<PAGE>

<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-Q

[ X ]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT of 1934 for the quarterly period ended June 30, 1998, or

[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT of 1934 for the transition period from __________________
          to __________________.

Commission file number 001-12878


                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
             (Exact name of registrant as specified in its charter)

           Delaware                                            13-3666692
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                            Identification Number)


AMERICAN TELEVISION AND           Delaware                            13-2922502
COMMUNICATIONS CORPORATION        Delaware                            13-2696809
WARNER COMMUNICATIONS INC.     (State or other jurisdiction     (I.R.S. Employer
(Exact name of registrant      of incorporation or              Identification
as specified in its charter)   organization)                    Number)

                              75 Rockefeller Plaza
                            New York, New York 10019
                                 (212) 484-8000

    (Address, including zip code, and telephone number, including area code,
                of each registrant's principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes [ X ]    No [   ]



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                     TIME WARNER ENTERTAINMENT COMPANY L.P.
                            AND TWE GENERAL PARTNERS


                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                     PAGE
                                                               -----------------
                                                                          TWE
                                                                        GENERAL
                                                               TWE      PARTNERS
                                                               ---      --------
<S>                                                            <C>        <C>
PART I. FINANCIAL INFORMATION

Management's discussion and analysis of results of operations
  and financial condition....................................   1          22

Consolidated balance sheets at June 30, 1998 and December
  31, 1997...................................................  11          27
Consolidated statements of operations for the three and six
  months ended June 30, 1998 and 1997........................  12          28
Consolidated statements of cash flows for the six months
  ended June 30, 1998 and 1997...............................  13          30
Consolidated statements of partnership capital and 
  shareholders' equity for the six months ended June 30,
  1998 and 1997..............................................  14          31
Notes to consolidated financial statements...................  15          32


PART II. OTHER INFORMATION...................................  38
</TABLE>



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                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

       TWE classifies its business interests into three fundamental areas:
Entertainment, consisting principally of interests in filmed entertainment,
television production and television broadcasting; Cable Networks, consisting
principally of interests in cable television programming; and Cable, consisting
principally of interests in cable television systems. TWE also manages the cable
properties owned by Time Warner and the combined cable television operations are
conducted under the name of Time Warner Cable. Capitalized terms are as defined
and described in the accompanying consolidated financial statements, or
elsewhere herein.


USE OF EBITA

         TWE evaluates operating performance based on several factors, of which
the primary financial measure is operating income before noncash amortization of
intangible assets ("EBITA"). Consistent with management's financial focus on
controlling capital spending, EBITA measures operating performance after charges
for depreciation. In addition, EBITA eliminates the uneven effect across all
business segments of considerable amounts of noncash amortization of intangible
assets recognized in business combinations accounted for by the purchase method,
including Time Warner's $14 billion acquisition of Warner Communications Inc. in
1989 and $1.3 billion acquisition of the minority interest in American
Television and Communications Corporation in 1992. The exclusion of noncash
amortization charges is also consistent with management's belief that TWE's
intangible assets, such as cable television franchises, film and television
libraries and the goodwill associated with its brands, are generally increasing
in value and importance to TWE's business objective of creating, extending and
distributing recognizable brands and copyrights throughout the world. As such,
the following comparative discussion of the results of operations of TWE
includes, among other factors, an analysis of changes in business segment EBITA.
However, EBITA should be considered in addition to, not as a substitute for,
operating income, net income and other measures of financial performance
reported in accordance with generally accepted accounting principles.


RESULTS OF OPERATIONS

         As more fully described herein, TWE's 1998 operating results have been
affected by certain cable-related transactions, including (i) the transfer of
cable television systems (or interests therein) serving approximately 650,000
subscribers that were formerly owned by subsidiaries of Time Warner to the
TWE-Advance/Newhouse Partnership ("TWE-A/N"), subject to approximately $1
billion of debt, in exchange for common and preferred partnership interests
therein, as well as certain related transactions (collectively, the "TWE-A/N
Transfers"), (ii) the transfer of TWE's and TWE-A/N's direct broadcast satellite
operations and related assets to Primestar, Inc., a separate holding company
(the "Primestar Roll-up Transaction") and (iii) the sale or exchange of certain
cable television systems. The effects of these transactions are described
elsewhere herein.


                                        1



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                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)


         EBITA and operating income for TWE for the three and six months ended
June 30, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED JUNE 30,           SIX MONTHS ENDED JUNE 30,
                                    -------------------------------     ---------------------------------
                                                        OPERATING                             OPERATING
                                        EBITA            INCOME              EBITA             INCOME
                                    -------------     -------------     ---------------     -------------
                                    1998     1997     1998     1997      1998      1997     1998     1997
                                    ----     ----     ----     ----     ------     ----     ----     ----
                                                                  (MILLIONS)
<S> ............................     <C>      <C>      <C>      <C>      <C>        <C>      <C>      <C>
Filmed Entertainment-Warner Bros    $121     $103     $ 88     $ 73     $  240     $209     $174     $148
Broadcasting-The WB Network ....     (23)     (19)     (24)     (19)       (61)     (39)     (63)     (39)
Cable Networks-HBO .............     113       98      113       98        222      189      222      189
Cable(a) .......................     374      243      278      168        681      502      491      351
                                    ----     ----     ----     ----     ------     ----     ----     ----
Total ..........................    $585     $425     $455     $320     $1,082     $861     $824     $649
                                   =====     ====     ====     ====     ======     ====     ====     ====
</TABLE>

---------------
(a)  Includes net pretax gains relating to the sale or exchange of certain cable
     television systems of approximately $70 million in the second quarter of
     1998, and approximately $84 million and $24 million for the six months
     ended June 30, 1998 and 1997, respectively.


THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED 
JUNE 30, 1997

         TWE had revenues of $2.850 billion and net income of $155 million for
the three months ended June 30, 1998, compared to revenues of $2.728 billion and
net income of $82 million for the three months ended June 30, 1997. As discussed
more fully below, TWE's net income increased in 1998 as compared to 1997
principally due to an overall increase in operating income generated by its
business segments (including the positive effect of the TWE-A/N Transfers and
$70 million of net gains recognized by TWE in 1998 relating to the sale or
exchange of certain cable television systems), offset in part by an increase in
interest expense and minority interest expense related to the TWE-A/N Transfers.

         As a U.S. partnership, TWE is not subject to U.S. federal and state
income taxation. Income and withholding taxes of $17 million and $25 million for
the three months ended June 30, 1998 and 1997, respectively, have been provided
for the operations of TWE's domestic and foreign subsidiary corporations.

         Filmed Entertainment-Warner Bros. Revenues increased to $1.327 billion,
compared to $1.254 billion in the second quarter of 1997. EBITA increased to
$121 million from $103 million. Operating income increased to $88 million from
$73 million. Revenues benefited from increases in worldwide television
production and distribution, home video and consumer products licensing
operations, offset in part by lower worldwide theatrical revenues. EBITA and
operating income benefited principally from the revenue gains, as well as a gain
on the sale of certain assets.

         Broadcasting - The WB Network. Revenues increased to $61 million,
compared to $29 million in the second quarter of 1997. EBITA decreased to a loss
of $23 million from a loss of $19 million. Operating losses increased to $24
million from $19 million. Revenues increased as a result of improved television
ratings and the addition of a fourth night of prime-time programming in January
1998, but were offset by higher programming costs associated with the expanded
programming schedule. Operating losses increased primarily as a result of a
lower allocation of losses to a limited partner in the network. In October 1998,
The WB Network plans to


                                        2



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                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)


expand its prime-time programming schedule to five nights a week. Due to the
start-up nature of this national broadcast operation, losses are expected to
continue.

         Cable Networks-HBO. Revenues increased to $509 million, compared to
$487 million in the second quarter of 1997. EBITA and operating income increased
to $113 million from $98 million. Revenues benefited primarily from an increase
in subscriptions. EBITA and operating income increased principally as a result
of the revenue gains, and, to a lesser extent, cost savings.

         Cable. Revenues increased to $1.084 billion, compared to $1.066 billion
in the second quarter of 1997. EBITA increased to $374 million from $243
million. Operating income increased to $278 million from $168 million. The Cable
division's 1998 operating results were affected by the TWE-A/N Transfers and the
deconsolidation of its direct broadcast satellite operations in connection with
the Primestar Roll-up Transaction. Excluding the effect of the TWE-A/N Transfers
and Primestar Roll-up Transaction, revenues benefited from an increase in basic
cable subscribers, increases in regulated cable rates as permitted under Time
Warner Cable's "social contract" with the Federal Communications Commission
("FCC") and an increase in advertising revenues. Similarly excluding the effect
of the TWE-A/N Transfers and Primestar Roll-up Transaction, EBITA and operating
income increased principally as a result of the revenue gains and higher net
gains relating to the sale or exchange of certain cable television systems,
offset in part by higher depreciation related to capital spending.

         Interest and Other, Net. Interest and other, net, was $183 million in
the second quarter of 1998, compared to $139 million in the second quarter of
1997. Interest expense increased to $132 million, compared to $120 million in
the second quarter of 1997, principally due to higher average debt levels
associated with the TWE-A/N Transfers. There was other expense, net, of $51
million in the second quarter of 1998, compared to $19 million in the second
quarter of 1997, principally due to higher losses from certain investments
accounted for under the equity method of accounting.


SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997

         TWE had revenues of $5.760 billion and net income of $263 million for
the six months ended June 30, 1998, compared to revenues of $5.328 billion and
net income of $402 million for the six months ended June 30, 1997. As discussed
more fully below, TWE's net income decreased in 1998 as compared to 1997
principally due to lower, net pretax gains recognized in connection with the
sale or exchange of certain cable television systems in each year and the 1997
sale of TWE's interest in E! Entertainment Television, Inc. ("E!
Entertainment"). Excluding the effect of these transactions, TWE's net income
increased in 1998 principally as a result of an overall increase in operating
income generated by its business segments (including the positive effect of the
TWE-A/N Transfers), offset in part by an increase in interest expense and
minority interest expense related to the TWE-A/N Transfers.

         As a U.S. partnership, TWE is not subject to U.S. federal and state
income taxation. Income and withholding taxes of $32 million and $37 million for
the six months ended June 30, 1998 and 1997, respectively, have been provided
for the operations of TWE's domestic and foreign subsidiary corporations.


                                        3



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                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)


         Filmed Entertainment-Warner Bros. Revenues increased to $2.637 billion,
compared to $2.426 billion in the first six months of 1997. EBITA increased to
$240 million from $209 million. Operating income increased to $174 million from
$148 million. Revenues benefited from increases in worldwide television
production and distribution and consumer products licensing operations, offset
in part by lower worldwide theatrical and home video revenues. EBITA and
operating income benefited principally from the revenue gains.

         Broadcasting - The WB Network. Revenues increased to $106 million,
compared to $53 million in the first six months of 1997. EBITA decreased to a
loss of $61 million from a loss of $39 million. Operating losses increased to
$63 million from $39 million. Revenues increased as a result of improved
television ratings and the addition of a fourth night of prime-time programming
in January 1998, but were offset by higher programming costs associated with the
expanded programming schedule. Operating losses increased principally as a
result of a lower allocation of losses to a limited partner in the network. In
October 1998, The WB Network plans to expand its prime-time programming schedule
to five nights a week. Due to the start-up nature of this national broadcast
operation, losses are expected to continue.

