pursuant to the indenture not involving any transfer).

Liberty will make payments of principal, and premium, if any, and interest on
book-entry securities through the trustee to the depositary. See "--Form,
Denomination and Registration." In the case of certificated securities, Liberty
will pay the principal and premium, if any, due on the maturity date in
immediately available funds upon presentation and surrender by the holder of
the securities at the office or agency maintained by Liberty for this purpose
at the Borough of Manhattan, The City of New York, currently the office of the
trustee at 101 Barclay Street, New York, N.Y. 10286. Liberty will pay interest
due on the maturity date of a certificated security to the person to whom
payment of the principal and premium, if any, will be made. Liberty will pay
interest due on a certificated security on any interest payment date other than
the maturity date by check mailed to the address of the holder entitled to the
payment as the address shall appear in the security register of Liberty.
Notwithstanding the foregoing, a holder of $10 million or more in aggregate
principal

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amount of certificated securities (whether having identical or different terms
and provisions) will be entitled to receive interest payments, if any, on any
interest payment date other than the maturity date by wire transfer of
immediately available funds if appropriate wire transfer instructions have been
received in writing by the trustee not less than 15 calendar days prior to the
interest payment date. Any wire transfer instructions received by the trustee
will remain in effect until revoked by the holder. Any interest not punctually
paid or duly provided for on a certificated security on any interest payment
date other than the maturity date will cease to be payable to the holder of the
security as of the close of business on the related record date and may either
be paid (1) to the person in whose name the certificated security is registered
at the close of business on a special record date for the payment of the
defaulted interest that is fixed by Liberty, written notice of which will be
given to the holders of the securities not less than 30 calendar days prior to
the special record date, or (2) at any time in any other lawful manner.

All moneys paid by Liberty to the trustee or any paying agent for the payment
of principal of, and premium and interest on, any security which remain
unclaimed for two years after the principal, premium or interest is due and
payable may be repaid to Liberty and, after that payment, the holder of the
security will look only to Liberty for payment.

Ranking and Holding Company Structure

The securities are unsecured senior indebtedness of Liberty and rank equally
with Liberty's existing and future unsubordinated unsecured indebtedness and
senior in right of payment to all subordinated indebtedness of Liberty. The
securities are effectively subordinated to all secured indebtedness of Liberty
with respect to the assets securing the indebtedness and are effectively
subordinated to all liabilities of Liberty's subsidiaries. As of September 30,
1999, our consolidated subsidiaries had outstanding $12.9 billion of
liabilities, all of which would have effectively ranked senior to the
securities. At the same date, we had outstanding $390 million of other
unsecured and unsubordinated indebtedness, all of which ranks equally with the
securities.

Liberty is a holding company and is largely dependent on dividends,
distributions and other payments from its subsidiaries and business affiliates
and other investments to meet its financial obligations, and is dependent on
those payments to meet its obligations under the securities. Liberty's
subsidiaries and business affiliates, as well as AT&T and its subsidiaries
other than Liberty, have no obligation, contingent or otherwise, to pay any
amounts due under the securities or to make any funds available for any of
those payments. In addition, neither AT&T nor any of its subsidiaries other
than Liberty has any obligation to make payments under the securities or to
make any funds available for those payments. See "Risk Factors--Our holding
company structure could restrict access to funds of our subsidiaries that may
be needed to service the securities. Creditors of those companies have a claim
on their assets that is senior to that of holders of the securities" and
"Relationship with AT&T and Certain Related Transactions."

Optional Redemption

The securities are redeemable, as a whole or in part, at our option, at any
time or from time to time, on at least 30 days, but not more than 60 days,
prior notice mailed to the registered address of each holder of the securities.
The redemption prices will be equal to the greater of (1) 100% of the principal
amount of the securities to be redeemed or (2) the sum of the present values of
the Remaining Scheduled Payments (as defined below) discounted, on a semiannual
basis (assuming a 360-day year consisting of twelve 30-day months), at a rate
equal to the sum of the Treasury Rate (as defined below) and:

. 30 basis points for the notes

. 35 basis points for the debentures.

In the case of each of clause (1) and (2), accrued interest will be payable
to the redemption date.

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"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price
for such redemption date.

"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes or the debentures, as the case may be, to be
redeemed that would be utilized, at the time of selection and in accordance
with customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of such securities.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by us.

"Comparable Treasury Price" means, with respect to any redemption date, (1)
the average of the Reference Treasury Dealer Quotations for such redemption
date after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or (2) if the trustee obtains fewer than five such Reference
Treasury Dealer Quotations, the average of all such quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the trustee
by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the
third business day preceding such redemption date.

"Reference Treasury Dealer" means each of Lehman Brothers Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Morgan Stanley & Co. Incorporated and Salomon Smith
Barney Inc. and their respective successors. If any of the foregoing shall
cease to be a primary U.S. Government securities dealer (a "Primary Treasury
Dealer"), we shall substitute another nationally recognized investment banking
firm that is a Primary Treasury Dealer.

"Remaining Scheduled Payments" means, with respect to each security to be
redeemed, the remaining scheduled payments of principal of and interest on such
security that would be due after the related redemption date but for such
redemption. If such redemption date is not an interest payment date with
respect to such security, the amount of the next succeeding scheduled interest
payment on such security will be reduced by the amount of interest accrued on
such security to such redemption date.

On and after the redemption date, interest will cease to accrue on the
securities or any portion of the securities called for redemption (unless we
default in the payment of the redemption price and accrued interest). On or
before the redemption date, we will deposit with a paying agent (or the
trustee) money sufficient to pay the redemption price of and accrued interest
on the securities to be redeemed on such date. If less than all of the
securities of any series are to be redeemed, the securities to be redeemed
shall be selected by the trustee by such method as the trustee shall deem fair
and appropriate.

Form, Denomination and Registration

The securities will initially be represented by one or more global securities
in definitive, fully registered book-entry form, without interest coupons that
will be deposited with, or on behalf of, the depositary or its nominee.

So long as the depositary, which initially will be DTC, or its nominee is the
registered owner of a global security, the depositary or its nominee, as the
case may be, will be the sole holder of the securities represented by the
global security for all purposes under the indenture. Except as otherwise
provided in this section, the beneficial owners of the global securities
representing the securities will not be entitled to receive physical delivery
of certificated securities and will not be considered the holders of the
securities for any purpose under the indenture, and no global security
representing the book-entry securities will be exchangeable or transferable.
Accordingly, each beneficial owner must rely on the procedures of the
depositary and, if the

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beneficial owner is not a participant of the depositary, then the beneficial
owner must rely on the procedures of the participant through which the
beneficial owner owns its interest in order to exercise any rights of a holder
under the global securities or the indenture. The laws of some jurisdictions
may require that certain purchasers of securities take physical delivery of
the securities in certificated form. Such limits and laws may impair the
ability to transfer beneficial interests in a global security representing the
securities.

The global securities representing the securities will be exchangeable for
certificated securities of like tenor and terms and of differing authorized
denominations aggregating a like principal amount, only if

. the depositary notifies Liberty that it is unwilling or unable to
continue as depositary for the global securities,

. the depositary ceases to be a clearing agency registered under the
Securities Exchange Act,

. Liberty in its sole discretion determines that the global securities
shall be exchangeable for certificated securities, or

. there shall have occurred and be continuing an event of default under
the indenture with respect to the securities.

Upon any exchange, the certificated securities shall be registered in the
names of the beneficial owners of the global securities representing the
securities, which names shall be provided by the depositary's relevant
participants (as identified by the depositary) to the trustee.

Cross-Market Transfers. Subject to compliance with the transfer restrictions
applicable to any new securities and the certification and other requirements
set forth in the indenture, any cross-market transfer between participants in
the depositary, on the one hand, and participants in the Euroclear System or
Cedelbank, on the other hand, will be effected in the depositary's book-entry
system on behalf of Euroclear or Cedelbank, as the case may be, in accordance
with the rules of the depositary. However, these cross-market transfers will
require delivery of instructions to Euroclear or Cedelbank, as the case may
be, by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines. Euroclear or Cedelbank, as
the case may be, will, if the transfer meets its settlement requirements,
deliver instructions to its respective depositary to take action to effect
final settlement on its behalf by delivering or receiving the beneficial
interests in the applicable global security in the depositary, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to the depositary. Participants in Euroclear or
Cedelbank may not deliver instructions directly to the depositaries for
Euroclear or Cedelbank, as the case may be.

Because of time zone differences, the securities account of a Euroclear or
Cedelbank participant purchasing a beneficial interest in a global security
from a depositary participant will be credited during the securities
settlement processing day, which must be a business day for Euroclear or
Cedelbank, as applicable, immediately following the depositary's settlement
date. Credit of a transfer of a beneficial interest in a global security
settled during that processing day will be reported to the applicable
Euroclear or Cedelbank participant on that day. Cash received in Euroclear or
Cedelbank as a result of a transfer of a beneficial interest in a global
security by or through a Euroclear or Cedelbank participant to a depositary
participant will be received with value on the depositary's settlement date
but will be available in the applicable Euroclear or Cedelbank cash account
only as of the business day following settlement in the depositary.

In order to insure the availability of Rule 144(k) under the Securities Act,
the indenture provides that all securities, other than new securities, which
are redeemed, purchased or otherwise acquired by Liberty or any of its
subsidiaries or "affiliates," as defined in Rule 144 under the Securities Act,
may not be resold or otherwise transferred and will be delivered to the
trustee for cancellation.

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Information Relating to the Depositary. The following is based on information
furnished by the depositary:

The depositary will act as the depositary for the securities. The securities
will be issued as fully registered senior debt securities registered in the
name of Cede & Co., which is the depositary's partnership nominee. Fully
registered global securities will be issued for the securities, in the
aggregate principal amount of the issue, and will be deposited with the
depositary.

The depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The depositary holds securities that its participants deposit with the
depositary. The depositary also facilitates the settlement among participants
of securities transactions, including transfers and pledges, in deposited
securities through electronic computerized book-entry changes to participants'
accounts, thereby eliminating the need for physical movement of senior debt
securities certificates. Direct participants of the depositary include
securities brokers and dealers, including the initial purchasers of the
outstanding securities, banks, trust companies, clearing corporations and
certain other organizations. The depositary is owned by a number of its direct
participants, including the initial purchasers of the outstanding securities
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc.,
and the National Association of Securities Dealers, Inc. Access to the
depositary's system is also available to indirect participants, which includes
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either directly or
indirectly. The rules applicable to the depositary and its participants are on
file with the SEC.

Purchases of securities under the depositary's system must be made by or
through direct participants, which will receive a credit for the securities on
the depositary's record. The ownership interest of each beneficial owner, which
is the actual purchaser of each security, represented by global securities, is
in turn to be recorded on the direct and indirect participants' records.
Beneficial owners will not receive written confirmation from the depositary of
their purchase, but beneficial owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participants through
which the beneficial owner entered into the transaction. Transfers of ownership
interests in the global securities representing the securities are to be
accomplished by entries made on the books of participants acting on behalf of
beneficial owners. Beneficial owners of the global securities representing the
securities will not receive certificated securities representing their
ownership interests therein, except in the event that use of the book-entry
system for the securities is discontinued.

To facilitate subsequent transfers, all global securities representing the
securities which are deposited with, or on behalf of, the depositary are
registered in the name of the depositary's nominee, Cede & Co. The deposit of
global securities with, or on behalf of, the depositary and their registration
in the name of Cede & Co. effect no change in beneficial ownership. The
depositary has no knowledge of the actual beneficial owners of the global
securities representing the securities; the depositary's records reflect only
the identity of the direct participants to whose accounts the securities are
credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their
customers.

Conveyance of notices and other communications by the depositary to direct
participants, by direct participants to indirect participants, and by direct
and indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.

Neither the depositary nor Cede & Co. will consent or vote with respect to
the global securities representing the securities. Under its usual procedure,
the depositary mails an omnibus proxy to Liberty as soon as possible after the
applicable record date. The omnibus proxy assigns Cede & Co.'s consenting or
voting rights to those direct participants to whose accounts the securities are
credited on the applicable record date (identified in a listing attached to the
omnibus proxy).

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Principal, premium, if any, and/or interest payments on the global securities
representing the securities will be made to the depositary. The depositary's
practice is to credit direct participants' accounts on the applicable payment
date in accordance with their respective holdings shown on the depositary's
records unless the depositary has reason to believe that it will not receive
payment on the date. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of the participant and not of the
depositary, the trustee or Liberty, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal,
premium, if any, and/or interest to the depositary is the responsibility of
Liberty or the trustee, disbursement of the payments to direct participants
will be the responsibility of the depositary, and disbursement of the payments
to the beneficial owners will be the responsibility of direct and indirect
participants.

The depositary may discontinue providing its services as securities
depositary with respect to the securities at any time by giving reasonable
notice to Liberty or the trustee. Under such circumstances, in the event that a
successor securities depositary is not obtained, certificated securities are
required to be printed and delivered.

Liberty may decide to discontinue use of the system of book-entry transfers
through the depositary or a successor securities depositary. In that event,
certificated securities will be printed and delivered.

The depositary has further advised Liberty that management of the depositary
is aware that some computer applications, systems, and the like for processing
data ("Systems") that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter "Year 2000 problems." The
depositary has informed its participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as they relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within the depositary, continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, the depositary's
plan includes a testing phase, which is expected to be completed within
appropriate time frames.

However, the depositary's ability to perform properly its service is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as the depositary's direct participants and indirect
participants and third party vendors from whom the depositary licenses software
and hardware, and third party vendors on whom the depositary relies for
information or the provision of services, including telecommunication and
electrical utility service providers, among others. The depositary has informed
the Industry that it is contacting, and will continue to contact, third party
vendors from whom the depositary acquires services to: (1) impress upon them
the importance of the services being Year 2000 compliant, and (2) determine the
extent of their efforts for Year 2000 remediation (and, as appropriate,
testing) of their services. In addition, the depositary is in the process of
developing such contingency plans as it deems appropriate.

According to the depositary, the information in the preceding two paragraphs
with respect to the depositary has been provided to the Industry for
informational purposes only and is not intended to serve as a representation,
warranty, or contract modification of any kind.

Although the depositary, Euroclear and Cedelbank have agreed to the
procedures described above in order to facilitate transfers of interests in the
global securities among participants of the depositary, Euroclear and
Cedelbank, they are under no obligation to perform or continue to perform these
procedures, and these procedures may be discontinued at any time. Neither the
trustee nor Liberty will have any responsibility for the performance by the
depositary, Euroclear or Cedelbank or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.

Trading. Except for trades involving Euroclear and Cedelbank participants,
beneficial interests in the global securities will trade in the depositary's
same-day funds settlement System until maturity or earlier redemption, and
secondary market trading activity in the global securities will therefore
settle in immediately

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available funds, subject in all cases to the rules and operating procedures of
the depositary. Transfers between participants in the depositary will be
effected in the ordinary way in accordance with the depositary's rules and
operating procedures and will be settled in same-day funds, while transfers
between participants in Euroclear and Cedelbank will be effected in the
ordinary way in accordance with their respective rules and operating
procedures.

The information in this subsection "--Form, Denomination and Registration"
concerning the depositary, Euroclear and Cedelbank and their respective book-
entry systems has been obtained from sources that Liberty believes to be
reliable, but Liberty takes no responsibility for its accuracy.

Certain Covenants

The indenture provides that the covenants set forth below will be applicable
to Liberty and its Subsidiaries.

Limitation on Liens. Liberty will not, and will not permit any Restricted
Subsidiary to, create, incur or assume any Lien, except for Permitted Liens, on
any Principal Property to secure the payment of Funded Indebtedness of Liberty
or any Restricted Subsidiary if, immediately after the creation, incurrence or
assumption of such Lien, the sum of (A) the aggregate outstanding principal
amount of all Funded Indebtedness of Liberty and the Restricted Subsidiaries
that is secured by Liens (other than Permitted Liens) on any Principal Property
and (B) the Attributable Debt relating to any Sale and Leaseback Transaction
which would otherwise be subject to the provisions of clause 2(A)(i) of the
"Limitation on Sale and Leaseback" covenant would exceed 15% of the
Consolidated Asset Value, unless effective provision is made whereby the
securities (together with, if Liberty shall so determine, any other Funded
Indebtedness ranking equally with the securities, whether then existing or
thereafter created) are secured equally and ratably with (or prior to) such
Funded Indebtedness (but only for so long as such Funded Indebtedness is so
secured).

The foregoing limitation on Liens shall not apply to the creation, incurrence
or assumption of the following Liens ("Permitted Liens"):

(1) Any Lien which arises out of a judgment or award against Liberty or
any Restricted Subsidiary with respect to which Liberty or such Restricted
Subsidiary at the time shall be prosecuting an appeal or proceeding for
review (or with respect to which the period within which such appeal or
proceeding for review may be initiated shall not have expired) and with
respect to which it shall have secured a stay of execution pending such
appeal or proceedings for review or with respect to which Liberty or such
Restricted Subsidiary shall have posted a bond and established adequate
reserves (in accordance with generally accepted accounting principles) for
the payment of such judgment or award;

(2) Liens on assets or property of a person existing at the time such
person is merged into or consolidated with Liberty or any Restricted
Subsidiary or becomes a Restricted Subsidiary; provided, that such Liens
were in existence prior to the contemplation of such merger, consolidation
or acquisition and do not secure any property of Liberty or any Restricted
Subsidiary other than the property and assets subject to the Liens prior to
such merger, consolidation or acquisition;

(3) Liens existing on the date of original issuance of the securities;

(4) Liens securing Funded Indebtedness (including in the form of
Capitalized Lease Obligations and purchase money indebtedness) incurred for
the purpose of financing the cost (including without limitation the cost of
design, development, site acquisition, construction, integration,
manufacture or acquisition) of real or personal property (tangible or
intangible) which is incurred contemporaneously therewith or within 60 days
thereafter; provided (i) such Liens secure Funded Indebtedness in an amount
not in excess of the cost of such property (plus an amount equal to the
reasonable fees and expenses incurred in connection with the incurrence of
such Funded Indebtedness) and (ii) such Liens do not extend to any property
of Liberty or any Restricted Subsidiary other than the property for which
such Funded Indebtedness was incurred;

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(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;

(6) Liens to secure the securities;

(7) Liens granted in favor of Liberty; and

(8) Any Lien in respect of Funded Indebtedness representing the
extension, refinancing, renewal or replacement (or successive extensions,
refinancings, renewals or replacements) of Funded Indebtedness secured by
Liens referred to in clauses (2), (3), (4), (5), (6) and (7) above,
provided that the principal of the Funded Indebtedness secured thereby does
not exceed the principal of the Funded Indebtedness secured thereby
immediately prior to such extension, renewal or replacement, plus any
accrued and unpaid interest or capitalized interest payable thereon,
reasonable fees and expenses incurred in connection therewith, and the
amount of any prepayment premium necessary to accomplish any refinancing;
provided, that such extension, renewal or replacement shall be limited to
all or a part of the property (or interest therein) subject to the Lien so
extended, renewed or replaced (plus improvements and construction on such
property).

Limitation on Sale and Leaseback. Liberty will not, and will not permit any
Restricted Subsidiary to, enter into any Sale and Leaseback Transaction;
provided, that Liberty or any Restricted Subsidiary may enter into a Sale and
Leaseback Transaction if:

(1) the gross cash proceeds of the Sale and Leaseback Transaction are at
least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in a board resolution delivered to the
trustee, of the Principal Property that is the subject of the Sale and
Leaseback Transaction, and

(2) either

(A) Liberty or the Restricted Subsidiary, as applicable, either (i)
could have incurred a Lien to secure Funded Indebtedness in an amount
equal to the Attributable Debt relating to such Sale and Leaseback
Transaction pursuant to the "Limitation on Liens" covenant, or (ii)
makes effective provision whereby the securities (together with, if
Liberty shall so determine, any other Funded Indebtedness ranking
equally with the securities, whether then existing or thereafter
created) are secured equally and ratably with (or prior to) the
obligations of Liberty or the Restricted Subsidiary under the lease of
the Principal Property that is the subject of the Sale and Leaseback
Transaction, or

(B) within 180 days, Liberty or the Restricted Subsidiary either (i)
applies an amount equal to the fair market value of the Principal
Property that is the subject of the Sale and Leaseback Transaction to
purchase the securities or to retire other Funded Indebtedness, or (ii)
enters into a bona fide commitment to expend for the acquisition or
improvement of a Principal Property an amount at least equal to the
fair market value of such Principal Property.

Designation of Restricted Subsidiaries. Liberty may designate an Unrestricted
Subsidiary as a Restricted Subsidiary or designate a Restricted Subsidiary as
an Unrestricted Subsidiary at any time, provided that (1) immediately after
giving effect to such designation, Liberty and its Restricted Subsidiaries
would have been permitted to incur at least $1.00 of additional Funded
Indebtedness secured by a Lien pursuant to the "Limitation on Liens" covenant,
(2) no default or event of default shall have occurred and be continuing, and
(3) an Officers' Certificate with respect to such designation is delivered to
the trustee within 75 days after the end of the fiscal quarter of Liberty in
which such designation is made (or, in the case of a designation made during
the last fiscal quarter of Liberty's fiscal year, within 120 days after the end
of such fiscal year), which Officers' Certificate shall state the effective
date of such designation; Liberty has made the initial designation of all of
its Subsidiaries as Restricted Subsidiaries and will deliver the required
Officers' Certificate with respect thereto to the trustee, on or prior to the
date of initial issuance of the securities.

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Successor Corporation

Liberty may not consolidate with or merge into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets
and the properties and assets of its Subsidiaries (taken as a whole) to, any
entity or entities (including limited liability companies) unless (1) the
successor entity or entities, each of which shall be organized under the laws
of the United States or a State thereof, shall assume by supplemental indenture
all the obligations of Liberty under the securities and the indenture and (2)
immediately after giving effect to the transaction or series of transactions,
no default or event of default shall have occurred and be continuing.
Thereafter, all such obligations of Liberty shall terminate.

Events of Default

The term "event of default" means any one of the following events with
respect to any series of senior debt securities, including the notes and the
debentures:

(1) default in the payment of any interest on any senior debt security
of the series, or any additional amounts payable with respect thereto, when
the interest becomes or the additional amounts become due and payable, and
continuance of the default for a period of 30 days;

(2) default in the payment of the principal of or any premium on any
senior debt security of the series, or any additional amounts payable with
respect thereto, when the principal or premium becomes or the additional
amounts become due and payable at their maturity;

(3) failure of Liberty to comply with any of its obligations described
above under "--Successor Corporation";

(4) default in the deposit of any sinking fund payment when and as due
by the terms of a senior debt security of the series;

(5) default in the performance, or breach, of any covenant or warranty
of Liberty in the indenture or the senior debt securities (other than a
covenant or warranty a default in the performance or the breach of which is
elsewhere in the indenture specifically dealt with or which has been
expressly included in the indenture solely for the benefit of a series of
senior debt securities other than the relevant series), and continuance of
the default or breach for a period of 60 days after there has been given,
by registered or certified mail, to Liberty by the trustee or to Liberty
and the trustee by the holders of at least 25% in principal amount of the
outstanding senior debt securities of the series, a written notice
specifying the default or breach and requiring it to be remedied and
stating that the notice is a "Notice of Default" under the indenture;

(6) if any event of default as defined in any mortgage, indenture or
instrument under which there may be issued, or by which there may be
secured or evidenced, any Indebtedness of Liberty, whether the Indebtedness
now exists or shall hereafter be created, shall happen and shall result in
Indebtedness in aggregate principal amount (or, if applicable, with an
issue price and accreted original issue discount) in excess of $100 million
becoming or being declared due and payable prior to the date on which it
would otherwise become due and payable, and (i) the acceleration shall not
be rescinded or annulled, (ii) such Indebtedness shall not have been paid
or (iii) Liberty shall not have contested such acceleration in good faith
by appropriate proceedings and have obtained and thereafter maintained a
stay of all consequences that would have a material adverse effect on
Liberty, in each case within a period of 30 days after there shall have
been given, by registered or certified mail, to Liberty by the trustee or
to Liberty and the trustee by the holders of at least 25% in principal
amount of the outstanding senior debt securities of the series then
outstanding, a written notice specifying the default or breaches and
requiring it to be remedied and stating that the notice is a "Notice of
Default" or other notice as prescribed in the indenture; provided, however,
that if after the expiration of such period, such event of default shall be
remedied or cured by Liberty or be waived by the holders of such
Indebtedness in any manner authorized by such mortgage, indenture or
instrument, then the event of default with respect to such series of senior
debt securities or by

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reason thereof shall, without further action by Liberty, the trustee or any
holder of senior debt securities of such series, be deemed cured and not
continuing;

(7) the entry by a court having competent jurisdiction of:

(a) a decree or order for relief in respect of Liberty or any
Material Subsidiary in an involuntary proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law and the
decree or order shall remain unstayed and in effect for a period of 60
consecutive days;

(b) a decree or order adjudging Liberty or any Material Subsidiary
to be insolvent, or approving a petition seeking reorganization,
arrangement, adjustment or composition of Liberty or any Material
Subsidiary and the decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or

(c) a final and non-appealable order appointing a custodian,
receiver, liquidator, assignee, trustee or other similar official of
Liberty or any Material Subsidiary or of any substantial part of the
property of Liberty or any Material Subsidiary or ordering the winding
up or liquidation of the affairs of Liberty;

(8) the commencement by Liberty or any Material Subsidiary of a
voluntary proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law or of a voluntary proceeding seeking to
be adjudicated insolvent or the consent by Liberty or any Material
Subsidiary to the entry of a decree or order for relief in an involuntary
proceeding under any applicable bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any insolvency proceedings
against it, or the filing by Liberty or any Material Subsidiary of a
petition or answer or consent seeking reorganization or relief under any
applicable law, or the consent by Liberty or any Material Subsidiary to the
filing of the petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or similar official of
Liberty or any Material Subsidiary or any substantial part of the property
of Liberty or any Material Subsidiary or the making by Liberty or any
Material Subsidiary of an assignment for the benefit of creditors, or the
taking of corporate action by Liberty or any Material Subsidiary in
furtherance of any such action; or

(9) any other event of default provided in or pursuant to the indenture
with respect to senior debt securities of the series.

If an event of default with respect to senior debt securities of any series
at the time outstanding (other than an event of default specified in clause (7)
or (8) above) occurs and is continuing, then the trustee or the holders of not
less than 25% in principal amount of the outstanding senior debt securities of
the series may declare the principal of all the senior debt securities of the
series, or such lesser amount as may be provided for in the senior debt
securities of the series, to be due and payable immediately, by a notice in
writing to Liberty (and to the trustee if given by the holders), and upon any
declaration the principal or such lesser amount shall become immediately due
and payable. If an event of default specified in clause (7) or (8) above
occurs, all unpaid principal of and accrued interest on the outstanding senior
debt securities of that series (or such lesser amount as may be provided for in
the senior debt securities of the series) shall become and be immediately due
and payable without any declaration or other act on the part of the trustee or
any holder of any senior debt security of that series.

At any time after a declaration of acceleration or automatic acceleration
with respect to the senior debt securities of any series has been made and
before a judgment or decree for payment of the money due has been obtained by
the trustee, the holders of not less than a majority in principal amount of the
outstanding senior debt securities of the series, by written notice to Liberty
and the trustee, may rescind and annul the declaration and its consequences if:

(1) Liberty has paid or deposited with the trustee a sum of money
sufficient to pay all overdue installments of any interest on all
senior debt securities of the series and additional amounts payable
with respect thereto and the principal of and any premium on any senior
debt securities of the series

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which have become due otherwise than by the declaration of acceleration
and interest on the senior debt securities; and

(2) all events of default with respect to senior debt securities of the
series, other than the non-payment of the principal of, any premium and
interest on, and any additional amounts with respect to senior debt
securities of the series which shall have become due solely by the
acceleration, shall have been cured or waived.

No rescission shall affect any subsequent default or impair any right
consequent thereon.

Certain Definitions

The following are certain of the terms defined in the indenture:

"Attributable Debt" in respect of a Sale and Leaseback Transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in
such Sale and Leaseback Transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such
present value shall be calculated using a discount rate equal to the rate of
interest implicit in such transaction, determined in accordance with generally
accepted accounting principles.

"Capitalized Lease Obligation" of any person means any obligation of such
person to pay rent or other amounts under a lease with respect to any property
(whether real, personal or mixed) acquired or leased by such person and used
in its business that is required to be accounted for as a liability on the
balance sheet of such person in accordance with generally accepted accounting
principles and the amount of such Capitalized Lease Obligation shall be the
amount so required to be accounted for as a liability.

"Closing Price" means, with respect to any security on any date of
determination, the closing sale price (or, if no closing sale price is
reported, the last reported sale price) of such security on the NYSE on such
date or, if such security is not listed for trading on the NYSE on such date,
as reported in the composite transactions (or comparable system) for the
principal United States national or regional securities exchange on which such
security is so listed or a recognized international securities exchange, or,
if such security is not listed on a U.S. national or regional securities
exchange or on a recognized international securities exchange, as reported by
the Nasdaq Stock Market, or, if such security is not so reported, the last
quoted bid price for such security in the over-the-counter market as reported
by the National Quotation Bureau or similar organization, or, if such bid
price is not available, the market value of such security on such date as
determined by a nationally recognized independent investment banking firm
retained for this purpose by Liberty; provided that, (1) with respect to
options, warrants and other rights to purchase Marketable Securities, the
Closing Price shall be the value based on the Closing Price of the underlying
Marketable Security minus the exercise price and (2) with respect to
securities exchangeable for or convertible into Marketable Securities, the
Closing Price shall be the Closing Price of the exchangeable or convertible
security or, if it has no Closing Price, the fully converted value based upon
the Closing Price of the underlying Marketable Security.

"Consolidated Asset Value" shall mean, with respect to any date of
determination, the sum of

(A) the amount of cash of Liberty and its Restricted Subsidiaries on the
last day of the preceding month, plus the following assets owned by Liberty
and its Restricted Subsidiaries on the last day of the preceding month that
have the indicated ratings and maturities no greater than 270 days:

. the aggregate principal amount of certificates of deposit and
bankers' acceptances rated A/2 or P/2 or higher by the Rating
Agencies,

. the aggregate principal amount of participations in loans with
obligors with short-term ratings of A/2 or P/2 or higher by the
Rating Agencies or long-term ratings of Baa1or BBB+ or higher by the
Rating Agencies, and

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. the aggregate principal amount of repurchase agreements of
securities issued by the U.S. government or any agency thereof with
counterparties with short-term ratings of A/2 or P/2 or higher by
the Rating Agencies or long-term ratings of Baa1or BBB+ or higher by
the Rating Agencies, and

. the aggregate principal amount at maturity of commercial paper rated
A/2 or P/2 or higher by the Rating Agencies,

(B) the aggregate value of all Marketable Securities owned by Liberty
and its Restricted Subsidiaries based upon the Closing Price of each
Marketable Security on the last day of the preceding month, or if such day
is not a Trading Day, on the immediately preceding Trading Day, and

(C) the arithmetic mean of the aggregate market values (or the midpoint
of a range of values) of the assets of Liberty and its Restricted
Subsidiaries having a value in excess of $200 million, other than the
assets referred to in clauses (A) and (B) above, as of a date within 90
days of the date of determination (or to the extent the research reports
referred to below have not been issued within such 90-day period, as of a
date within 180 days of the date of determination) as evidenced either

. by research reports issued by three nationally recognized
independent investment banking firms selected by Liberty or

. if three such research reports have not been issued within 180 days
prior to the date of determination, by an appraisal by two
nationally recognized independent investment banking or appraisal
firms retained by Liberty for this purpose.