         Cable Networks-HBO. Revenues increased to $1.021 billion, compared to
$970 million in the first six months of 1997. EBITA and operating income
increased to $222 million from $189 million. Revenues benefited primarily from
an increase in subscriptions. EBITA and operating income increased principally
as a result of the revenue gains, and, to a lesser extent, cost savings.

         Cable. Revenues increased to $2.237 billion, compared to $2.086 billion
in the first six months of 1997. EBITA increased to $681 million from $502
million. Operating income increased to $491 million from $351 million. The Cable
division's 1998 operating results were affected by the TWE-A/N Transfers and the
deconsolidation of its direct broadcast satellite operations in connection with
the Primestar Roll-up Transaction. Excluding the effect of the TWE-/AN Transfers
and Primestar Roll-up Transaction, revenues benefited from an increase in basic
cable subscribers, increases in regulated cable rates as permitted under Time
Warner Cable's "social contract" with the FCC and an increase in advertising
revenues. Similarly excluding the effect of the TWE-A/N Transfers and the
Primestar Roll-up Transaction, EBITA and operating income increased principally
as a result of the revenue gains and higher net gains relating to the sale or
exchange of certain cable television systems, offset in part by higher
depreciation related to capital spending.

         Interest and Other, Net. Interest and other, net, was $347 million in
the first six months of 1998, compared to $10 million in the first six months
of 1997. Interest expense increased to $273 million, compared to $235 million in
1997, principally due to higher average debt levels associated with the TWE-A/N
Transfers. There was other expense, net, of $74 million in the first six months
of 1998, compared to other income, net, of $225 million in the first six months
of 1997, principally due to the absence of an approximate $250 million pretax
gain on the sale of an interest in E! Entertainment recognized in 1997 and
higher losses from certain investments accounted for under the equity method of
accounting.


                                        4



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                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(CONTINUED)


FINANCIAL CONDITION AND LIQUIDITY

JUNE 30, 1998


FINANCIAL CONDITION

          TWE had $6.8 billion of debt, $72 million of cash and equivalents (net
debt of $6.7 billion), $225 million of preferred stock of a subsidiary, $1.2
billion of Time Warner General Partners' Senior Capital and $6.0 billion of
partners' capital at June 30, 1998, compared to $6.0 billion of debt, $322
million of cash and equivalents (net debt of $5.7 billion), $233 million of
preferred stock of a subsidiary, $1.1 billion of Time Warner General Partners'
Senior Capital and $6.3 billion of partners' capital at December 31, 1997. Net
debt increased principally as a result of the TWE-A/N Transfers.


DEBT TRANSACTIONS

         In July 1998, TWE borrowed $579 million under its bank credit agreement
and paid a distribution to the Time Warner General Partners relating to their
Senior Capital interests.

         In April 1998, TWE consummated two previously announced transactions,
consisting of the sale of TWE's 49% interest in Six Flags Entertainment
Corporation and the Primestar Roll-up Transaction. As a result of these
transactions, TWE reduced debt by approximately $540 million.

         In early 1998, TWE-A/N assumed approximately $1 billion of debt from
TWI Cable Inc. ("TWI Cable"), a wholly owned subsidiary of Time Warner, in
connection with the TWE-A/N Transfers. The debt assumed by TWE-A/N has been
guaranteed by TWI Cable and certain of its subsidiaries.


CASH FLOWS

         During the first six months of 1998, TWE's cash provided by operations
amounted to $586 million and reflected $1.082 billion of EBITA from its Filmed
Entertainment-Warner Bros., Broadcasting-The WB Network, Cable Networks-HBO and
Cable businesses, $469 million of noncash depreciation expense and $135 million
of proceeds from TWE's asset securitization program, less $260 million of
interest payments, $39 million of income taxes, $36 million of corporate
expenses, and $765 million related to an aggregate increase in working capital
requirements, other balance sheet accounts and noncash items. Cash provided by
operations of $416 million in the first six months of 1997 reflected $861
million of business segment EBITA and $440 million of noncash depreciation
expense, less $243 million of interest payments, $35 million of income taxes,
$36 million of corporate expenses and $571 million related to an aggregate
reduction in working capital requirements, other balance sheet accounts and
noncash items.

         Cash used by investing activities was $493 million in the first six
months of 1998, compared to $425 million in the first six months of 1997,
principally as a result of the effect of deconsolidating approximately $200
million of cash of Paragon Communications in connection with the TWE-A/N
Transfers that has been included as a reduction of cash flows from investments
and acquisitions, offset in part by a $135 million increase


                                        5



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<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(CONTINUED)


in proceeds from the sale of investments. Capital expenditures were $734 million
in the first six months of 1998 and 1997.

         Cash used by financing activities was $343 million in the first six
months of 1998, compared to cash provided by financing activities of $86 million
in the first six months of 1997, principally as a result of the absence of $243
million of aggregate net proceeds from the issuance of preferred stock of a
subsidiary in the first quarter of 1997 and a $95 million increase in
distributions paid to Time Warner, offset in part by an increase in debt used to
fund cash distributions to Time Warner.

         Management believes that TWE's operating cash flow, cash and
equivalents and additional borrowing capacity are sufficient to fund its capital
and liquidity needs for the foreseeable future.


CABLE CAPITAL SPENDING

         Time Warner Cable has been engaged in a plan to upgrade the
technological capability and reliability of its cable television systems and
develop new services, which it believes will position the business for
sustained, long-term growth. Capital spending by TWE's Cable division amounted
to $666 million in the six months ended June 30, 1998, compared to $662 million
the six months ended June 30, 1997. For the full year of 1998, cable capital
spending is expected to be comparable to 1997 levels, with approximately $700
million budgeted for the remainder of 1998. Capital spending by TWE's Cable
division is expected to continue to be funded by cable operating cash flow. In
exchange for certain flexibility in establishing cable rate pricing structures
for regulated services that went into effect on January 1, 1996 and consistent
with Time Warner Cable's long-term strategic plan, Time Warner Cable agreed with
the FCC to invest a total of $4 billion in capital costs in connection with the
upgrade of its cable infrastructure, which is expected to be substantially
completed over a five-year period ending December 31, 2000. The agreement with
the FCC covers all of the cable operations of Time Warner Cable, including the
owned or managed cable television systems of TWE, TWE-A/N and Time Warner.
Management expects to continue to finance such level of investment through
cable operating cash flow and the development of new revenue streams from
expanded programming options, high-speed Internet access and other services.


CABLE FINANCING STRATEGY

         Time Warner's and TWE's cable financing strategy is to continue to use
cable operating cash flow to finance the level of capital spending necessary to
upgrade the technological capability of its cable television systems and develop
new services, while pursuing opportunities to reduce either existing debt and/or
their share of future funding requirements related to the cable television
business and related ancillary businesses. Consistent with this strategy, Time
Warner, TWE and TWE-A/N have completed a series of transactions in 1998, as
discussed more fully below.

Business Telephony Reorganization

         In July 1998, Time Warner, TWE and TWE-A/N completed a reorganization
of their business telephony operations (the "Business Telephony Reorganization")
by combining such operations into a single entity that is


                                        6



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                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(CONTINUED)

intended to be self-financing. This entity, named Time Warner Telecom LLC ("TW
Telecom"), is a competitive local exchange carrier (CLEC) in selected
metropolitan areas across the United States where it offers a wide range of
telephony services to business customers. Time Warner, MediaOne Group, Inc.
("MediaOne," formerly U S WEST, Inc.) and the Advance/Newhouse Partnership
("Advance/Newhouse"), a limited partner in TWE-A/N, own interests in TW Telecom
of 61.95%, 18.88% and 19.17%, respectively. As a result of the Business
Telephony Reorganization, TWE and TWE-A/N do not have continuing equity
interests in these business telephony operations.

Road Runner Joint Venture

         In June 1998, Time Warner, TWE, TWE-A/N, MediaOne, Microsoft Corp.
("Microsoft") and Compaq Computer Corp. ("Compaq") formed a joint venture to
operate and expand Time Warner Cable's and MediaOne's existing high-speed
Internet access businesses (the "Road Runner'TM' Joint Venture"). In exchange
for contributing their existing high-speed Internet access businesses, Time
Warner received an 11.25% common equity interest in the Road Runner Joint
Venture, TWE received a 25% interest, TWE-A/N received a 32.5% interest and
MediaOne received a 31.25% interest. In exchange for Microsoft and Compaq each
contributing $212.5 million of cash to the Road Runner Joint Venture, Microsoft
and Compaq each received a preferred equity interest therein that is convertible
into a 10% common equity interest which, upon conversion, will dilute each of
the common equity holders' interests accordingly. Each of TWE's and TWE-A/N's
interest in the Road Runner Joint Venture is being accounted for under the
equity method of accounting.

         The aggregate $425 million of capital contributed by Microsoft and
Compaq is expected to be used by the Road Runner Joint Venture to continue to
expand the roll out of high-speed Internet access services. In addition, as a
result of Time Warner Cable being a retailer of the Road Runner business in its
franchise areas whereby Time Warner Cable's technologically advanced,
high-capacity cable architecture will be used to provide these high-speed
Internet access services, Time Warner Cable will initially retain 70% of the
subscription revenues and 30% of the national advertising and transactional
revenues generated from the delivery of these on-line services to its cable
subscribers. Time Warner Cable's share of these revenues is expected to change
periodically to 75% of subscription revenues and 25% of national advertising and
transactional revenues by 2006.

Primestar Roll-up Transaction

         In April 1998, TWE and Advance/Newhouse transferred the direct
broadcast satellite operations conducted by TWE and TWE-A/N (the "DBS
Operations") and the 31% partnership interest in Primestar Partners, L.P. held
by TWE-A/N ("Primestar" and collectively, the "Primestar Assets") to Primestar,
Inc. ("New Primestar"), a separate holding company. New Primestar owns the DBS
Operations and Primestar partnership interests formerly owned by TCI Satellite
Entertainment, Inc. and other previously existing partners of Primestar. In
exchange for contributing its interests in the Primestar Assets, TWE received an
approximate 24% equity interest in New Primestar and realized approximately $240
million of debt reduction. TWE deconsolidated the DBS Operations effective as of
April 1, 1998 and the equity interest in New Primestar received in this
transaction is being accounted for under the equity method of accounting.


                                        7



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                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(CONTINUED)


TWE-A/N Transfers

         In early 1998, Time Warner (through a wholly owned subsidiary)
contributed cable television systems (or interests therein) serving
approximately 650,000 subscribers to TWE-A/N, subject to approximately $1
billion of debt, in exchange for common and preferred partnership interests
therein, and completed certain related transactions. The debt assumed by
TWE-A/N has been guaranteed by TWI Cable and certain of its subsidiaries.
TWE-A/N is now owned 65.3% by TWE, 33.3% by Advance/Newhouse and 1.4% indirectly
by Time Warner.


WARNER BROS. BACKLOG

         Warner Bros.' backlog, representing the amount of future revenue not
yet recorded from cash contracts for the licensing of theatrical and television
product for pay cable, basic cable, network and syndicated television
exhibition, amounted to $2.225 billion at June 30, 1998, compared to $2.126
billion at December 31, 1997 (including amounts relating to TWE's cable
television networks of $222 million and $238 million, respectively, and to Time
Warner's cable television networks of $568 million and $481 million,
respectively).

         Because backlog generally relates to contracts for the licensing of
theatrical and television product which have already been produced, the
recognition of revenue for such completed product is principally only dependent
upon the commencement of the availability period for telecast under the terms of
the related licensing agreement. Cash licensing fees are collected periodically
over the term of the related licensing agreements or on an accelerated basis
using a $600 million securitization facility. The portion of backlog for which
cash has not already been received has significant off-balance sheet asset value
as a source of future funding. The backlog excludes advertising barter
contracts, which are also expected to result in the future realization of
revenues and cash through the sale of advertising spots received under such
contracts.


YEAR 2000 TECHNOLOGY PREPAREDNESS

         TWE, like most large companies, depends on many different computer
systems and other chip-based devices for the continuing conduct of its business.
Older computer programs, computer hardware and chip-based devices may fail to
recognize dates beginning on January 1, 2000 as being valid dates, and as a
result may fail to operate or may operate improperly when such dates are
introduced.

         TWE's exposure to potential Year 2000 problems exists in two general
areas: technological operations in the sole control of TWE, and technological
operations dependent in some way on one or more third parties. The majority of
TWE's exposure to potential Year 2000 problems is in the latter area. Failure to
achieve high levels of Year 2000 compliance in either area could have a material
adverse impact on TWE.

         In the former area, technological operations in the sole control of
TWE, TWE is engaged in a thorough process involving the identification and
remediation of affected technological functions. TWE has generally completed the
process of identifying significant potential Year 2000 difficulties and has an
action plan in place to address them. At present, it is anticipated that the
action plan will be successfully completed in all material respects in advance
of January 1, 2000, and that its cost to TWE will not be material.


                                        8



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                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(CONTINUED)

         In the latter area, technological operations dependent in some way on
one or more third parties, the situation is much less in TWE's ability to
predict or control, although TWE has in place an extensive system to test for
and attempt to resolve potential Year 2000 difficulties. TWE's business is
heavily dependent on third parties, many of whom are themselves heavily
dependent on technology. In some cases, TWE's third party dependence is on
vendors of technology who are themselves working towards solutions to Year 2000
problems. For example, in a situation endemic to the cable industry, much of
TWE's headend equipment that controls cable set-top boxes is presently not Year
2000 compliant. The box manufacturers are working with cable industry groups
towards a solution that is presently expected to be implemented successfully
before the end of 1999; however, that process is not within TWE's control. In
other cases, TWE's third party dependence is on suppliers of products or
services that are themselves computer-intensive. For example, if a television
broadcaster or cable programmer encounters Year 2000 problems that result in the
interruption of its signal, TWE will be unable to provide that signal to its
cable customers. Moreover, TWE is dependent, like all large companies, on the
continued functioning of basic, heavily computerized services such as banking
and telephony. TWE is making considerable efforts to ensure that the third
parties on which it is heavily reliant are Year 2000 compliant, but cannot
predict the likelihood of such compliance occurring nor the direct or indirect
costs to TWE of non-compliance by those third parties or of securing such
services from compliant third parties. However, TWE believes that it is in no
worse position, and likely a better one, than most U.S.-based companies of its
size with respect to the potential for Year 2000 problems and their impact.


CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

         The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This filing, together
with management's public commentary related thereto, contains such
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, particularly statements anticipating future
growth in revenues, EBITA and cash flow and forecasting ongoing debt reduction.
Words such as "anticipate", "estimate", "expects", "projects", "intends",
"plans", "believes" and words and terms of similar substance used in connection
with any discussion of future operating or financial performance identify such
forward-looking statements. Those forward-looking statements are management's
present expectations of future events. As with any projection or forecast, they
are inherently susceptible to changes in circumstances, and TWE is under no
obligation to (and expressly disclaims any such obligation to) update or alter
its forward-looking statements despite such changes.

         TWE operates in highly competitive, consumer driven and rapidly
changing media and entertainment businesses that are dependent on government
regulation and economic, political, social conditions in the countries in which
they operate, consumer demand for their products and services and (particularly
in view of technological changes) protection of their intellectual property
rights. TWE's actual results could differ materially from management's
expectations because of changes in such factors. Some of the other factors that
also could cause actual results to differ from those contained in the
forward-looking statements include those identified in TWE's other filings and:

     For TWE's cable business, more aggressive than expected competition from
     new technologies and other types of video programming distributors,
     including DBS; increases in government regulation of cable or


                                        9



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(CONTINUED)


     equipment rates or other terms of service (or any failure to reduce rate
     regulation as is presently mandated by statute) or opposition to franchise
     renewals; the failure of new equipment (such as digital set-top boxes) or
     services to function properly, to appeal to enough consumers or to be
     delivered in a timely fashion; and greater than expected increases in
     programming or other costs.

     For TWE's cable programming and television businesses, greater than
     expected programming or production costs; public and cable operator
     resistance to price increases to offset higher programming costs (and the
     negative impact on premium programmers of increases in basic cable rates);
     the sensitivity of advertising to economic cyclicality; and greater than
     expected fragmentation of consumer viewership due to an increased number of
     programming services or the increased popularity of alternatives to
     television.

     For TWE's film and television businesses, their ability to continue to
     attract and select desirable talent and scripts at manageable costs;
     increases in production costs generally; fragmentation of consumer leisure
     and entertainment time (and its possible negative effects on the broadcast
     and cable networks, which are significant customers of these businesses);
     continued popularity of merchandising; and the uncertain impact of
     technological developments such as DVD and the Internet.

         In addition, TWE's overall financial strategy, including improved
financial ratios and a strengthened balance sheet, could be adversely affected
by increased interest rates, failure to meet earnings expectations, Year 2000
compliance failures and changes in TWE's plans, strategies and intentions.


                                       10



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                              JUNE 30,  DECEMBER 31,
                                                                                                1998        1997
                                                                                              -------   ----------- 
                                                                                                    (MILLIONS)
<S>                                                                                             <C>         <C>
ASSETS
CURRENT ASSETS
Cash and equivalents........................................................................  $    72     $   322
Receivables, including $556 and $385 million due from Time Warner,
    less allowances of $410 and $424 million................................................    2,199       1,914
Inventories.................................................................................    1,226       1,204
Prepaid expenses............................................................................      183         182
                                                                                              -------     -------

Total current assets........................................................................    3,680       3,622

Noncurrent inventories......................................................................    2,364       2,254
Loan receivable from Time Warner............................................................      400         400
Investments.................................................................................      543         315
Property, plant and equipment...............................................................    6,360       6,557
Cable television franchises.................................................................    4,061       3,063
Goodwill....................................................................................    4,114       3,859
Other assets................................................................................      631         661
                                                                                              -------     -------

Total assets................................................................................  $22,153     $20,731
                                                                                              =======     =======


LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES
Accounts payable............................................................................ $    864     $ 1,123
Participations and programming costs payable................................................    1,340       1,176
Debt due within one year....................................................................        7           8
Other current liabilities, including $274 and $184 million due to Time Warner...............    1,653       1,667
                                                                                              -------     -------

Total current liabilities...................................................................    3,864       3,974

Long-term debt..............................................................................    6,771       5,990
Other long-term liabilities, including $740 and $477 million due to Time Warner.............    2,670       1,873
Minority interests..........................................................................    1,477       1,210
Preferred stock of subsidiary holding solely a mortgage note of its parent..................      225         233
Time Warner General Partners' Senior Capital................................................    1,163       1,118

PARTNERS' CAPITAL
Contributed capital.........................................................................    7,537       7,537
Undistributed partnership earnings (deficit)................................................   (1,554)     (1,204)
                                                                                              -------     -------

Total partners' capital.....................................................................    5,983       6,333
                                                                                              -------     -------

Total liabilities and partners' capital.....................................................  $22,153     $20,731
                                                                                              =======     =======
</TABLE>


See accompanying notes.


                                       11



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                          THREE MONTHS                SIX MONTHS
                                                                         ENDED JUNE 30,            ENDED JUNE 30,
                                                                      -------------------       -------------------
                                                                       1998         1997         1998         1997
                                                                      ------       ------       ------       ------
                                                                                       (MILLIONS)
<S>                                                                    <C>          <C>          <C>          <C>
Revenues (a).......................................................   $2,850       $2,728       $5,760       $5,328
                                                                      ------       ------       ------       ------

Cost of revenues (a)(b)............................................    1,806        1,782        3,752        3,447
Selling, general and administrative (a)(b).........................      589          626        1,184        1,232
                                                                      ------       ------       ------       ------

Operating expenses.................................................    2,395        2,408        4,936        4,679
                                                                      ------       ------       ------       ------

Business segment operating income..................................      455          320          824          649
Interest and other, net (a)........................................     (183)        (139)        (347)         (10)
Minority interest..................................................      (82)         (56)        (146)        (164)
Corporate services (a).............................................      (18)         (18)         (36)         (36)
                                                                      ------       ------       ------        -----

Income before income taxes.........................................      172          107          295          439
Income taxes.......................................................      (17)         (25)         (32)         (37)
                                                                      ------       ------       ------        -----

Net income.........................................................   $  155       $   82       $  263       $  402
                                                                      ======       ======       ======       ======
</TABLE>

---------------
(a)  Includes the following income (expenses) resulting from transactions with
     the partners of TWE and other related companies for the three and six
     months ended June 30, 1998, respectively, and for the corresponding periods
     in the prior year: revenues-$118 million and $247 million in 1998, $55
     million and $121 million in 1997; cost of revenues-$(55) million and $(93)
     million in 1998, $(26) million and $(36) million in 1997; selling, general
     and administrative-$(3) million and $(2) million in 1998, $21 million and
     $40 million in 1997; interest and other, net-$3 million and $5 million in
     1998, $5 million and $17 million in 1997; and corporate services-$(18)
     million and $(36) million in each of 1998 and 1997.

<TABLE>
<S>                                                                    <C>          <C>          <C>          <C>
(b) Includes depreciation and amortization expense of:.............    $  356       $  328       $  727       $  652
                                                                       ======       ======       ======       ======
</TABLE>


See accompanying notes.


                                       12



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                    SIX MONTHS
                                                                                                  ENDED JUNE 30,
                                                                                                ------------------
                                                                                                1998         1997
                                                                                                -----        -----
                                                                                                    (MILLIONS)
<S>                                                                                              <C>          <C>
OPERATIONS
Net income..................................................................................    $ 263        $ 402
Adjustments for noncash and nonoperating items:
Depreciation and amortization...............................................................      727          652
Changes in operating assets and liabilities.................................................     (404)        (638)
                                                                                                -----        -----

Cash provided by operations.................................................................      586          416
                                                                                                -----        -----

INVESTING ACTIVITIES
Investments and acquisitions................................................................     (265)         (62)
Capital expenditures........................................................................     (734)        (734)
Investment proceeds.........................................................................      506          371
                                                                                                -----        -----

Cash used by investing activities...........................................................     (493)        (425)
                                                                                                -----        -----

FINANCING ACTIVITIES
Borrowings..................................................................................      503          428
Debt repayments.............................................................................     (492)        (323)
Issuance of preferred stock of subsidiary...................................................       -           243
Capital distributions.......................................................................     (298)        (203)
Other.......................................................................................      (56)         (59)
                                                                                                -----        -----

Cash provided (used) by financing activities................................................     (343)          86
                                                                                                -----        -----

INCREASE (DECREASE) IN CASH AND EQUIVALENTS.................................................     (250)          77

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD.................................................      322          216
                                                                                                -----        -----

CASH AND EQUIVALENTS AT END OF PERIOD.......................................................    $  72        $ 293
                                                                                                =====        =====
</TABLE>


See accompanying notes.