"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length transaction, for cash, between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Fair market value shall be
determined by the Board of Directors of Liberty acting in good faith evidenced
by a board resolution thereof delivered to the trustee.

"Funded Indebtedness" of any person means, as of the date as of which the
amount thereof is to be determined, without duplication, all Indebtedness of
such person and all Capitalized Lease Obligations of such person, which by the
terms thereof have a final maturity, duration or payment date more than one
year from the date of determination thereof (including, without limitation,
any balance of such Indebtedness or obligation which was Funded Indebtedness
at the time of its creation maturing within one year from such date of
determination) or which has a final maturity, duration or payment date within
one year from such date of determination but which by its terms may be renewed
or extended at the option of such person for more than one year from such date
of determination, whether or not theretofore renewed or extended; provided,
however, "Funded Indebtedness" shall not include (1) any Indebtedness of
Liberty or any Subsidiary to Liberty or another Subsidiary, (2) any guarantee
by Liberty or any Subsidiary of Indebtedness of Liberty or another Subsidiary,
provided that such guarantee is not secured by a Lien on any Principal
Property, (3) any guarantee by Liberty or any Subsidiary of the Indebtedness
of any person (including, without limitation, a business trust), if the
obligation of Liberty or such Subsidiary under such guaranty is limited in
amount to the amount of funds held by or on behalf of such person that are
available for the payment of such Indebtedness, (4) liabilities under interest
rate swap, exchange, collar or cap agreements and all other agreements or
arrangements designed to protect against fluctuations in interest rates or
currency exchange rates, and (5) liabilities under commodity hedge, commodity
swap, exchange, collar or cap agreements, fixed price agreements and all other
agreements or arrangements designed to protect against fluctuations in prices.
For purposes of determining the outstanding principal amount of Funded
Indebtedness at any date, the amount of Indebtedness issued at a price less
than the principal amount at maturity thereof shall be equal to the amount of
the liability in respect thereof at such date determined in accordance with
generally accepted accounting principles.

"Indebtedness" of any person means:

(1) any indebtedness of such person (i) for borrowed money or (ii)
evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given in connection with the acquisition of any property
or assets, including securities;

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(2) any guarantee by such person of any indebtedness of others described
in the preceding clause (1); and

(3) any amendment, renewal, extension or refunding of any such
indebtedness or guarantee.

"Liberty" means Liberty Media Corporation, a Delaware corporation, until a
successor replaces it pursuant to the applicable provisions of the indenture
and thereafter means the successor.

"Lien" means any mortgage, pledge, lien, security interest, or other similar
encumbrance.

"Marketable Securities" means any securities listed on a U.S. national
securities exchange or reported by the Nasdaq Stock Market or listed on a
recognized international securities exchange or traded in the over-the-counter
market and quoted by at least two broker-dealers as reported by the National
Quotation Bureau or similar organization, including as Marketable Securities
options, warrants and other rights to purchase, and securities exchangeable for
or convertible into, Marketable Securities.

"Material Subsidiary" means, at any relevant time, any Subsidiary that meets
any of the following conditions:

(1) Liberty's and its other Subsidiaries' investments in and advances to
the Subsidiary exceed 10% of the total consolidated assets of Liberty and
its Subsidiaries; or

(2) Liberty's and its other Subsidiaries' proportionate share of the
total assets (after intercompany eliminations) of the Subsidiary exceeds
10% of the total consolidated assets of Liberty and its Subsidiaries; or

(3) Liberty's and its other Subsidiaries' proportionate share of the
total revenues (after intercompany eliminations) of the Subsidiary exceeds
10% of the total consolidated revenue of Liberty and its Subsidiaries; or

(4) Liberty's and its other Subsidiaries' equity in the income from
continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the Subsidiary
exceeds 10% of such income of Liberty and its Subsidiaries;

all as calculated by reference to the then latest fiscal year-end accounts (or
consolidated fiscal year-end accounts, as the case may be) of such Subsidiary
and the then latest audited consolidated fiscal year-end accounts of Liberty
and its Subsidiaries. Based on the 1998 fiscal year-end accounts, as of the
date of this prospectus, the only Material Subsidiary of Liberty is Encore
Media Group LLC.

"Nasdaq Stock Market" means The Nasdaq Stock Market, a subsidiary of the
National Association of Securities Dealers, Inc.

"Principal Property" means, as of any date of determination, (a) any cable
system or manufacturing or production facility, including land and buildings
and other improvements thereon and equipment located therein, owned by Liberty
or a Restricted Subsidiary and used in the ordinary course of its business and
(b) any executive offices, administrative buildings, and research and
development facilities, including land and buildings and other improvements
thereon and equipment located therein, of Liberty or a Restricted Subsidiary,
other than any such property which, in the good faith opinion of the Board of
Directors, is not of material importance to the business conducted by Liberty
and its Restricted Subsidiaries taken as a whole.

"Rating Agencies" means (i) Standard & Poors, a division of The McGraw-Hill
Companies, Inc. and (ii) Moody's Investors Service, Inc. and (iii) if S&P or
Moody's or both shall not make a rating publicly available, a nationally
recognized United States securities rating agency or agencies, as the case may
be, selected by Liberty, which shall be substituted for S&P or Moody's or both,
as the case may be.

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"Restricted Subsidiary" means, as of any date of determination, a corporation
a majority of whose voting stock is owned by Liberty and/or one or more
Restricted Subsidiaries, which corporation has been, or is then being,
designated a Restricted Subsidiary in accordance with the "Designation of
Restricted Subsidiaries" covenant, unless and until designated an Unrestricted
Subsidiary in accordance with such covenant.

"Sale and Leaseback Transaction" means any arrangement providing for the
leasing to Liberty or a Restricted Subsidiary of any Principal Property (except
for temporary leases for a term, including renewals, of not more than three
years) which has been or is to be sold by Liberty or such Restricted Subsidiary
to the lessor.

"Subsidiary" means any corporation, association, limited liability company,
partnership or other business entity of which a majority of the total voting
power of the capital stock or other interests (including partnership interests)
entitled (without regard to the incurrence of a contingency) to vote in the
election of directors, managers, or trustees thereof is at the time owned,
directly or indirectly, by (i) Liberty, (ii) Liberty and one or more of its
Subsidiaries or (iii) one or more Subsidiaries of Liberty.

"Trading Day" means, with respect to any security the Closing Price of which
is being determined, a day on which there is trading on the principal United
States national or regional securities exchange or recognized international
securities exchange, in the Nasdaq Stock Market or in the over-the-counter
market used to determine such Closing Price.

"Unrestricted Subsidiary" means, as of any date of determination, any
Subsidiary of Liberty that is not a Restricted Subsidiary.

Modification and Waiver

Modification and amendments of the indenture may be made by Liberty and the
trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding senior debt securities of each
series affected thereby; provided, however, that no modification or amendment
may, without the consent of the holder of each outstanding senior debt security
affected thereby,

(1) change the stated maturity of the principal of, or any premium or
installment of interest on, or any additional amounts with respect to,
any senior debt security,

(2) reduce the principal amount of, or the rate (or modify the calculation
of the rate) of interest on, or any additional amounts with respect to,
or any premium payable upon the redemption of, any senior debt
security,

(3) change the redemption provisions of any senior debt security or
adversely affect the right of repayment at the option of any holder of
any senior debt security,

(4) change the place of payment or the coin or currency in which the
principal of, any premium or interest on or any additional amounts with
respect to any senior debt security is payable,

(5) impair the right to institute suit for the enforcement of any payment
on or after the stated maturity of any senior debt security (or, in the
case of redemption, on or after the redemption date or, in the case of
repayment at the option of any holder, on or after the date for
repayment),

(6) reduce the percentage in principal amount of the outstanding senior
debt securities, the consent of whose holders is required in order to
take certain actions,

(7) reduce the requirements for quorum or voting by holders of senior debt
securities as provided in the indenture,

(8) modify any of the provisions in the indenture regarding the waiver of
past defaults and the waiver of certain covenants by the holders of
senior debt securities except to increase any percentage vote

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required or to provide that certain other provisions of the indenture
cannot be modified or waived without the consent of the holder of each
senior debt security affected thereby, or

(9) modify any of the above provisions.

The holders of at least a majority in aggregate principal amount of the
senior debt securities of any series may, on behalf of the holders of all
senior debt securities of the series, waive compliance by Liberty with certain
restrictive provisions of the indenture. The holders of not less than a
majority in aggregate principal amount of the outstanding senior debt
securities of any series may, on behalf of the holders of all senior debt
securities of the series, waive any past default and its consequences under the
indenture with respect to the senior debt securities of the series, except a
default

. in the payment of principal (or premium, if any), or any interest on or
any additional amounts with respect to senior debt securities of the
series, or

. in respect of a covenant or provision of the indenture that cannot be
modified or amended without the consent of the holder of each senior
debt security of any series.

Under the indenture, Liberty is required to furnish the trustee annually a
statement as to performance by Liberty of certain of its obligations under the
indenture and as to any default in the performance. Liberty is also required to
deliver to the trustee, within five days after becoming aware thereof, written
notice of any event of default or any event which after notice or lapse of time
or both would constitute an event of default.

Discharge, Defeasance and Covenant Defeasance

Liberty may discharge certain obligations to holders of any series of senior
debt securities that have not already been delivered to the trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
depositing with the trustee, in trust, funds in U.S. dollars in an amount
sufficient to pay the entire indebtedness on the senior debt securities with
respect to principal (and premium, if any) and interest to the date of the
deposit (if the senior debt securities have become due and payable) or to the
maturity thereof, as the case may be.

The indenture provides that, unless the provisions of Section 402 thereof are
made inapplicable to the senior debt securities of or within any series
pursuant to Section 301 thereof, Liberty may elect either

. to defease and be discharged from any and all obligations with respect
to the senior debt securities (except for, among other things, the
obligation to pay additional amounts, if any, upon the occurrence of
certain events of taxation, assessment or governmental charge with
respect to payments on the senior debt securities and other obligations
to register the transfer or exchange of the senior debt securities, to
replace temporary or mutilated, destroyed, lost or stolen senior debt
securities, to maintain an office or agency with respect to the senior
debt securities and to hold moneys for payment in trust) ("defeasance")
or

. to be released from its obligations with respect to the senior debt
securities under the covenants described under "--Certain Covenants"
above or, if provided pursuant to Section 301 of the indenture, its
obligations with respect to any other covenant, and any omission to
comply with the obligations shall not constitute a default or an event
of default with respect to the senior debt securities ("covenant
defeasance").

Defeasance or covenant defeasance, as the case may be, shall be conditioned
upon the irrevocable deposit by Liberty with the trustee, in trust, of an
amount in U.S. dollars at stated maturity, or Government Obligations, which is
defined below, or both, applicable to the senior debt securities which through
the scheduled payment of principal and interest in accordance with their terms
will provide money in an amount sufficient to pay the principal of (and
premium, if any) and interest on the senior debt securities on the scheduled
due dates therefor.

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Such a trust may only be established if, among other things,

. the applicable defeasance or covenant defeasance does not result in a
breach or violation of, or constitute a default under, the indenture or
any other material agreement or instrument to which Liberty is a party
or by which it is bound, and

. Liberty has delivered to the trustee an Opinion of Counsel (as specified
in the indenture) to the effect that the holders of the senior debt
securities will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of the defeasance or covenant defeasance
and will be subject to U.S. federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if the
defeasance or covenant defeasance had not occurred, and the Opinion of
Counsel, in the case of defeasance, must refer to and be based upon a
letter ruling of the Internal Revenue Service received by Liberty, a
Revenue Ruling published by the Internal Revenue Service or a change in
applicable U.S. federal income tax law occurring after the date of the
indenture.

"Government Obligations" means senior debt securities which are

(1) direct obligations of the United States of America or the government or
the governments in the confederation which issued the Currency in which
the senior debt securities of a particular series are payable, for the
payment of which its full faith and credit is pledged or

(2) obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America or such other
government or governments, the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government or governments,

which, in the case of clauses (1) and (2), are not callable or redeemable at
the option of the issuer or issuers thereof, and shall also include a
depositary receipt issued by a bank or trust company as custodian with respect
to the Government Obligation or a specific payment of interest on or principal
of or any other amount with respect to the Government Obligation held by the
custodian for the account of the holder of the depositary receipt, provided
that (except as required by law) the custodian is not authorized to make any
deduction from the amount payable to the holder of the depositary receipt from
any amount received by the custodian with respect to the Government Obligation
or the specific payment of interest on or principal of or any other amount with
respect to the Government Obligation evidenced by the depositary receipt.

In the event Liberty effects covenant defeasance with respect to any senior
debt securities and the senior debt securities are declared due and payable
because of the occurrence of any event of default other than an event of
default with respect to sections 1005 and 1006 of the indenture (which sections
would no longer be applicable to the senior debt securities after the covenant
defeasance) or with respect to any other covenant as to which there has been
covenant defeasance, the amount in the Currency in which the senior debt
securities are payable, and Government Obligations on deposit with the trustee,
will be sufficient to pay amounts due on the senior debt securities at the time
of the stated maturity but may not be sufficient to pay amounts due on the
senior debt securities at the time of the acceleration resulting from the event
of default. However, Liberty would remain liable to make payment of the amounts
due at the time of acceleration.

Governing Law

The indenture and the new securities will be governed by, and construed in
accordance with, the laws of the State of New York.

Regarding the Trustee

The trustee is permitted to engage in other transactions with Liberty and its
subsidiaries from time to time, provided that if the trustee acquires any
conflicting interest it must eliminate the conflict upon the occurrence of an
event of default, or else resign.

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Registration Rights; Additional Interest

Holders of new securities are not entitled to any registration rights with
respect to the new securities. Holders of old securities are entitled to
certain registration rights pursuant to the registration rights agreement.

In the registration rights agreement, we agreed to keep this exchange offer
open for not less than 20 business days (or longer if required by applicable
law) after the date notice of this exchange offer is mailed to the holders of
the old securities. See "The Exchange Offer." We further agreed that:

. if we determine, after consultation with counsel, that any changes in
law, SEC rules or regulations or applicable interpretations thereof by
the SEC staff do not permit us to consummate the exchange offer,

. if for any other reason, the exchange offer is not consummated by
January 26, 2000, which is 210 days after the original issue date of the
old securities,

. if any initial purchaser requests with respect to securities
representing an unsold allotment from the original sale of the old
securities, or

. if any holder of old securities notifies us within 30 days after the
commencement of the exchange offer that (1) due to a change in law or
policy it is not entitled to participate in the exchange offer, (2) due
to a change in law or policy it is not permitted to resell the new
securities to the public without delivering a prospectus and this
prospectus is not appropriate or available, or (3) it is a broker-dealer
and owns old securities acquired directly from us or our affiliate;

we will, in lieu of effecting the registration of the new securities pursuant
to the registration statement of which this prospectus is a part:

. as promptly as practicable, file with the SEC a shelf registration
statement covering resales of the old securities,

. use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act not later
than January 26, 2000, which is 210 days after the original issue date
of the old securities,

. use our reasonable best efforts to keep effective the shelf registration
statement until July 7, 2001, which is two years after the original
issue date of the old securities, or until all of the old securities
covered by the shelf registration statement have been sold or otherwise
cease to be "Registrable Securities" within the meaning of the
registration rights agreement, and

. use our reasonable best efforts to ensure that

. the shelf registration statement and any amendment thereto and any
prospectus included therein complies in all material respects with
the Securities Act, and

. the shelf registration statement and any amendment thereto and any
prospectus included therein does not, when it becomes effective,
contain an untrue statement of a material fact.

We will, in the event of the filing of a shelf registration statement,
provide to each holder of old securities that are covered by the shelf
registration statement copies of the prospectus which is a part of the shelf
registration statement and notify each such holder when the shelf registration
statement has become effective. A holder of old securities that sells the old
securities pursuant to the shelf registration statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with the sales and
will be bound by the provisions of the registration rights agreement which are
applicable to the holder (including certain indemnification obligations).

Each old security contains a legend to the effect that the holder of that
security, by its acceptance thereof, has agreed to be bound by the provisions
of the registration rights agreement. In that regard, if a holder receives
notice from Liberty that any event which

. makes any statement in the prospectus which is part of the shelf
registration statement (or, in the case of participating broker-dealers,
this prospectus) untrue in any material respect, or

124
<PAGE>

. requires the making of any changes in the prospectus to make the
statements therein not misleading, or

. is specified in the registration rights agreement

occurs, the holder (or participating broker-dealer, as the case may be) will
suspend the sale of securities pursuant to that prospectus until Liberty has

. either

. amended or supplemented the prospectus to correct the misstatement
or omission and

. furnished copies of the amended or supplemented prospectus to the
holder (or participating broker-dealer, as the case may be) or,

. given notice that the sale of the securities may be resumed, as the case
may be.

If a registration default occurs, which means that the exchange offer is not
consummated or a shelf registration statement with respect to the securities is
not declared effective on or prior to January 26, 2000, which is 210 days after
the original issue date of the old securities, then the interest rate borne by
the securities that are affected by the registration default with respect to
the first 90-day period, or portion thereof, will be increased by an additional
interest of 0.25% per annum upon the occurrence of each registration default.
The amount of additional interest will increase by an additional 0.25% each 90-
day period, or portion thereof, while a registration default is continuing
until all registration defaults have been cured, provided that the maximum
aggregate increase in the interest rate will in no event exceed one percent
(1%) per annum. Upon

. the consummation of the exchange offer;

. the effectiveness of the shelf registration statement after January 26,
2000; or

. the date on which all new securities are saleable pursuant to Rule
144(k) under the Securities Act or any successor provision,

the interest rate on the securities will be reduced, in the case of the notes
to 7 7/8%, and in the case of the debentures to 8 1/2%, if Liberty is otherwise
in compliance with this paragraph. If after any such reduction in interest
rate, a different event specified above occurs, the interest rate will again be
increased pursuant to the foregoing provisions.

If the shelf registration statement is unusable by the holders for any reason
for more than 30 days, then the interest rate borne by the securities will be
increased by 0.25% per annum of the principal amount of the securities for the
first 90-day period (or portion thereof) beginning on the 31st day that the
shelf registration statement ceased to be usable. This interest rate will be
increased by an additional 0.25% per annum of the principal amount of the
securities at the beginning of each subsequent 90-day period, provided that the
maximum aggregate increase in the interest rate will in no event exceed one
percent (1%) per annum. Any amounts payable under this paragraph shall also be
deemed "additional interest" for purposes of the registration rights agreement.
Upon the shelf registration statement once again becoming usable, the interest
rate borne by the securities will be reduced to the original interest rate if
Liberty is otherwise in compliance with the registration rights agreement at
such time. Additional interest shall be computed based on the actual number of
days elapsed in each 90-day period in which the shelf registration statement is
unusable.

Liberty shall notify the trustee within three business days of an event date,
which is each and every date on which an event occurs in respect of which
additional interest is required to be paid. Additional interest shall be paid
by depositing with the trustee, in trust, for the benefit of the holders of
Registrable Securities, on or before the applicable semiannual interest payment
date, immediately available funds in sums sufficient to pay the additional
interest then due. The additional interest due shall be payable on each
interest payment date to the record holder of securities entitled to receive
the interest payment to be paid on such date as set forth in the indenture.
Each obligation to pay additional interest shall be deemed to accrue from and
including the day following the applicable event date.

125
<PAGE>

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is a summary of the material United States federal
income tax consequences to holders of old securities who exchange their old
securities for exchange securities in the exchange offer. This discussion is
based on currently existing provisions of the Internal Revenue Code, the
applicable Treasury Regulations promulgated and proposed thereunder, judicial
authority and current administrative rulings and practice, all of which are
subject to change, possibly with retroactive effect, or different
interpretation. There can be no assurance that the Internal Revenue Service
will not challenge one or more of the conclusions described herein, and Liberty
has not obtained, nor does it intend to obtain, a ruling from the Internal
Revenue Service or an opinion of counsel with respect to the United States
federal income tax consequences of the exchange of old securities for new
securities. This discussion is limited to holders of old securities who hold
the old securities as capital assets, within the meaning of section 1221 of the
Internal Revenue Code. Moreover, this discussion is for general information
only and does not address all of the tax consequences that may be relevant to
holders of old securities and new securities in light of their personal
circumstances or to some types of holders of old securities and new securities
including financial institutions, insurance companies, tax exempt entities,
dealers in securities or persons who have hedged the risk of owning a security.
In addition, this discussion does not address any tax consequences arising
under the laws of any state, locality or foreign jurisdiction, or any estate or
gift tax considerations.

The exchange of old securities for new securities pursuant to the exchange
offer should not be treated as a taxable exchange for United States federal
income tax purposes. Accordingly, a holder should have the same adjusted tax
basis and holding period in the new securities as it had in the old securities
immediately before the exchange.

126
<PAGE>

PLAN OF DISTRIBUTION

Each broker-dealer that receives new securities for its own account under the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the new securities. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new securities received in exchange for old securities where
the old securities were acquired as a result of market-making activities or
other trading activities. We have agreed that, for a period of 90 days after
the expiration date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.

We will not receive any proceeds from any sale of new securities by broker-
dealers or any other holder of new securities. New securities received by
broker-dealers for their own account under the exchange offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the new securities
or a combination of these methods of resale, at market prices prevailing at the
time of resale, at prices related to the prevailing market prices or at
negotiated prices. The resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any of these broker-dealers and/or the
purchasers of any such new securities. Any broker-dealer that resells new
securities that were received by it for its own account in the exchange offer
or participates in a distribution of the new securities may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on their
resale of new securities and any commissions or concessions received by them
may be deemed to be underwriting compensation under the Securities Act. The
letter of transmittal states that by acknowledging that it will deliver a
prospectus and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.

For a period of 90 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests these documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer,
including the reasonable expenses of one counsel for the holders of the old
securities, other than commissions or concessions of any brokers or dealers. In
addition, we will indemnify the holders of the old securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.

127
<PAGE>

LEGAL MATTERS

Certain legal matters with respect to the validity of the new securities
offered hereby will be passed upon for us by Baker & Botts, L.L.P., New York,
New York.

EXPERTS

The consolidated financial statements of Liberty Media Corporation and
subsidiaries as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.

The consolidated financial statements of Sprint Spectrum Holding Company,
L.P. and subsidiaries as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998, included in this prospectus
and the related financial statement schedule included elsewhere in this
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.

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

WHERE TO FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the new securities offered by this prospectus.
This prospectus, which forms a part of the registration statement, does not
contain all the information included in the registration statement. You should
refer to the registration statement, including its exhibits and schedules, for
further information about us or the new securities offered by this prospectus.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete, and, where any contract or other
document is an exhibit to the registration statement, we refer you to that
exhibit for a more complete description of the matter involved.

We are not currently subject to the informational requirements of the
Securities Exchange Act of 1934. However, as a result of this offering of new
securities, we will become subject to the informational requirements of the
Securities Exchange Act. Accordingly, following this offering, we will file
reports and other information with the SEC. In addition, AT&T files annual,
quarterly and special reports, proxy statements and other information with the
SEC, and such reports, proxy statements and other information may contain
important information about us. AT&T has agreed, pursuant to the Inter-Group
Agreement, that for so long as AT&T Liberty Media Group tracking stock is
outstanding, AT&T will prepare and include in its SEC filings consolidated
financial statements of AT&T and combined financial statements of the Liberty
Media Group (of which we are the primary operating unit).

You may read and copy the registration statement and the reports and other
information we file and any reports and other information AT&T files at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings and AT&T's SEC
filings are also available to the public from commercial document retrieval
services and at the Internet world wide web site maintained by the SEC at
www.sec.gov.

Additionally, we have agreed that, even if we are not required to file
periodic reports and information with the SEC, for so long as any new
securities remain outstanding we will furnish to you the information that would
be required to be furnished by us under Section 13 of the Securities Exchange
Act.

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

128
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Liberty Media Corporation
Audited Consolidated Financial Statements
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-3
Consolidated Statements of Operations and Comprehensive Earnings for
the years ended
December 31, 1998, 1997 and 1996..................................... F-5
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1998, 1997
and 1996............................................................. F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.................................................. F-7
Notes to Consolidated Financial Statements............................ F-8

Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and December 31,
1998................................................................. F-37
Consolidated Statements of Operations and Comprehensive Earnings for
the seven months ended September 30, 1999, the two months ended
February 28, 1999 and the nine months ended September 30, 1998....... F-39
Consolidated Statements of Stockholder's Equity for the seven months
ended September 30, 1999 and the two months ended February 28, 1999.. F-40
Consolidated Statements of Cash Flows for the seven months ended
September 30, 1999, the two months ended February 28, 1999 and the
nine months ended September 30, 1998................................. F-41
Notes to Consolidated Financial Statements............................ F-42

Sprint Spectrum Holding Company, L.P.
Audited Consolidated Financial Statements
Report of Independent Auditors........................................ F-57
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996.................................................. F-58
Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-59
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.................................................. F-60
Notes to Consolidated Financial Statements............................ F-61
Schedule II--Consolidated Valuation and Qualifying Accounts........... F-72
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholder
Liberty Media Corporation:

We have audited the accompanying consolidated balance sheets of Liberty Media
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations and comprehensive earnings, stockholder's
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Liberty Media Corporation and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.

KPMG LLP

Denver, Colorado
March 9, 1999

F-2
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)

CONSOLIDATED BALANCE SHEETS

December 31, 1998 and 1997

<TABLE>
<CAPTION>
1998 1997
------- -----
amounts in
millions
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................................... $ 228 100
Marketable securities......................................... 159 248
Trade and other receivables, net.............................. 142 109
Prepaid expenses and committed program rights................. 263 221
Other current assets.......................................... 21 6
------- -----
Total current assets........................................ 813 684
------- -----
Investments in affiliates, accounted for under the equity
method, and related receivables (note 5)....................... 3,079 2,359
Investment in Time Warner, Inc. ("Time Warner") (note 6)........ 7,083 3,538
Investment in Sprint Corporation ("Sprint") (notes 2 and 5)..... 2,446 --
Other investments and related receivables (note 7).............. 1,010 433
Property and equipment, at cost................................. 279 269
Less accumulated depreciation................................. 124 93
------- -----
155 176
------- -----
Intangible assets:
Excess cost over acquired net assets.......................... 940 429
Franchise costs............................................... 99 78
------- -----
1,039 507
Less accumulated amortization............................... 140 61
------- -----
899 446
------- -----
Other assets, at cost, net of accumulated amortization.......... 82 99
------- -----
Total assets................................................ $15,567 7,735
======= =====
</TABLE>

F-3
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)

CONSOLIDATED BALANCE SHEETS--(Continued)

December 31, 1998 and 1997

<TABLE>
<CAPTION>
1998 1997
------- -----
amounts in
millions
<S> <C> <C>
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable............................................... $ 49 28
Accrued liabilities............................................ 199 157
Accrued stock compensation..................................... 126 70
Program rights payable......................................... 156 156
Customer prepayments........................................... 124 103
Deferred option premium (note 6)............................... -- 306
Current portion of debt........................................ 184 31
------- -----
Total current liabilities.................................... 838 851
------- -----
Long-term debt (note 9).......................................... 1,912 754
Deferred income taxes (note 10).................................. 3,366 1,015
Other liabilities................................................ 89 20
------- -----
Total liabilities............................................ 6,205 2,640
------- -----
Minority interests in equity of subsidiaries (notes 5, 8 and
11)............................................................. 132 374
Stockholder's equity (note 11):
Preferred stock, $.0001 par value. Authorized 100,000 shares;
no shares issued and outstanding.............................. -- --
Class A common stock $.0001 par value. Authorized 1,000,000
shares; issued and outstanding 1,000 shares .................. -- --
Class B common stock $.0001 par value. Authorized 1,000,000
shares; issued and outstanding 1,000 shares .................. -- --
Class C common stock, $.0001 par value. Authorized 1,000,000
shares; issued and outstanding 1,000 shares .................. -- --
Additional paid-in capital..................................... 4,682 3,610
Accumulated other comprehensive earnings, net of taxes (note
13)........................................................... 3,186 767
Retained earnings.............................................. 952 330
------- -----
8,820 4,707
Due to related parties......................................... 410 14
------- -----
Total stockholder's equity................................... 9,230 4,721
------- -----
Commitments and contingencies (note 14)
Total liabilities and stockholder's equity................... $15,567 7,735
======= =====
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS

Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
1998 1997 1996
------- ----- ------
amounts in millions
<S> <C> <C> <C>
Revenue:
Unaffiliated parties................................. $ 1,197 1,070 998
Related parties (note 11)............................ 162 155 30
Net sales from electronic retailing services......... -- -- 1,180
------- ----- ------
1,359 1,225 2,208
------- ----- ------
Cost of sales, operating costs and expenses:
Cost of sales........................................ -- -- 816
Operating............................................ 729 627 698
Selling, general and administrative.................. 387 342 455
Charges from related parties (note 11)............... 27 97 139
Stock compensation (note 11)......................... 518 296 (6)
Depreciation and amortization........................ 129 123 172
------- ----- ------
1,790 1,485 2,274
------- ----- ------
Operating loss..................................... (431) (260) (66)
Other income (expense):
Interest expense..................................... (104) (40) (53)
Interest expense (income) to related parties, net
(note 11)........................................... (9) (15) 11
Dividend and interest income......................... 65 59 35
Share of losses of affiliates, net (note 5).......... (1,002) (785) (332)
Minority interests in losses (earnings) of
subsidiaries........................................ 13 (10) 18
Gains on dispositions, net (notes 5, 6 and 7)........ 2,449 406 1,558
Gains on issuance of equity by affiliates and
subsidiaries (notes 5
and 8).............................................. 105 -- --
Other, net........................................... (3) -- 3
------- ----- ------
1,514 (385) 1,240
------- ----- ------
Earnings (loss) before income taxes................ 1,083 (645) 1,174
Income tax (expense) benefit (note 10)................. (461) 175 (433)
------- ----- ------
Net earnings (loss)................................ $ 622 (470) 741
------- ----- ------
Other comprehensive earnings, net of taxes:
Foreign currency translation adjustments............. 2 (23) 35
Unrealized holding gains arising during the period,
net of reclassification adjustments................. 2,417 747 (319)
------- ----- ------
Other comprehensive earnings (loss).................. 2,419 724 (284)
------- ----- ------
Comprehensive earnings (note 13)....................... $ 3,041 254 457
======= ===== ======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
Accumulated
other
Common stock Additional comprehensive Due to Total
Preferred ----------------------- paid-in earnings, Retained related stockholder's
stock Class A Class B Class C captial net of taxes earnings parties equity
--------- ------- ------- ------- ---------- ------------- -------- ------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... $-- -- -- -- 3,030 327 59 314 3,730
Net earnings........... -- -- -- -- -- -- 741 -- 741
Foreign currency
translation
adjustments........... -- -- -- -- -- 35 -- -- 35
Recognition of
previously unrealized
gains on available-
for-sale securities... -- -- -- -- -- (356) -- -- (356)
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 37 -- -- 37
Other transfers from
(to) related
parties, net.......... -- -- -- -- 465 -- -- (137) 328
---- --- --- --- ----- ----- ----- ----- -----
Balance at December 31,
1996................... -- -- -- -- 3,495 43 800 177 4,515
Net loss............... -- -- -- -- -- -- (470) -- (470)
Foreign currency
translation
adjustments........... -- -- -- -- -- (23) -- -- (23)
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 747 -- -- 747
Excess of consideration
paid over carryover
basis of net assets
acquired from related
party................. -- -- -- -- (86) -- -- -- (86)
Gain in connection with
issuance of stock of
affiliate (note 5).... -- -- -- -- 66 -- -- -- 66
Issuance of stock by
subsidiary............ -- -- -- -- 19 -- -- -- 19
Excess of cash received
over carryover basis
of SUMMITrak Assets... -- -- -- -- 30 -- -- -- 30
Contribution to equity
from
Tele-Communications,
Inc. ("TCI") for
acquisitions.......... -- -- -- -- 30 -- -- -- 30
Other transfers from
(to) related
parties, net.......... -- -- -- -- 56 -- -- (163) (107)
---- --- --- --- ----- ----- ----- ----- -----
Balance at December 31,
1997................... -- -- -- -- 3,610 767 330 14 4,721
Net earnings........... -- -- -- -- -- -- 622 -- 622
Foreign currency
translation
adjustments........... -- -- -- -- -- 2 -- -- 2
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 2,417 -- -- 2,417
Payments for call
agreements............ -- -- -- -- (140) -- -- -- (140)
Gains in connection
with issuances of
stock of affiliates
(note 5).............. -- -- -- -- 68 -- -- -- 68
Gain in connection with
the issuance of stock
by subsidiary (note
8).................... -- -- -- -- 2 -- -- -- 2
Transfers from related
party due to
acquisitions of
minority interests
(note 8).............. -- -- -- -- 772 -- -- -- 772
Assignment of option
from related party.... -- -- -- -- 16 -- -- (16) --
Transfer from related
party for acquisition
of cost investment
(note 14)............. -- -- -- -- 354 -- -- -- 354
Other transfers from
related parties, net.. -- -- -- -- -- -- -- 412 412
---- --- --- --- ----- ----- ----- ----- -----
Balance at December 31,
1998................... $-- -- -- -- 4,682 3,186 952 410 9,230
==== === === === ===== ===== ===== ===== =====
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
1998 1997 1996
------- ---- -------
amounts in millions
(see note 4)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................................... $ 622 (470) 741
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization.......................... 129 123 172
Stock compensation..................................... 518 296 (6)
Payments of stock compensation......................... (58) (75) (1)
Share of losses of affiliates, net..................... 1,002 785 332
Deferred income tax expense............................ 546 11 484
Intercompany tax allocation............................ (89) (189) (54)
Minority interests in (losses) earnings of
subsidiaries.......................................... (13) 10 (18)
Gains on issuance of equity by affiliates and
subsidiaries.......................................... (105) -- --
Gains on disposition of assets, net.................... (2,449) (406) (1,558)
Other noncash charges.................................. -- 32 18
Changes in operating assets and liabilities, net of
the effect of acquisitions and dispositions:
Change in receivables................................. (56) 6 (41)
Change in prepaid expenses and committed program
rights............................................... (65) (1) (11)
Change in payables, accruals and customer
prepayments.......................................... 44 27 27
------- ---- -------
Net cash provided by operating activities............ 26 149 85
------- ---- -------
Cash flows from investing activities:
Cash paid for acquisitions............................. (92) (41) (168)
Capital expended for property and equipment............ (60) (110) (149)
Cash balances of deconsolidated subsidiaries........... -- (39) --
Investments in and loans to affiliates and others...... (1,404) (580) (536)
Return of capital from affiliates...................... 12 5 6
Collections on loans to affiliates and others.......... -- 133 24
Cash proceeds from dispositions........................ 423 268 170
Other, net............................................. -- (6) (45)
------- ---- -------
Net cash used by investing activities................ (1,121) (370) (698)
------- ---- -------
Cash flows from financing activities:
Borrowings of debt..................................... 2,199 661 465
Repayments of debt..................................... (609) (341) (628)
Issuance of debentures................................. -- -- 345
Payments for call agreements........................... (140) -- --
Cash transfers (to) from related parties............... (215) (428) 372
Contributions by minority shareholders of
subsidiaries.......................................... -- 4 319
Other, net............................................. (12) (9) (9)
------- ---- -------
Net cash provided (used) by financing activities..... 1,223 (113) 864
------- ---- -------
Effect of exchange rate changes on cash.............. -- -- 4
------- ---- -------
Net increase (decrease) in cash and cash
equivalents........................................ 128 (334) 255
Cash and cash equivalents at beginning of year...... 100 434 179
------- ---- -------
Cash and cash equivalents at end of year............ $ 228 100 434
======= ==== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1998, 1997 and 1996

(1) Basis of Presentation

The accompanying consolidated financial statements include the accounts of
Liberty Media Corporation ("Liberty" or the "Company") and those of all
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The Company is a wholly
owned subsidiary of TCI. Effective March 9, 1999, AT&T Corp. ("AT&T")
indirectly owns 100% of the outstanding common stock of the Company.

Liberty's domestic subsidiaries generally operate or hold interests in
businesses which provide programming services including production, acquisition
and distribution through all available formats and media of branded
entertainment, educational and informational programming and software. In
addition, certain of Liberty's subsidiaries hold interests in businesses
engaged in wireless telephony, electronic retailing, direct marketing and
advertising sales relating to programming services, infomercials and
transaction processing. Liberty also has significant interests in foreign
affiliates which operate in cable television, programming and satellite
distribution.

(2) Merger with AT&T

On March 9, 1999, AT&T acquired TCI in a merger transaction (the "AT&T
Merger") whereby a wholly owned subsidiary of AT&T merged with and into TCI,
and TCI thereby became a subsidiary of AT&T. As a result of the AT&T Merger,
each series of TCI common stock was converted into a class of AT&T common stock
subject to applicable exchange ratios.

Pursuant to a proposed final judgment (the "Final Judgment") agreed to by
Liberty, AT&T and the United States Department of Justice (the "DOJ") on
December 31, 1998, Liberty transferred all of its beneficially owned securities
(the "Sprint Securities") of Sprint to a trustee (the "Trustee") prior to the
AT&T Merger. The Final Judgment, if entered by the United States District Court
for the District of Columbia, would require the Trustee, on or before May 23,
2002, to dispose of a portion of the Sprint Securities sufficient to cause
Liberty to beneficially own no more than 10% of the outstanding Series 1 PCS
Stock of Sprint on a fully diluted basis on such date. On or before May 23,
2004, the Trustee must divest the remainder of the Sprint Securities
beneficially owned by Liberty.

The Final Judgment would provide that the Trustee vote the Sprint Securities
beneficially owned by Liberty in the same proportion as other holders of
Sprint's PCS Stock so long as such securities are held by the trust. The Final
Judgment would also prohibit the acquisition of Liberty of additional Sprint
Securities, with certain exceptions, without the prior written consent of the
DOJ.

(3) Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash equivalents consist of investments which are readily convertible into
cash and have maturities of three months or less at the time of acquisition.

Receivables

Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1998 and 1997 was not material.

Program Rights

Prepaid program rights are amortized on a film-by-film basis over the
anticipated number of exhibitions. Committed program rights and program rights
payable are recorded at the estimated cost of the programs when

F-8
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the film is available for airing less prepayments. These amounts are amortized
on a film-by-film basis over the anticipated number of exhibitions.

Investments

All marketable equity securities held by the Company are classified as
available-for-sale and are carried at fair value. Unrealized holding gains and
losses on securities classified as available-for-sale are carried net of taxes
as a component of accumulated other comprehensive earnings in stockholder's
equity. Realized gains and losses are determined on a specific-identification
basis.

Other investments in which the ownership interest is less than 20% and are
not considered marketable securities are carried at the lower of cost or net
realizable value. For those investments in affiliates in which the Company's
voting interest is 20% to 50%, the equity method of accounting is generally
used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's share of net earnings or losses of the
affiliates as they occur rather then as dividends or other distributions are
received, limited to the extent of the Company's investment in, advances to and
commitments for the investee. The Company's share of net earnings or losses of
affiliates includes the amortization of the difference between the Company's
investment and its share of the net assets of the investee. However,
recognition of gains on sales of properties to affiliates accounted for under
the equity method is deferred in proportion to the Company's ownership interest
in such affiliates.

Changes in the Company's proportionate share of the underlying equity of a
subsidiary or equity method investee, which result from the issuance of
additional equity securities by such subsidiary or equity investee, generally
are recognized as gains or losses in the Company's consolidated statements of
operations and comprehensive earnings.

Property and Equipment

Property and equipment, including significant improvements, is stated at cost
which includes acquisition costs allocated to tangible assets acquired.
Equipment acquired under capital leases are stated at the present value of
minimum lease payments, not to exceed the fair value of the leased asset.
Construction and initial customer installation costs, including interest during
construction, material, labor and applicable overhead, are capitalized.
Interest capitalized during 1998, 1997 and 1996 was not material.

Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 20 years for distribution systems (3 to 5 years for converters
and in-home wiring and 10 to 20 years for the remaining components of the
distribution system) and 3 to 40 years for support equipment and buildings (3
to 5 years for support equipment and 10 to 40 years for buildings and
improvements). Equipment held under capital leases are depreciated on a
straight-line basis over the shorter of the lease term or estimated useful life
of the asset.

Repairs and maintenance are charged to operations, and additions are
capitalized. At the time of ordinary retirements, sales or other dispositions
of cable property, the original cost and cost of removal of such property are
charged to accumulated depreciation, and salvage, if any, is credited thereto.
Gains and losses relating to cable property are only recognized in connection
with sales of properties in their entirety. Gains and losses relating to all
other assets are recognized at the time of disposal.

Excess Cost Over Acquired Net Assets

Excess cost over acquired net assets consists of the difference between the
cost of acquiring non-cable entities and amounts assigned to their tangible
assets. Such amounts are amortized on a straight-line basis over 5 to 30 years.

F-9
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Franchise Costs

Franchise costs generally include the difference between the cost of
acquiring cable companies and amounts allocated to their tangible assets. Such
amounts are amortized on a straight-line basis over 40 years.

Impairment of Long-lived Assets

The Company periodically reviews the carrying amounts of property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates. Assets to be disposed of
are carried at the lower of their financial statement carrying amount or fair
value less costs to sell.

Minority Interests

Recognition of minority interests' share of losses of subsidiaries is
generally limited to the amount of such minority interests' allocable portion
of the common equity of those subsidiaries. Further, the minority interests'
share of losses is not recognized if the minority holders of common equity of
subsidiaries have the right to cause the Company to repurchase such holders'
common equity.

Preferred stock (and accumulated dividends thereon) of subsidiaries are
included in minority interests in equity of subsidiaries. Dividend requirements
on such preferred stocks are reflected as minority interests in earnings of
subsidiaries in the accompanying consolidated statements of operations and
comprehensive earnings.

Foreign Currency Translation

The functional currency of the Company is the United States ("U.S.") dollar.
The functional currency of the Company's foreign operations generally is the
applicable local currency for each foreign subsidiary and foreign equity method
investee. In this regard, the functional currency of certain of the Company's
foreign subsidiaries and foreign equity investees is the Argentine peso, the
United Kingdom ("UK") pound sterling ("(Pounds)" or "pounds"), the French franc
("FF") and the Japanese yen ("(Yen)"). All amounts presented herein with
respect to operations in Argentina are stated in U.S. dollars because the
Argentine government has maintained an exchange rate of one U.S. dollar to one
Argentine peso since April of 1991. However, no assurance can be given that the
Argentine government will maintain such an exchange rate in future periods.
Assets and liabilities of foreign subsidiaries and foreign equity investees are
translated at the spot rate in effect at the applicable reporting date, and the
consolidated statements of operations and the Company's share of the results of
operations of its foreign equity affiliates are translated at the average
exchange rates in effect during the applicable period. The resulting unrealized
cumulative translation adjustment, net of applicable income taxes, is recorded
as a component of accumulated other comprehensive earnings in stockholder's
equity.

Transactions denominated in currencies other than the functional currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in the accompanying consolidated statements of operations
and comprehensive earnings as unrealized (based on the applicable period end
exchange rate) or realized upon settlement of the transactions.

Cash flows from consolidated foreign subsidiaries are calculated in their
functional currencies. The effect of exchange rate changes on cash balances
held in foreign currencies is reported as a separate line item in the
accompanying consolidated statements of cash flows.

F-10
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Unless otherwise indicated, convenience translations of foreign currencies
into U.S. dollars are calculated using the applicable spot rate at December 31,
1998, as published in The Wall Street Journal.

Foreign Currency Derivatives

From time to time, the Company uses certain derivative financial instruments
to manage its foreign currency risks. Amounts receivable or payable pursuant to
derivative financial instruments that qualify as hedges of existing assets,
liabilities and firm commitments are reflected as an adjustment of the hedged
item. Market value changes in all other derivative financial instruments are
recognized currently in the consolidated statements of operations and
comprehensive earnings. At December 31, 1998 and 1997, the Company did not have
any significant deferred hedging gains or losses.

Derivative Instruments and Hedging Activities

During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, ("Statement 133"), which is effective for all fiscal
years beginning after June 15, 2000. Statement 133 establishes accounting and
reporting standards for derivative instruments and hedging activities by
requiring that all derivative instruments be reported as assets or liabilities
and measured at their fair values. Under Statement 133, changes in the fair
values of derivative instruments are recognized immediately in earnings unless
those instruments qualify as hedges of the (1) fair values of existing assets,
liabilities, or firm commitments, (2) variability of cash flows of forecasted
transactions, or (3) foreign currency exposure of net investments in foreign
operations. Although the Company's management has not completed its assessment
of the impact of Statement 133 on its consolidated results of operations and
financial position, management estimates that the impact of Statement 133 will
not be significant.

Revenue Recognition

Programming revenue is recognized in the period during which programming is
provided, pursuant to affiliation agreements. Advertising revenue is
recognized, net of agency commissions, in the period during which underlying
advertisements are broadcast. Cable revenue is recognized in the period that
services are rendered. Cable installation revenue is recognized in the period
the related services are provided to the extent of direct selling costs. Any
remaining amount is deferred and recognized over the estimated average period
that customers are expected to remain connected to the cable distribution
system.

Stock Based Compensation

Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation ("Statement 123"), establishes financial accounting and
reporting standards for stock-based employee compensation plans as well as
transactions in which an entity issues its equity instruments to acquire goods
or services from non-employees. As allowed by Statement 123, Liberty continues
to account for stock-based compensation pursuant to Accounting Principles Board
Opinion No. 25 ("APB Opinion No. 25").

Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

F-11
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(4) Supplemental Disclosures to Consolidated Statements of Cash Flows

Cash paid for interest was $103 million, $41 million and $46 million for the
years ended December 31, 1998, 1997 and 1996, respectively. Cash paid for
income taxes during the years ended December 31, 1998, 1997 and 1996 was $29
million, $35 million and $14 million, respectively. In addition, the Company
received income tax refunds amounting to $15 million during the year ended
December 31, 1996.

<TABLE>
<CAPTION>
Years ended
December 31,
-------------------
1998 1997 1996
----- ----- -----
amounts in
millions
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired....................... $ 162 260 688
Net liabilities assumed............................. (107) (72) (115)
Debt issued to related parties and others........... -- (128) (52)
Contribution to equity from TCI for acquisitions.... -- -- (196)
Deferred tax asset (liability) recorded in
acquisition........................................ -- 14 (37)
Increase in minority interests in equity of
subsidiaries due to issuance of shares by
subsidiary......................................... -- -- (43)
Minority interest in equity of acquired
subsidiaries....................................... 39 (119) (77)
Excess consideration paid over carryover basis of
net assets acquired from related party............. -- 86 --
Gain in connection with the issuance of stock by
subsidiary......................................... (2) -- --
----- ----- -----
Cash paid for acquisitions........................ $ 92 41 168
===== ===== =====
</TABLE>

Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
Years ended
December 31,
-------------------
1998 1997 1996
----- ----- -----
amounts in
millions
<S> <C> <C> <C>
Noncash acquisitions of minority interests in equity
of subsidiaries (note 8):
Fair value of assets................................ $(741) (29) --
Deferred tax liability recorded..................... 154 -- --
Minority interests in equity of subsidiaries........ (185) (1) --
Contribution to equity from TCI for acquisitions.... 772 30 --
----- ----- -----
$ -- -- --
===== ===== =====
Common stock received in exchange for option (note
6)................................................... $ -- 306 --
===== ===== =====
Preferred stock received in exchange for common stock
and note receivable (note 7)......................... $ -- 371 --
===== ===== =====
Exchange of subsidiaries for note receivable and
equity investments................................... $ -- -- 574
===== ===== =====
Property and equipment purchased under capital
leases............................................... $ -- -- 56
===== ===== =====
</TABLE>

F-12
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Liberty ceased to include Flextech p.l.c. ("Flextech") and Cablevision S.A.
("Cablevision") in its consolidated financial results and began to account for
Flextech and Cablevision using the equity method of accounting, effective
January 1, 1997 and October 1, 1997, respectively. The effects of changing the
method of accounting for Liberty's ownership interests in Flextech and
Cablevision as of December 31, 1997 from the consolidation method to the equity
method are summarized below (amounts in millions):

<TABLE>
<S> <C>
Assets (other than cash and cash equivalents) reclassified to
investments in affiliates....................................... $(596)
Liabilities reclassified to investments in affiliates............ 484
Minority interests in equity of subsidiaries reclassified to
investments in affiliates....................................... 151
-----
Decrease in cash and cash equivalents............................ $ 39
=====
</TABLE>

(5) Investments in Affiliates Accounted for under the Equity Method

Liberty has various investments accounted for under the equity method. The
following table includes Liberty's carrying amount and percentage ownership of
the more significant investments at December 31, 1998 and the carrying amount
at December 31, 1997:

<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------- -----------------
Percentage Carrying Carrying
Ownership Amount Amount
---------- -------- -----------------
amounts in millions
<S> <C> <C> <C>
USA Networks, Inc. ("USAI") and
related investments.................. 21% $1,042 348
Telewest Communications plc
("Telewest")......................... 22% 515 324
Flextech.............................. 37% 320 261
Cablevision........................... 28% 315 239
QVC Inc. ("QVC")...................... 43% 197 134
Sprint Spectrum Holding Company L.P.,
MinorCo, L.P. and PhillieCo
Partnership I, L.P. (the "PCS
Ventures")........................... -- -- 607
Various foreign equity investments
(other than Telewest, Flextech and
Cablevision)......................... various 346 209
Other................................. various 344 237
------ -----
$3,079 2,359
====== =====
</TABLE>

Summarized unaudited combined financial information for affiliates is as
follows:

<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------- ------
amounts in
millions
<S> <C> <C>
Combined Financial Position
Investments.............................................. $ 2,003 4,085
Property and equipment, net.............................. 8,147 5,757
Franchise costs and other intangibles, net............... 14,395 7,870
Other assets, net........................................ 7,553 9,800
------- ------
Total assets........................................... $32,098 27,512
======= ======
Debt..................................................... $15,264 14,934
Other liabilities........................................ 11,620 7,417
Owners' equity........................................... 5,214 5,161
------- ------
Total liabilities and equity........................... $32,098 27,512
======= ======
</TABLE>

F-13
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1998 1997 1996
-------- ------ ------
amounts in millions
<S> <C> <C> <C>
Combined Operations
Revenue......................................... $ 14,062 6,613 4,308
Operating expenses.............................. (13,092) (7,163) (4,484)
Depreciation and amortization................... (2,629) (997) (469)
-------- ------ ------
Operating loss................................ (1,659) (1,547) (645)
Interest expense................................ (1,728) (540) (301)
Other, net...................................... (166) (469) (279)
-------- ------ ------
Net loss...................................... $ (3,553) (2,556) (1,225)
======== ====== ======
</TABLE>

USAI owns and operates businesses in network and television production,
television broadcasting, electronic retailing, ticketing operations, and
internet services. At December 31, 1998, Liberty directly and indirectly held
29.6 million shares of USAI's common stock. Liberty also held shares directly
in certain subsidiaries of USAI which are exchangeable into 39.5 million shares
of USAI common stock. Liberty's direct ownership of USAI is currently
restricted by Federal Communications Commission ("FCC") regulations. The
exchange of these shares can be accomplished only if there is a change to
existing regulations or if Liberty obtains permission from the FCC. If the
exchange of subsidiary stock into USAI common stock were completed at December
31, 1998, Liberty would own 69.1 million shares or approximately 21% (on a
fully-diluted basis) of USAI common stock. USAI's common stock had a closing
market value of $33 1/8 per share on December 31, 1998.

Liberty accounts for its investments in USAI and related subsidiaries on a
combined basis under the equity method. During the years ended December 31,
1998, 1997 and 1996, Liberty's share of affiliates' earnings (losses) from its
investments in USAI was $30 million, $5 million and ($1 million), respectively.

In February 1998, USAI paid cash and issued shares and one of its
subsidiaries issued shares in connection with the acquisition of certain assets
from Universal Studios, Inc. (the "Universal Transaction"). Liberty recorded an
increase to its investment in USAI of $54 million and an increase to additional
paid-in-capital of $33 million (after deducting deferred income taxes of $21
million) as a result of this share issuance.

USAI issued shares in June 1998 to acquire the remaining stock of
Ticketmaster Group, Inc. which it did not previously own (the "Ticketmaster
Transaction"). Liberty recorded an increase to its investment in USAI of $52
million and an increase to additional paid-in-capital of $31 million (after
deducting deferred income taxes of $21 million) as a result of this share
issuance.

No gain was recognized in the consolidated statement of operations and
comprehensive earnings for either the Universal Transaction or the Ticketmaster
Transaction due primarily to Liberty's intention to purchase additional equity
interests in USAI.

In connection with the Universal Transaction, Liberty was granted an
antidilutive right with respect to any future issuance of USAI's common stock,
subject to certain limitations, that enables it to maintain its percentage
ownership interests in USAI. During 1998 Liberty purchased 4.7 million shares
of USAI common stock and 22.9 million exchangeable shares of a USAI subsidiary
for an aggregate cost of $560 million pursuant to this right.

In December 1996, Silver King Communications, Inc. ("Silver King") acquired
Home Shopping Network, Inc. ("HSN"), a subsidiary of Liberty, by merger of HSN
with a subsidiary of Silver King (the "HSN Merger") where HSN was the surviving
corporation and a subsidiary of Silver King following the HSN

F-14
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Merger. As a result of the HSN Merger, HSN was no longer included in the
consolidated financial results of Liberty. Silver King was renamed HSN, Inc.,
which was the predecessor of USAI.

The PCS Ventures included Sprint Spectrum Holding Company, L. P. and MinorCo,
L.P. (collectively, "Sprint PCS") and PhillieCo Partnership I, L.P.
("PhillieCo"). The partners of each of the Sprint PCS partnerships were
subsidiaries of Sprint, Comcast Corporation ("Comcast"), Cox Communications,
Inc. ("Cox") and Liberty. The partners of PhillieCo were subsidiaries of
Sprint, Cox and Liberty. Liberty had a 30% partnership interest in each of the
Sprint PCS partnerships and a 35% partnership interest in PhillieCo. During the
years ended December 31, 1998, 1997 and 1996, the PCS Ventures accounted for
$629 million, $493 million and $133 million, respectively, of Liberty's share
of affiliates' losses.

On November 23, 1998, Liberty, Comcast, and Cox exchanged their respective
interests in Sprint PCS and PhillieCo (the "PCS Exchange") for shares of Sprint
PCS Group Stock which tracks the performance of Sprint's newly created PCS
Group (consisting initially of the PCS Ventures and certain PCS licenses which
were separately owned by Sprint). The Sprint PCS Group Stock collectively
represents an approximate 17% voting interest in Sprint. As a result of the PCS
Exchange, Liberty holds the Sprint Securities which consists of shares of
Sprint PCS Group Stock, as well as certain additional securities of Sprint
exercisable for or convertible into such securities, representing approximately
24% of the equity value of Sprint attributable to its PCS Group and less than
1% of the voting interest in Sprint. Through November 23, 1998, Liberty
accounted for its interest in the PCS Ventures using the equity method of
accounting, however, as a result of the PCS Exchange and Liberty's less than 1%
voting interest in Sprint, Liberty no longer exercises significant influence
with respect to its investment in the PCS Ventures. Accordingly, Liberty
accounts for its investment in the Sprint PCS Group Stock as an available-for-
sale security. As of December 31, 1998, the gross unrealized appreciation of
the fair value of Liberty's shares of the Sprint PCS Group Stock was $459
million.

As a result of the PCS Exchange, Liberty recorded a non-cash gain of $1.9
billion (before deducting deferred income taxes of $647 million) during the
fourth quarter of 1998 based on the difference between the carrying amount of
Liberty's interest in the PCS Ventures and the fair value of the Sprint
Securities received.

Telewest currently operates and constructs cable television and telephone
systems in the UK. Telewest accounted for $134 million, $145 million and $109
million of Liberty's share of its affiliates' losses during the years ended
December 31, 1998, 1997 and 1996, respectively.

At December 31, 1998 Liberty indirectly owned 463 million of the issued and
outstanding Telewest ordinary shares. The reported closing price on the London
Stock Exchange of Telewest ordinary shares was (Pounds)1.74 ($2.88) per share
at December 31, 1998.

Effective September 1, 1998, Telewest and General Cable PLC ("General Cable")
consummated a merger (the "General Cable Merger") in which holders of General
Cable received 1.243 new Telewest shares and (Pounds)0.65 ($1.11) in cash for
each share of General Cable. In addition, holders of American Depository shares
of General Cable ("General Cable ADS") (each representing five General Cable
shares) received 6.215 new Telewest shares and (Pounds)3.25 ($5.53) in cash for
each share of General Cable ADS. Based upon Telewest's closing share price of
(Pounds)0.89 ($1.51) on April 14, 1998, the General Cable Merger was valued at
approximately (Pounds)649 million ($1.1 billion).

The cash portion of the General Cable Merger was financed through an offer to
qualifying Telewest shareholders for the purchase of approximately 261 million
new Telewest shares at a price of (Pounds)0.925 ($1.57) per share (the
"Telewest Offer"). Liberty subscribed to 85 million Telewest ordinary shares at
an aggregate cost of (Pounds)78 million ($133 million) in connection with the
Telewest Offer.

F-15
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In connection with the General Cable Merger, Liberty converted its entire
holdings of Telewest convertible preference shares (133 million shares) into
Telewest ordinary shares. As a result of the General Cable Merger, Liberty's
ownership interest in Telewest decreased to 22%. In connection with the
increase in Telewest's equity, net of the dilution of Liberty's interest in
Telewest, that resulted from the General Cable Merger, Liberty recorded a non-
cash gain of $60 million (before deducting deferred income taxes of $21
million) during 1998.

In April 1997, Flextech and BBC Worldwide Limited ("BBC Worldwide") formed
two separate joint ventures (the "BBC Joint Ventures") and entered into certain
related transactions. The consummation of the BBC Joint Ventures and related
transactions resulted in, among other things, a reduction of Liberty's economic
ownership interest in Flextech from 46.2% to 36.8%. Liberty continues to
maintain a voting interest in Flextech of approximately 50%. As a result of
such dilution, Liberty recorded a $152 million increase to the carrying amount
of Liberty's investment in Flextech, a $53 million increase to deferred income
tax liability, a $66 million increase to additional paid-in-capital and a $33
million increase to minority interests in equity of subsidiaries. No gain was
recognized in the consolidated statement of operations and comprehensive
earnings due primarily to certain contingent obligations of Liberty with
respect to one of the BBC Joint Ventures (see note 14). Flextech accounted for
$21 million and $16 million of Liberty's share of its affiliates' losses during
the years ended December 31, 1998 and 1997, respectively.

Based on the (Pounds)6.07 ($10.07) per share closing price of the Flextech
ordinary shares on the London Stock Exchange, the 58 million Flextech ordinary
shares owned by Liberty had an aggregate market value of (Pounds)352 million
($584 million) at December 31, 1998.

On October 9, 1997, Liberty sold a portion of its 51% interest in Cablevision
to unaffiliated third parties. In connection with such sale and certain related
transactions, Liberty recognized a gain of $49 million. Cablevision accounted
for $23 million and $3 million of Liberty's share of its affiliates' losses
during the years ended December 31, 1998 and 1997, respectively.

On October 13, 1998, one of the Cablevision shareholders exercised a put
right representing a 7.2% interest in Cablevision. Consequently, on December
22, 1998, Liberty purchased its pro-rata portion of such shareholder's
ownership interest for $25 million, $8 million of which was paid at closing and
the remaining amount (including accrued interest thereon) will be paid in four
equal semi-annual installments. As a result of the put, Liberty's equity
interest in Cablevision increased from 26% to 28%.

As of April 29, 1996, Liberty and The News Corporation Limited ("News Corp.")
formed two sports programming ventures. In the U.S., Liberty and News Corp.
formed Fox/Liberty Networks LLC ("Fox Sports") into which Liberty contributed
interests in its national and regional sports networks and into which News
Corp. contributed its fx cable network and certain other assets. Liberty
received a 50% interest in Fox Sports and a distribution of $350 million in
cash. No gain or loss was recognized as the cash distribution approximated the
carrying amount of the assets contributed.

Prior to the first quarter of 1998, Liberty had no obligation, nor intention,
to fund Fox Sports. During 1998, Liberty made the determination to provide
funding to Fox Sports based on specific transactions consummated by Fox Sports.
Consequently, Liberty's share of losses of Fox Sports of $83 million for the
year ended December 31, 1998 includes previously unrecognized losses of Fox
Sports of approximately $64 million. Losses for Fox Sports were not recognized
in prior periods due to the fact that Liberty's investment in Fox Sports was
less than zero.

Internationally, News Corp. and Liberty formed a venture ("Fox Sports
International") to operate sports programming services in Latin American and
Australia and a variety of new sports services throughout the world except in
Asia and in the United Kingdom, Japan and New Zealand where prior arrangements
preclude

F-16
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

an immediate collaboration. Liberty owns 50% of Fox Sports International with
News Corp. owning the other 50%. Fox Sports International accounted for $34
million, $30 million and $21 million of Liberty's share of its affiliates'
losses during the years ended December 31, 1998, 1997 and 1996, respectively.

In addition to Telewest, Flextech, Fox Sports International and Cablevision,
Liberty has other less significant investments in affiliates in video
distribution and programming businesses located in the UK, other parts of
Europe, Asia, Latin America and certain other foreign countries. In the
aggregate, such other foreign investments in affiliates accounted for $70
million, $70 million and $54 million of Liberty's share of its affiliates'
losses during the years ended December 31, 1998, 1997 and 1996, respectively.

The $797 million aggregate excess of Liberty's aggregate historical cost
basis in its affiliates over Liberty's proportionate share of its affiliates'
net assets is being amortized over estimated useful lives ranging from 10 to 20
years.