                                       13



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                  CONSOLIDATED STATEMENT OF PARTNERSHIP CAPITAL
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                    SIX MONTHS
                                                                                                  ENDED JUNE 30,
                                                                                               -------------------
                                                                                                1998         1997
                                                                                               ------       ------
                                                                                                   (MILLIONS)
<S>                                                                                              <C>          <C>
BALANCE AT BEGINNING OF YEAR................................................................   $6,333       $6,574

Net income..................................................................................      263          402
Other comprehensive income (loss)...........................................................      (16)         (14)
                                                                                                -----       ------
Comprehensive income........................................................................      247          388

Distributions...............................................................................     (552)        (369)
Allocation of income to Time Warner General Partners' Senior Capital........................      (45)         (62)
                                                                                                -----        -----

BALANCE AT JUNE 30,.........................................................................   $5,983       $6,531
                                                                                               ======       ======
</TABLE>


See accompanying notes.


                                       14



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.       DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

DESCRIPTION OF BUSINESS

         Time Warner Entertainment Company, L.P., a Delaware limited partnership
("TWE"), classifies its businesses into three fundamental areas: Entertainment,
consisting principally of interests in filmed entertainment, television
production and television broadcasting; Cable Networks, consisting principally
of interests in cable television programming; and Cable, consisting principally
of interests in cable television systems.

         The operating results of TWE's various business interests are presented
herein as an indication of financial performance (Note 5). Except for start-up
losses incurred in connection with The WB Network, TWE's principal business
interests generate significant operating income and cash flow from operations.
The cash flow from operations generated by such business interests is
considerably greater than their operating income due to significant amounts of
noncash amortization of intangible assets recognized principally in Time Warner
Companies, Inc.'s ("Time Warner") $14 billion acquisition of Warner
Communications Inc. ("WCI") in 1989 and $1.3 billion acquisition of the minority
interest in American Television and Communications Corporation ("ATC") in 1992,
a portion of which cost was allocated to TWE upon the capitalization of the
partnership. Noncash amortization of intangible assets recorded by TWE's
businesses amounted to $130 million and $105 million in the three months ended
June 30, 1998 and 1997, respectively and $258 million and $212 million for the
six months ended June 30, 1998 and 1997, respectively.

         Time Warner and certain of its wholly owned subsidiaries collectively
own general and limited partnership interests in TWE consisting of 74.49% of the
pro rata priority capital ("Series A Capital") and residual equity capital
("Residual Capital"), and 100% of the senior priority capital ("Senior Capital")
and junior priority capital ("Series B Capital"). The remaining 25.51% limited
partnership interests in the Series A Capital and Residual Capital of TWE are
held by a subsidiary of MediaOne Group, Inc. ("MediaOne"), formerly U S WEST,
Inc. Certain of Time Warner's subsidiaries are the general partners of TWE
("Time Warner General Partners").


BASIS OF PRESENTATION

         The accompanying financial statements are unaudited but, in the opinion
of management, contain all the adjustments (consisting of those of a normal
recurring nature) considered necessary to present fairly the financial position
and the results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles applicable to interim
periods. The accompanying financial statements should be read in conjunction
with the audited consolidated financial statements of TWE for the year ended
December 31, 1997. Certain reclassifications have been made to the prior year's
financial statements to conform to the 1998 presentation.

         In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"), effective for years beginning after June 15, 1999, with early application
encouraged. The new rules establish standards requiring that all derivative
financial instruments, such as foreign exchange contracts, be recognized and
measured at fair value regardless of the purpose or intent for holding them. TWE
plans to adopt FAS 133 effective as of July 1, 1998, and it is not expected that
the adoption will have a material effect on TWE's financial statements.


                                       15



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                   (UNAUDITED)


2.       ACQUISITIONS AND DISPOSITIONS

CABLE TRANSACTIONS

         In addition to continuing to use cable operating cash flow to finance
the level of capital spending necessary to upgrade the technological capability
of their cable television systems and develop new services, Time Warner, TWE and
the TWE-Advance/Newhouse Partnership ("TWE-A/N") have completed a series of
transactions in 1998 related to the cable television business and related
ancillary businesses that either reduced existing debt and/or TWE's share of
future funding requirements for such businesses. These transactions are
discussed more fully below.

Business Telephony Reorganization

         In July 1998, in an effort to combine their business telephony
operations into a single entity that is intended to be self-financing, Time
Warner, TWE and TWE-A/N completed a reorganization of their business telephony
operations (the "Business Telephony Reorganization"), whereby (i) the operations
conducted by Time Warner, TWE and TWE-A/N were each contributed to a new holding
company named Time Warner Telecom LLC ("TW Telecom"), and then (ii) TWE and 
TWE-A/N's interests in TW Telecom were distributed to their partners, Time
Warner, MediaOne and Advance/Newhouse. TW Telecom is a competitive local
exchange carrier (CLEC) in selected metropolitan areas across the United States
where it offers a wide range of telephony services to business customers. As a
result of the Business Telephony Reorganization, Time Warner, MediaOne and 
Advance/Newhouse own interests in TW Telecom of 61.95%, 18.88% and 19.17%,
respectively. TWE and TWE-A/N do not have continuing equity interests in these
business telephony operations. TWE and TWE-A/N recorded the distribution of
their business telephony operations to their respective partners based on the
approximate $235 million historical cost of the net assets.


Road Runner Joint Venture

         In June 1998, Time Warner, TWE, TWE-A/N, MediaOne, Microsoft Corp.
("Microsoft") and Compaq Computer Corp. ("Compaq") formed a joint venture to
operate and expand Time Warner Cable's and MediaOne's existing high-speed
internet access businesses (the "Road Runner'TM' Joint Venture"). In exchange
for contributing their existing high-speed Internet access businesses, Time 
Warner received a common equity interest in the Road Runner Joint Venture of 
11.25%, TWE received a 25% interest, TWE-A/N received a 32.5% interest and 
MediaOne received a 31.25% interest. In exchange for Microsoft and Compaq each
contributing $212.5 million of cash to the Road Runner Joint Venture, Microsoft
and Compaq each received a preferred equity interest therein that is convertible
into a 10% common equity interest. Accordingly, on a fully diluted basis, the
Road Runner Joint Venture is owned 9% by Time Warner, 20% by TWE, 26% by
TWE-A/N, 25% by MediaOne, 10% by Microsoft and 10% by Compaq. Each of TWE's and
TWE-A/N's interest in the Road Runner Joint Venture is being accounted for under
the equity method of accounting.

Primestar

         In April 1998, TWE and Advance/Newhouse, a limited partner in TWE-A/N,
transferred the direct broadcast satellite operations conducted by TWE and
TWE-A/N (the "DBS Operations") and the 31% partnership interest in


                                       16



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                   (UNAUDITED)


Primestar Partners, L.P. held by TWE-A/N ("Primestar" and collectively, the
"Primestar Assets") to Primestar, Inc. ("New Primestar"), a separate holding
company. New Primestar owns the DBS Operations and Primestar partnership
interests formerly owned by TCI Satellite Entertainment, Inc. and other
previously existing partners of Primestar. In exchange for contributing its
interests in the Primestar Assets, TWE received an approximate 24% equity
interest in New Primestar and realized approximately $240 million of debt
reduction. In partial consideration for contributing its indirect interest in
certain of the Primestar Assets, Advance/Newhouse received an approximate 6%
equity interest in New Primestar. As a result of this transaction, effective as
of April 1, 1998, TWE deconsolidated the DBS Operations and the 24% equity
interest in New Primestar received in the transaction is being accounted for
under the equity method of accounting. This transaction is referred to herein as
the "Primestar Roll-up Transaction".

         In a related transaction, Primestar also entered into an agreement in
June 1997 with The News Corporation Limited ("News Corp."), MCI
Telecommunications Corporation ("MCI") and American Sky Broadcasting LLC
("ASkyB"), pursuant to which New Primestar would acquire certain assets relating
to the high-power, direct broadcast satellite business of ASkyB (the "Primestar
ASkyB Transaction"). In exchange for such assets, ASkyB would receive non-voting
securities of New Primestar that would be convertible into non-voting common
stock of New Primestar and, accordingly, would reduce TWE's equity interest in
New Primestar to approximately 16% on a fully diluted basis. In May 1998, the
U.S. Department of Justice brought a civil action against Primestar, each of its
cable owners, including TWE, and News Corp. and MCI, to enjoin on antitrust
grounds the Primestar ASkyB Transaction. The parties have had discussions with
the U.S. Department of Justice in an attempt to restructure the transaction and
reach a resolution on such matters, but there can be no assurance that an
agreement can be reached or that necessary governmental and regulatory approvals
will be obtained.

TWE-A/N Transfers

         In early 1998, Time Warner (through a wholly owned subsidiary)
contributed cable television systems (or interests therein) serving
approximately 650,000 subscribers to TWE-A/N, subject to approximately $1
billion of debt, in exchange for common and preferred partnership interests
therein, and completed certain related transactions (collectively, the "TWE-A/N
Transfers"). The cable television systems transferred to TWE-A/N were formerly
owned by TWI Cable Inc. ("TWI Cable"), a wholly owned subsidiary of Time Warner,
and Paragon Communications ("Paragon"), a partnership formerly owning cable
television systems serving approximately 1 million subscribers that was wholly
owned by subsidiaries of Time Warner, with 50% beneficially owned in the
aggregate by TWE and TWE-A/N. The debt assumed by TWE-A/N has been guaranteed by
TWI Cable and certain of its subsidiaries, including Paragon.

         As part of the TWE-A/N Transfers, TWE and TWE-A/N exchanged
substantially all of their respective beneficial interests in Paragon for an
equivalent share of Paragon's cable television systems (or interests therein)
serving approximately 500,000 subscribers, resulting in wholly owned
subsidiaries of Time Warner owning 100% of the restructured Paragon entity, with
less than 1% beneficially held for TWE. Accordingly, effective as of January 1,
1998, Time Warner has consolidated Paragon. Because this transaction represented
an exchange of TWE's and TWE-A/N's beneficial interests in Paragon for an
equivalent amount of its cable television systems, it did not have a significant
economic impact on Time Warner, TWE or TWE-A/N.


                                       17



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


         In connection with the TWE-A/N Transfers, Advance/Newhouse made a
capital contribution to TWE-A/N in order to maintain its 33.3% common
partnership interest therein. Accordingly, TWE-A/N is now owned 65.3% by TWE,
33.3% by Advance/Newhouse and 1.4% indirectly by Time Warner. The TWE-A/N
Transfers were accounted for effective as of January 1, 1998. Time Warner did
not recognize a gain or loss on the TWE-A/N Transfers. TWE has continued to
consolidate TWE-A/N and Time Warner has accounted for its interest in TWE-A/N
under the equity method of accounting.

         On a pro forma basis, giving effect to the TWE-A/N Transfers as if they
had occurred at the beginning of 1997, TWE would have reported for the three and
six months ended June 30, 1997, respectively, revenues of $2.742 billion and
$5.358 billion, depreciation expense of $225 million and $443 million, operating
income before noncash amortization of intangible assets of $455 million and $920
million, operating income of $334 million and $676 million, and net income of
$82 million and $400 million.