Certain of Liberty's affiliates are general partnerships and, as such, are
liable as a matter of partnership law for all debts (other than non-recourse
debts) of that partnership in the event liabilities of that partnership were to
exceed its assets.

(6) Investment in Time Warner

On October 10, 1996, Time Warner and Turner Broadcasting System, Inc. ("TBS")
consummated a merger (the "TBS/Time Warner Merger") whereby TBS shareholders
received 1.5 Time Warner common shares (as adjusted for a two-for-one stock
split) for each TBS Class A and Class B common share held, and each holder of
TBS Class C preferred stock received 1.6 Time Warner common shares (as adjusted
for a two-for-one stock split) for each of the 6 shares of TBS Class B common
stock into which each share of Class C preferred stock could have been
converted.

Liberty entered into an agreement with the Federal Trade Commission ("FTC")
(the "FTC Consent Decree"), pursuant to which, among other things, Liberty
agreed to exchange the shares of Time Warner common stock to be received in the
TBS/Time Warner Merger for shares of a separate series of Time Warner common
stock with limited voting rights (the "TW Exchange Stock"). Holders of the TW
Exchange Stock are entitled to one one-hundredth (l/100th) of a vote for each
share with respect to the election of directors. Holders of the TW Exchange
Stock will not have any other voting rights, except as required by law or with
respect to limited matters, including amendments of the terms of the TW
Exchange Stock adverse to such holders. Subject to the federal communications
laws, each share of the TW Exchange Stock will be convertible at any time at
the option of the holder on a one-for-one basis for a share of Time Warner
common stock. Holders of TW Exchange Stock are entitled to receive dividends
ratably with the Time Warner common stock and to share ratably with the holders
of Time Warner common stock in assets remaining for common stockholders upon
dissolution, liquidation or winding up of Time Warner.

In connection with the TBS/Time Warner Merger, Liberty received approximately
50.6 million shares of the TW Exchange Stock in exchange for its TBS holdings.
As a result of the TBS/Time Warner Merger, Liberty recognized a pre-tax gain of
$1.5 billion in the fourth quarter of 1996. Liberty accounts for its investment
in Time Warner as an available-for-sale security.

On June 24, 1997 Liberty granted Time Warner an option to acquire the
business of Southern Satellite Systems, Inc. ("Southern") and certain of its
subsidiaries (together with Southern, the "Southern Business") through a
purchase of assets (the "Southern Option"). Liberty received 6.4 million shares
of TW Exchange Stock valued at $306 million in consideration for the grant. In
September 1997, Time Warner exercised the Southern Option. Pursuant to the
Southern Option, Time Warner acquired the Southern Business, effective

F-17
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

January 1, 1998, for $213 million in cash. Liberty recognized a $515 million
pre-tax gain in connection with such transactions in the first quarter of 1998.

Following a two-for-one stock split of Time Warner common stock during 1999,
Liberty's shares of the TW Exchange Stock are convertible into 114 million
shares of Time Warner common stock. As of December 31, 1998 and 1997, the gross
unrealized appreciation of the fair value of Liberty's shares of the TW
Exchange Stock was $4.8 billion and $1.2 billion, respectively.

As security for borrowings under one of its credit facilities, Liberty has
pledged a portion of its TW Exchange Stock. At December 31, 1998 such pledged
portion had an aggregate fair value of approximately $2.7 billion.

(7) Other Investments

Other investments and related receivables are summarized as follows:

<TABLE>
<CAPTION>
1998 1997
------ ----
amounts in
millions
<S> <C> <C>
Investment in preferred stock, at cost, including premium.... $ 371 371
Investment in General Instrument Corporation ("GI") (note
14)......................................................... 396 --
Other investments, at cost, and related receivables.......... 243 62
------ ---
$1,010 433
====== ===
</TABLE>

On August 1, 1997, Liberty IFE, Inc., a wholly-owned subsidiary of Liberty,
which held non-voting Class C common stock of International Family
Entertainment, Inc. ("IFE") ("Class C Stock") and $23 million of IFE 6%
convertible secured notes due 2004, convertible into Class C Stock,
("Convertible Notes"), contributed its Class C Stock and Convertible Notes to
Fox Kids Worldwide, Inc. ("FKW") in exchange for a new series of 30 year non-
convertible 9% preferred stock of FKW with a stated value of $345 million (the
"FKW Preferred Stock"). As a result of the exchange, Liberty recognized a pre-
tax gain of approximately $304 million during the third quarter of 1997.

Management of Liberty estimates the market value, calculated using a variety
of approaches including multiple of cash flow, per subscriber value, a value of
comparable public or private businesses or publicly quoted market prices, of
all of Liberty's other investments aggregated $1,743 million and $766 million
at December 31, 1998 and December 31, 1997, respectively. No independent
appraisals were conducted for those assets.

(8) Acquisitions and Dispositions

On January 25, 1996, the stockholders of United Video Satellite Group, Inc.
("UVSG") adopted the Agreement and Plan of Merger dated as of July 10, 1995, as
amended, among UVSG, TCI and TCI Merger Sub, Inc. ("UVSG Merger Sub"), pursuant
to which UVSG Merger Sub was merged into UVSG, with UVSG as the surviving
corporation (the "UVSG Merger"). TCI acquired 24.8 million shares of UVSG Class
B common stock and 4.2 million shares of UVSG Class A common stock, for a total
purchase price of $196 million, together representing approximately 39% of the
issued and outstanding common stock of UVSG and approximately 85% of the total
voting power of UVSG common stock immediately after the UVSG Merger, resulting
in UVSG becoming a majority-controlled subsidiary of TCI. Simultaneously, TCI
contributed such UVSG shares of common stock to Liberty. The UVSG Merger has
been accounted for by the purchase method. Accordingly, the results of
operations of UVSG have been consolidated with those of Liberty since January
25, 1996 and Liberty recorded UVSG's assets and liabilities at fair value. UVSG
is engaged in satellite delivered video, audio, data and program promotion
services to cable television systems, direct to home satellite users, radio
stations and private network users throughout North America.

F-18
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During July 1997, the 10% minority interest in Encore Media Corporation
("EMC") was purchased by TCI for approximately 2.4 million shares of Liberty
Media Group Series A Stock. Such 10% interest in EMC was simultaneously
contributed to Liberty and was accounted for as an acquisition of a minority
interest and resulted in an increase of $30 million in additional paid-in-
capital.

On January 12, 1998, TCI acquired from a minority shareholder of UVSG 24.8
million shares of UVSG Class A common stock in exchange for shares of TCI
stock. The aggregate value assigned to the shares issued by TCI was based upon
the market value of such shares at the time the transaction was announced. Such
transaction was accounted for as an acquisition of minority interest.
Simultaneously, TCI contributed such UVSG shares of common stock to Liberty. As
a result of such transaction, Liberty increased its ownership in the equity of
UVSG to approximately 73% and the voting power increased to 93%. The purchase
price of $346 million in TCI stock was recorded as an increase in additional
paid-in-capital by Liberty.

Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision") contributed
the assets, obligations and operations of its retail C-band satellite business
to Superstar/Netlink Group LLC ("SNG") in exchange for an approximate 20%
interest in SNG. As a result of such transaction, Liberty's ownership interest
in SNG decreased to approximately 80%. In connection with the increase in SNG's
equity, net of the dilution of Liberty's ownership interest in SNG, that
resulted from such transaction, Liberty recognized a gain of $38 million
(before deducting deferred income taxes of $15 million). Turner Vision's
contribution to SNG was accounted for as a purchase and the $61 million excess
of the purchase price over the fair value of the net assets acquired was
recorded as excess cost and is being amortized over five years.

During 1998, TCI Music, Inc. ("TCI Music") issued approximately 382,000
shares of its Series A Common Stock in connection with certain acquisitions.
Such acquisitions were accounted for under the purchase method. Accordingly,
the results of operations of the acquired companies have been consolidated with
those of Liberty since their respective dates of acquisition. In connection
with the issuance of such shares, Liberty's ownership interest was diluted to
80.7% and Liberty recorded a $2 million increase to additional paid-in-capital.
No gain was recognized in the consolidated statements of operations and
comprehensive earnings due primarily to Liberty's contingent obligation to
purchase certain shares from shareholders of TCI Music (see note 11).

On August 24, 1998, Liberty purchased 100% of the issued and outstanding
common stock of Pramer S.A. ("Pramer"), an Argentine programming company, for a
total purchase price of $97 million, which was satisfied by $32 million in cash
and the issuance of notes payable in the amount of $65 million. Such
transaction was accounted for under the purchase method. Accordingly, the
results of operations of Pramer have been consolidated with those of Liberty
since August 24, 1998. The $101 million excess cost over acquired net assets is
being amortized over ten years.

On November 19, 1998, TCI exchanged, in a merger transaction, 10.1 million
shares of TCI common stock for shares of Tele-Communications International,
Inc. ("TINTA") common stock not beneficially owned by TCI. Such transaction was
accounted for by Liberty as an acquisition of minority interest in equity of
subsidiaries. The aggregate value assigned to the shares issued by TCI was
based upon the market value of the common stock at the time the merger was
announced. In connection with the contribution to Liberty of the TINTA shares
in such merger transaction, Liberty recorded the total purchase price of $426
million as an increase to additional paid-in-capital.

On March 1, 1999, UVSG and News Corp. completed a transaction whereby UVSG
acquired News Corp.'s TV Guide properties creating a broader platform for
offering television guide services to consumers and advertisers and UVSG was
renamed TV Guide, Inc. ("TV Guide"). News Corp. received $800 million in cash
and 60 million shares of UVSG's stock, including 22.5 million shares of its
Class A common stock and 37.5 million shares of its Class B common stock. In
addition, News Corp. purchased approximately 6.5 million additional shares of
UVSG Class A common stock for $129 million in order to equalize its ownership
with that of Liberty. As a result of these transactions, and another
transaction completed on the same date, News Corp.,

F-19
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Liberty and TV Guide's public stockholders own on an economic basis
approximately 44%, 44% and 12%, respectively, of TV Guide. Following such
transactions, News Corp. and Liberty each have approximately 49% of the voting
power of TV Guide's outstanding stock. Upon consummation, Liberty began
accounting for its interest in TV Guide under the equity method of accounting.

(9) Long-Term Debt

Debt is summarized as follows:

<TABLE>
<CAPTION>
Weighted December
average 31,
interest -----------
rate 1998 1997
-------- ------ ----
amounts in
millions
<S> <C> <C> <C>
Bank credit facilities.................................. 6.1% $1,629 390
4 1/2% Convertible Subordinated Debentures.............. 4.5% 345 345
Other................................................... 7.4% 122 50
------ ---
2,096 785
Less current maturities................................. 184 31
------ ---
Total................................................. $1,912 754
====== ===
</TABLE>

At December 31, 1998, Liberty had approximately $1 billion in unused lines of
credit under its bank credit facilities. The bank credit facilities of Liberty
generally contain restrictive covenants which require, among other things, the
maintenance of certain financial ratios, and include limitations on
indebtedness, liens and encumbrances, acquisitions, dispositions, guarantees
and dividends. Liberty was in compliance with its debt covenants at December
31, 1998. Additionally, Liberty pays fees ranging from .15% to .375% per annum
on the average unborrowed portions of the total amounts available for
borrowings under bank credit facilities.

As collateral for borrowings under one of Liberty's credit facilities, the
banks lend against certain assets designated by Liberty (the "Designated
Assets"). The components of the Designated Assets may be changed from time to
time. The aggregate market value of the Designated Assets, as determined by
certain criteria in the revolving credit agreement, must at all times exceed an
amount equal to three times the total outstanding borrowings under the
facility. The Designated Assets at December 31, 1998 were Liberty's holdings in
Discovery Communications, Inc., QVC and the FKW Preferred Stock. The carrying
amount of the Designated Assets as of December 31, 1998 was $617 million.
Recourse to the banks for payment of Liberty's obligations under this facility
is limited solely to the Designated Assets. Also, as security for borrowings
under one of its credit facilities, Liberty has pledged a portion of its TW
Exchange Stock. See note 6.

Certain of Liberty's bank credit facilities have credit agreements which
provide for a three month interest reserve to be held by an administrative
agent. Such amounts held in the interest reserve amounted to $17 million and $5
million for the years ended December 31, 1998 and 1997, respectively, and are
included in other current assets in the accompanying consolidated balance
sheets.

Liberty's subsidiary in Puerto Rico (a cable television operator) (the
"Puerto Rico Subsidiary") has a reducing revolving bank facility which is
unsecured and provides for maximum borrowing commitments of $100 million (the
"Puerto Rico Bank Facility"). On September 21, 1998, Hurricane Georges struck
Puerto Rico and caused considerable property damage to the area in general,
including the Puerto Rico Subsidiary's cable television systems. On September
27, 1998, the Puerto Rico Subsidiary submitted a property damage claim to its
insurance carrier for approximately $15 million which represents the estimated
replacement costs of its damaged property. In addition to property damage
caused by Hurricane Georges, the Puerto Rico Subsidiary suffered a loss in
revenue from its pre-hurricane customers. The loss of revenue from September
21, 1998 to

F-20
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1998 was $7 million. The estimated loss of revenue exceeded its
business interruption insurance by $4 million. Such uncovered losses could
cause the Puerto Rico Subsidiary to be in violation of certain financial
covenants of the Puerto Rico Bank Facility in the fourth quarter of 1998 and
the first quarter of 1999. Violations of certain financial covenants will
prevent the Puerto Rico Subsidiary from borrowing any unused borrowing
commitments and could result in the acceleration of amounts due under the
Puerto Rico Bank Facility. See note 14.

The U.S. dollar equivalent of the annual maturities of Liberty's debt for
each of the next five years are as follows: 1999: $184 million; 2000: $495
million; 2001: $73 million; 2002: $80 million and 2003: $714 million.

A subsidiary of Liberty entered into an Interest Rate Swap effective March
1998, pursuant to which it receives a variable rate based on LIBOR (5.28% at
December 31, 1998) and pays a fixed rate of 5.98% on a notional amount of $100
million through March 2000. As of December 31, 1998, the subsidiary would be
required to pay an estimated $1.2 million to terminate such Interest Rate Swap.
Amounts resulting from this interest rate swap are recorded in interest expense
in the consolidated statement of operations and comprehensive earnings.

With the exception of the 4 1/2% Convertible Subordinated Debentures, which,
based on quoted market prices, had a fair value of $373 million at December 31,
1998, Liberty believes that the carrying value of Liberty's debt approximated
its fair value at December 31, 1998.

(10) Income Taxes

TCI files a consolidated federal income tax return with all of its 80% or
more owned subsidiaries. Consolidated subsidiaries in which TCI owns less than
80% each file a separate tax return. TCI and such subsidiaries calculate their
respective tax liabilities on a separate return basis. Income tax expense for
Liberty is based upon those items in the consolidated tax calculations of TCI
applicable to Liberty. The current tax allocation represents an apportionment
of tax expense or benefit (other than deferred taxes) and alternative minimum
taxes to Liberty in relation to its amount of taxable earnings or losses. Such
amounts are reflected as borrowings from or loans to related parties.

A tax sharing agreement (the "Old Tax Sharing Agreement") among TCI and
certain subsidiaries of TCI was implemented effective July 1, 1995. The Old Tax
Sharing Agreement formalized certain of the elements of a pre-existing tax
sharing arrangement and contains additional provisions regarding the allocation
of certain consolidated income tax attributes and the settlement procedures
with respect to the intercompany allocation of current tax attributes. Under
the Old Tax Sharing Agreement, Liberty was responsible to TCI for their share
of consolidated income tax liabilities (computed as if TCI were not liable for
the alternative minimum tax) determined in accordance with the Old Tax Sharing
Agreement, and TCI was responsible to Liberty to the extent that the income tax
attributes generated by Liberty and its subsidiaries were utilized by TCI to
reduce its consolidated income tax liabilities (computed as if TCI were not
liable for the alternative minimum tax). In the consolidated financial
statements of Liberty, the tax liabilities and benefits of such entities so
determined have been charged or credited to an intercompany account between TCI
and Liberty. Such intercompany account is required to be settled only upon the
date that an entity ceases to be a member of TCI's consolidated group for
federal income tax purposes. Under the Old Tax Sharing Agreement, TCI retains
the burden of any alternative minimum tax and has the right to receive the tax
benefits from an alternative minimum tax credit attributable to any tax period
beginning on or after July 1, 1995 and ending on or before October 1, 1997.

Effective October 1, 1997, (the "Effective Date"), the Old Tax Sharing
Agreement was replaced by a new tax sharing agreement (the "New Tax Sharing
Agreement"), which governs the allocation and sharing of income taxes.
Effective for periods on and after the Effective Date, through the AT&T Merger,
federal income

F-21
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

taxes were computed based upon the type of tax paid by TCI (on a regular tax or
alternative minimum tax basis) on a separate basis for each entity. Based upon
these separate calculations, an allocation of tax liabilities and benefits was
made such that each entity was required to make cash payments to TCI based on
its allocable share of TCI's consolidated federal income tax liabilities (on a
regular tax or alternative minimum tax basis, as applicable) attributable to
such entity and actually used by TCI in reducing its consolidated federal
income tax liability. Tax attributes and tax basis in assets was inventoried
and tracked for ultimate credit to or charge against each entity. Similarly, in
each taxable period that TCI paid alternative minimum tax, the federal income
tax benefits of each entity, computed as if such entity were subject to regular
tax, was inventoried and tracked for payment to or payment by each entity in
years that TCI utilized the alternative minimum tax credit associated with such
taxable period. The entity generating the utilized tax benefits received a cash
payment only if, and when, the unutilized taxable losses of the other entity
were actually utilized. If the unutilized taxable losses expired without ever
being utilized, the entity generating the unutilized tax benefits never
received payment for such benefits. Pursuant to the New Tax Sharing Agreement,
state and local income taxes were calculated on a separate return basis for
each entity (applying provisions of state and local tax law and related
regulations as if the entity was a separate unitary or combined group for tax
purposes), and TCI's combined or unitary tax liability was allocated among the
entities based upon such separate calculation.

Notwithstanding the foregoing, items of income, gain, loss, deduction or
credit resulting from certain specified transactions that were consummated
after the Effective Date pursuant to a letter of intent or agreement that was
entered into prior to the Effective Date were shared and allocated pursuant to
the terms of the Old Tax Sharing Agreement, as amended.

In connection with the AT&T Merger, Liberty became party to a new tax sharing
agreement.

Income tax benefit (expense) consists of:

<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
amounts in millions
<S> <C> <C> <C>
Year ended December 31, 1998:
State and local income tax expense, including
intercompany tax allocation...................... $ (4) (109) (113)
Federal income tax benefit (expense), including
intercompany tax allocation...................... 89 (437) (348)
---- ---- ----
$ 85 (546) (461)
==== ==== ====
Year ended December 31, 1997:
State and local income tax expense, including
intercompany tax allocation...................... $ (3) (25) (28)
Federal income tax benefit, including intercompany
tax allocation................................... 189 14 203
---- ---- ----
$186 (11) 175
==== ==== ====
Year ended December 31, 1996:
State and local income tax expense, including
intercompany tax allocation...................... $ (3) (97) (100)
Federal income tax benefit (expense), including
intercompany tax allocation...................... 54 (387) (333)
---- ---- ----
$ 51 (484) (433)
==== ==== ====
</TABLE>

F-22
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Income tax benefit (expense) differs from the amounts computed by applying
the U.S. federal income tax rate of 35% as a result of the following:

<TABLE>
<CAPTION>
Years ended
December 31,
-----------------
1998 1997 1996
----- ---- ----
amounts in
millions
<S> <C> <C> <C>
Computed expected tax benefit (expense)................. $(379) 226 (411)
Dividends excluded for income tax purposes.............. 13 8 2
Minority interest in equity of subsidiaries............. (5) 4 (6)
Amortization not deductible for income tax purposes..... (21) (10) (15)
State and local income taxes, net of federal income
taxes.................................................. (74) (18) (65)
Recognition of difference in income tax basis of
investments in subsidiaries............................ -- (25) 66
Increase in valuation allowance......................... (3) -- (13)
Other, net.............................................. 8 (10) 9
----- --- ----
$(461) 175 (433)
===== === ====
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1998 and 1997 are presented below:

<TABLE>
<CAPTION>
December 31,
------------
1998 1997
------ -----
amounts in
millions
<S> <C> <C>
Deferred tax assets:
Net operating and capital loss carryforwards................. $ 99 155
Future deductible amount attributable to accrued stock
compensation and deferred compensation...................... 218 36
Other future deductible amounts due principally to non-
deductible accruals......................................... 33 36
------ -----
Deferred tax assets.......................................... 350 227
------ -----
Less valuation allowance................................... 42 62
------ -----
Net deferred tax assets...................................... 308 165
------ -----
Deferred tax liabilities:
Investments in affiliates, due principally to losses of
affiliates recognized for income tax purposes in excess of
losses recognized for financial statement purposes.......... 3,637 1,166
Other, net................................................... 37 14
------ -----
Deferred tax liabilities..................................... 3,674 1,180
------ -----
Net deferred tax liabilities................................... $3,366 1,015
====== =====
</TABLE>

The valuation allowance relates principally to deferred tax assets arising
from net operating loss carryforwards of TCI Music.

At December 31, 1998, Liberty had net operating and capital loss
carryforwards for income tax purposes aggregating approximately $144 million
which, if not utilized to reduce taxable income in future periods, will expire
as follows: 2003: $3 million; 2004: $4 million; 2005: $5 million; 2006: $22
million; 2007: $22 million; 2011: $48 million; 2012: $36 million and 2013: $4
million.

F-23
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Certain subsidiaries of Liberty had additional net operating loss
carryforwards for income tax purposes aggregating $106 million and these net
operating losses are subject to certain rules limiting their usage.

(11) Stockholder's Equity

Preferred Stock

The Preferred Stock is issuable, from time to time, with such designations,
preferences and relative participating, option or other special rights,
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in a resolution or resolutions providing for the issue of such
Preferred Stock adopted by the Board.

Common Stock

The Class A Stock has one vote per share, and each of the Class B and Class C
Stock has ten votes per share.

As of December 31, 1998, all of the issued and outstanding common stock of
Liberty was held by Tele-Communications, Inc.

Transactions with Officers and Directors

On January 5, 1998, TCI announced that a settlement (the "Magness
Settlement") had been reached in the litigation brought against it and other
parties in connection with the administration of the Estate of Bob Magness (the
"Magness Estate"), the late founder and former Chairman of the Board of TCI.

On February 9, 1998, in connection with the Magness Settlement, TCI entered
into a call agreement (the "Malone Call Agreement") with Dr. John C. Malone,
and Dr. Malone's wife (together with Dr. Malone, the "Malones"), under which
the Malones granted to TCI the right to acquire any shares of TCI stock which
are entitled to cast more than one vote per share (the "High-Voting Shares")
owned by the Malones, which currently consist of an aggregate of approximately
60 million High-Voting shares upon Dr. Malone's death or upon a contemplated
sale of the High-Voting Shares (other than a minimal amount) to third persons.
In either such event, TCI has the right to acquire the shares at a maximum
price equal to the then relevant market price of shares of TCI's Series A
stocks plus a ten percent premium. The Malones also agreed that if TCI were
ever to be sold to another entity, then the maximum premium that the Malones
would receive on their High-Voting Shares would be no greater than a ten
percent premium over the price paid for the relevant shares of TCI's Series A
stocks. TCI paid $150 million to the Malones in consideration of them entering
into the Malone Call Agreement.

Also on February 9, 1998, in connection with the Magness Settlement, certain
members of the Magness family, individually and in certain cases, on behalf of
the Estate of Betsy Magness (the first wife of Bob Magness) and the Magness
Estate (collectively, the "Magness Family") also entered into a call agreement
with TCI (with substantially the same terms as the one entered into by the
Malones, including a call on the shares owned by the Magness Family upon Dr.
Malone's death) (the "Magness Call Agreement") on the Magness Family's
aggregate of approximately 49 million High-Voting Shares. The Magness Family
was paid $124 million by TCI in consideration of them entering into the Magness
Call Agreement. Additionally, on February 9, 1998, the Magness Family entered
into a stockholders' agreement with the Malones and TCI under which (i) the
Magness Family and the Malones agreed to consult with each other in connection
with matters to be brought to the vote of TCI's stockholders, subject to the
proviso that if they cannot mutually agree on how to vote the shares, Dr.
Malone has an irrevocable proxy to vote the High-Voting Shares owned by the
Magness Family, (ii) the Magness Family may designate a nominee for the Board
of TCI and Dr. Malone has agreed to vote his High Voting Shares for such
nominee and (iii) certain "tag along rights" have been created in favor of the
Magness Family and certain "drag along rights" have been created in favor of
the Malones.

F-24
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Of the aggregate amount paid by TCI pursuant to the Malone Call Agreement and
Magness Call Agreement, $140 million was allocated to Liberty and was paid
during the first quarter of 1998. Such payment is reflected as a reduction of
additional paid-in-capital.

Transactions with TCI and Other Related Parties

Certain TCI corporate general and administrative costs are charged to Liberty
at rates set at the beginning of the year based on projected utilization for
that year. Management believes this allocation method is reasonable. During the
years ended December 31, 1998, 1997 and 1996 Liberty was allocated $11 million,
$56 million and $4 million, respectively, in corporate general and
administrative costs by TCI.

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

During 1998 and 1997, Liberty made marketing support payments to TCI. Charges
by TCI for such arrangements for the years ended December 31, 1998 and 1997
aggregated $5 million and $19 million, respectively.

The Puerto Rico Subsidiary purchases programming services from TCI. The
charges, which approximate TCI's cost and are based on the aggregate number of
subscribers served by the Puerto Rico Subsidiary, aggregated $6 million, $6
million and $4 million during the years ended December 31, 1998, 1997 and 1996,
respectively.

In 1996, a Liberty subsidiary (i) issued preferred stock in connection with
an acquisition, which is convertible at the option of the holders into
1,084,056 of TCI Group Series A Common Stock beginning in April 1999 or sooner
in the event of a change in control of TCI and (ii) acquired an option contract
from TCI in exchange for a $14 million increase in the intercompany amount due
to TCI. Such option contract provided Liberty with the right to acquire
1,084,056 shares of TCI Group Series A Stock at a price equivalent to the fair
value at the time of exercise less $14.625 per share. During September 1998,
TCI assigned its obligation under the option contract to Liberty. As a result
of such assignment, Liberty recorded a $16 million reduction to the
intercompany amount due to TCI and a corresponding increase to additional paid-
in-capital. In July 1998, Liberty entered into an equity swap transaction with
a commercial bank, which provides Liberty with the right but not the obligation
to acquire 1,084,056 shares of TCI Group Series A Stock for approximately $45
million on or before April 19, 1999. In the event Liberty does not exercise its
right to acquire such shares, any difference between the counterparty's cost
and the market value of the shares on the settlement date will be settled in
cash or shares of TCI Ventures Group Series A Stock at Liberty's option. Such
shares could be used to satisfy the exchange requirements of the aforementioned
preferred stock.

Cablevision purchases programming services from certain Liberty affiliates.
The related charges generally are based upon the number of Cablevision's
subscribers that receive the respective services. During the year ended
December 31, 1997, such charges aggregated $12 million. Additionally, certain
of Cablevision's general and administrative functions are provided by Liberty.
The related charges, which generally are based upon the respective affiliate's
cost of providing such functions, aggregated $2 million during the year ended
December 31, 1997. The above-described programming and general and
administrative charges are included in operating costs in the accompanying
consolidated statements of operations and comprehensive earnings.

During July 1997, TCI entered into a 25 year affiliation agreement with
Encore Media Group LLC ("Encore Media Group") (the "EMG Affiliation Agreement")
pursuant to which TCI will pay monthly fixed amounts in exchange for unlimited
access to all of the existing Encore and STARZ! services.

F-25
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Effective July 11, 1997, pursuant to an Agreement and Plan of Merger, dated
as of February 6, 1997, as amended (the "DMX Merger Agreement"), by and among
TCI, TCI Music, a wholly-owned subsidiary of TCI, a wholly-owned subsidiary of
TCI Music ("DMX Merger Sub") and DMX, Inc. ("DMX"), Merger Sub was merged with
and into DMX, with DMX as the surviving corporation (the "DMX Merger"). As a
result of the DMX Merger, stockholders of DMX became stockholders of TCI Music.
TCI Music is engaged in the delivery of music programming and music related
services through audio, video and internet distribution channels, primarily
cable television.

In connection with the DMX Merger, TCI and TCI Music entered into an
agreement pursuant to which, effective as of the closing of the DMX Merger: (i)
TCI Music issued to TCI (as designee of certain of its indirect subsidiaries),
62.5 million shares of Series B Common Stock, $.01 par value per share, of TCI
Music ("TCI Music Series B Common Stock") and a promissory note in the amount
of $40 million, (ii) until December 31, 2006, certain subsidiaries of TCI
transferred to TCI Music the right to receive all revenue from sales of DMX
music services to their residential and commercial subscribers, net of an
amount equal to 10% of revenue from such sales to residential subscribers and
net of the revenue otherwise payable to DMX as license fees for DMX music
services under affiliation agreements currently in effect, (iii) TCI
contributed to TCI Music certain commercial digital DMX tuners that were not in
service as of the effective date of the DMX Merger, and (iv) TCI granted to
each stockholder who became a stockholder of TCI Music pursuant to the DMX
Merger, one right (a "Right") with respect to each whole share of TCI Music
Series A Common Stock acquired by such stockholder in the DMX Merger pursuant
to the terms of a Rights Agreement among TCI, TCI Music and the rights agent
(the "Rights Agreement"). Upon consummation of the DMX Merger, each outstanding
share of DMX Common Stock was converted into the right to receive (i) one-
quarter of a share of TCI Music Series A Common Stock, (ii) one Right with
respect to each whole share of TCI Music Series A Common Stock and (iii) cash
in lieu of the issuance of fractional shares of TCI Music Series A Common Stock
and Rights. Each Right entitled the holder to require TCI to purchase from such
holder one share of TCI Music Series A Common Stock for $8.00 per share,
subject to reduction by the aggregate amount per share of any dividend and
certain other distributions, if any, made by TCI Music to its stockholders,
and, payable at the election of TCI, in cash, a number of shares of TCI Group
Series A Stock, having an equivalent value or a combination thereof, if during
the one-year period beginning on the effective date of the DMX Merger, the
price of TCI Music Series A Common Stock did not equal or exceed $8.00 per
share for a period of at least 20 consecutive trading days.

Subsequently, TCI Music and TCI entered into an Amended and Restated
Contribution Agreement to be effective as of July 11, 1997 which provides,
among other things, for TCI to deliver, or cause certain of its subsidiaries to
deliver to TCI Music fixed monthly payments (subject to inflation and other
adjustments) through 2017.

Effective with the DMX Merger, TCI beneficially owned approximately 45.7% of
the outstanding shares of TCI Music Series A Common Stock and 100% of the
outstanding shares of TCI Music Series B Common Stock, which represented 89.6%
of the equity and 98.7% of the voting power of TCI Music. Simultaneously with
the DMX Merger, Liberty acquired the TCI-owned TCI Music Common Stock by
agreeing to reimburse TCI for any amounts required to be paid by TCI pursuant
to TCI's contingent obligation under the Rights Agreement to purchase up to 15
million shares (7 million of which are owned by Liberty) of TCI Music Series A
Common Stock and issuing an $80 million promissory note (the "Music Note") to
TCI. Liberty recorded its contingent obligation to purchase such shares under
the Rights Agreement as a component of minority interest in equity of
subsidiaries in the accompanying consolidated financial statements. Liberty may
elect to pay $50 million of the Music Note by delivery of a Stock Appreciation
Rights Agreement that will give TCI the right to receive 20% of the
appreciation in value of Liberty's investment in TCI Music, to be determined at
July 11, 2002. TCI Music was included in the consolidated financial results of
Liberty as of the date of the DMX

F-26
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Merger. Due to the related party nature of the transaction, the $86 million
excess of the consideration paid over the carryover basis of the TCI Music
common stock acquired by Liberty from TCI was reflected as a decrease in
additional paid-in-capital. The Music Note is included in amounts due to
related parties.

In December 1997, TCI Music issued convertible preferred stock and common
stock in connection with two acquisitions. After giving effect to such
issuances and assuming the conversion of the TCI Music convertible preferred
stock, Liberty, at December 31, 1997, owned TCI Music securities representing
78% of TCI Music's common stock and 97% of the voting power attributable to
such TCI Music common stock. In connection with the issuance of such common
shares, Liberty recorded a $19 million increase to additional paid-in-capital.
No gain was recognized in the consolidated statements of operations and
comprehensive earnings due primarily to Liberty's contingent obligation under
the Rights Agreement.

Prior to the July 1998 expiration of the Rights, Liberty was notified of the
tender of 4.9 million shares and associated Rights. On August 27, 1998, Liberty
paid $39 million to satisfy TCI's obligation under the Rights Agreement. Such
transaction was recorded as an acquisition of minority interest in equity of
subsidiaries.

During the third quarter of 1997, Liberty sold certain assets (the "SUMMITrak
Assets") to CSG Systems, Inc. ("CSG") for cash consideration of $106 million,
plus five-year warrants to purchase up to 1.5 million shares of CSG common
stock at $24 per share and $12 million in cash, once certain numbers of TCI
affiliated customers are being processed on a CSG billing system. In connection
with the sale of the SUMMITrak Assets, TCI committed to purchase billing
services from CSG through 2012. In light of such commitment, Liberty has
reflected the $30 million excess (after deducting deferred income taxes of $17
million) of the cash received over the book value of the SUMMITrak Assets as an
increase to additional paid-in-capital.

During the fourth quarter of 1997, Liberty's remaining assets in TCI
SUMMITrak of Texas, Inc. and TCI SUMMITrak L.L.C. were transferred to TCI in
exchange for a $19 million reduction of the amount owed by Liberty to TCI. Such
transfer was accounted for at historical cost due to the related party nature
of the transaction.

Due to Related Parties

The components of "Due to related parties" are as follows:

<TABLE>
<CAPTION>
1998 1997
---- ----
amounts
in
millions
<S> <C> <C>
Notes payable to TCI, including accrued interest................ $141 378
Note receivable from TCI........................................ -- (88)
Intercompany account............................................ 269 (276)
---- ----
$410 14
==== ====
</TABLE>

Amounts outstanding at December 31, 1998 under notes payable to TCI bear
interest at varying rates. During the second quarter of 1998, TCI made a
contribution to Liberty of $5 million, which was used to reduce the amount due
under the Music Note.

Amounts outstanding under the note receivable from TCI were repaid in their
entirety during the third quarter of 1998.

F-27
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The non-interest bearing intercompany account includes certain income tax and
stock compensation allocations that are to be settled at some future date. All
other amounts included in the intercompany account are to be settled within
thirty days following notification.

(12) Stock Options and Stock Appreciation Rights

Certain officers and other key employees of Liberty hold options with tandem
stock appreciation rights ("SARs") to acquire TCI Group Series A Stock, Liberty
Media Group Series A Stock and TCI Ventures Group Series A Stock as well as
restricted stock awards of TCI Group Series A Stock, Liberty Media Group Series
A Stock and TCI Ventures Group Series A Stock. Estimates of compensation
relating to SARs granted to such employees of Liberty have been recorded in the
accompanying consolidated financial statements pursuant to APB Opinion No. 25.
Such estimates are subject to future adjustment based upon vesting of the
related stock options and SARs and the market value of TCI Group Series A
Stock, Liberty Media Group Series A Stock and TCI Ventures Group Series A Stock
and, ultimately, on the final determination of market value when the rights are
exercised. In connection with the AT&T Merger, all series of TCI stock were
converted to classes of AT&T stock. Had Liberty accounted for its stock based
compensation pursuant to the fair value based accounting method in Statement
123, the amount of compensation would not have been significantly different
from what has been reflected in the accompanying consolidated financial
statements due to substantially all of Liberty's stock option plans having
tandem SARs, which are treated as liabilities for financial statement purposes
and require periodic remeasurement under both APB Opinion No. 25 and Statement
123.

The following table presents the number and weighted average exercise price
("WAEP") of certain options in tandem with SARs to purchase TCI Group Series A
Stock, Liberty Media Group Series A Stock (as adjusted for a stock dividend)
and TCI Ventures Group Series A Stock (as adjusted for a stock dividend)
granted to certain officers and other key employees of the Company.

<TABLE>
<CAPTION>
Liberty Media TCI Ventures
TCI Group Group Group
Series A Stock WAEP Series A Stock WAEP Series A Stock WAEP
-------------- ------ -------------- ------ -------------- -----
amounts in thousands, except for WAEP
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January
1, 1996................ 3,698 $ 8.46 6,698 $ 9.01 -- --
Adjustment for
transfer of
employees............ 3,285 13.19 1,998 12.64 -- --
Exercised............. (79) 10.79 (62) 7.60 -- --
------ ------
Outstanding at December
31, 1996............... 6,904 10.64 8,634 9.93 -- --
Adjustment for TCI
Ventures Exchange.... (2,149) 14.28 -- -- 4,298 $7.14
Adjustment for
transfer of
employees............ 228 12.08 22 8.39 (50) 6.74
Granted............... 595 15.04 591 -- -- --
Exercised............. (2,430) 9.81 (648) 5.62 (166) 6.45
Canceled.............. (30) 10.75 (23) 10.67 -- --
------ ------ ------
Outstanding at December
31, 1997............... 3,118 12.08 8,576 10.30 4,082 6.76
Granted............... 118 25.72 8,314 43.24 51 5.38
Exercised............. (1,331) 10.36 (1,203) 8.39 (1,714) 6.59
Canceled.............. (23) 14.92 (1) 9.78 (20) 7.46
------ ------ ------
Outstanding at December
31, 1998............... 1,882 14.03 15,686 29.08 2,399 6.89
====== ====== ======
Exercisable at December
31, 1998............... 1,117 3,763 1,708
====== ====== ======
Vesting Period........ 5 yrs 5 yrs 5 yrs
</TABLE>

F-28
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Tele-Communications International, Inc. Stock Incentive Plan. In 1995, TINTA
adopted the Tele-Communications International, Inc. 1995 Stock Incentive Plan
(the "TINTA 1995 Plan"). The TINTA 1995 Plan provides for Awards to be made in
respect of a maximum of 3,000,000 shares of TINTA Series A common stock ("TINTA
Series A Stock") (subject to certain anti-dilution adjustments). Shares of
TINTA Series A Stock that are subject to Awards that expire, terminate or are
annulled for any reason without having been exercised (or deemed exercised, by
virtue of the exercise of a related stock appreciation right), or are forfeited
prior to becoming vested will return to the pool of such shares available for
grant under the TINTA 1995 Plan.

On December 13, 1995, stock options in tandem with SARs to purchase 1,352,000
shares of TINTA Series A Stock were granted pursuant to the TINTA 1995 Plan.
Such options vest ratably over five years, first became exercisable August 4,
1996 and expire on August 4, 2005. During 1997, TINTA granted stock options in
tandem with SARs to purchase 1,130,000 shares of TINTA Series A Stock. Such
options vest ratably over five years, first become exercisable one year after
date of grant, and expire ten years after date of grant.

As a result of the TINTA Merger on November 19, 1998, each stock option and
SAR to purchase TINTA Series A Stock was converted into a stock option or SAR
to purchase Liberty Media Group Series A Stock determined by multiplying the
number of TINTA stock options or SARs by 0.58 at an exercise price per share of
such stock option or SAR divided by 0.58. The following descriptions of stock
options and/or SARs have been adjusted to reflect such change.

The following table presents the number and WAEP of certain options in tandem
with SARs to purchase TINTA Series A Stock and Liberty Media Group Series A
Stock pursuant to the TINTA 1995 Plan:

<TABLE>
<CAPTION>
Liberty Media
TINTA Group
Series A Series A
Stock WAEP Stock WAEP
-------- ------ ------------- -----
amounts in thousands, except for
WAEP
<S> <C> <C> <C> <C>
Outstanding at January 1, 1996 and
1997................................. 1,352 $16.00 -- $ --
Granted............................. 1,130 14.69 -- --
------ -------
Outstanding at December 31, 1997...... 2,482 15.40 -- --
Adjustment for TINTA Merger......... (1,982) 15.31 1,150 26.40
Exercised........................... (500) 15.75 (1) 25.21
------ -------
Outstanding at December 31, 1998...... -- -- 1,149 26.40
====== =======
Exercisable at December 31, 1998...... -- -- 448 26.97
====== =======
Vesting Period........................ -- 5 years
</TABLE>

On December 13, 1995, pursuant to the TINTA 1995 Plan, 40,000 restricted
shares of TINTA Series A Stock were awarded to certain officers and directors
of TINTA. Such restricted shares vest as to 50% in December 1999 and as to the
remaining 50% in December 2000. Such restricted shares had a fair value of
$25.375 on the date of grant. At December 31, 1998, 23,200 restricted shares of
Liberty Media Group Series A Stock (after adjustment for TINTA Merger) were
unvested.

On July 23, 1997, pursuant to the TINTA 1995 Plan, 150,000 restricted shares
of TINTA Series A Stock were awarded to a director of TINTA. Such restricted
shares vest as to 50% in July 2001 and as to the remaining 50% in July 2002.
Such restricted shares had a fair value of $14.625 on the date of grant. At
December 31, 1998, 87,000 restricted shares of Liberty Media Group Series A
Stock (after adjustment for TINTA Merger) were unvested.

F-29
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Tele-Communications International, Inc. Nonemployee Director Stock Option
Plan. On April 11, 1996, TINTA adopted the Tele-Communications International,
Inc. 1996 Nonemployee Director Stock Option Plan (the "TINTA Director Plan").
The TINTA Director Plan provides for grants to be made to nonemployee directors
of TINTA of options to purchase a maximum of 1,000,000 shares of TINTA Series A
Stock (subject to certain anti-dilution adjustments). Shares that are subject
to such options that expire or terminate for any reason without having been
exercised will return to the pool of shares underlying options available to
grant under the TINTA Director Plan. Pursuant to the TINTA Director Plan,
options to purchase 200,000 shares of TINTA Series A Stock were granted in
April 1996 at an exercise price of $16.00 per share. Such options had a
weighted average fair value of $14.01 on the date of grant. Options issued
pursuant to the TINTA Director Plan vest and become exercisable over a five-
year period from the date of grant and expire 10 years from the date of grant.

At December 31, 1998, 116,000 options with respect to Liberty Media Group
Series A Stock (after adjustment for TINTA Merger) granted pursuant to the
TINTA Director Plan were outstanding, 46,400 of which were exercisable. Such
options had an exercise price of $27.58 and a weighted average remaining
contractual life of 8 years.

United Video Satellite Group, Inc. Equity Incentive Plan and United Video
Satellite Group, Inc. Stock Option Plan for Non-Employee Directors. UVSG
sponsors the United Video Satellite Group, Inc. Equity Incentive Plan under
which 8 million shares of UVSG's Class A Common Stock are authorized to be
issued in connection with the exercise of awards of stock options, stock
appreciation rights and restricted stock granted under the plan. UVSG's Equity
Incentive Plan provides that the price at which each share of stock covered by
an option may be acquired shall in no event be less than 100% of the fair
market value of the stock on the date the option is granted, except in certain
limited circumstances. Additionally, UVSG sponsors the United Video Satellite
Group, Inc. Stock Option Plan for Non-Employee Directors under which 500,000
shares of UVSG's Class A Common Stock are authorized to be issued in connection
with the exercise of stock options granted thereunder.

At December 31, 1998, 6.3 million shares of UVSG's Class A Common Stock were
reserved for issuance under the stock option plans. The options granted under
the stock option plans expire ten years from the date of grant. Options
outstanding are as follows:

<TABLE>
<CAPTION>
UVSG
Class A Common
Stock (1) WAEP (1)
-------------- --------
amounts in thousands,
except for WAEP
<S> <C> <C>
At January 1, 1996................................... 4,121 $ 4.25
Granted............................................ 1,276 11.11
Exercised.......................................... (815) 4.04
Canceled........................................... (805) 9.21
------
At December 31, 1996................................. 3,777 5.56
Granted............................................ 916 8.54
Exercised.......................................... (2,089) 4.04
Canceled........................................... (252) 5.88
------
At December 31, 1997................................. 2,352 8.03
Granted............................................ 709 16.61
Exercised.......................................... (254) 6.84
Canceled........................................... (36) 9.41
------
Exercisable at December 31, 1998..................... 2,771 10.32
======
</TABLE>
- --------
(1) Adjusted for two-for-one stock split.

F-30
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Exercise prices for options outstanding as of December 31, 1998 ranged from
$4 to $17. The weighted-average remaining contractual life of such options is
7.8 years.

TCI Music, Inc. Stock Incentive Plan. During 1997 and 1998, TCI Music granted
stock options with tandem SARs to employees under the TCI Music, Inc. 1997
Stock Incentive Plan (the "TCI Music Stock Plan") which is authorized to issue
up to 4 million shares. Options granted under the TCI Music Stock Plan expire
ten years from the date of grant. In addition TCI Music granted stock options
with tandem SARs to the board of directors and employees in connection with
certain mergers. Options issued under the TCI Music Stock Plan and in
connection with certain mergers generally vest annually in 20% cumulative
increments.

On December 21, 1998, TCI Music re-priced the stock options with tandem SARs
pursuant to the TCI Music Stock Plan at $4.00 for all grants to executive
officers and employees of TCI Music and its subsidiaries.

The following table presents the number and WAEP of options in tandem with
SARs to purchase TCI Music Series A Common Stock, after giving effect to the
re-pricing at $4.00 for certain options and tandem SARs:

<TABLE>
<CAPTION>
TCI Music
Series A
Common Stock WAEP
------------ -----
amounts in
thousands, except
for WAEP
<S> <C> <C>
At January 1, 1997....................................... -- --
Granted................................................ 3,609 $5.75
-----
At December 31, 1997..................................... 3,609 5.75
Granted................................................ 1,771 4.00
Exercised.............................................. (21) 4.00
Canceled............................................... (311) 4.00
-----
At December 31, 1998..................................... 5,048 5.25
=====
Exercisable at December 31, 1998......................... 1,373 5.84
=====
</TABLE>

Exercise prices for options outstanding as of December 31, 1998 ranged from
$4.00 to $6.25. The weighted average remaining contractual life of such options
is 8.7 years. The weighted average fair value of options granted during 1998,
after giving effect to the re-pricing at $4.00 for certain options and tandem
SARs, and 1997 was $3.51 and $3.31, respectively.

The estimated fair values of the options noted above are based on the Black-
Scholes model and are stated in current annualized dollars on a present value
basis. The key assumptions used in the model for purposes of these calculations
generally include the following: (a) a discount rate equal to the 10-year
Treasury rate on the date of grant; (b) a 35% volatility factor, (c) the 10-
year option term; (d) the closing price of the respective common stock on the
date of grant; and (e) an expected dividend rate of zero.

F-31
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(13) Other Comprehensive Earnings

Accumulated other comprehensive earnings included in Liberty's consolidated
balance sheets and consolidated statements of stockholder's equity reflect the
aggregate of foreign currency translation adjustments and unrealized holding
gains and losses on securities classified as available-for-sale. The change in
the components of accumulated other comprehensive earnings, net of taxes, is
summarized as follows:

<TABLE>
<CAPTION>
Unrealized Accumulated
Foreign gains other
currency (losses) comprehensive
translation on earnings, net
adjustments securities of taxes
----------- ---------- -------------
amounts in millions
<S> <C> <C> <C>
Balance at January 1, 1996................ $ (9) 336 327
Other comprehensive earnings (loss)....... 35 (319) (284)
---- ----- -----
Balance at December 31, 1996.............. 26 17 43
Other comprehensive earnings (loss)....... (23) 747 724
---- ----- -----
Balance at December 31, 1997.............. 3 764 767
Other comprehensive earnings.............. 2 2,417 2,419
---- ----- -----
Balance at December 31, 1998.............. $ 5 3,181 3,186
==== ===== =====
</TABLE>

The components of other comprehensive earnings are reflected in Liberty's
consolidated statements of operations and comprehensive earnings, net of taxes
and reclassification adjustments for gains realized in net earnings (loss). The
following table summarizes the tax effects and reclassification adjustments
related to each component of other comprehensive earnings.

<TABLE>
<CAPTION>
Tax
Before-tax (expense) Net-of-tax
amount benefit amount
---------- --------- ----------
amounts in millions
<S> <C> <C> <C>
Year ended December 31, 1998:
Foreign currency translation adjustments....... $ 3 (1) 2
Unrealized gains on securities:
Unrealized holding gains arising during
period...................................... 3,998 (1,581) 2,417
------ ------ -----
Other comprehensive earnings................... $4,001 (1,582) 2,419
====== ====== =====
Year ended December 31, 1997:
Foreign currency translation adjustments....... $ (38) 15 (23)
Unrealized gains on securities:
Unrealized holding gains arising during
period...................................... 1,236 (489) 747
------ ------ -----
Other comprehensive earnings................... $1,198 (474) 724
====== ====== =====
Year ended December 31, 1996:
Foreign currency translation adjustments....... $ 58 (23) 35
------ ------ -----
Unrealized gains on securities:
Unrealized holding gains arising during
period...................................... 61 (24) 37
Less: reclassification adjustment for gains
realized in net earnings.................... (589) 233 (356)
------ ------ -----
Net unrealized losses........................ (528) 209 (319)
------ ------ -----
Other comprehensive loss....................... $ (470) 186 (284)
====== ====== =====
</TABLE>

F-32
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(14) Commitments and Contingencies

Encore Media Group, a wholly owned subsidiary of Liberty, provides premium
programming distributed by cable, direct satellite, TVRO and other distributors
throughout the United States. Encore Media Group is obligated to pay fees for
the rights to exhibit certain films that are released by various producers
through 2017 (the "Film Licensing Obligations"). Based on customer levels at
December 31, 1998, these agreements require minimum payments aggregating
approximately $808 million. The aggregate amount of the Film Licensing
Obligations under these license agreements is not currently estimable because
such amount is dependent upon the number of qualifying films released
theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying films.
Nevertheless, required aggregate payments under the Film Licensing Obligations
could prove to be significant.

Flextech has undertaken to finance the working capital requirements of a
joint venture, (the "Principal Joint Venture") formed with BBC Worldwide and is
obligated to provide the Principal Joint Venture with a primary credit facility
of (Pounds)88 million ($150 million) and subject to certain restrictions, a
standby credit facility of (Pounds)30 million ($51 million). As of December 31,
1998, the Principal Joint Venture had borrowed (Pounds)16 million ($27 million)
under the primary credit facility. If Flextech defaults in its funding
obligation to the Principal Joint Venture and fails to cure within 42 days
after receipt of notice from BBC Worldwide, BBC Worldwide is entitled, within
the following 90 days, to require that Liberty assume all of Flextech's funding
obligations to the Principal Joint Venture.

Liberty has guaranteed various loans, notes payable, letters of credit and
other obligations (the "Guaranteed Obligations") of certain affiliates. At
December 31, 1998, the Guaranteed Obligations aggregated approximately $243
million. Currently, Liberty is not certain of the likelihood of being required
to perform under such guarantees.

Liberty leases business offices, has entered into pole rental and transponder
lease agreements and uses certain equipment under lease arrangements. Rental
expense under such arrangements amounts to $27 million, $20 million and $38
million for the years ended December 31, 1998, 1997 and 1996, respectively.

A summary of future minimum lease payments under noncancellable operating
leases as of December 31, 1998 follows (amounts in millions):

<TABLE>
<S> <C>
Years ending December 31:
1999.............................................................. $40
2000.............................................................. 35
2001.............................................................. 31
2002.............................................................. 29
2003.............................................................. 23
Thereafter........................................................ 47
</TABLE>

It is expected that in the normal course of business, leases that expire
generally will be renewed or replaced by leases on other properties; thus, it
is anticipated that future minimum lease commitments will not be less than the
amount shown for 1999.

On July 17, 1998, TCI acquired 21.4 million shares of restricted stock of GI
in exchange for (i) certain of the assets of NDTC's set-top authorization
business, (ii) the license of certain related software to GI, (iii) a $50
million promissory note from TCI to GI and (iv) a nine year revenue guarantee
from TCI in favor of GI. In connection therewith, NDTC also entered into a
service agreement pursuant to which it will provide certain postcontract
services to GI's set-top authorization business. Such shares of GI stock and
the promissory note

F-33
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

were contributed to Liberty. The 21.4 million shares of GI common stock are, in
addition to other transfer restrictions, restricted as to their sale by Liberty
for a three year period, and represent approximately 13% of the outstanding
common stock of GI at December 31, 1998. Liberty recorded its investment in
such shares at fair value which included a discount attributable to the above-
described liquidity restriction. Liberty carries its investment in such shares
at the lower of cost or net realizable value. The $396 million fair value of GI
common stock received net of the $42 million present value of the promissory
note due from Liberty to GI, has been reflected as an increase in additional
paid-in capital.

On September 21, 1998, Hurricane Georges struck Puerto Rico and caused
considerable property damage to the area in general, including the Puerto Rico
Subsidiary's cable television systems. The Puerto Rico Subsidiary's cable
television systems represent $45 million of Liberty's revenue for the year
ended December 31, 1998. The Puerto Rico Subsidiary has property and business
interruption insurance aggregating $15 million that is subject to a deductible
of $1 million. The Puerto Rico Subsidiary has submitted a property damage claim
to its insurance carrier for approximately $15 million which represents the
estimated replacement cost of its damaged property. As a result of the damage
caused by Hurricane Georges, the Puerto Rico Subsidiary, at December 31, 1998,
recorded an impairment to reduce the net book value of the damaged property and
equipment by $8 million and recorded a receivable in the amount of $12 million
as insurance coverage for property damages. The $12 million in insurance
coverage for property damages were fully collected prior to December 31, 1998.

As of December 31, 1998, approximately 82% of the Puerto Rico Subsidiary's
pre-hurricane basic customers were receiving cable television services. The
loss of revenue from September 21, 1998 through December 31, 1998 was $7
million. The Puerto Rico Subsidiary's business interruption insurance will
cover the first $3 million in lost revenue. The $3 million in business
interruption coverage was fully collected prior to December 31, 1998.

The Puerto Rico Subsidiary has also claimed coverage for business
interruption under a secondary insurance carrier. Such policy, which covers the
Puerto Rico Subsidiary's parent company's subsidiaries, carries a deductible of
$2.5 million. This insurance claim is subject to approval by such insurance
carrier and accordingly, no assurance can be given that amounts claimed will be
paid in their entirety. However, in the event such claims are collected the
overall impact in lost revenues for the Puerto Rico Subsidiary as a result of
Hurricane Georges will not exceed $2.5 million.

Liberty has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. Although it is reasonably
possible Liberty may incur losses upon conclusion of such matters, an estimate
of any loss or range of loss cannot be made. In the opinion of management, it
is expected that amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the accompanying consolidated
financial statements.

(15) Information about Liberty's Operating Segments

Liberty is a holding company with a variety of subsidiaries and investments
operating in the media, communications and entertainment industries. Each of
these businesses are separately managed. Liberty identifies its reportable
segments as those consolidated subsidiaries that represent 10% or more of its
combined revenue and those equity method affiliates whose share of earnings or
losses represent 10% or more of its pre-tax earnings or loss. Subsidiaries and
affiliates not meeting this threshold are aggregated together for segment
reporting purposes.

Liberty has three operating segments: Encore Media Group, UVSG and Other.
Encore Media Group owns and operates cable and satellite-delivered premium
movie networks in the United States. Encore Media Group is wholly owned and
consolidated by Liberty. UVSG is a media and communications company principally

F-34
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

engaged in providing program listing guides and other programming and
distribution services to its customers. UVSG is majority owned and consolidated
by Liberty. Other includes Liberty's investments, primarily in cable television
programming entities, corporate and other consolidated businesses not
representing separately reportable segments.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Liberty evaluates performance
based on measures of revenue and operating cash flow (as defined by Liberty),
appreciation in stock price along with other non-financial measures such as
average prime time rating, prime time audience delivery, subscriber growth and
penetration, as appropriate. Liberty believes operating cash flow is a widely
used financial indicator of companies similar to Liberty and its affiliates,
which should be considered in addition to, but not as a substitute for,
operating income, net income, cash flow provided by operating activities and
other measures of financial performance prepared in accordance with generally
accepted accounting principles. Liberty generally accounts for intersegment
sales and transfers as if the sales or transfers were to third parties, that
is, at current prices.

Liberty utilizes the following financial information for purposes of making
decisions about allocating resources to a segment and assessing a segment's
performance:

<TABLE>
<CAPTION>
EMG UVSG Other Total
---- ---- ------ ------
amounts in millions
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Segment revenue from external customers including
intersegment revenue.............................. $541 598 220 1,359
Segment operating cash flow (deficit).............. 96 123 (3) 216
Segment equity in losses of affiliates............. -- -- (1,002) (1,002)
Year ended December 31, 1997
Segment revenue from external customers including
intersegment revenue.............................. 350 508 367 1,225
Segment operating cash flow (deficit).............. (32) 104 87 159
Segment equity in losses of affiliates............. -- -- (785) (785)
Year ended December 31, 1996
Segment revenue from external customers including
intersegment revenue.............................. 195 410 1,603 2,208
Segment operating cash flow (deficit).............. (95) 67 128 100
Segment equity in losses of affiliates............. -- -- (332) (332)
As of December 31, 1998
Segment assets..................................... 355 666 14,546 15,567
Investments in affiliates.......................... -- -- 3,079 3,079
As of December 31, 1997
Segment assets..................................... 289 428 7,018 7,735
Investments in affiliates.......................... -- -- 2,359 2,359
</TABLE>

F-35
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table provides a reconciliation of segment operating cash flow
to earnings before income taxes:

<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1998 1997 1996
-------- ------- -------
(amounts in millions)
<S> <C> <C> <C>
Segment operating cash flow.................... $ 216 159 100
Stock compensation............................. (518) (296) 6
Depreciation and amortization.................. (129) (123) (172)
Interest expense............................... (104) (40) (53)
Segment equity in losses of affiliates......... (1,002) (785) (332)
Gains on dispositions, net..................... 2,449 406 1,558
Gain on issuance of equity by affiliates and
subsidiaries.................................. 105 -- --
Other, net..................................... 66 34 67
-------- ------ -------
Earnings (loss) before income taxes............ $1,083 (645) 1,174
======== ====== =======
</TABLE>

(16) Year 2000

During 1998, TCI continued its enterprise-wide, comprehensive efforts to
assess and remediate its computer systems and related software and equipment to
ensure such systems, software and equipment recognize, process and store
information in the year 2000 and thereafter. TCI's year 2000 remediation
efforts include an assessment of Liberty's most critical systems, equipment,
and facilities. TCI also continued its efforts to verify the year 2000
readiness of Liberty's significant suppliers and vendors and continued to
communicate with significant business partners and affiliates to assess such
partners and affiliates' year 2000 status.

TCI has a year 2000 Program Management Office (the "PMO") to organize and
manage its year 2000 remediation efforts. The PMO is responsible for
overseeing, coordinating and reporting on Liberty's year 2000 remediation
efforts.

During 1998, TCI continued its survey of significant third-party vendors and
suppliers whose systems, services or products are important to Liberty's
operations. The year 2000 readiness of such providers is critical to continued
provision of Liberty's programming services. Year 2000 expenses and capital
expenditures incurred during the year ended December 31, 1998 were not
material.

In addition to the survey process described above, management of Liberty has
identified its most critical supplier/vendor relationships and has instituted a
verification process to determine the vendor's year 2000 readiness. Such
verification includes, as deemed necessary, reviewing vendors' test and other
data and engaging in regular conferences with vendors' year 2000 teams. Liberty
is also requiring testing to validate the year 2000 compliance of certain
critical products and services.

Significant market value is associated with Liberty's investments in certain
public and private corporations, partnerships and other businesses.
Accordingly, Liberty is monitoring the public disclosure of such publicly-held
business entities to determine their year 2000 readiness. In addition, Liberty
has surveyed and monitored the year 2000 status of certain privately-held
business entities in which Liberty has significant investments.

The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that Liberty's systems or the systems of other companies on which
Liberty relies will be converted in time or that any such failure to convert by
Liberty or other companies will not have a material adverse effect on its
financial position, results of operations or cash flows.

F-36
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)

CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
(note 1)
amounts in millions
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 499 228
Marketable securities............................. 2,949 159
Trade and other receivables, net.................. 125 142
Prepaid expenses and committed program rights..... 407 263
Deferred income tax assets........................ 380 216
Other current assets.............................. 5 21
------- ------
Total current assets............................ 4,365 1,029
------- ------
Investments in affiliates, accounted for under the
equity method, and related receivables (note 3).... 15,939 3,079
Investment in Time Warner, Inc. ("Time Warner")
(note 4)........................................... 6,968 7,083
Investment in Sprint Corporation ("Sprint") (note
5)................................................. 7,616 2,446
Other investments and related receivables........... 5,151 1,010
Property and equipment, at cost..................... 123 279
Less accumulated depreciation..................... 7 124
------- ------
116 155
------- ------
Intangible assets................................... 10,140 1,039
Less accumulated amortization..................... 319 140
------- ------
9,821 899
------- ------
Other assets, at cost, net of accumulated
amortization....................................... 846 82
------- ------
Total assets.................................... $50,822 15,783
======= ======
</TABLE>

F-37
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)

CONSOLIDATED BALANCE SHEETS--(Continued)
(unaudited)

<TABLE>
<CAPTION>
New Liberty Old Liberty
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
(note 1)
amounts in millions
<S> <C> <C>
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable and accrued liabilities.......................................................... $ 192 372
Accrued stock compensation........................................................................ 1,119 126
Program rights payable............................................................................ 170 156
Current portion of debt........................................................................... 474 184
------- ------
Total current liabilities....................................................................... 1,955 838
------- ------
Long-term debt (note 7)........................................................................... 1,720 1,912
Deferred income taxes (note 8).................................................................... 11,633 3,582
Other liabilities................................................................................. 23 89
------- ------
Total liabilities............................................................................... 15,331 6,421
------- ------
Minority interests in equity of subsidiaries........................................................ 25 132
Stockholder's equity (note 9):
Preferred stock, $.0001 par value. Authorized 100,000 shares; no shares issued and outstanding.... -- --
Class A common stock $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000
shares........................................................................................... -- --
Class B common stock $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000
shares........................................................................................... -- --
Class C common stock, $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000
shares........................................................................................... -- --
Additional paid-in capital........................................................................ 33,787 4,682
Accumulated other comprehensive earnings, net of taxes............................................ 2,407 3,186
Retained earnings (deficit)....................................................................... (814) 952
------- ------
35,380 8,820
Due to related parties............................................................................ 86 410
------- ------
Total stockholder's equity...................................................................... 35,466 9,230
------- ------
Commitments and contingencies (note 10)
Total liabilities and stockholder's equity...................................................... $50,822 15,783
======= ======
</TABLE>

See accompanying notes to consolidated financial statements.