Sale or Exchange of Cable Television Systems

         In 1998 and 1997, in an effort to enhance their geographic clustering
of cable television properties, TWE sold or exchanged various cable television
systems. As a result of these transactions, TWE recognized net, pretax gains
of approximately $70 million for the three months ended June 30, 1998, and
approximately $84 million and $24 million for the six months ended June 30, 1998
and 1997, respectively. Such amounts have been included in operating income in
the accompanying consolidated statement of operations.


SIX FLAGS

         In April 1998, TWE sold its remaining 49% interest in Six Flags
Entertainment Corporation ("Six Flags") to Premier Parks Inc. ("Premier"), a
regional theme park operator, for approximately $475 million of cash. TWE used
the net, after-tax proceeds from this transaction to reduce debt by
approximately $300 million. As part of the transaction, TWE will continue to
license its animated cartoon and comic book characters to Six Flags's theme
parks and will similarly license such rights to Premier's theme parks in the
United States and Canada under a long-term agreement covering an aggregate of
twenty-five existing and all future locations. A substantial portion of the gain
on this transaction has been deferred principally as a result of TWE's
continuing guarantees of certain significant long-term obligations of Six Flags
relating to the Six Flags Over Texas and Six Flags Over Georgia theme parks.


E! ENTERTAINMENT TELEVISION, INC.

         In March 1997, TWE sold its 58% interest in E! Entertainment
Television, Inc. A pretax gain of approximately $250 million relating to this
sale has been included in the accompanying consolidated statement of operations
for the six months ended June 30, 1997.


                                       18



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                   (UNAUDITED)


3.       INVENTORIES

         TWE's inventories consist of:

<TABLE>
<CAPTION>
                                                                         JUNE 30, 1998         DECEMBER 31, 1997
                                                                      --------------------    --------------------
                                                                      CURRENT   NONCURRENT    CURRENT   NONCURRENT
                                                                      -------   ----------    -------   ----------
                                                                                      (MILLIONS)
<S>                                                                    <C>         <C>         <C>         <C>
Film costs:
   Released, less amortization.....................................   $  487      $  686      $  545      $  658
   Completed and not released......................................      241          67         170          50
   In process and other............................................       59         701          27         595
   Library, less amortization......................................      -           586         -           612
Programming costs, less amortization...............................      366         324         382         339
Merchandise........................................................       73         -            80         -
                                                                      ------      ------      ------      ------
Total..............................................................   $1,226      $2,364      $1,204      $2,254
                                                                      ======      ======      ======      ======
</TABLE>


4.       PARTNERS' CAPITAL

         TWE is required to make distributions to reimburse the partners for
income taxes at statutory rates based on their allocable share of taxable
income, and to reimburse Time Warner for stock options granted to employees of
TWE based on the amount by which the market price of Time Warner Inc. common
stock exceeds the option exercise price on the exercise date or, with respect to
options granted prior to the TWE capitalization on September 30, 1992, the
greater of the exercise price and the $27.75 market price of Time Warner Inc.
common stock at the time of the TWE capitalization. TWE accrues a stock option
distribution and a corresponding liability with respect to unexercised options
when the market price of Time Warner Inc. common stock increases during the
accounting period, and reverses previously accrued stock option distributions
and the corresponding liability when the market price of Time Warner Inc. common
stock declines.

         During the six months ended June 30, 1998, TWE accrued $138 million of
tax-related distributions and $414 million of stock option distributions, based
on closing prices of Time Warner common stock of $85.44 at June 30, 1998 and
$62.00 at December 31, 1997. During the six months ended June 30, 1997, TWE
accrued $192 million of tax-related distributions and $177 million of stock
option distributions as a result of an increase at that time in the market price
of Time Warner Inc. common stock. In the six months ended June 30, 1998, TWE
paid distributions to the Time Warner General Partners in the amount of $298
million, consisting of $138 million of tax-related distributions and $160
million of stock option related distributions. In the six months ended June 30,
1997, TWE paid the Time Warner General Partners distributions in the amount of
$203 million, consisting of $192 million of tax-related distributions and $11
million of stock option related distributions. In July 1998, TWE borrowed $579
million under its bank credit agreement and paid a distribution to the Time
Warner General Partners relating to their Senior Capital interests.


                                       19



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                   (UNAUDITED)


5.       SEGMENT INFORMATION

         TWE classifies its businesses into three fundamental areas:
Entertainment, consisting principally of interests in filmed entertainment,
television production and television broadcasting; Cable Networks, consisting
principally of interests in cable television programming; and Cable, consisting
principally of interests in cable television systems.

         Information as to the operations of TWE in different business segments
is set forth below based on the nature of the products and services offered. TWE
evaluates performance based on several factors, of which the primary financial
measure is business segment operating income before noncash amortization of
intangible assets ("EBITA"). The operating results of TWE's cable segment
reflects the TWE-A/N Transfers effective as of January 1, 1998 and the Primestar
Roll-up Transaction effective as of April 1, 1998.

         Information as to the operations of TWE in different business segments
is set forth below.

<TABLE>
<CAPTION>
                                                                         THREE MONTHS             SIX MONTHS
                                                                        ENDED JUNE 30,          ENDED JUNE 30,
                                                                      ------------------      ------------------
                                                                       1998        1997        1998        1997
                                                                      ------      ------      ------      ------
                                                                                      (MILLIONS)
<S>                                                                    <C>         <C>         <C>         <C>
REVENUES
Filmed Entertainment-Warner Bros...................................   $1,327      $1,254      $2,637      $2,426
Broadcasting-The WB Network........................................       61          29         106          53
Cable Networks-HBO.................................................      509         487       1,021         970
Cable..............................................................    1,084       1,066       2,237       2,086
Intersegment elimination...........................................     (131)       (108)       (241)       (207)
                                                                      ------      ------      ------      ------

Total..............................................................   $2,850      $2,728      $5,760      $5,328
                                                                      ======      ======      ======      ======
</TABLE>


<TABLE>
<CAPTION>
                                                                         THREE MONTHS              SIX MONTHS
                                                                        ENDED JUNE 30,           ENDED JUNE 30,
                                                                      ------------------       ------------------
                                                                       1998        1997         1998         1997
                                                                       ----        ----         ----         ----
                                                                                      (MILLIONS)
<S>                                                                    <C>         <C>          <C>          <C>
EBITA(1)
Filmed Entertainment-Warner Bros...................................    $121        $103        $  240        $209
Broadcasting-The WB Network........................................     (23)        (19)          (61)        (39)
Cable Networks-HBO.................................................     113          98           222         189
Cable(2)...........................................................     374         243           681         502
                                                                       ----        ----        ------        ----

Total..............................................................    $585        $425        $1,082        $861
                                                                       ====        ====        ======        ====
</TABLE>

----------------
(1)  EBITA represents business segment operating income before noncash
     amortization of intangible assets. After deducting amortization of
     intangible assets, TWE's business segment operating income for the three
     and six months ended June 30, 1998, respectively, and for the corresponding
     periods in the prior year was $455 million and $824 million in 1998 and
     $320 million and $649 million in 1997.

(2)  Includes net pretax gains relating to the sale or exchange of certain cable
     television systems of approximately $70 million recognized in the second
     quarter of 1998, and approximately $84 million and $24 million for the six
     months ended June 30, 1998 and 1997, respectively.


                                       20



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                         THREE MONTHS             SIX MONTHS
                                                                        ENDED JUNE 30,          ENDED JUNE 30,
                                                                      ------------------      ------------------
                                                                       1998        1997        1998        1997
                                                                      ------      ------      ------      ------
                                                                                      (MILLIONS)
<S>                                                                     <C>         <C>         <C>         <C>
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Filmed Entertainment-Warner Bros...................................    $ 38        $ 41        $ 78        $ 81
Broadcasting-The WB Network........................................       -           1           -           1
Cable Networks-HBO.................................................       5           5          10          10
Cable..............................................................     183         176         381         348
                                                                       ----        ----        ----        ----

Total..............................................................    $226        $223        $469        $440
                                                                       ====        ====        ====        ====
</TABLE>


<TABLE>
<CAPTION>
                                                                         THREE MONTHS             SIX MONTHS
                                                                        ENDED JUNE 30,          ENDED JUNE 30,
                                                                      ------------------      ------------------
                                                                       1998        1997        1998        1997
                                                                      ------      ------      ------      ------
                                                                                      (MILLIONS)
<S>                                                                     <C>         <C>         <C>         <C>
AMORTIZATION OF INTANGIBLE ASSETS (1)
Filmed Entertainment-Warner Bros...................................    $ 33        $ 30        $ 66        $ 61
Broadcasting-The WB Network........................................       1          -            2          -
Cable Networks-HBO.................................................      -           -           -           -
Cable..............................................................      96          75         190         151
                                                                       ----        ----        ----        ----

Total..............................................................    $130        $105        $258        $212
                                                                       ====        ====        ====        ====
</TABLE>

(1)  Amortization includes amortization relating to all business combinations
     accounted for by the purchase method, including Time Warner's $14 billion
     acquisition of WCI in 1989 and $1.3 billion acquisition of the minority
     interest in ATC in 1992.


6.       COMMITMENTS AND CONTINGENCIES

         Pending legal proceedings are substantially limited to litigation
incidental to the businesses of TWE. In the opinion of management, the ultimate
resolution of these matters will not have a material effect on the consolidated
financial statements of TWE.


7.       ADDITIONAL FINANCIAL INFORMATION

         Additional financial information with respect to cash flows is as
follows:

<TABLE>
<CAPTION>
                                                                                                    SIX MONTHS
                                                                                                  ENDED JUNE 30,
                                                                                                 ----------------
                                                                                                 1998        1997
                                                                                                 ----        ----
                                                                                                    (MILLIONS)
<S>                                                                                              <C>         <C> 
Interest expense............................................................................     $273        $235
Cash payments made for interest.............................................................      260         243
Cash payments made for income taxes, net....................................................       39          35
Noncash capital distributions...............................................................      414         177
</TABLE>

         Noncash investing activities in the first six months of 1998 included
the TWE-A/N Transfers, the Primestar Roll-up Transaction and the exchange of
certain cable television systems (Note 2). During the six months ended June 30,
1998, TWE received $135 million of proceeds under its asset securitization
program.


                                       21



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION


         On June 30, 1992, thirteen direct or indirect subsidiaries of Time
Warner Companies, Inc. ("TW Companies") contributed the assets and liabilities
or the rights to the cash flows of substantially all of TW Companies's Filmed
Entertainment-Warner Bros., Cable Networks-HBO and Cable businesses to Time
Warner Entertainment Company, L.P., a Delaware limited partnership ("TWE"), for
general partnership interests, and each general partner guaranteed a pro rata
portion of substantially all of TWE's debt and accrued interest at that time
based on the relative fair value of the net assets each contributed to TWE (the
"General Partner Guarantees"). In 1997, two of the original general partners,
Warner Cable Communications Inc. ("WCCI") and Time Warner Operations Inc.
("TWOI"), were merged into another original general partner, Warner
Communications Inc. (the "WCCI Merger" and the "TWOI Merger," respectively, and
collectively, the "1997 General Partner Mergers"). After the 1997 General
Partner Mergers, eleven of the thirteen original general partners have now been
merged or dissolved into the other two. Warner Communications Inc. ("WCI") and
American Television and Communications Corporation ("ATC" ) are the two
remaining general partners of TWE. They have succeeded to the general
partnership interests and have assumed the General Partner Guarantees of the
eleven former general partners.