F-38
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
(unaudited)

<TABLE>
<CAPTION>
New Liberty Old Liberty
------------- --------------------------
Seven months Two months Nine months
ended ended ended
September 30, February 28, September 30,
1999 1999 1998
------------- ------------ -------------
amounts in millions
(note 1) (note 1)
<S> <C> <C> <C>
Revenue.............................................................................. $ 506 235 1,005
Operating costs and expenses:
Operating, selling, general and administrative..................................... 408 188 843
Stock compensation................................................................. 432 183 263
Depreciation and amortization...................................................... 394 22 87
------- ---- -----
1,234 393 1,193
------- ---- -----
Operating loss................................................................... (728) (158) (188)
Other income (expense):
Interest expense................................................................... (87) (26) (62)
Dividend and interest income....................................................... 171 10 49
Share of losses of affiliates, net (note 3)........................................ (597) (66) (828)
Minority interests in (earnings) losses of subsidiaries............................ 18 4 (2)
Gain on dispositions, net (notes 3 and 4).......................................... 10 14 569
Gains on issuance of equity by affiliates and subsidiaries
(notes 3 and 6)................................................................... -- 372 96
Other, net......................................................................... (6) (9) (1)
------- ---- -----
(491) 299 (179)
------- ---- -----
Earnings (loss) before income taxes.............................................. (1,219) 141 (367)
Income tax benefit (expense)......................................................... 405 (211) 107
------- ---- -----
Net loss......................................................................... $ (814) (70) (260)
======= ==== =====
Other comprehensive earnings, net of taxes:
Foreign currency translation adjustments........................................... 88 (15) 9
Unrealized holding gains arising during the period,
net of reclassification adjustments............................................... 2,319 885 877
------- ---- -----
Other comprehensive earnings....................................................... 2,407 870 886
------- ---- -----
Comprehensive earnings............................................................... $ 1,593 800 626
======= ==== =====
</TABLE>

See accompanying notes to consolidated financial statements.

F-39
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
Accumulated
other Due to
Common Stock Additional comprehensive Retained (from) Total
Preferred ----------------------- paid-in earnings, earnings related stockholder's
stock Class A Class B Class C capital net of taxes (deficit) parties equity
--------- ------- ------- ------- ---------- ------------- --------- ------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1999................... $-- -- -- -- 4,682 3,186 952 410 9,230
Net loss............... -- -- -- -- -- -- (70) -- (70)
Foreign currency
translation
adjustments........... -- -- -- -- -- (15) -- -- (15)
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 885 -- -- 885
Other transfers from
(to) related parties,
net................... -- -- -- -- 430 -- -- (1,011) (581)
---- --- --- --- ------ ----- ---- ------ ------
Balance at February 28,
1999................... -- -- -- -- 5,112 4,056 882 (601) 9,449
==== === === === ====== ===== ==== ====== ======
- ---------------------------------------------------------------------------------------------------------------------
Balance at March 1,
1999................... -- -- -- -- 33,468 -- -- 213 33,681
Net loss............... -- -- -- -- -- -- (814) -- (814)
Foreign currency
translation
adjustments........... -- -- -- -- -- 88 -- -- 88
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 2,319 -- -- 2,319
Transfer from related
party for redemption
of debentures......... -- -- -- -- 354 -- -- -- 354
Gain in connection with
the issuance of common
stock of subsidiary... -- -- -- -- 50 -- -- -- 50
Utilization of net
operating losses of
Liberty by AT&T (note
8).................... -- -- -- -- (85) -- -- -- (85)
Other transfers to
related parties, net.. -- -- -- -- -- -- -- (127) (127)
---- --- --- --- ------ ----- ---- ------ ------
Balance at September 30,
1999................... $-- -- -- -- 33,787 2,407 (814) 86 35,466
==== === === === ====== ===== ==== ====== ======
</TABLE>

See accompanying notes to consolidated financial statements.

F-40
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

<TABLE>
<CAPTION>
New Liberty Old Liberty
------------------ ------------------------------------
(note 1) (note 1)
Nine months
Seven months ended Two months ended ended
September 30, 1999 February 28, 1999 September 30, 1998
------------------ ----------------- ------------------
amounts in millions
(see note 2)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $ (814) (70) (260)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Depreciation and amortization........................................ 394 22 87
Stock compensation................................................... 432 183 263
Payments of stock compensation....................................... (42) (126) (76)
Share of losses of affiliates, net................................... 597 66 828
Minority interests in earnings (losses) of subsidiaries.............. (18) (4) 2
Deferred income tax expense (benefit)................................ (356) 212 (26)
Intergroup tax allocation............................................ (49) (1) (81)
Cash payment from AT&T pursuant to tax sharing agreement............. 19 -- --
Gain on dispositions, net............................................ (10) (14) (569)
Gains on issuance of equity by affiliates and subsidiaries........... -- (372) (96)
Other noncash charges................................................ 5 18 4
Changes in current assets and liabilities, net of the effect of
acquisitions and dispositions:
Change in receivables............................................... (3) 33 (22)
Change in prepaid expenses and committed program rights............. (120) (23) (8)
Change in payables and accruals..................................... 70 (31) 9
------- ---- ------
Net cash provided (used) by operating activities................... 105 (107) 55
------- ---- ------
Cash flows from investing activities:
Capital expended for property and equipment.......................... (28) (15) (39)
Investments in and loans to affiliates and others.................... (1,952) (51) (1,243)
Purchases of marketable securities................................... (6,894) (3) (73)
Sales and maturities of marketable securities........................ 3,923 9 142
Cash paid for acquisitions........................................... (3) -- (83)
Cash proceeds from dispositions...................................... 90 43 343
Cash balances of deconsolidated subsidiaries......................... -- (53) --
Other, net........................................................... 1 (9) (9)
------- ---- ------
Net cash used by investing activities.............................. (4,863) (79) (962)
------- ---- ------
Cash flows from financing activities:
Borrowings of debt................................................... 2,216 155 1,661
Repayments of debt................................................... (2,166) (145) (479)
Cash transfers (to) from related parties............................. (156) 31 (20)
Net proceeds from issuance of stock by subsidiaries.................. 27 -- --
Repurchase of stock of subsidiary.................................... -- (45) --
Payments for call agreements......................................... -- -- (140)
Other, net........................................................... 17 (7) (16)
------- ---- ------
Net cash (used) provided by financing activities................... (62) (11) 1,006
------- ---- ------
Net increase (decrease) in cash and cash equivalents.............. (4,820) (197) 99
Cash and cash equivalents at beginning of period.................. 5,319 228 100
------- ---- ------
Cash and cash equivalents at end of period........................ $ 499 31 199
======= ==== ======
</TABLE>

See accompanying notes to consolidated financial statements.

F-41
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 1999
(unaudited)

(1) Basis of Presentation

The accompanying consolidated financial statements include the accounts of
Liberty Media Corporation and those of all majority-owned subsidiaries
("Liberty" or the "Company"). All intercompany accounts and transactions have
been eliminated in consolidation. The Company is a wholly-owned subsidiary of
Tele-Communications, Inc. ("TCI"). On March 9, 1999, AT&T Corp. ("AT&T")
acquired TCI in a merger transaction (the "AT&T Merger") whereby a wholly owned
subsidiary of AT&T merged with and into TCI, and TCI thereby became a wholly
owned subsidiary of AT&T. As a result of the AT&T Merger, each series of TCI
common stock was converted into a class of AT&T common stock subject to
applicable exchange ratios. The AT&T Merger has been accounted for using the
purchase method. Accordingly, Liberty's assets and liabilities have been
recorded at their respective fair values therefore creating a new cost basis.
For financial reporting purposes the AT&T Merger is deemed to have occurred on
March 1, 1999. Accordingly, for periods prior to March 1, 1999 the assets and
liabilities of Liberty and the related consolidated financial statements are
sometimes referred to herein as "Old Liberty", and for periods subsequent to
February 28, 1999 the assets and liabilities of Liberty and the related
consolidated financial statements are sometimes referred to herein as "New
Liberty". The "Company" and "Liberty" refers to both New Liberty and Old
Liberty.

The following table represents the summary balance sheet of Old Liberty at
February 28, 1999, prior to the AT&T Merger and the opening summary balance
sheet of New Liberty subsequent to the AT&T Merger. Certain pre-merger
transactions occurring between March 1, 1999, and March 9, 1999, that affected
Old Liberty's equity, gains on issuance of equity by affiliates and
subsidiaries and stock compensation have been reflected in the two-month period
ended February 28, 1999.

<TABLE>
<CAPTION>
Old Liberty New Liberty
----------- -----------
(amounts in millions)
<S> <C> <C>
Assets
Cash and cash equivalents........................................................................... $ 31 5,319
Other current assets................................................................................ 410 447
Investments in affiliates........................................................................... 3,971 17,116
Investment in Time Warner........................................................................... 7,361 7,832
Investment in Sprint................................................................................ 3,381 3,681
Other investments................................................................................... 1,232 1,539
Property and equipment, net......................................................................... 111 125
Intangibles and other assets........................................................................ 389 11,211
------- ------
$16,886 47,270
======= ======
Liabilities and Equity
Current liabilities................................................................................. $ 1,051 1,741
Long-term debt...................................................................................... 2,087 1,845
Deferred income taxes............................................................................... 4,147 9,945
Other liabilities................................................................................... 90 19
------- ------
Total liabilities................................................................................. 7,375 13,550
------- ------
Minority interests in equity of subsidiaries........................................................ 62 39
Stockholder's equity................................................................................ 9,449 33,681
------- ------
$16,886 47,270
======= ======
</TABLE>

F-42
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table reflects the recapitalization resulting from the AT&T
Merger (amounts in millions):

<TABLE>
<S> <C>
Stockholder's equity of Old Liberty................................ $ 9,449
Purchase accounting adjustments.................................... 24,232
-------
Initial stockholder's equity of New Liberty subsequent to the AT&T
Merger............................................................ $33,681
=======
</TABLE>

The following unaudited condensed results of operations for the nine months
ended September 30, 1999 and 1998 were prepared assuming the AT&T Merger
occurred on January 1, 1998. These pro forma amounts are not necessarily
indicative of operating results that would have occurred if the AT&T Merger had
occurred on January 1, 1998.

<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------
1999 1998
----------- ----------
(amounts in millions)
<S> <C> <C>
Revenue.............................................. $ 741 1,005
Net loss............................................. $ (1,041) (951)
</TABLE>

Liberty's domestic subsidiaries generally operate or hold investments in
businesses which provide programming services including production, acquisition
and distribution through all available formats and media of branded
entertainment, educational and informational programming and software. In
addition, certain of Liberty's subsidiaries hold investments in businesses
engaged in wireless telephony, electronic retailing, direct marketing and
advertising sales relating to programming services. Liberty also has
significant investments in foreign affiliates which operate in cable
television, programming and satellite video distribution.

The accompanying interim consolidated financial statements are unaudited,
but, in the opinion of management, reflect all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the results for
such periods. The results of operations for any interim period are not
necessarily indicative of results for the full year. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements for the year ended December 31, 1998, and notes thereto.

Certain prior period amounts have been reclassified for comparability with
the 1999 presentation.

F-43
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(2) Supplemental Disclosures to Consolidated Statements of Cash Flows

Cash paid for interest was $75 million for the seven month period ended
September 30, 1999, $32 million for the two month period ended February 28,
1999 and $67 million for the nine months ended September 30, 1998. Cash paid
for income taxes for the seven month period ended September 30, 1999 and the
two month period ended February 28, 1999 was not material. Cash paid for income
taxes for the nine months ended September 30, 1998 was $19 million.

During July 1999, certain subsidiaries of Liberty were exchanged for a
limited partnership interest having a fair value at the time of the transaction
of $150 million.

Liberty ceased to include TV Guide, Inc. ("TV Guide") in its consolidated
financial results and began to account for TV Guide using the equity method of
accounting, effective March 1, 1999 (see note 6). The effects of changing the
method of accounting for Liberty's ownership interests in TV Guide as of
September 30, 1999, from the consolidation method to the equity method are
summarized below (amounts in millions):

<TABLE>
<S> <C>
Assets (other than cash and cash equivalents) reclassified to
investments in affiliates......................................... $(572)
Liabilities reclassified to investments in affiliates.............. 190
Minority interests in equity of subsidiaries reclassified to
investments in affiliates......................................... 63
Gain on issuance of equity by subsidiary........................... 372
-----
Decrease in cash and cash equivalents.............................. $ 53
=====
</TABLE>

The following table reflects the change in cash and cash equivalents
resulting from the AT&T Merger and related restructuring transactions (amounts
in millions):

<TABLE>
<S> <C>
Cash and cash equivalents prior to the AT&T Merger................. $ 31
Cash contribution in connection with the AT&T Merger............. 5,464
Cash paid to TCI for certain warrants to purchase shares of
General Instruments Corporation ("GI").......................... (176)
------
Cash and cash equivalents subsequent to the AT&T Merger............ $5,319
======
</TABLE>

F-44
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(3) Investments in Affiliates Accounted for under the Equity Method

Liberty has various investments accounted for under the equity method. The
following table includes Liberty's carrying amount of the more significant
investments at September 30, 1999 and December 31, 1998:

<TABLE>
<CAPTION>
New Liberty Old Liberty
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
amounts in millions
<S> <C> <C>
USA Networks, Inc. ("USAI") and related
investments.................................... $ 2,710 1,042
Telewest Communications plc ("Telewest")........ 1,961 515
Discovery Communications, Inc. ("Discovery").... 3,546 49
TV Guide........................................ 1,756 --
QVC, Inc. ("QVC")............................... 2,505 197
Flextech p.l.c. ("Flextech").................... 757 320
Other foreign investments (other than Telewest
and Flextech).................................. 1,504 346
Other........................................... 1,200 610
------- -----
$15,939 3,079
======= =====
</TABLE>

The following table reflects Liberty's share of earnings (losses) of
affiliates:

F-45
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Summarized unaudited combined financial information for affiliates is as
follows:

USAI owns and operates businesses in network and television production,
television broadcasting, electronic retailing, ticketing operations, and
internet services. At September 30, 1999, Liberty directly and indirectly held
33.3 million shares of USAI's common stock. Liberty also held shares directly
in certain subsidiaries of USAI which are exchangeable into 39.5 million shares
of USAI common stock. Liberty's direct ownership of USAI is currently
restricted by FCC regulations. The exchange of these shares can be accomplished
only if there is a change to existing regulations or if Liberty obtains
permission from the FCC. If the exchange of subsidiary stock into USAI common
stock was completed at September 30, 1999, Liberty would own 72.8 million
shares or approximately 21% of the then outstanding USAI common stock. USAI's
common stock had a closing market price of $38 3/4 per share on September 30,
1999. Liberty accounts for its investments in USAI and related subsidiaries on
a combined basis under the equity method.

In February 1998, USAI paid cash and issued shares and one of it subsidiaries
issued shares in connection with the acquisition of certain assets from
Universal Studios, Inc. (the "Universal Transaction"). Liberty recorded an
increase to its investment in USAI of $54 million and an increase to
additional-paid-in capital of $33 million (after deducting deferred income
taxes of $21 million) as a result of this share issuance. No gain was
recognized in the consolidated statement of operations and comprehensive
earnings for the Universal Transaction due primarily to Liberty's intention at
such time to purchase additional equity interests in USAI. In connection with
the Universal Transaction, Liberty was granted an antidilutive right with
respect to any future issuance of USAI common stock, subject to certain
limitations, that enables it to maintain its percentage beneficial ownership
interests in USAI.

Effective September 1, 1998, Telewest and General Cable PLC consummated a
merger. In connection with the merger, Liberty's ownership interest in Telewest
decreased to 22%. In connection with the increase in Telewest's equity, net of
the dilution of Liberty's interest in Telewest, that resulted from the merger,
Liberty recorded a non-cash gain of $58 million (before deducting deferred
income taxes expense of $20 million) during the third quarter of 1998.

Telewest currently operates and constructs cable television and telephone
systems in the UK. At September 30, 1999, Liberty indirectly owned 463 million
of the issued and outstanding Telewest ordinary shares. The reported closing
price on the London Stock Exchange of Telewest ordinary shares was (Pounds)2.23
($3.67) per share at September 30, 1999.

F-46
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Liberty and The News Corporation Limited ("News Corp.") each owned 50% of Fox
Sports, which operates national and regional sports networks. Prior to the
first quarter of 1998, Liberty had no obligation, nor intention, to fund Fox
Sports. During 1998, Liberty made the determination to provide funding to Fox
Sports based on specific transactions consummated by Fox Sports. Consequently,
Liberty's share of losses of Fox Sports for the nine months ended September 30,
1998 included previously unrecognized losses of Fox Sports of approximately $64
million. Losses for Fox Sports were not recognized in prior periods due to the
fact that Liberty's investment in Fox Sports was less than zero.

On July 15, 1999, News Corp. acquired Liberty's 50% interest in Fox Sports in
exchange for 51.8 million News Corp. American Depository Receipts ("ADRs")
representing preferred limited voting ordinary shares of News Corp. Of the 51.8
million ADRs received, 3.6 million were placed in an escrow (the "Escrow
Shares") pending an independent third party valuation, as of the third
anniversary of the transaction. The remainder of the 51.8 million ADRs received
(the "Restricted Shares") are subject to a two-year lockup which restricts any
transfer of the securities for a period of two years from the date of the
transaction. Liberty recorded the ADRs at fair value of $1,403 million, which
included a discount from market value for the Restricted Shares due to the two-
year restriction on transfer, resulting in a $13 million gain on the
transaction. In a related transaction, Liberty acquired from News Corp. 28.1
million additional ADRs representing preferred limited voting ordinary shares
of News Corp. for approximately $695 million. Liberty accounts for its
investment in News Corp. as an available-for-sale security, with the exception
of the Restricted Shares and the Escrow Shares.

The Class A common stock of TV Guide is publicly traded. At September 30,
1999, Liberty held 29 million shares of TV Guide Class A common stock and 37
million shares of TV Guide Class B common stock. See note 6. The TV Guide Class
B common stock is convertible, one-for-one, into TV Guide Class A common stock.
The closing price for TV Guide Class A common stock was $39 1/8 per share on
September 30, 1999.

Flextech develops and sells a variety of television programming in the UK. At
September 30, 1999, Liberty indirectly owned 58 million Flextech ordinary
shares. The reported closing price on the London Stock Exchange of the Flextech
ordinary shares was (Pounds)9.45 ($15.56) per share at September 30, 1999.

The $14 billion aggregate excess of Liberty's aggregate carrying amount in
its affiliates over Liberty's proportionate share of its affiliates' net assets
is being amortized over an estimated useful life of 20 years.

Certain of Liberty's affiliates are general partnerships and subsidiaries of
Liberty that are general partners in such partnerships are liable as a matter
of partnership law for all debts (other than non-recourse debts) of that
partnership in the event liabilities of that partnership were to exceed its
assets.

(4) Investment in Time Warner

Liberty holds shares of a series of Time Warner's series common stock with
limited voting rights (the "TW Exchange Stock") that are convertible into an
aggregate of 114 million shares of Time Warner common stock.

In September 1997, Time Warner exercised an option to acquire the business of
Southern Satellite Systems, Inc. (the "Southern Business") from Liberty.
Pursuant to the option, Time Warner acquired the Southern Business, effective
January 1, 1998, for $213 million in cash. Liberty recognized a $515 million
pre-tax gain in connection with such transactions in the first quarter of 1998.

F-47
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock. This cashless collar provides Liberty with a put option that gives it
the right to require its counterparty to buy 15 million Time Warner shares from
Liberty in approximately seven years for $67.45 per share. Liberty
simultaneously sold a call option giving the counterparty the right to buy the
same number of Time Warner shares from Liberty in approximately seven years for
$158.33 per share.

(5) Investment in Sprint

Pursuant to a proposed final judgment (the "Final Judgment") agreed to by
TCI, AT&T and the United States Department of Justice (the "DOJ") on December
31, 1998, Liberty transferred all of its beneficially owned securities (the
"Sprint Securities") of Sprint to a trustee (the "Trustee") prior to the AT&T
Merger. The Final Judgment, which was entered by the United States District
Court for the District of Columbia on August 23, 1999, requires the Trustee, on
or before May 23, 2002, to dispose of a portion of the Sprint Securities
sufficient to cause Liberty to beneficially own no more than 10% of the
outstanding Series 1 PCS Stock of Sprint on a fully diluted basis on such date.
On or before May 23, 2004, the Trustee must divest the remainder of the Sprint
Securities beneficially owned by Liberty.

The Final Judgment requires that the Trustee vote the Sprint Securities
beneficially owned by Liberty in the same proportion as other holders of
Sprint's PCS Stock so long as such securities are held by the trust. The Final
Judgment also prohibits the acquisition by Liberty of additional Sprint
Securities, with certain exceptions, without the prior written consent of the
DOJ.

On November 23, 1998, Liberty, Comcast, and Cox exchanged their respective
interests in Sprint PCS and PhillieCo (the "PCS Exchange") for shares of Sprint
PCS Group Stock, which tracks the performance of Sprint's PCS Group (consisting
initially of the PCS Ventures and certain PCS licenses which were separately
owned by Sprint). The Sprint PCS Group Stock collectively represents an
approximate 17% voting interest in Sprint. As a result of the PCS Exchange,
Liberty, through the trust established pursuant to the Final Judgment, holds
the Sprint Securities which consists of shares of Sprint PCS Group Stock, as
well as certain additional securities of Sprint exercisable for or convertible
into such securities, representing approximately 24% of the equity value of
Sprint attributable to its PCS Group and less than 1% of the voting interest in
Sprint. Through November 23, 1998, Liberty accounted for its interest in the
PCS Ventures using the equity method of accounting; however, as a result of the
PCS Exchange, Liberty's less than 1% voting interest in Sprint and the Final
Judgment, Liberty no longer exercises significant influence with respect to its
investment in the PCS Ventures. Accordingly, Liberty accounts for its
investment in the Sprint PCS Group Stock as an available-for-sale security.

In September 1999, Liberty entered into a four and one-half year "cashless
collar" with a financial institution with respect to 17.5 million shares of
Sprint PCS Group Stock, secured by 17.5 million shares of such stock. This
cashless collar provides Liberty with a put option that gives it the right to
require its counterparty to buy 17.5 million shares of Sprint PCS Group Stock
from Liberty in approximately four and one-half years for a weighted average
price of $55.24 per share. Liberty simultaneously sold a call option giving the
counterparty the right to buy the same number of shares of Sprint PCS Group
Stock from Liberty in approximately four and one-half years for a weighted
average price of $114.84 per share.

F-48
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As Liberty's cashless collars are designated to 15 million shares of TW
Exchange Stock and 17.5 million shares of Sprint PCS Group Stock (together the
"Underlying Securities") held by Liberty and the changes in the fair value of
the cashless collars are correlated with changes in the fair value of the
Underlying Securities, the cashless collars function as hedges. Accordingly,
changes in the fair value of the cashless collars are reported as a component
of comprehensive earnings (in unrealized gains) along with the changes in the
fair value of the Underlying Securities.

(6) Acquisitions and Dispositions

Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision") contributed
the assets, obligations and operations of its retail C-band satellite business
to Superstar/Netlink Group LLC ("SNG") in exchange for an approximate 20%
interest in SNG. As a result of such transaction, Liberty's direct and indirect
(through United Video Satellite Group, Inc. ("UVSG")) ownership interest in SNG
decreased to approximately 80%. In connection with the increase in SNG's
equity, net of the dilution of Liberty's ownership interest in SNG, that
resulted from such transaction, Liberty recognized a gain of $38 million
(before deducting deferred income taxes of $15 million).

On March 1, 1999, UVSG and News Corp. completed a transaction whereby UVSG
acquired News Corp.'s TV Guide properties creating a broader platform for
offering television guide services to consumers and advertisers and UVSG was
renamed TV Guide. News Corp. received total consideration of $1.9 billion,
including $800 million in cash, 22.5 million shares of UVSG's Class A common
stock and 37.5 million shares of UVSG's Class B common stock valued at an
average of $18.65 per share. In addition, News Corp. purchased approximately
6.5 million additional shares of UVSG Class A common stock for $129 million in
order to equalize its ownership with that of Liberty. As a result of these
transactions, and another transaction completed on the same date, News Corp.,
Liberty and TV Guide's public stockholders own on an economic basis
approximately 44%, 44% and 12%, respectively, of TV Guide. Following such
transactions, News Corp. and Liberty each have approximately 49% of the voting
power of TV Guide's outstanding stock. In connection with the increase in TV
Guide's equity, net of the dilution of Liberty's ownership interest in TV
Guide, Liberty recognized a gain of $372 million (before deducting deferred
income taxes of $147 million). Upon consummation, Liberty began accounting for
its interest in TV Guide using the equity method of accounting.

(7) Long-Term Debt

Debt is summarized as follows:

<TABLE>
<CAPTION>
New Liberty Old Liberty
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
amounts in millions
<S> <C> <C>
Bank credit facilities........................................................................... $ 926 1,629
Senior Notes, net of unamortized discount of $9 million.......................................... 741 --
Senior Debentures, net of unamortized discount of $6 million..................................... 494 --
4 1/2% Convertible subordinated debentures....................................................... -- 345
Other............................................................................................ 33 122
------ -----
2,194 2,096
Less current maturities.......................................................................... 474 184
------ -----
Total long-term debt........................................................................... $1,720 1,912
====== =====
</TABLE>

On April 8, 1999, Liberty redeemed all of its outstanding 4 1/2% convertible
subordinated debentures due February 15, 2005. See note 9.

F-49
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

On July 7, 1999, Liberty received net cash proceeds of approximately $741
million and $494 million from the issuance of 7 7/8% Senior Notes due 2009 (the
"Senior Notes") and 8 1/2% Senior Debentures due 2029 (the "Senior
Debentures"), respectively. The Senior Notes have an aggregate principal amount
of $750 million and the Senior Debentures have an aggregate principal amount of
$500 million. Interest on the Senior Notes and the Senior Debentures is payable
on January 15 and July 15 of each year. The proceeds were used to repay
outstanding borrowings under certain of Liberty's credit facilities, which were
subsequently canceled.

At September 30, 1999, Liberty had approximately $133 million in unused lines
of credit under its bank credit facilities.

The bank credit facilities of Liberty generally contain restrictive covenants
which require, among other things, the maintenance of certain financial ratios,
and include limitations on indebtedness, liens and encumbrances, acquisitions,
dispositions, guarantees and dividends. Additionally, Liberty pays fees ranging
from .15% to .375% per annum on the average unborrowed portions of the total
amounts available for borrowings under its bank credit facilities.

With the exception of the Senior Notes and the Senior Debentures which had
fair values of $754 million and $504 million, respectively, at September 30,
1999, Liberty believes that the carrying value of Liberty's debt approximated
its fair value at September 30, 1999.

(8) Income Taxes

Subsequent to the AT&T Merger, Liberty is included in the consolidated
federal income tax return of AT&T and party to a tax sharing agreement with
AT&T (the "AT&T Tax Sharing Agreement"). Liberty calculates its respective tax
liability on a separate return basis. The income tax provision for Liberty is
calculated based on the increase or decrease in the tax liability of the AT&T
consolidated group resulting from the inclusion of those items in the
consolidated tax return of AT&T which are attributable to Liberty.

Under the AT&T Tax Sharing Agreement, Liberty will receive a cash payment
from AT&T in periods when it generates taxable losses and such taxable losses
are utilized by AT&T to reduce the consolidated income tax liability. This
utilization of taxable losses will be accounted for by Liberty as a current
federal intercompany income tax benefit. To the extent such losses are not
utilized by AT&T, such amounts will be available to reduce federal taxable
income generated by Liberty in future periods, similar to a net operating loss
carryforward, and will be accounted for as a deferred federal income tax
benefit.

In periods when Liberty generates federal taxable income, AT&T has agreed to
satisfy such tax liability on Liberty's behalf up to a certain amount. The
reduction of such computed tax liabilities will be accounted for by Liberty as
a credit to additional paid-in-capital. The total amount of future federal tax
liabilities of Liberty which AT&T will satisfy under the AT&T Tax Sharing
Agreement is approximately $512 million, which represents the tax effect of the
net operating loss carryforward reflected in TCI's final federal income tax
return, subject to IRS adjustments. Thereafter, Liberty is required to make
cash payments to AT&T for federal tax liabilities of Liberty.

To the extent AT&T utilizes existing net operating losses of Liberty, such
amounts will be accounted for by Liberty as a reduction of additional paid-in-
capital. During the seven month period ending September 30, 1999, AT&T utilized
net operating losses of Liberty with a tax effected carrying value of $85
million.

Liberty will generally make cash payments to AT&T related to states where it
generates taxable income and receive cash payments from AT&T in states where it
generates taxable losses.

F-50
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Liberty's obligation under the 1995 TCI Tax Sharing Agreement of
approximately $139 million (subject to adjustment), which is included in "due
to related parties," shall be paid at the time, if ever, that Liberty
deconsolidates from the AT&T income tax return. Liberty's receivable under the
1997 TCI Tax Sharing Agreement of approximately $220 million was forgiven in
the AT&T Tax Sharing Agreement and recorded as an adjustment to additional
paid-in-capital by Liberty in connection with the AT&T Merger.

(9) Stockholder's Equity

Preferred Stock

The Preferred Stock is issuable, from time to time, with such designations,
preferences and relative participating, optional or other special rights,
qualifications, limitations or restrictions thereof as shall be stated and
expressed in a resolution or resolutions providing for the issue of such
Preferred Stock adopted by the Board.

Common Stock

The Class A Stock has one vote per share, and each of the Class B and Class C
Stock has ten votes per share.

As of September 30, 1999, all of the issued and outstanding common stock of
Liberty is owned by AT&T.

Stock Issuances by Subsidiary

On September 9, 1999, Liberty and TCI Music (renamed Liberty Digital, Inc.
("Liberty Digital")) completed a transaction (the "Liberty Digital
Transaction") pursuant to which Liberty contributed to Liberty Digital
substantially all of its directly held internet content and interactive
television assets, its rights to provide interactive video services on AT&T's
cable television systems and a combination of cash and notes receivable equal
to $150 million. In exchange, Liberty Digital issued common stock and
convertible preferred stock to Liberty.