         The WCCI Merger had no effect on the consolidated results of operations
and financial condition of WCI because WCCI was a consolidated subsidiary of WCI
prior to the merger and, as such, WCCI's net assets, operating results and cash
flows were already included in the consolidated financial statements of WCI. The
TWOI Merger has been accounted for as a merger of entities under common control,
similar to the pooling-of-interest method of accounting for business
combinations. Accordingly, the 1997 consolidated financial statements of WCI
have been restated to reflect the TWOI Merger effective as of January 1, 1997.

         Set forth below is a discussion of the results of operations and
financial condition of WCI, the only General Partner with independent business
operations. WCI conducts substantially all of TW Companies's Music operations,
which include copyrighted music from many of the world's leading recording
artists that is produced and distributed by a family of established record
labels such as Warner Bros. Records, Atlantic Records, Elektra Entertainment and
Warner Music International. The financial position and results of operations of
ATC are principally derived from its investment in TWE, TW Companies, TBS and
its revolving credit agreement with TW Companies. Capitalized terms are as
defined and described in the accompanying consolidated financial statements, or
elsewhere herein.


USE OF EBITA

         WCI evaluates operating performance based on several factors, of which
the primary financial measure is operating income before noncash amortization of
intangible assets ("EBITA"). Consistent with management's financial focus on
controlling capital spending, EBITA measures operating performance after charges
for depreciation. The exclusion of noncash amortization charges is consistent
with management's belief that WCI's intangible assets, such as music catalogues
and copyrights and the goodwill associated with its brands, are generally
increasing in value and importance to WCI's business objective of creating,
extending and distributing recognizable brands and copyrights throughout the
world. As such, the following comparative discussion of the results of
operations of WCI includes, among other factors, an analysis of changes in
business segment EBITA. However, EBITA should be considered in addition to, not
as a substitute for, operating income, net income and other measures of
financial performance reported in accordance with generally accepted accounting
principles.


                                       22



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)


RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED 
JUNE 30, 1997

         WCI had revenues of $905 million and net income of $77 million for the
three months ended June 30, 1998, compared to revenues of $830 million and net
income of $33 million for the three months ended June 30, 1997. EBITA increased
to $94 million from $93 million. Operating income increased to $26 million from
$21 million. Revenues benefited from an increase in domestic and international
recorded music sales principally relating to higher compact disc sales of new
releases from popular established artists and movie soundtracks. At the end of
June 1998, WCI had a leading domestic market share of 20%, as measured by
SoundScan. EBITA and operating income increased principally as a result of the
revenue gains, offset in part by the absence of certain one-time gains
recognized in 1997.

         WCI's equity in the pretax income of TWE was $102 million for the three
months ended June 30, 1998, compared to $63 million for the three months ended
June 30, 1997. TWE's pretax income increased in 1998 as compared to 1997
principally due to an overall increase in operating income generated by its
business segments (including $70 million of net gains recognized by TWE in 1998
relating to the sale or exchange of certain cable television systems and the
positive effect of the TWE-A/N Transfers), offset in part by an increase in
interest expense and minority interest expense related to the TWE-A/N Transfers.
As used herein, the TWE-A/N Transfers refer to the transfer of cable television
systems (or interests therein) serving approximately 650,000 subscribers that
were formerly owned by subsidiaries of Time Warner to the TWE-Advance/Newhouse
Partnership ("TWE-A/N"), subject to approximately $1 billion of debt, in
exchange for common and preferred partnership interests therein, as well as
certain related transactions.

         Interest and other, net was $16 million of income for the three months
ended June 30, 1998, compared to $14 million of income for the three months
ended June 30, 1997. Interest expense increased to $6 million from $2 million.
There was other income, net, of $22 million in 1998, compared to $16 million in
1997, principally because of an increase in interest income relating to a $610
million note receivable from TW Companies (the "TW Companies Note Receivable")
received in connection with the 1997 sale of WCI's interest in Hasbro, Inc.,
offset in part by the absence of a gain on the sale of an investment recognized
in 1997.


SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997

         WCI had revenues of $1.793 billion and net income of $119 million for
the six months ended June 30, 1998, compared to revenues of $1.769 billion and
net income of $161 million for the six months ended June 30, 1997. EBITA
decreased to $186 million from $200 million. Operating income decreased to $54
million from $64 million. Revenues benefited from an increase in domestic
recorded music sales, which more than offset a marginal decrease in
international recorded music sales. The increase in domestic recorded music
revenues principally related to higher compact disc sales of new releases from
popular established artists and movie soundtracks. At the end of June 1998, WCI
had a leading domestic market share of 20%, as measured by SoundScan. Despite
the revenue increase, EBITA and operating income declined principally as a
result of the absence of certain one-time gains recognized in 1997.


                                       23



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(CONTINUED)


         WCI's equity in the pretax income of TWE was $175 million for the six
months ended June 30, 1998, compared to $260 million for the six months ended
June 30, 1997. TWE's pretax income decreased in 1998 as compared to 1997
principally due to lower, net pretax gains recognized in connection with the
sale or exchange of certain cable television systems in each year and the 1997
sale of TWE's interest in E! Entertainment Television, Inc. Excluding the effect
of these transactions, TWE's net income increased in 1998 principally as a
result of an overall increase in operating income generated by its business
segments (including the positive effect of the TWE-A/N Transfers), offset in
part by an increase in interest expense and minority interest expense related to
the TWE-A/N Transfers.

         Interest and other, net was $15 million of income for the six months
ended June 30, 1998, compared to $30 million of income for the six months ended
June 30, 1997. Interest expense decreased to $10 million from $11 million. There
was other income, net, of $25 million in 1998, compared to other income, net, of
$41 million in 1997, principally because of lower gains on foreign exchange
contracts and the absence of a gain on the sale of an investment recognized in
1997, offset in part by an increase in interest income relating to the TW
Companies Note Receivable.

         The relationship between income before income taxes and income tax
expense for the General Partners is principally affected by the amortization of
goodwill and certain other financial statement expenses that are not deductible
for income tax purposes. Income tax expense for each of the General Partners
includes all income taxes related to its allocable share of partnership income
and its equity in the income tax expense of corporate subsidiaries of TWE.


FINANCIAL CONDITION AND LIQUIDITY

JUNE 30, 1998

         WCI had $8.4 billion of equity at June 30, 1998, compared to $8.5
billion of equity at December 31, 1997. Cash and equivalents increased to $141
million at June 30, 1998, compared to $102 million at December 31, 1997. WCI had
no long-term debt due to TW Companies under its revolving credit agreement at
the end of either period.

         ATC had $2 billion of equity at June 30, 1998, compared to $2.1 billion
at December 31, 1997. Although ATC has no independent operations, it is expected
that additional tax-related and other distributions from TWE, as well as
availability under ATC's revolving credit agreement with TW Companies, will
continue to be sufficient to satisfy ATC's obligations with respect to its tax
sharing agreement with TW Companies for the foreseeable future.


CASH FLOWS

         In the first six months of 1998, WCI's cash provided by operations
amounted to $115 million and reflected $186 million of EBITA, $38 million of
noncash depreciation expense and $177 million of distributions from TWE, less $5
million of interest payments, $103 million of income taxes ($71 million of which
was paid to TW Companies under a tax sharing agreement) and $178 million related
to an aggregate reduction in working capital requirements, other balance sheet
accounts and noncash items. Cash provided by WCI's operations of $218 million in
the first six months of 1997 reflected $200 million of EBITA, $41 million of
noncash depreciation expense, $120 million of distributions from TWE and $52
million related to an aggregate reduction in working capital requirements, other


                                       24



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)


balance sheet accounts and noncash items, less $7 million of interest payments
and $188 million of income taxes ($120 million of which was paid to TW Companies
under a tax sharing agreement).

         Cash used by investing activities was $2 million in the first six
months of 1998, compared to $23 million in 1997, principally as a result of a
decrease in investment spending and capital expenditures.

         Cash used by financing activities was $74 million in the first six
months of 1998, compared to $152 million in the first six months of 1997,
principally as a result of lower advances to TW Companies, offset in part by
increased dividend payments of $92 million.

         Management believes that WCI's operating cash flow and borrowing
availability under its revolving credit agreement with TW Companies are
sufficient to meet its capital and liquidity needs for the foreseeable future
without cash distributions from TWE above those permitted by existing
agreements.

         WCI and ATC have no claims on the assets and cash flows of TWE except
through the payment of certain reimbursements and cash distributions. During the
first six months of 1998, the General Partners received an aggregate $298
million of distributions from TWE, consisting of $138 million of tax-related
distributions and $160 million of stock option related distributions. During the
first six months of 1997, the General Partners received an aggregate $203
million of distributions, consisting of $192 million of tax-related
distributions and $11 million of stock option related distributions. Of such
aggregate distributions in the first six months of 1998 and 1997, WCI received
$177 million and $120 million, respectively, and ATC received $121 million and
$83 million, respectively. In July 1998, the Time Warner General Partners
received a $579 million distribution relating to their Senior Capital interests.
Of such amount, WCI and ATC received $343 million and $236 million,
respectively.


YEAR 2000 TECHNOLOGY PREPAREDNESS

         WCI, together with TWE and like most large companies, depends on many
different computer systems and other chip-based devices for the continuing
conduct of its business. Older computer programs, computer hardware and
chip-based devices may fail to recognize dates beginning on January 1, 2000 as
being valid dates, and as a result may fail to operate or may operate improperly
when such dates are introduced.

         WCI's exposure to potential Year 2000 problems exists in two general
areas: technological operations in the sole control of WCI and technological
operations dependent in some way on one or more third parties. The majority of
WCI's exposure to potential Year 2000 problems is in the latter area. Failure to
achieve high levels of Year 2000 compliance in either area could have a material
adverse impact on WCI.

         In the former area, technological operations in the sole control of
WCI, WCI is engaged in a thorough process involving the identification and
remediation of affected technological functions. WCI has generally completed the
process of identifying significant potential Year 2000 difficulties and has an
action plan in place to address them. At present, it is anticipated that the
action plan will be successfully completed in all material respects in advance
of January 1, 2000, and that its cost to WCI will not be material.


                                       25



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)


         In the latter area, technological operations dependent in some way on
one or more third parties, the situation is much less in WCI's ability to
predict or control, although WCI has in place an extensive system to test for
and attempt to resolve potential Year 2000 difficulties. WCI's business is
heavily dependent on third parties, many of whom are themselves heavily
dependent on technology. In some cases, WCI's third party dependence is on
vendors of technology who are themselves working towards solutions to Year 2000
problems. In other cases, WCI's third party dependence is on suppliers of
products or services that are themselves computer-intensive. Moreover, WCI is
dependent on the continued functioning of basic, heavily computerized services
such as banking and telephony. WCI is making considerable efforts to ensure that
the third parties on which it is heavily reliant are Year 2000 compliant, but
cannot predict the likelihood of such compliance occurring nor the direct or
indirect costs to WCI of non-compliance by those third parties or of securing
such services from compliant third parties. However, WCI believes that it is in
no worse position, and likely a better one, than most U.S.-based companies of
its size with respect to the potential for Year 2000 problems and their impact.

         In addition to the foregoing areas, WCI is also exposed to potential
Year 2000 problems encountered by TWE in technological operations under its sole
control and in TWE's technological operations dependent in some way on one or
more third parties. ATC, while not having any independent operations, is
similarly exposed to potential Year 2000 problems encountered by TWE. Although
WCI and ATC anticipate that TWE will successfully complete its efforts to be
Year 2000 compliant in all material respects in advance of January 1, 2000,
failure by TWE to achieve high levels of Year 2000 compliance could have a
material adverse impact on WCI and ATC. For a discussion of TWE's Year 2000
technology preparedness, see TWE's Management's Discussion and Analysis of
Results of Operations and Financial Condition included elsewhere herein.


                                       26



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           WCI                        ATC
                                                                 -----------------------     ----------------------
                                                                 JUNE 30,    DECEMBER 31,    JUNE 30,   DECEMBER 31,
                                                                   1998          1997          1998         1997
                                                                   ----          ----          ----         ----
                                                                                     (MILLIONS)
<S>                                                                 <C>           <C>          <C>          <C>
ASSETS
CURRENT ASSETS
Cash and equivalents............................................  $   141       $   102       $   -        $   -
Receivables, less allowances of $269 and $264 million...........      758           866           -            -
Inventories.....................................................      151           140           -            -
Prepaid expenses................................................      692           651           -            -
                                                                  -------       -------       ------       ------

Total current assets............................................    1,742         1,759           -            -

Investments in and amounts due to and from TWE..................    2,439         2,423        1,851        1,861
Investments in TW Companies.....................................      103           103           62           62
Other investments...............................................    1,241         1,259          355          352

Music catalogues, contracts and copyrights......................      878           928           -            -
Goodwill........................................................    3,575         3,554           -            -
Other assets, primarily property, plant and equipment...........      414           464           -            -
                                                                  -------       -------       ------       ------

Total assets....................................................  $10,392       $10,490       $2,268       $2,275
                                                                  =======       =======       ======       ======


LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and royalties payable..................................  $   939       $   978       $   -        $   -
Other current liabilities.......................................      344           464            1            1
                                                                  -------       -------       ------       ------

Total current liabilities.......................................    1,283         1,442            1            1

Long-term liabilities, including $397, $251, $290 and
   $187 million due to TW Companies.............................      712           527          290          187

SHAREHOLDERS' EQUITY
Common stock....................................................        1             1            1            1
Preferred stock of WCI, $.01 par value, 90,000 shares
   outstanding, $90 million liquidation preference..............      -             -             -            -
Paid-in capital.................................................   10,465        10,465        2,708        2,708
Retained earnings (accumulated deficit).........................      302           450         (105)          (4)
                                                                  -------       -------       ------       ------
                                                                   10,768        10,916        2,604        2,705

Due from TW Companies, net......................................   (1,785)       (1,809)        (291)        (282)
Reciprocal interest in TW Companies stock.......................     (586)         (586)        (336)        (336)
                                                                  --------      -------       ------       ------

Total shareholders' equity......................................    8,397         8,521        1,977        2,087
                                                                  -------       -------       ------       ------

Total liabilities and shareholders' equity......................  $10,392       $10,490       $2,268       $2,275
                                                                  =======       =======       ======       ======
</TABLE>


See accompanying notes.


                                       27



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                           THREE MONTHS ENDED JUNE 30,
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           WCI                        ATC
                                                                   ------------------          -----------------
                                                                   1998          1997          1998         1997
                                                                   ----          ----          ----         ----
                                                                                     (MILLIONS)
<S>                                                                <C>           <C>           <C>          <C>
Revenues (a)....................................................   $905          $830          $  -         $  -
                                                                   ----          ----          ----         ----

Cost of revenues (a)(b).........................................    555           538             -            -
Selling, general and administrative (a)(b)......................    324           271             -            -
                                                                   ----          ----          ----         ----
Operating expenses..............................................    879           809             -            -
                                                                   ----          ----          ----         ----

Business segment operating income...............................     26            21             -            -
Equity in pretax income of TWE (a)..............................    102            63            70           44
Interest and other, net (a).....................................     16            14             9            8
                                                                   ----          ----          ----         ----

Income before income taxes......................................    144            98            79           52
Income taxes (a)................................................    (67)          (65)          (33)         (26)
                                                                   ----           ----         ----         ----

Net income......................................................   $ 77          $ 33          $ 46         $ 26
                                                                   ====          ====          ====         ====
</TABLE>

------------------
(a)  Includes the following income (expenses) resulting from transactions with
     Time Warner, TW Companies, TWE or equity investees of the General
     Partners:

<TABLE>
<S>                                                                <C>           <C>           <C>          <C>
Revenues........................................................   $ (2)         $ 30          $  -         $  -
Cost of revenues................................................     (2)          (10)            -            -
Selling, general and administrative.............................     (5)            5             -            -
Equity in pretax income of TWE..................................     (3)            -             -            -
Interest and other, net.........................................     30             9             -            -
Income taxes....................................................    (36)          (29)          (26)         (16)

(b)    Includes depreciation and amortization expense of:.......   $ 87          $ 91          $  -         $  -
                                                                   ====          ====          ====         ====
</TABLE>


See accompanying notes.


                                       28



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            SIX MONTHS ENDED JUNE 30,
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           WCI                      ATC
                                                                  ---------------------       ----------------
                                                                   1998          1997         1998        1997
                                                                   ----          ----         ----        ----
                                                                                     (MILLIONS)
<S>                                                                <C>           <C>          <C>          <C>
Revenues (a)....................................................  $1,793        $1,769        $  -        $  -
                                                                  ------        ------        ----        ----

Cost of revenues (a)(b).........................................   1,131         1,151           -           -
Selling, general and administrative (a)(b)......................     608           554           -           -
                                                                  ------        ------        ----        ----

Operating expenses..............................................   1,739         1,705           -           -
                                                                  ------        ------        ----        ----

Business segment operating income...............................      54            64           -           -
Equity in pretax income of TWE (a)..............................     175           260         120         179
Interest and other, net (a).....................................      15            30          14          11
                                                                  ------        ------        ----        ----

Income before income taxes......................................     244           354         134         190
Income taxes (a)................................................    (125)         (193)        (60)        (88)
                                                                  ------        ------        ----        ----

Net income......................................................  $  119        $  161        $ 74        $102
                                                                  ======        ======        ====        ====
</TABLE>

------------------
(a)    Includes the following income (expenses) resulting from transactions with
       Time Warner, TW Companies, TWE or equity investees of the General
       Partners:

<TABLE>
<S>                                                               <C>           <C>          <C>          <C>
Revenues........................................................  $   46        $   65        $  -        $  -
Cost of revenues................................................     (11)          (20)          -           -
Selling, general and administrative.............................      (2)           25           -           -
Equity in pretax income of TWE..................................     (12)           (5)          -           -
Interest and other, net.........................................      38            34           -           -
Income taxes....................................................     (71)         (120)        (47)        (73)

(b)    Includes depreciation and amortization expense of:.......  $  170        $  177        $  -        $  -
                                                                  ======        ======        ====        ====
</TABLE>


See accompanying notes.


                                       29



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            SIX MONTHS ENDED JUNE 30,
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                              WCI                     ATC
                                                                      -----------------         ----------------
                                                                      1998         1997         1998        1997
                                                                      ----         ----         ----        ----
                                                                                      (MILLIONS)
<S>                                                                    <C>           <C>        <C>         <C>
OPERATIONS
Net income.........................................................   $ 119        $ 161        $ 74        $102
Adjustments for noncash and nonoperating items:
Depreciation and amortization......................................     170          177          -           -
Deficiency (excess) of equity in pretax income of TWE
     over distributions............................................       2         (140)          1         (96)
Equity in (income) loss of other investee companies, net of
     distributions.................................................      48           (5)         -           -
Changes in operating assets and liabilities........................    (224)          25          (1)          5
                                                                      -----        -----        ----        ----

Cash provided by operations........................................     115          218          74          11
                                                                      -----        -----        ----        ----


INVESTING ACTIVITIES
Investments and acquisitions.......................................     (22)         (30)         -           -
Capital expenditures...............................................     (44)         (62)         -           -
Investment proceeds................................................      64           69          -           -
                                                                      -----        -----        ----        ----

Cash used by investing activities..................................      (2)         (23)         -           -
                                                                      -----        -----        ----        ----


FINANCING ACTIVITIES
Dividends..........................................................     (98)          (6)        (65)         (5)
Decrease (increase) in amounts due from TW Companies, net..........      24         (146)         (9)         (6)
                                                                      -----        -----        ----        ----

Cash used by financing activities..................................     (74)        (152)        (74)        (11)
                                                                      -----        -----        ----        ----


INCREASE IN CASH AND EQUIVALENTS...................................      39           43          -           -

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD........................     102           91          -           -
                                                                      -----        -----        ----        ----

CASH AND EQUIVALENTS AT END OF PERIOD..............................   $ 141        $ 134        $ -       $   -
                                                                      =====        =====        ====       =====
</TABLE>


See accompanying notes.


                                       30



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                            SIX MONTHS ENDED JUNE 30,
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           WCI                      ATC
                                                                   -------------------       -------------------
                                                                    1998         1997         1998         1997
                                                                    ----         ----         ----         ----
                                                                                    (MILLIONS)
<S>                                                                <C>          <C>          <C>          <C>
BALANCE AT BEGINNING OF YEAR....................................   $8,521       $9,541       $2,087       $2,331

Net income......................................................      119          161           74          102
Other comprehensive income (loss)...............................      (19)         (33)          (7)          (6)
                                                                   ------       ------       ------        ------
Comprehensive income (loss).....................................      100          128           67           96

Increase in stock option distribution liability to
   TW Companies (a).............................................     (246)        (105)        (168)         (72)
Issuance of preferred stock.....................................      -             38          -           -
Dividends.......................................................       (3)         -            -           -
Transfers to TW Companies, net..................................       24         (146)          (9)          (6)
Other...........................................................        1            4          -           -
                                                                   ------       ------       ------       ------

BALANCE AT JUNE 30,.............................................   $8,397       $9,460       $1,977       $2,349
                                                                   ======       ======       ======       ======

------------------
(a)  The General Partners record distributions to TW Companies and a
     corresponding receivable from TWE as a result of the stock option related
     distribution provisions of the TWE partnership agreement. Stock option
     distributions of $246 million and $105 million for WCI and $168 million and
     $72 million for ATC were accrued in the first six months of 1998 and 1997,
     respectively, because of an increase in the market price of Time Warner
     common stock (Note 2).


See accompanying notes.


                                       31



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.       DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

DESCRIPTION OF BUSINESS

         On June 30, 1992, thirteen direct or indirect subsidiaries of Time
Warner Companies, Inc. ("TW Companies") contributed the assets and liabilities
or the rights to the cash flows of substantially all of TW Companies's Filmed
Entertainment-Warner Bros., Cable Networks-HBO and Cable businesses to Time
Warner Entertainment Company, L.P., a Delaware limited partnership ("TWE"), for
general partnership interests, and each general partner guaranteed a pro rata
portion of substantially all of TWE's debt and accrued interest at that time
based on the relative fair value of the net assets each contributed to TWE (the
"General Partner Guarantees," see Note 3). In 1997, two of the original general
partners, Warner Cable Communications Inc. ("WCCI") and Time Warner Operations
Inc. ("TWOI"), were merged into another original general partner, Warner
Communications Inc. (the "WCCI Merger" and the "TWOI Merger," respectively, and
collectively, the "1997 General Partner Mergers"). After the 1997 General
Partner Mergers, eleven of the thirteen original general partners have now been
merged or dissolved into the other two. Warner Communications Inc. ("WCI") and
American Television and Communications Corporation ("ATC") are the two remaining
general partners of TWE. They have succeeded to the general partnership
interests and have assumed the General Partner Guarantees of the eleven former
general partners. WCI, ATC and, where appropriate, the former general partners
are referred to herein as the "General Partners."