Prior to the Liberty Digital Transaction, Liberty Digital issued
approximately 4.8 million shares of common stock in connection with the
conversion of its preferred stock and approximately 0.5 million shares of
common stock in connection with the exercise of certain employee stock options.
As a result, Liberty's interest in Liberty Digital was reduced to 86%.
Following the Liberty Digital Transaction, Liberty's interest in Liberty
Digital was increased to 86.5%. During the month of September 1999, Liberty
Digital issued approximately 0.5 million shares of common stock in connection
with the exercise of certain employee stock options. As a result, Liberty's
interest in Liberty Digital was reduced to 86.3%. In connection with the
increase in Liberty Digital's equity, net of the dilution of Liberty's interest
in Liberty Digital, that resulted from such stock issuances, Liberty recorded a
$50 million increase to additional paid-in-capital. No gain was recognized in
the consolidated statement of operations and comprehensive earnings due to
Liberty's continuing involvement in capital transactions of Liberty Digital.

Transactions with AT&T (formerly TCI) and Other Related Parties

Certain subsidiaries of Liberty produce and/or distribute programming and
other services to cable distribution operators (including AT&T) and others.
Charges to AT&T are based upon customary rates charged to others. Amounts
included in revenue for services provided to AT&T were $125 million, $43
million and $217 million for the seven month period ending September 30, 1999,
the two month period ending February 28, 1999 and the nine months ended
September 30, 1998, respectively.

F-51
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Certain AT&T corporate general and administrative costs are charged to
Liberty and included in operating, selling, general and administrative expenses
in the accompanying consolidated statements of operations and comprehensive
earnings. During the seven month period ended September 30, 1999, the two month
period ended February 28, 1999 and the nine months ended September 30, 1998,
Liberty was allocated less than $1 million, $2 million and $12 million,
respectively, in corporate general and administrative costs by AT&T.

Subsidiaries of Liberty lease satellite transponder facilities from the
National Digital Television Center, Inc. ("NDTC"), a subsidiary of AT&T.
Charges by NDTC for such arrangements and other related operating expenses for
the seven months ended September 30, 1999, two months ended February 28, 1999
and nine months ended September 30, 1998 aggregated $14 million, $4 million and
$17 million, respectively, and are included in operating expenses in the
accompanying consolidated statements of operations and comprehensive earnings.

In connection with the AT&T Merger, warrants to buy 3 million shares of
common stock of CSG Systems International, Inc. ("CSG") and related
registration rights were transferred to Liberty. On April 13, 1999, AT&T
purchased these warrants from Liberty for an aggregate purchase price of $75
million along with the related registration rights. The vesting of the CSG
warrants is contingent on AT&T meeting certain subscriber commitments to CSG.
If any warrants do not vest, Liberty must repurchase the unvested warrants from
AT&T, with interest at 6% from April 12, 1999. Accordingly, Liberty has
recorded the unvested CSG warrants as deferred income until such time as the
CSG warrants vest.

On April 8, 1999, Liberty redeemed all of its outstanding 4 1/2% convertible
subordinated debentures due February 15, 2005. The debentures were convertible
into shares of AT&T Liberty Media Group Class A tracking stock at a conversion
price of $23.54, or 42.48 shares per $1,000 principal amount. Certain holders
of the debentures had exercised their rights to convert their debentures and
14.6 million shares of AT&T Liberty Media Group tracking stock were issued to
such holders. In connection with such issuance of AT&T Liberty Media Group
tracking stock, Liberty recorded an increase to additional paid-in-capital of
$354 million.

Transactions with Officers and Directors

In connection with the AT&T Merger, Liberty paid two of its directors and one
other individual, all three of whom are directors of TCI, an aggregate of $12
million for services rendered in connection with the AT&T Merger. Such amount
is included in operating, selling, general and administrative expenses for the
two months ended February 28, 1999 in the accompanying consolidated statements
of operations and comprehensive earnings.

On February 9, 1998, in connection with the settlement of certain legal
proceedings relative to the Estate of Bob Magness (the "Magness Estate"), the
late founder and former Chairman of the Board of TCI, TCI entered into a call
agreement with Dr. Malone and Dr. Malone's wife (together with Dr. Malone, the
"Malones"), and a call agreement with the Estate of Bob Magness, the Estate of
Betsy Magness, Gary Magness (individually and in certain representative
capacities) and Kim Magness (individually and in certain representative
capacities) (collectively, the "Magness Group"). Under these call agreements,
each of the Magness Group and the Malones granted to TCI the right to acquire
all of the shares of TCI's common stock owned by them ("High Voting Shares")
that entitle the holder to cast more than one vote per share (the "High-Voting
Stock") upon Dr. Malone's death or upon a contemplated sale of the High-Voting
Shares (other than a minimal amount) to third parties. In either such event,
TCI had the right to acquire such shares at a price equal to the then market
price of shares of TCI's common stock of the corresponding series that entitled
the holder to cast no more than one vote per share (the "Low-Voting Stock"),
plus a 10% premium, or in the case of a sale, the lesser of such price and the
price offered by the third party. In addition, each call agreement

F-52
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

provides that if TCI were ever to be sold to a third party, then the maximum
premium that the Magness Group or the Malones would receive for their High-
Voting Shares would be the price paid for shares of the relevant series of Low-
Voting Stock by the third party, plus a 10% premium. Each call agreement also
prohibits any member of the Magness Group or the Malones from disposing of
their High-Voting Shares, except for certain exempt transfers (such as
transfers to related parties or to the other group or public sales of up to an
aggregate of 5% of their High-Voting Shares after conversion to the respective
series of Low-Voting Stock) and except for a transfer made in compliance with
TCI's purchase right described above. TCI paid $150 million to the Malones and
$124 million to the Magness Group in consideration of their entering into the
call agreements, of which an aggregate of $140 million was allocated to and
paid by Liberty.

In connection with the AT&T merger, Liberty became entitled to exercise TCI's
rights and became subject to its obligations under the call agreement and the
shareholders' agreement with respect to the Liberty Media Group Class B
tracking stock acquired by the Malones and the Magness Group as a result of the
AT&T merger. If Liberty were to exercise its call right under the call
agreement with the Malones or the Magness Group, it may also be required to
purchase High-Voting Shares of the other group if such group exercises its
"tag-along" rights under the shareholders' agreement.

Due to Related Parties

The components of "Due to related parties" are as follows:

<TABLE>
<CAPTION>
New Liberty Old Liberty
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
amounts in millions
<S> <C> <C>
Note payable to TCI, including accrued interest.................................................. $ -- 141
Intercompany account............................................................................. 86 269
---- ---
$ 86 410
==== ===
</TABLE>

The non-interest bearing intercompany account includes certain stock
compensation allocations (in Old Liberty) and income tax allocations that are
to be settled at some future date. Stock compensation liabilities of New
Liberty are classified as a separate component of current liabilities. All
other amounts included in the intercompany account are to be settled within
thirty days following notification.

(10) Commitments and Contingencies

Encore Media Group, a wholly owned subsidiary of Liberty, is obligated to pay
fees for the rights to exhibit certain films that are released by various
producers through 2017 (the "Film Licensing Obligations"). Based on customer
levels at September 30, 1999, these agreements require minimum payments
aggregating approximately $887 million. The aggregate amount of the Film
Licensing Obligations under these license

F-53
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

agreements is not currently estimable because such amount is dependent upon the
number of qualifying films released theatrically by certain motion picture
studios as well as the domestic theatrical exhibition receipts upon the release
of such qualifying films. Nevertheless, required aggregate payments under the
Film Licensing Obligations could prove to be significant.

Flextech has undertaken to finance the working capital requirements of a
joint venture (the "Principal Joint Venture") formed with BBC Worldwide, and is
obligated to provide the Principal Joint Venture with a primary credit facility
of (Pounds)88 million ($145 million) and, subject to certain restrictions, a
standby credit facility of (Pounds)30 million ($49 million). As of September
30, 1999, the Principal Joint Venture had borrowed (Pounds)45 million ($74
million) under the primary credit facility. If Flextech defaults in its funding
obligation to the Principal Joint Venture and fails to cure within 42 days
after receipt of notice from BBC Worldwide, BBC Worldwide is entitled, within
the following 90 days, to require that Liberty assume all of Flextech's funding
obligations to the Principal Joint Venture.

Liberty has guaranteed various loans, notes payable, letters of credit and
other obligations (the "Guaranteed Obligations") of certain affiliates. At
September 30, 1999, the Guaranteed Obligations aggregated approximately $496
million. Currently, Liberty is not certain of the likelihood of being required
to perform under such guarantees.

Liberty leases business offices, has entered into pole rental and transponder
lease agreements and uses certain equipment under lease arrangements.

On September 21, 1998, Hurricane Georges struck Puerto Rico and caused
considerable property damage to the area in general, including Liberty's cable
television systems owned by its subsidiary (the "Puerto Rico Subsidiary"). The
Puerto Rico Subsidiary's cable television systems represented $31 million of
Liberty's revenue for the nine months ended September 30, 1999.

As of September 30, 1999, approximately 99% of the Puerto Rico Subsidiary's
pre-hurricane basic customers were receiving cable television services. The
loss of revenue from September 21, 1998, through September 30, 1999, was $13
million. The Puerto Rico Subsidiary's business interruption insurance covered
the first $3 million in lost revenue.

The Puerto Rico Subsidiary has also claimed coverage for business
interruption under a secondary insurance carrier. Such policy, which covers the
Puerto Rico Subsidiary's parent company's subsidiaries, carries a deductible of
$2.5 million. This insurance claim is subject to approval by such insurance
carrier and, accordingly, no assurance can be given that amounts claimed will
be paid in their entirety. However, in the event such claims are collected the
overall impact in lost revenues for the Puerto Rico Subsidiary as a result of
Hurricane Georges will not exceed $2.5 million.

During the nine months ended September 30, 1999, Liberty, in conjunction with
AT&T, continued its enterprise-wide, comprehensive efforts to assess and
remediate its computer systems and related software and equipment to ensure
such systems, software and equipment recognize, process and store information
in the year 2000 and thereafter. AT&T's year 2000 remediation efforts include
an assessment of Liberty's most critical

F-54
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

systems, equipment, and facilities. AT&T also continued its efforts to verify
the year 2000 readiness of Liberty's significant suppliers and vendors and
continued to communicate with significant business partners and affiliates to
assess such partners' and affiliates' year 2000 status.

Failure to achieve year 2000 compliance by Liberty, its significant business
partners and affiliates with which it has a relationship could negatively
affect Liberty's ability to conduct business for an extended period. There can
be no assurance that all of Liberty's computer systems and related software
will be fully year 2000 compliant; in addition, other companies on which
Liberty's computer systems and related software and operations rely may or may
not be fully compliant on a timely basis, and any such failure could have a
material adverse effect on Liberty's financial position, results of operation
or liquidity.

(11) Information about Liberty's Operating Segments

Liberty is a holding company with a variety of subsidiaries and investments
operating in the media, communications and entertainment industries. Each of
these businesses is separately managed. Liberty identifies its reportable
segments as those consolidated subsidiaries that represent 10% or more of its
combined revenue and those equity method affiliates whose share of earnings or
losses represent 10% or more of its pre-tax earnings or loss. Subsidiaries and
affiliates not meeting this threshold are aggregated together for segment
reporting purposes.

For the seven months ended September 30, 1999, Liberty had five operating
segments: Encore Media Group, Liberty Digital, Telewest, Discovery and Other.
Encore Media Group owns and operates cable and satellite-delivered premium
movie networks in the United States. Encore Media Group is wholly owned and
consolidated by Liberty. Liberty Digital is primarily engaged in programming,
distributing and marketing a digital music service delivered to homes and
businesses. Liberty Digital is majority owned and consolidated by Liberty.
Telewest operates and constructs cable television and telephone systems in the
UK. Liberty accounts for its investment in Telewest using the equity method.
Discovery is a provider of nonfiction entertainment and information across all
media platforms. Liberty accounts for its investment in Discovery using the
equity method. Other includes Liberty's other investments, primarily in cable
television programming entities, corporate and other consolidated businesses
not representing separately reportable segments. For the two months ended
February 28, 1999, and the nine months ended September 30, 1998, Liberty had
six operating segments: Encore Media Group, TV Guide, Liberty Digital,
Telewest, Discovery and Other.

During the seven months ended September 30, 1999, Liberty's operating
segments changed in comparison to those at September 30, 1998, and February 28,
1999, due to the increased significance of Liberty Digital as a percentage of
revenue following the deconsolidation of TV Guide on March 1, 1999.

The accounting policies of the segments that are also consolidated
subsidiaries are the same as those described in the summary of significant
accounting policies. Liberty evaluates performance based on the measures of
revenue and operating cash flow (as defined by Liberty), appreciation in stock
price along with other non-financial measures such as average prime time
rating, prime time audience delivery, subscriber growth and penetration, as
appropriate. Liberty believes operating cash flow is a widely used financial
indicator of companies similar to Liberty and its affiliates, which should be
considered in addition to, but not as a substitute for, operating income, net
income, cash flow provided by operating activities and other measures of
financial performance prepared in accordance with generally accepted accounting
principles. Liberty generally accounts for intersegment sales and transfers as
if the sales or transfers were to third parties, that is, at current prices.

Liberty's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment requires different technology and marketing strategies.

F-55
<PAGE>

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Liberty utilizes the following financial information for purposes of making
decisions about allocating resources to a segment and assessing a segment's
performance. The column headed "Eliminations" represents the elimination of the
revenue, operating cash flow and assets of the segments that are not included
in Liberty's consolidated results:

<TABLE>
<CAPTION>
Consolidated
Subsidiaries
--------------
Equity Method
Encore Affiliates
Media Liberty ------------------
Group Digital Telewest Discovery Other Eliminations Total
------ ------- -------- --------- ------ ------------ ------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Seven months ended
September 30, 1999
Segment revenue from
external customers
including
intersegment
revenue.............. $ 372 51 726 744 83 (1,470) 506
Segment operating cash
flow................. 93 4 190 70 1 (260) 98
As of September 30, 1999
Segment assets........ 2,659 1,368 6,403 2,128 46,795 (8,531) 50,822
</TABLE>

<TABLE>
<CAPTION>
Consolidated
Subsidiaries
--------------------
Equity Method
Encore Affiliates
Media TV Liberty ------------------
Group Guide Digital Telewest Discovery Other Eliminations Total
------ ----- ------- -------- --------- ----- ------------ -----
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Two months ended
February 28, 1999
Segment revenue from
external customers
including
intersegment
revenue.............. $101 97 15 207 191 22 (398) 235
Segment operating cash
flow (deficit)....... 41 21 1 52 16 (16) (68) 47
Nine months ended
September 30, 1998
Segment revenue from
external customers
including
intersegment
revenue.............. $388 443 63 604 737 111 (1,341) 1,005
Segment operating cash
flow (deficit)....... 70 93 4 148 47 (5) (195) 162
</TABLE>

The following table provides a reconciliation of segment operating cash flow
to earnings before income taxes:

F-56
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors of Sprint Corporation and
Partners of Sprint Spectrum Holding Company, L.P.

We have audited the consolidated balance sheets of Sprint Spectrum Holding
Company, L.P. and subsidiaries (the "Holdings") as of December 31, 1998 and
1997, and the related consolidated statements of operations and cash flows for
the three years in the period ended December 31, 1998. Our audits also included
the financial statement schedule ("Schedule II"). These financial statements
and Schedule II are the responsibility of Partnership management. Our
responsibility is to express an opinion on these consolidated financial
statements and Schedule II based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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, such consolidated financial statements present fairly, in all
material respects, the financial position of Sprint Spectrum Holding Company,
L.P. and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for the three years ended December 31, 1998, in
conformity with generally accepted accounting principles. Also, in our opinion,
Schedule II, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Kansas City, Missouri

February 2, 1999

F-57
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -------
(in millions)
<S> <C> <C> <C>
Net Operating Revenues.......................... $ 1,175.5 $ 248.6 $ 4.2
--------- --------- -------
Operating Expenses
Costs of services and products................ 1,142.8 555.0 36.1
Selling, general and administrative........... 1,334.9 696.9 312.7
Depreciation.................................. 637.1 258.6 9.6
Amortization.................................. 76.0 48.8 1.7
--------- --------- -------
Total operating expenses.................... 3,190.8 1,559.3 360.1
--------- --------- -------
Operating Loss.................................. (2,015.3) (1,310.7) (355.9)
Interest expense................................ (469.6) (121.9) (0.3)
Minority interest............................... 144.5 6.2 (0.2)
Equity in loss of unconsolidated partnerships... -- (168.9) (96.9)
Other income, net............................... 33.5 31.9 10.2
--------- --------- -------
Loss before Extraordinary Item.................. (2,306.9) (1,563.4) (443.1)
Extraordinary item.............................. (51.1) -- --
--------- --------- -------
Net Loss........................................ $(2,358.0) $(1,563.4) $(443.1)
========= ========= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-58
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31,

<TABLE>
<CAPTION>
1998 1997
--------- ---------
(in millions)
<S> <C> <C>
Assets
Current assets
Cash and equivalents................................. $ 123.5 $ 117.2
Accounts receivable, net of allowance for doubtful
accounts of $21.0 and $9.0 in 1998 and 1997,
respectively........................................ 280.5 113.5
Receivable from affiliates........................... 147.6 96.3
Inventories.......................................... 113.2 101.4
Prepaid expenses..................................... 31.2 28.4
--------- ---------
Total current assets............................... 696.0 456.8
Property, plant and equipment
Buildings and leasehold improvements................. 924.2 618.3
Network equipment.................................... 3,371.4 2,265.2
Construction work in progress........................ 864.1 632.9
Other................................................ 338.1 167.4
--------- ---------
Total property, plant and equipment.................. 5,497.8 3,683.8
Accumulated depreciation............................. (861.0) (254.6)
--------- ---------
Net property, plant and equipment.................... 4,636.8 3,429.2
Investment in unconsolidated partnership............... -- 273.5
Minority interest...................................... -- 56.7
Intangibles
PCS licenses......................................... 2,464.3 2,223.0
Goodwill............................................. 381.6 125.6
Microwave relocations................................ 335.7 269.4
--------- ---------
Total intangibles.................................... 3,181.6 2,618.0
Accumulated amortization............................. (124.5) (50.4)
--------- ---------
Net intangibles...................................... 3,057.1 2,567.6
--------- ---------
Other assets........................................... 45.8 113.2
--------- ---------
Total.............................................. $ 8,435.7 $ 6,897.0
========= =========
Liabilities and Partners' Capital
Current liabilities
Current maturities of long-term debt................. $ 119.4 $ 34.6
Accounts payable..................................... 539.2 416.0
Construction obligations............................. 636.0 705.3
Accrued expenses and other current liabilities....... 566.2 300.0
--------- ---------
Total current liabilities............................ 1,860.8 1,455.9
Long-term debt......................................... 6,491.6 3,533.9
Limited partner interest in consolidated subsidiary.... 34.0 13.7
Other.................................................. 79.0 49.0
Partners' capital and accumulated deficit
Partners' capital.................................... 4,448.5 3,964.7
Accumulated deficit.................................. (4,478.2) (2,120.2)
--------- ---------
Partners' capital and accumulated deficit............ (29.7) 1,844.5
--------- ---------
Total.............................................. $ 8,435.7 $ 6,897.0
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-59
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net loss...................................... $(2,358.0) $(1,563.4) $ (443.1)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in losses of unconsolidated
partnerships............................... -- 168.9 96.9
Minority interest........................... (144.5) (6.2) 0.2
Extraordinary item.......................... 51.1 -- --
Depreciation and amortization............... 712.1 307.9 11.3
Amortization of debt discount and issuance
costs...................................... 58.8 49.1 14.0
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable, net.................. (195.1) (182.9) (15.9)
Inventories............................... (2.2) (24.9) (72.4)
Prepaid expenses and other assets......... 4.7 (12.4) (21.6)
Accounts payable and other current
liabilities.............................. 219.8 361.5 946.7
Other noncurrent liabilities.............. 29.9 37.6 9.5
--------- --------- --------
Net cash provided by (used in) operating
activities............................. (1,623.4) (864.8) 525.6
--------- --------- --------
Cash Flows from Investing Activities:
Capital expenditures.......................... (1,495.0) (2,041.3) (1,386.3)
Microwave relocation costs, net............... (46.8) (116.3) (135.8)
Purchase of APC, net of cash acquired......... (28.9) (6.8) --
Purchase of Cox PCS, net of cash acquired..... (28.3) -- --
Investment in unconsolidated partnerships..... -- (191.2) (190.4)
Loan to unconsolidated partnership............ -- (111.4) (232.0)
Payment received on loan to unconsolidated
partnership.................................. -- 246.7 5.9
--------- --------- --------
Net cash used in investing activities... (1,599.0) (2,220.3) (1,938.6)
--------- --------- --------
Cash Flows from Financing Activities:
Advances from partners........................ -- -- 167.8
Net borrowings under revolving credit
facilities................................... 1,253.6 605.0 --
Proceeds from issuance of long-term debt...... 1,358.6 1,763.0 674.2
Long-term borrowings from parent.............. 3,526.6 -- --
Payments on long-term debt.................... (3,393.9) (170.8) --
Debt issuance costs........................... -- (20.0) (71.8)
Partner capital contributions................. 517.1 966.8 711.7
Return of capital............................. (33.3) (11.7) --
--------- --------- --------
Net cash provided by financing
activities............................. 3,228.7 3,132.3 1,481.9
--------- --------- --------
Increase in Cash and Equivalents.............. 6.3 47.2 68.9
Cash and Equivalents, Beginning of Period..... 117.2 70.0 1.1
--------- --------- --------
Cash and Equivalents, End of Period........... $ 123.5 $ 117.2 $ 70.0
--------- --------- --------
Supplemental Disclosure of Cash Flow
Information:
. Interest paid, net of amount capitalized.... $ 264.8 $ 35.6 $ 0.3
Non-cash Investing and Financing Activities:
. Accrued interest of $154.2 million and $51.7
million related to vendor financing was
converted to long-term debt during the years
ended December 31, 1998 and 1997,
respectively.
. A PCS license covering the Omaha MTA and
valued at $6.2 million was contributed to
Holdings by Cox Communications during the
year ended December 31, 1997.
</TABLE>

See accompanying notes to consolidated financial statements.

F-60
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Organization

Sprint Spectrum Holding Company, L.P.

Sprint Spectrum Holding Company, L.P. (Holdings) is the 99% general partner
of, and is consolidated with, its subsidiaries, including NewTelco, L.P.
(NewTelco) and Sprint Spectrum L.P., which, in turn, has several subsidiaries.
Sprint Spectrum L.P.'s subsidiaries are Sprint Spectrum Equipment Company, L.P.
(EquipmentCo), Sprint Spectrum Realty Company, L.P. (RealtyCo), Sprint Spectrum
Finance Corporation (FinCo), and WirelessCo, L.P. (WirelessCo).

MinorCo, L.P. (MinorCo) holds the minority limited partnership interests of
1% in NewTelco, Sprint Spectrum L.P., EquipmentCo, RealtyCo, WirelessCo and
0.25% in American PCS, L.P. (APC) at December 31, 1998 and 1997.

The results of APC are consolidated from November 1997, the date the Federal
Communications Commission ("FCC") approved Holdings as the new managing partner
(Note 3). APC, through subsidiaries, owns a PCS license for and operates a
broadband GSM (global system for mobile communications) in the Washington
D.C./Baltimore Major Trading Area ("MTA"), and has launched a code division
multiple access ("CDMA") overlay for its existing GSM PCS system. APC includes
American PCS Communications, LLC, APC PCS, LLC, APC Realty and Equipment
Company, LLC and American Personal Communications Holdings, Inc.

As discussed in Note 3, Holdings also became the managing partner of Cox
Communications PCS, L.P. ("Cox PCS") in June 1998. Cox PCS results have been
included in the consolidated statements of operations from January 1, 1998. Cox
PCS, through subsidiaries, holds a PCS license for and operates a PCS system in
the Los Angeles-San Diego-Las Vegas MTA. Cox PCS includes Cox PCS License,
L.L.C., Cox PCS Assets, L.L.C., and PCS Leasing Co., L.P.

Restructuring and Reorganization

In November 1998, Sprint Corporation (Sprint) acquired the remaining
ownership interests in Holdings. Sprint acquired these ownership interests from
Tele-Communications, Inc., Comcast Corporation and Cox Communications, Inc.
(the Cable Partners). The purchase of the Cable Partners' interests is referred
to as the PCS Restructuring, which included the formation of the PCS Group.
Sprint accounted for the transaction as a purchase. Purchase accounting was not
"pushed down" to Holdings. PhillieCo, L.P. (PhillieCo) and SprintCom, Inc.
(SprintCom) are affiliates of Holdings through common ownership, and provide
PCS service in license areas not owned by Holdings.

Sprint Spectrum Holding Company, L.P. Partnership Agreement

Holdings was originally formed as a Delaware limited partnership on March 28,
1995, by Sprint Enterprises, L.P., TCI Spectrum Holdings, Inc., Cox Telephony
Partnership and Comcast Telephony Services. The Partnership Agreement was
amended concurrent with the PCS Restructuring discussed above. This amendment
provided for the interests of the Cable Partners in Holdings to be acquired by
wholly owned subsidiaries of Sprint.

Emergence from Development Stage Company

Prior to the third quarter of 1997, Holdings reported its operations as a
development stage enterprise. Holdings has commenced service in all of the MTAs
in which it owns a license. As a result, Holdings is no

F-61
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

longer considered a development stage enterprise, and the consolidated balance
sheets and statements of operations and cash flows are no longer presented in
development stage format.

2. Summary of Significant Accounting Policies

Basis of Consolidation

The assets, liabilities, results of operations and cash flows of entities in
which Holdings has a controlling interest have been consolidated. All
significant intercompany accounts and transactions have been eliminated.

Holdings' consolidated financial statements are prepared using generally
accepted accounting principles. These principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

Certain prior year amounts have been reclassified to conform to the current
year presentation. These reclassifications had no effect on the results of
operations or partners' capital as previously reported.

Allocation of Shared Services and Group Financing

Sprint directly assigns, where possible, certain general and administrative
costs to Holdings based on the actual use of those services. Where direct
assignment of costs is not possible or practicable Sprint uses other methods to
estimate the assignment of costs to Holdings.

Financing activities for Holdings are managed by Sprint on a centralized
basis. Debt and the related interest expense incurred by Sprint and its
subsidiaries on behalf of Holdings are specifically allocated to and reflected
in these financial statements. Interest expense is allocated to Holdings based
on an interest rate that is largely equal to the rate Holdings would be able to
obtain from third parties as a direct or indirect wholly owned Sprint
subsidiary, but without the benefit of any guaranty by Sprint.

Minority Interests

In 1998, minority interest consisted primarily of Cox Pioneer Partnership's
(CPP) ownership in Cox PCS. Prior to 1998, minority interest primarily included
losses attributable to American Personal Communications, II, L.P. (APC II).

Trademark Agreement

Sprint owns various trademarks and service marks utilized by Holdings. Sprint
expects to apply for and develop trademarks, service marks and patents for the
benefit of Holdings in the ordinary course of business. Sprint is a registered
trademark of Sprint and Sprint PCSSM is a registered service mark of Sprint,
both of which are utilized by Holdings on a royalty-free basis under trademark
license agreements.

Revenue Recognition

Holdings recognizes operating revenues as services are rendered or as
products are delivered to customers. Holdings records operating revenues net of
an estimate for uncollectible accounts.

Cash and Equivalents

Cash equivalents generally include highly liquid investments with original
maturities of three months or less. They are stated at cost, which approximates
market value.

F-62
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Inventories

Inventories are stated at the lower of cost (principally first-in, first-out
method) or replacement value.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost. Generally, ordinary asset
retirements and disposals are charged against accumulated depreciation with no
gain or loss recognized. Property, plant and equipment is depreciated on a
straight-line basis over estimated economic useful lives. Repair and
maintenance costs are expensed as incurred.

Capitalized Interest

Interest costs associated with the construction of capital assets incurred
during the period of construction are capitalized. Capitalized interest totaled
approximately $63 million in 1998, $99 million in 1997 and $31 million in 1996.

PCS Licenses

Holdings acquired licenses from the Federal Communications Commission (FCC)
to operate as a PCS service provider. These licenses are granted for up to 10-
year terms with renewals for additional 10-year terms if license obligations
are met. These licenses are recorded at cost and are amortized over 40 years
when service begins in a specific geographic area. Accumulated amortization
totaled approximately $104 million at year-end 1998 and $45 million at year-end
1997.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired in business combinations accounted for as purchases.
Goodwill is being amortized over 40 years using the straight-line method for
Holdings. Accumulated amortization totaled $8 million at year-end 1998 and
$0.4 million at year-end 1997.

Microwave Relocations

Holdings has incurred costs related to microwave relocation in constructing
the PCS network. Microwave relocation costs are being amortized over the
remaining lives of the PCS licenses. Accumulated amortization for microwave
relocation costs totaled approximately $13 million at year-end 1998 and $5
million at year-end 1997.

Income Taxes

Holdings has not provided for federal or state income taxes since such taxes
are the responsibility of the Partners.

Derivative Financial Instruments

Prior to the PCS Restructuring, derivative financial instruments (interest
rate contracts) were utilized by APC to reduce interest rate risk. APC
established a control environment which included risk assessment and management
approval, reporting and monitoring of derivative financial instrument
activities. APC did not hold or issue derivative financial instruments for
trading purposes. At year-end 1998, no derivatives were outstanding.

F-63
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Comprehensive Income

Holdings' total comprehensive loss for all periods presented did not differ
from those amounts reported as net loss in the consolidated statements of
operations.

Major Customer

Holdings markets its products through multiple distribution channels,
including its own retail stores as well as other retail outlets. Holdings'
subscribers are dispersed throughout the United States. Equipment sales to one
retail outlet, and service revenues generated by sales to its customers
represented approximately 25% and 21% of net operating revenues in the
consolidated statements of operations in 1998 and 1997, respectively.

3. Investments in Partnerships

APC--In September 1997, Holdings increased its ownership in APC to 58.3%
through additional capital contributions of $30 million, and became the
managing partner in November 1997. At the beginning of 1998, Holdings increased
its ownership percentage to 99.75% of the partnership interests for
approximately $30 million. APC II has been allocated approximately $7 million
in losses in APC since November 1997. Prior to November 1997, APC II had been
allocated approximately $50 million in losses in excess of its investment. At
year-end 1997, these losses totaled $57 million and were recorded as minority
interest in Holdings' consolidated balance sheet. This treatment reflects APC
II's continued responsibility for funding its share of losses until January 1,
1998 when Holdings and MinorCo acquired the remaining interest in APC.

Cox PCS--At year-end 1996, Holdings acquired a 49% limited partner interest
in Cox PCS. CPP held a 50.5% general and a 0.5% limited partner interest and
was the general and managing partner. Holdings increased its ownership in Cox
PCS to 59.2% through an additional capital contribution of approximately
$81 million and became managing partner upon FCC approval in June 1998. CPP's
remaining ownership interest in Cox PCS is reflected as minority interest in
the consolidated balance sheet and statements of operations. CPP has been
allocated approximately $145 million in losses in Cox PCS since the date of
acquisition. Under the partnership agreement, Cox has the right to require
Holdings to purchase, under certain circumstances, all or part of CPP's
interest in Cox PCS, which could involve significant cash requirements. Cox may
require Holdings to acquire an additional 10.2% interest in Cox PCS per year
through 2000. Beginning in 2001 through 2005, CPP may require Holdings to
acquire up to all of its interest in Cox PCS. Cox has given Holdings notice to
start the appraisal process related to a potential put of all or a portion of
CPP's remaining partnership interest to Holdings.

The acquisition of APC was accounted for as a purchase and, accordingly, the
operating results of APC have been consolidated since the acquisition. The
acquisition of Cox PCS increasing ownership to 59.2% was also accounted for as
a purchase. The operating results of Cox PCS have been consolidated since the
beginning of 1998. In conjunction with the acquisitions liabilities assumed
were (in millions):

<TABLE>
<CAPTION>
Cox
APC PCS
---- -----
<S> <C> <C>
Assets acquired.............................................. $503 $ 725
Cash paid.................................................... (30) (81)
Minority interest............................................ 50 (104)
---- -----
Liabilities assumed.......................................... $523 $ 540
==== =====
</TABLE>

F-64
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The purchase price was allocated to the assets acquired and the liabilities
assumed based on an estimate of fair value. The ultimate purchase price of Cox
PCS may differ from the initial estimate. In connection with the above
acquisitions, the excess of the purchase price over the fair value of the net
assets acquired was accounted for as goodwill.

Prior to acquisition of controlling interest, Holdings' investments in APC
and Cox PCS were accounted for under the equity method. Losses of APC and Cox
PCS of approximately $61 million and $108 million, respectively, in 1997 and
losses of APC of $97 million in 1996 are included in equity in losses of
unconsolidated partnerships during the period prior to the acquisition of
controlling interest.

Under the terms of the partnership agreement, CPP and Holdings are obligated
to make additional capital contributions in an amount equal to such partner's
percentage interest times the amount of additional capital contributions being
requested. In 1998, Holdings completed its funding obligation to Cox PCS under
the partnership agreement by contributing $34 million, including $33 million in
interest that had accrued on the unfunded obligation. Holdings had previously
contributed equity of approximately $180 million in 1997 and $168 million in
1996.

The following unaudited pro forma financial information assumes the
acquisition of APC had occurred on January 1 of each year and the acquisition
of Cox PCS had occurred on January 1, 1997. It also assumes that Holdings had
owned 100% of each entity and consolidated their results in the Holdings'
financial statements (in millions):

<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Net sales................................................... $ 392 $ 76
Net loss (before minority interest)......................... (1,747) (553)
</TABLE>

These proforma amounts are for comparative purposes only and do not
necessarily represent what actual results of operations would have been, nor do
they indicate the results of future operations.

4. Employee Benefit Plans

Defined Contribution and Profit Sharing Plans

Holdings sponsors a savings and retirement program (the "Savings Plan") for
certain employees. Most permanent full-time, and certain part-time, employees
are eligible to participate after one year of service or on their 35th
birthday, whichever occurs first. The maximum contribution for any participant
for any year is 16% of their pay. Holdings matches contributions equal to 50%
of the contribution of each participant, up to the first 6% that the employee
elects to contribute. Contributions to the Savings Plan are invested, at the
participant's discretion, in several designated investment funds. Expense under
the Savings Plan was $6 million in 1998, $5 million in 1997 and $1 million in
1996. Effective January 1999, Holdings' employees began making contributions to
Sprint's defined contribution plan. The existing assets of the Savings Plan
will be rolled over to Sprint's defined contribution plan in early 1999.
Effective January 1999, Holdings' employees were also eligible to participate
in Sprint's pension and postretirement plans.

The Cox PCS Savings and Investment Plan (the "Cox PCS Plan") was established
effective July 1, 1997. Substantially all Cox PCS employees are eligible to
participate in the Cox PCS Plan after completing one year of eligible service
(as defined) and attaining age 21. Employees may make contributions to the Cox
PCS Plan on a pretax basis pursuant to Section 401(k) of the Internal Revenue
Code. Cox PCS makes matching contributions equal to 75% of the employee's
contribution up to a maximum amount equal to 4.5% of the employee's annual
compensation. Employee contributions vest immediately, and Cox PCS' matching

F-65
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

contributions vest over three years of service. Expense under the Cox PCS Plan
approximated $1 million in 1998. The Cox PCS Plan will be terminated in early
1999, and the existing assets will be rolled over to Sprint's defined
contribution plan.

Profit Sharing (Retirement) Plan

Effective January, 1996, Holdings established a profit sharing plan for its
employees. Employees are eligible to participate in the plan after completing
one year of service. Profit sharing contributions are based on the
compensation, age, and years of service of the employee. Profit sharing
contributions are deposited into individual accounts of Holdings' retirement
plan. Vesting occurs once a participant completes five years of service.
Expense under the profit sharing plan approximated $3 million in 1998, $3
million in 1997 and $1 million in 1996. The existing assets of the profit
sharing will be rolled over to Sprint's defined contribution plan in early
1999.

Deferred Compensation Plan for Executives

Effective January, 1997, Holdings established a non-qualified deferred
compensation plan which permits certain eligible executives to defer a portion
of their compensation. The plan allows the participants to defer up to 80% of
their base salary and up to 100% of their annual short-term incentive
compensation. The deferred amounts earn interest at the prime rate. Payments
will be made to participants upon retirement, disability, death or the
expiration of the deferral election under the payment method selected by the
participant. The deferred compensation plan will be terminated in early 1999,
and participants will be eligible to participate in Sprint's deferred
compensation plan.

Long-Term Incentive Plan

Holdings maintains a long-term incentive plan. Prior to the PCS Restructuring
employees meeting certain eligibility requirements were included in Holdings'
long-term incentive plan (LTIP). Under this plan, participants received
appreciation units based on independent appraisals. The 1997 plan appreciation
units vest 25% per year beginning on the first anniversary of the grant date
and expire after 10 years. Under the 1996 plan, appreciation units vest 25% per
year beginning two years after the grant date, and expire after 10 years.
Holdings expensed $3 million in 1998, $18 million in 1997 and $10 million in
1996. In 1996, Holdings adopted the pro forma disclosure requirements under
SFAS 123, "Accounting for Stock-Based Compensation." Holdings has continued to
apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees." No significant difference would have resulted had SFAS 123 been
applied.

After the PCS Restructuring, Sprint discontinued the LTIP plan. The
appreciation units were replaced with PCS shares and options to buy PCS shares
based on a formula designed to replace the appreciated value of the units at
the beginning of July 1998. For vested units at year-end 1998, participants
could elect to receive the appreciation in cash, or in shares and options. Most
elected to receive shares and options. Sprint will issue the shares, and the
options will become exercisable, based on the vesting requirements of the units
those awards replaced.

Sprint Corporation Management Incentive Stock Option Plan and Stock Option
Plan

Effective January 1, 1999, employees are eligible to participate in Sprint's
Management Incentive Stock Option Plan (MISOP) and the Sprint Corporation Stock
Option Plan (SOP). Under the MISOP, Sprint may grant stock options to employees
who are eligible to receive annual incentive compensation. Eligible employees
are entitled to receive stock options in lieu of a portion of the target
incentive under Sprint's management

F-66
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

incentive plans. The options generally become exercisable on December 31 of the
year granted and have a maximum term of 10 years. MISOP options are granted
with exercise prices equal to the market price of Sprint's FON Group and PCS
Group stock on the grant date.

Under the SOP, Sprint may grant stock options to officers and key employees.
The options generally become exercisable at the rate of 25% per year, beginning
one year from the grant date, and have a maximum term of 10 years. SOP options
are granted with exercise prices equal to the market price of Sprint's FON
Group and PCS Group stock on the grant date.

Employee Stock Purchase Plan

Under Sprint's Employees Stock Purchase Plan (ESPP), employees may elect to
purchase Sprint common stock at a price equal to 85% of the market value on the
grant or exercise date, whichever is less.

5. Long-term Debt

Long term debt consists of the following as of December 31, 1998 and 1997 (in
millions):

<TABLE>
<CAPTION>
Maturing 1998 1997
------------ -------- --------
<S> <C> <C> <C>
Senior notes
8.6% to 9.5% /(1)/............................ 2008 to 2028 $3,346.6 $ --
11.0% to 12.5% /(2)/.......................... 2006 613.8 572.3
Revolving credit facilities
variable rates................................ 2005 to 2006 1,800.0 746.4
Due to FCC at 7.75% /(3)/....................... 2001 265.2 90.4
Vendor Financing................................ -- 1,612.9
Other
2.3% to 14.4% /(4)/........................... 1998 to 2007 585.4 546.5
-------- --------
Total Debt...................................... 6,611.0 3,568.5
Less: current maturities........................ 119.4 34.6
-------- --------
Long-term debt.................................. $6,491.6 $3,533.9
======== ========
</TABLE>
- --------
(1) Holdings has notes payable to Sprint totaling $3.3 billion. See Note 2 for
a more detailed description of Holdings and PCS Group financing.
(2) Balances are net of unamortized discounts of $136.2 million in 1998 and
$177.7 million in 1997. Sprint holds approximately $133 million at year-end
1998 and $118 million at year-end 1997 of the Senior Discount Notes.
(3) Balances are net of unamortized discounts of $8.0 million in 1998 and $12.0
million in 1997.
(4) In 1998, Holdings received $180 million under grid notes from Sprint. These
notes had a weighted average interest rate of 7.8% at year-end 1998 and
mature in 2001.

Holdings' long-term debt maturities, during each of the next five years are
as follows:

<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
1999........................................................ $119.4
2000........................................................ 126.4
2001........................................................ 354.6
2002........................................................ 301.1
2003........................................................ 462.1
</TABLE>

F-67
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Revolving Credit Facilities

At year-end 1998, available revolving credit facilities with banks totaled
$2.1 billion and Holdings had borrowed $1.8 billion at a weighted average
interest rate of 5.8%. At year-end 1997, $746 million had been drawn under the
revolving credit facilities at a weighted average interest rate of 8.4%.
Availability will be reduced commencing January 2002 and expires in 2007.
Borrowings under the term loans are included in Other debt and totaled $400
million with a weighted average interest rate of 7.7% at year-end 1998 and $300
million with a weighted average interest rate of 8.4% at year-end 1997.

Provisions of the credit facilities required the transfer of certain of
Holdings' assets into special purpose subsidiaries to facilitate the
collateralization of Holdings' assets.

Senior Notes and Senior Discount Notes (the Notes)

On August 15, 2001, Holdings will be required to redeem an amount equal to
$192 million in aggregate principal amount at maturity, assuming all of the
Senior Discount Notes remain outstanding at such date. The Notes are redeemable
at the option of Holdings, in whole or in part, at any time on or after August
15, 2001 at the stipulated redemption prices plus accrued and unpaid interest.
Interest on the Senior Discount Notes is not payable prior to August 15, 2001.

Vendor Financing

In 1996, Holdings entered into financing agreements with Northern Telecom,
Inc. (Nortel) and Lucent Technologies, Inc. (Lucent and together with Nortel,
the Vendors) for multiple drawdown term loan facilities totaling $1.3 billion
and $1.8 billion, respectively. At year-end 1997, approximately $1.6 billion,
including converted accrued interest of $52 million, had been borrowed at a
weighted average interest rate of 9.0% under the vendor financing agreements.
Amounts outstanding at year-end 1997 included $300 million that was syndicated
to Sprint. In 1998, all borrowings under the Vendor Financing were repaid using
long-term borrowings from Sprint.

Other

In 1998, Holdings redeemed, prior to scheduled maturities, $3.3 billion of
debt with a weighted average interest rate of 8.3%. This resulted in a $51
million extraordinary loss. The debt was repaid with a portion of the long-term
borrowings from Sprint.

Holdings has complied with all restrictive or financial covenants relating to
its debt arrangements at year-end 1998.

Holdings' PCS licenses and property, plant and equipment totaling $4.4
billion is pledged as security for certain notes.

Fair Value

The estimated fair value of Holdings' long-term debt was $6.8 billion at
year-end 1998 and $3.6 billion at year-end 1997.

F-68
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Equity

Following is a reconciliation of Holdings' equity:

<TABLE>
<CAPTION>
Partners' Accumulated
Capital Deficit Total
--------- ----------- --------
(in millions)
<S> <C> <C> <C>
Balance January 1, 1996....................... $2,291.7 $ (113.7) $2,178.0
Contributions of capital...................... 711.7 -- 711.7
Net loss...................................... -- (443.1) (443.1)
-------- --------- --------
Balance December 31, 1996..................... 3,003.4 (556.8) 2,446.6
Contributions of capital...................... 973.0 -- 973.0
Net loss...................................... -- (1,563.4) (1,563.4)
Return of capital............................. (11.7) -- (11.7)
-------- --------- --------
Balance December 31, 1997..................... 3,964.7 (2,120.2) 1,844.5
Contributions of capital...................... 517.1 -- 517.1
Net loss...................................... -- (2,358.0) (2,358.0)
Return of capital............................. (33.3) -- (33.3)
-------- --------- --------
Balance December 31, 1998..................... $4,448.5 $(4,478.2) $ (29.7)
======== ========= ========
</TABLE>

7. Commitments and Contingencies

Litigation, Claims and Assessments

Various suits arising in the ordinary course of business are pending against
Holdings. Holdings cannot predict the final outcome of these actions but
believes they will not be material to its consolidated financial statements.

Commitments

In 1998 Holdings amended a procurement and services contract with a vendor
for the engineering and construction of a PCS network. This contract provides
for an initial term of three years with renewals for additional one-year
periods. The minimum commitment for the initial term is $400 million. At year-
end 1998, $257 million had been purchased under the commitment with remaining
minimum commitment of $143 million.

In 1996 Holdings entered into a purchase and supply agreement with a vendor
for the purchase of handsets and other equipment. The total purchase commitment
must be satisfied by April 2000. Purchases under the commitment totaled $289
million in 1998 and $148 million in 1997. No purchases were made in 1996. At
year-end 1998, remaining commitments totaled $163 million.

Holdings has an agreement with a vendor to provide PCS call record and
retention services. Monthly rates per subscriber are variable based on overall
subscriber volume. If subscriber fees are less than specified annual minimum
charges, Holdings will be obligated to pay the difference between the amounts
paid for processing fees and the annual minimum. Annual minimums range from $20
million to $60 million through 2001. The agreement extends through December 31,
2001, with two automatic, two-year renewal periods, unless terminated by
Holdings. Holdings may terminate the agreement prior to the expiration date,
but would be subject to specified termination penalties.

F-69
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Holdings has a contract for consulting services. Under the terms of the
agreement, consulting services will be provided at specified hourly rates for a
minimum number of hours. Purchases under the contract totaled $38 million in
1998 and $20 million in 1997. The remaining commitment of $67 million must be
satisfied by the end of June 2000.

Operating Leases

Minimum rental commitments at year-end 1998 for all noncancelable operating
leases, consisting mainly of leases for cell and switch sites and office space,
are as follows:

<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
1999........................................................ $139.2
2000........................................................ 131.8
2001........................................................ 92.3
2002........................................................ 43.3
2003........................................................ 19.0
Thereafter.................................................. 56.7
</TABLE>

Gross rental expense totaled $192 million in 1998, $125 million in 1997 and
$25 million in 1996. The table excludes renewal options related to certain cell
and switch site leases. These renewal options are generally for five-year terms
and may be exercised from time to time.

8. Related Party Transactions

Sprint

Sprint provides management, printing/mailing and warehousing services to
Holdings. Charges to Holdings for these services totaled $25 million in 1998,
$11 million in 1997, and $12 million in 1996.

Holdings has entered into agreements with Sprint for invoicing services,
operator services, and switching equipment. Holdings is also using the long
distance division of Sprint as its interexchange carrier. Charges to Holdings
for these services totaled $125 million in 1998, $61 million in 1997 and $1
million in 1996.

Holdings makes payments for inventory and payroll for PhillieCo and
SprintCom, resulting in receivables due from the affiliates. These receivables
are reflected on the consolidated balance sheet.

APC

Holdings has an affiliation agreement with APC which provides for the
reimbursement of certain allocable costs and payment of affiliation fees. In
1997, the reimbursement of allocable costs of approximately $14 million is
included in selling, general and administrative expenses. There were no
reimbursements recognized in 1996. Additionally, affiliation fees were
recognized based on a percentage of APC's net revenues. In 1997, affiliation
fees of $4 million were included in other income.

Cox PCS

Holdings has entered into an affiliation agreement with Cox PCS which
provides for the reimbursement of certain allocable costs and payment of
affiliate fees. These costs totaled $20 million in 1997 and $7 million in 1996
and are netted against selling, general and administrative expenses in the
accompanying consolidated statements of operations. Of these total allocated
costs, approximately $2 million in 1997 and $7 million in

F-70
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1996 were included in receivables from affiliates in the consolidated balance
sheets. In addition, Holdings purchases certain equipment, such as handsets, on
behalf of Cox PCS. Receivables from affiliates for handsets and related
equipment were approximately $31 million in 1997 and $6 million in 1996.

PhillieCo

Allocable costs of approximately $21 million in 1998 and $36 million in 1997
were allocated to PhillieCo and are included as a reduction of selling, general
and administrative expenses in the accompanying consolidated statements of
operations. Additionally, affiliation fees are recognized based on a percentage
of PhillieCo's net revenues. Affiliation fees of $1 million in 1998 and $0.3
million in 1997 are included in other income in the accompanying consolidated
statements of operations. The allocated costs and affiliate fees of $3 million
in 1998 and $37 million in 1997 are included in receivable from affiliates.
There were no such costs in 1996.

SprintCom

In 1997 Holdings began building out the network infrastructure for SprintCom.
These services include engineering, management, purchasing, accounting and
other related services. Costs totaling $100 million in 1998 and $29 million in
1997 were allocated to SprintCom, and are included as a reduction of selling,
general and administrative expenses in the accompanying consolidated statements
of operations. Receivables from affiliates included $78 million at year-end
1998 and $14 million at year-end 1997.

9. Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
Quarter
------------------------------
1998 1st 2nd 3rd 4th
- ---- ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C>
Net operating revenues.......................... $197.2 256.0 311.8 410.5
Operating loss.................................. (435.3) (471.0) (506.9) (602.1)
Loss before extraordinary items................. (497.9) (543.4) (599.3) (666.3)
Net loss........................................ (497.9) (543.4) (599.3) (717.4)
<CAPTION>
Quarter
------------------------------
1997 1st 2nd 3rd 4th
- ---- ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C>
Net operating revenues.......................... $ 9.5 $ 25.4 $ 72.5 $141.2
Operating loss.................................. (190.8) (277.7) (382.7) (459.5)
Net Loss........................................ (188.9) (287.7) (420.9) (665.9)
</TABLE>

F-71
<PAGE>

SPRINT SPECTRUM HOLDING COMPANY, L.P.

SCHEDULE II--CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
Additions
----------------
Charged Charged Balance
Beginning to to Other Other End of
Balance Income Accounts Deductions Year
--------- ------- -------- ---------- -------
(in millions)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1998...................... $9.0 $76.7 $-- $(64.7)(/1/) $21.0
1997...................... 0.2 11.3 -- (2.5)(/1/) 9.0
1996...................... -- 0.2 -- -- 0.2
</TABLE>
- --------
(1) Accounts written off, net of recoveries.

F-72
<PAGE>

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

$1,250,000,000

[LOGO OF LIBERTY MEDIA CORPORATION]

Liberty Media Corporation

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

OFFER TO EXCHANGE

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

<TABLE>
<S> <C>
$750,000,000 $500,000,000
7 7/8% Senior Notes due 2009 8 1/2% Senior Debentures due 2029
for for
any and all of its any and all of its
outstanding unregistered outstanding unregistered
7 7/8% Senior Notes due 2009 8 1/2% Debentures due 2029
</TABLE>

Prospectus

The Bank of New York, as Exchange Agent
101 Barclay Street
New York, New York 10286

December 10, 1999

---------------------------------------------------------------------------
---------------------------------------------------------------------------
<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law ("DGCL") provides,
generally, that a corporation shall have the power to indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (except actions by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation against all expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. A corporation may similarly indemnify
such person for expenses actually and reasonably incurred by such person in
connection with the defense or settlement of any action or suit by or in the
right of the corporation, provided such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, in the case of claims, issues and matters as
to which such person shall have been adjudged liable to the corporation,
provided that a court shall have determined, upon application, that, despite
the adjudication of liability but in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.

Section 102(b)(7) of the DGCL provides, generally, that the certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision may not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under section 174
of Title 8 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. No such provision
may eliminate or limit the liability of a director for any act or omission
occurring prior to the date when such provision became effective.

Article V, Section E of the Restated Certificate of Incorporation, as amended
("Liberty Charter"), of Liberty Media Corporation, a Delaware corporation
("Liberty"), provides as follows:

"1. Limitation on Liability.

To the fullest extent permitted by the DGCL as the same exists or
may hereafter be amended, a director of the Corporation shall not be
liable to the Corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal or
modification of this subparagraph 1 shall be prospective only and shall
not adversely affect any limitation, right or protection of a director
of the Corporation existing at the time of such repeal or modification.

2. Indemnification.

(a) Right to Indemnification. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is
made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative
or investigative (a "proceeding") by reason of the fact that he, or a
person for whom he is the legal representative, is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation or of a partnership, limited liability company, joint
venture, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans, against

II-1
<PAGE>

all liability and loss suffered and expenses (including attorneys'
fees) reasonably incurred by such person. Such right of indemnification
shall inure whether or not the claim asserted is based on matters which
antedate the adoption of this Section E. The Corporation shall be
required to indemnify a person in connection with a proceeding (or part
thereof) initiated by such person only if the proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.

(b) Prepayment of Expenses. The Corporation shall pay the expenses
(including attorneys' fees) incurred by a director or officer in
defending any proceeding in advance of its final disposition, provided,
however, that the payment of expenses incurred by a director or officer
in advance of the final disposition of the proceeding shall be made
only upon receipt of an undertaking by the director or officer to repay
all amounts advanced if it should be ultimately determined that the
director or officer is not entitled to be indemnified under this
subparagraph 2 or otherwise.

(c) Claims. If a claim for indemnification or payment of expenses
under this subparagraph 2 is not paid in full within 60 days after a
written claim therefor has been received by the Corporation, the
claimant may file suit to recover the unpaid amount of such claim and,
if successful in whole or in part, shall be entitled to be paid the
expense of prosecuting such claim. In any such action the Corporation
shall have the burden of proving that the claimant was not entitled to
the requested indemnification or payment of expenses under applicable
law.

(d) Non-Exclusivity of Rights. The rights conferred on any person by
this subparagraph 2 shall not be exclusive of any other rights which
such person may have or hereafter acquire under any statute, provision
of this Certificate, the Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.

(e) Other Indemnification. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a
director, officer, employee or agent of another corporation,
partnership, limited liability company, joint venture, trust,
enterprise or nonprofit entity shall be reduced by any amount such
person may collect as indemnification from such other corporation,
partnership, limited liability company, joint venture, trust,
enterprise or nonprofit entity.

3. Amendment or Repeal.

Any repeal or modification of the foregoing provisions of this
Section E shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring prior to the
time of such repeal or modification."

Item 21. Exhibits and Financial Statement Schedules

(a) Exhibits. The following is a complete list of Exhibits filed as part of
this Registration Statement:

<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of Liberty, dated March 8,
1999.+
3.2 Bylaws of Liberty, as adopted March 8, 1999.+
Indenture dated as of July 7, 1999, between Liberty and The Bank of
4.1 New York.+
4.2 First Supplemental Indenture dated as of July 7, 1999, between
Liberty and The Bank of New York.+
4.3 Registration Rights Agreement dated as of July 7, 1999, between
Liberty and the Initial Purchasers.+
4.4 Form of 7 7/8% Senior Note due 2009.+
4.5 Form of 8 1/2% Senior Debenture due 2029.+
4.6 Liberty undertakes to furnish the Securities and Exchange Commission,
upon request, a copy of
all instruments with respect to long-term debt not filed herewith.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<C> <S>
5 Opinion of Baker & Botts, L.L.P. with respect to legality of
securities being registered.+
10.1 Contribution Agreement dated March 9, 1999, by and among Liberty
Media Corporation, Liberty Media Management LLC, Liberty Media Group
LLC and Liberty Ventures Group LLC.+
10.2 Inter-Group Agreement dated as of March 9, 1999, between AT&T Corp.
and Liberty Media Corporation, Liberty Media Group LLC and each
Covered Entity listed on the signature pages thereof.+
10.3 Intercompany Agreement dated as of March 9, 1999, between Liberty and
AT&T Corp.+
10.4 Tax Sharing Agreement dated as of March 9, 1999, by and among AT&T
Corp., Liberty Media Corporation, Tele-Communications, Inc., Liberty
Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the signature pages
thereof.+
10.5 First Amendment to Tax Sharing Agreement dated as of May 28, 1999, by
and among AT&T Corp., Liberty Media Corporation, Tele-Communications
Inc., Liberty Ventures Group LLC, Liberty Media Group LLC, TCI Starz,
Inc., TCI CT Holdings, Inc. and each Covered Entity listed on the
signature pages thereof.+
10.6 Restated and Amended Employment Agreement dated November 1, 1992,
between Tele-Communications, Inc. and John C. Malone (assumed by
Liberty as of March 9, 1999), and the amendment thereto dated June
30, 1999 and effective as of March 9, 1999, between Liberty and John
C. Malone.+
12 Computation of Ratio of Earnings to Fixed Charges.+
21 List of Subsidiaries of Liberty.+
23.1 Consent of KPMG LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Baker & Botts, L.L.P. (included in Exhibit 5).+
24 Powers of Attorney+
25 Statement of Eligibility of Trustee.+
99.1 Form of Letter of Transmittal with respect to Exchange Offer.+
99.2 Form of Notice of Guaranteed Delivery.+
</TABLE>
- --------
+ Previously filed.

(b) Financial Statement Schedules. Schedules not listed above have been
omitted because the information to be set forth therein is not material, not
applicable or is shown in the financial statements or notes thereto.

Item 22. Undertakings

(a) Liberty hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar

II-3
<PAGE>

value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of the prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.

(4) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.

(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective, provided, in the case of a transaction that (but for the
possibility of integration with other transactions) would itself qualify for an
exemption from registration, that (i) such transaction by itself or when
aggregated with other such transactions made since the filing of the most
recent audited financial statements of Liberty would have a material financial
effect upon Liberty and (ii) the information required to be supplied in a post-
effective amendment by this paragraph 6 is not contained in periodic reports
filed by Liberty pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Liberty pursuant to the foregoing provisions or otherwise, Liberty has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Liberty of
expenses incurred or paid by a director, officer or controlling person of
Liberty in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Liberty will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the county of Douglas, state of
Colorado, on December 10, 1999.

LIBERTY MEDIA CORPORATION

/s/ Charles Y. Tanabe
By: _________________________________

Name: Charles Y. Tanabe
Title: Senior Vice President and
General Counsel

II-5
<PAGE>

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons (which persons
constitute a majority of the Board of Directors) in the capacities and on the
dates indicated:

<TABLE>
<S> <C> <C>
Signature Title Date
--------- ----- ----
</TABLE>

* Chairman of the Board and
- ---------------------------------- Director
John C. Malone

President, Chief Executive
- ---------------------------------- Officer and Director (Principal
Robert R. Bennett Executive Officer)

* Executive Vice President, Chief
Operating Officer and Director

- ----------------------------------
Gary S. Howard

* Director
- ----------------------------------
Paul A. Gould

* Director
- ----------------------------------
Jerome H. Kern

Director
- ----------------------------------
John C. Petrillo

* Director
- ----------------------------------
Larry E. Romrell

Director
- ----------------------------------
Daniel E. Somers

* Vice President and Controller
- ---------------------------------- (Principal Financial Officer
Kathryn S. Douglass and Principal Accounting
Officer)

* By: /s/ Robert W. Murray Jr. December 10,
- ---------------------------------- 1999
Attorney-in-Fact

II-6
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of Liberty, dated March 8, 1999.+
3.2 Bylaws of Liberty, as adopted March 8, 1999.+
Indenture dated as of July 7, 1999, between Liberty and The Bank of New
4.1 York.+
First Supplemental Indenture dated as of July 7, 1999, between Liberty
4.2 and The Bank of New York.+
Registration Rights Agreement dated as of July 7, 1999, between Liberty
4.3 and the Initial Purchasers.+
4.4 Form of 7 7/8% Senior Note due 2009.+
4.5 Form of 8 1/2% Senior Debenture due 2029.+
4.6 Liberty undertakes to furnish the Securities and Exchange Commission,
upon request, a copy of all instruments with respect to long-term debt
not filed herewith.
Opinion of Baker & Botts, L.L.P. with respect to legality of securities
5 being registered.+
10.1 Contribution Agreement dated March 9, 1999, by and among Liberty Media
Corporation, Liberty Media Management LLC, Liberty Media Group LLC and
Liberty Ventures Group LLC.+
10.2 Inter-Group Agreement dated as of March 9, 1999, between AT&T Corp. and
Liberty Media Corporation, Liberty Media Group LLC and each Covered
Entity listed on the signature pages thereof.+
10.3 Intercompany Agreement dated as of March 9, 1999, between Liberty and
AT&T Corp.+
10.4 Tax Sharing Agreement dated as of March 9, 1999, by and among AT&T Corp.,
Liberty Media Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings,
Inc. and each Covered Entity listed on the signature pages thereof.+
10.5 First Amendment to Tax Sharing Agreement dated as of May 28, 1999, by and
among AT&T Corp., Liberty Media Corporation, Tele-Communications, Inc.,
Liberty Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI
CT Holdings, Inc. and each Covered Entity listed on the signature pages
thereof.+
10.6 Restated and Amended Employment Agreement dated November 1, 1992, between
Tele-Communications, Inc. and John C. Malone (assumed by Liberty as of
March 9, 1999), and the amendment thereto dated June 30, 1999 and
effective as of March 9, 1999, between Liberty and John C. Malone.+
12 Computation of Ratio of Earnings to Fixed Charges.+
21 List of Subsidiaries of Liberty.+
23.1 Consent of KPMG LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Baker & Botts, L.L.P. (included in Exhibit 5).+
24 Powers of Attorney.+
25 Statement of Eligibility of Trustee.+
99.1 Form of Letter of Transmittal with respect to Exchange Offer.+
99.2 Form of Notice of Guaranteed Delivery.+
</TABLE>
- --------
+ Previously filed.

<PAGE>

EXHIBIT 23.1
------------

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Liberty Media Corporation:

We consent to the use, in this Amendment to the Registration Statement on Form
S-4 (No. 333-86491), of our report dated March 9, 1999, relating to the
consolidated balance sheets of Liberty Media Corporation and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations and comprehensive earnings, stockholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 1998 included
herein and to the reference to our firm under the heading "Experts" in the
registration statement.

KPMG LLP

Denver, Colorado
December 7, 1999

<PAGE>

EXHIBIT 23.2
------------
INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment to Registration Statement, No. 333-86491
of Liberty Media Corporation on Form S-4 of our report dated February 2, 1999,
on the consolidated financial statements of Sprint Spectrum Holding Company,
L.P. and subsidiaries and the related financial statement schedule, for the year
ended December 31, 1998, appearing in the Prospectus, which is part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.

DELOITTE & TOUCHE LLP
Kansas City, Missouri
December 6, 1999