         The WCCI Merger had no effect on the consolidated financial statements
of WCI because WCCI was a consolidated subsidiary of WCI prior to the merger
and, as such, WCCI's net assets, operating results and cash flows were already
included in the consolidated financial statements of WCI. The TWOI Merger has
been accounted for as a merger of entities under common control, similar to the
pooling-of-interest method of accounting for business combinations. Accordingly,
the 1997 consolidated financial statements of WCI have been restated to reflect
the TWOI Merger effective as of January 1, 1997.

         WCI conducts substantially all of TW Companies's Music operations,
which include copyrighted music from many of the world's leading recording
artists that is produced and distributed by a family of established record
labels such as Warner Bros. Records, Atlantic Records, Elektra Entertainment and
Warner Music International. ATC does not conduct operations independent of their
ownership interests in TWE and certain other investments.


BASIS OF PRESENTATION

         The accompanying financial statements are unaudited but, in the opinion
of management, contain all the adjustments (consisting of those of a normal
recurring nature) considered necessary to present fairly the financial position
and the results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles applicable to interim
periods. The accompanying financial statements should be read in conjunction
with the audited consolidated financial statements of the General Partners for
the year ended December 31, 1997. Certain reclassifications have been made to
the prior year's financial statements to conform to the 1998 presentation.

         In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"), effective for years beginning after June 15, 1999, with


                                       32



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


early application encouraged. The new rules establish standards requiring that
all derivative financial instruments, such as interest rate swap contracts and
foreign exchange contracts, be recognized and measured at fair value regardless
of the purpose or intent for holding them. WCI plans to adopt FAS 133 effective
as of July 1, 1998, and it is not expected that the adoption will have a
material effect on WCI's financial statements.


2.       TWE

         The General Partners' investment in and amounts due to and from TWE at
June 30, 1998 and December 31, 1997 consists of the following:


</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998                                                                                   WCI         ATC
-------------                                                                                  ------      ------
                                                                                                   (MILLIONS)
<S>                                                                                             <C>         <C>
Investment in TWE...........................................................................   $2,254      $1,578
Stock option related distributions due from TWE.............................................      398         273
Other net liabilities due to TWE, principally related to home video distribution............     (213)        -
                                                                                               ------      ------

Total.......................................................................................   $2,439      $1,851
                                                                                               ======      ======
</TABLE>


<TABLE>
<CAPTION>
DECEMBER 31, 1997                                                                               WCI         ATC
-----------------                                                                              ------      ------
                                                                                                   (MILLIONS)
<S>                                                                                             <C>         <C>
Investment in TWE...........................................................................   $2,418      $1,691
Stock option related distributions due from TWE.............................................      247         170
Other net liabilities due to TWE, principally related to home video distribution............     (242)        -
                                                                                                -----     -------

Total.......................................................................................   $2,423      $1,861
                                                                                               ======      ======
</TABLE>


PARTNERSHIP STRUCTURE AND ALLOCATION OF INCOME

         TWE was capitalized on June 30, 1992 to own and operate substantially
all of the Filmed Entertainment-Warner Bros., Cable Networks-HBO and Cable
businesses previously owned by the General Partners. The General Partners in the
aggregate hold, directly or indirectly, 63.27% of the pro rata priority capital
("Series A Capital") and residual equity capital ("Residual Capital") of TWE and
100% of the senior priority capital ("Senior Capital") and junior priority
capital ("Series B Capital") of TWE. TW Companies acquired the 11.22% of the
Series A Capital and Residual Capital limited partnership interests previously
held by subsidiaries of each of ITOCHU Corporation and Toshiba Corporation in
1995. The remaining 25.51% limited partnership interests in the Series A Capital
and Residual Capital of TWE are held by a subsidiary of MediaOne Group, Inc.
("MediaOne"), formerly U S WEST, Inc.

         The TWE partnership agreement provides for special allocations of
income, loss and distributions of partnership capital, including priority
distributions in the event of liquidation. No portion of TWE's net income has
been allocated to the limited partnership interests.


                                       33



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


SUMMARIZED FINANCIAL INFORMATION OF TWE

         Set forth below is summarized financial information of TWE, which
reflects the TWE-A/N Transfers effective as of January 1, 1998 and the Primestar
Roll-up Transaction effective as of April 1, 1998 (each as defined hereinafter).

<TABLE>
<CAPTION>
                                                                         THREE MONTHS             SIX MONTHS
                                                                        ENDED JUNE 30,          ENDED JUNE 30,
                                                                      ------------------      ------------------
                                                                       1998        1997        1998        1997
                                                                      ------      ------      ------      ------
                                                                                      (MILLIONS)
<S>                                                                     <C>         <C>         <C>         <C>
OPERATING STATEMENT INFORMATION
Revenues...........................................................   $2,850      $2,728      $5,760      $5,328
Depreciation and amortization......................................     (356)       (328)       (727)       (652)
Business segment operating income (1)..............................      455         320         824         649
Interest and other, net (2)........................................     (183)       (139)       (347)        (10)
Minority interest..................................................      (82)        (56)       (146)       (164)
Income before income taxes.........................................      172         107         295         439
Net income.........................................................      155          82         263         402
</TABLE>

------------------
(1)  Includes net pretax gains relating to the sale or exchange of certain cable
     television systems of approximately $70 million recognized in the second
     quarter of 1998, and approximately $84 million and $24 million for the six
     months ended June 30, 1998 and 1997, respectively.

(2)  Includes a pretax gain of approximately $250 million recognized in the 
     first quarter of 1997 related to the sale of an interest in E! 
     Entertainment Television, Inc.


<TABLE>
<CAPTION>
                                                                                                 SIX MONTHS
                                                                                               ENDED JUNE 30,
                                                                                             -------------------
                                                                                              1998        1997
                                                                                             -------     -------
                                                                                                 (MILLIONS)
<S>                                                                                            <C>         <C>
CASH FLOW INFORMATION
Cash provided by operations................................................................. $   586     $   416
Capital expenditures........................................................................    (734)        (734)
Investments and acquisitions................................................................    (265)         (62)
Investment proceeds.........................................................................     506          371
Borrowings..................................................................................     503          428
Debt repayments.............................................................................    (492)        (323)
Issuance of preferred stock of subsidiary...................................................      -           243
Capital distributions.......................................................................    (298)        (203)
Other financing activities, net.............................................................     (56)         (59)
Increase (decrease) in cash and equivalents.................................................    (250)          77
</TABLE>


<TABLE>
<CAPTION>
                                                                                              JUNE 30,  DECEMBER 31,
                                                                                                1998        1997
                                                                                                ----        ----
                                                                                                   (MILLIONS)
<S>                                                                                            <C>         <C>
BALANCE SHEET INFORMATION
Cash and equivalents........................................................................  $    72     $   322
Total current assets........................................................................    3,680       3,622
Total assets................................................................................   22,153      20,731
Total current liabilities...................................................................    3,864       3,974
Long-term debt .............................................................................    6,771       5,990
Minority interests..........................................................................    1,477       1,210
Preferred stock of subsidiary...............................................................      225         233
General Partners' Senior Capital............................................................    1,163       1,118
Partners' capital...........................................................................    5,983       6,333
</TABLE>

                                       34



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                   (UNAUDITED)


CAPITAL DISTRIBUTIONS

         The assets and cash flows of TWE are restricted by the TWE partnership
and credit agreements and are unavailable for use by the partners except through
the payment of certain fees, reimbursements, cash distributions and loans, which
are subject to limitations. At June 30, 1998 and December 31, 1997, the General
Partners had recorded $671 million and $417 million, respectively, of stock
option related distributions due from TWE, based on closing prices of Time
Warner common stock of $85.44 and $62.00, respectively. The General Partners are
paid when the options are exercised. The General Partners also receive
tax-related distributions from TWE on a current basis. During the six months
ended June 30, 1998, the General Partners received distributions from TWE in the
amount of $298 million, consisting of $138 million of tax-related distributions
and $160 million of stock option related distributions. During the six months
ended June 30, 1997, the General Partners received distributions from TWE in the
amount of $203 million, consisting of $192 million of tax-related distributions
and $11 million of stock option related distributions. Of such aggregate
distributions in 1998 and 1997, WCI received $177 million and $120 million,
respectively and ATC received $121 million and $83 million, respectively. In
July 1998, TWE borrowed $579 million under its bank credit agreement and paid a
distribution to the General Partners relating to their Senior Capital interests.
Of such amount, WCI and ATC received $343 million and $236 million,
respectively.


ACQUISITIONS AND DISPOSITIONS

         Time Warner, TWE and the TWE-Advance/Newhouse Partnership ("TWE-A/N")
have completed a series of transactions in 1998 relating to the cable television
business and related ancillary businesses, as well as the theme park business.
These transactions are summarized below. For a more comprehensive description of
these transactions, see Note 2 to the accompanying TWE consolidated financial
statements.

Business Telephony Reorganization

         In July 1998, Time Warner, TWE and TWE-A/N completed a reorganization
of their business telephony operations (the "Business Telephony Reorganization")
by combining such operations into a single entity that is intended to be
self-financing. This entity, named Time Warner Telecom LLC ("TW Telecom"), is a
competitive local exchange carrier (CLEC) in selected metropolitan areas across
the United States where it offers a wide range of telephony services to
business customers. Time Warner, MediaOne and the Advance/Newhouse Partnership
("Advance/ Newhouse"), a partner in TWE-A/N, own interests in TW Telecom of
61.95%, 18.88% and 19.17%, respectively. As a result of the Business Telephony
Reorganization, TWE and TWE-A/N do not have continuing equity interests in these
business telephony operations.

Road Runner Joint Venture

         In June 1998, Time Warner, TWE, TWE-A/N, MediaOne, Microsoft Corp.
("Microsoft") and Compaq Computer Corp. ("Compaq") formed a joint venture to
operate and expand Time Warner Cable's and MediaOne's existing high-speed
Internet access businesses (the "Road Runner'TM' Joint Venture"). In exchange
for contributing their existing high-speed Internet access businesses, Time
Warner received a common equity interest in the Road Runner Joint Venture of
11.25%, TWE received a 25% interest, TWE-A/N received a 32.5% interest and
MediaOne received a 31.25% interest. In exchange for Microsoft and Compaq each
contributing $212.5 million of cash to the Road Runner


                                       35



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                   (UNAUDITED)


Joint Venture, Microsoft and Compaq each received a preferred equity interest
therein that is convertible into a 10% common equity interest. Accordingly, on a
fully diluted basis, the Road Runner Joint Venture is owned 9% by Time Warner,
20% by TWE, 26% by TWE-A/N, 25% by MediaOne, 10% by Microsoft and 10% by Compaq.
Each of TWE's and TWE-A/N's interest in the Road Runner Joint Venture is being
accounted for under the equity method of accounting.

Primestar

         In April 1998, TWE and Advance/Newhouse, a limited partner in TWE-A/N,
transferred the direct broadcast satellite operations conducted by TWE and
TWE-A/N (the "DBS Operations") and the 31% partnership interest in Primestar
Partners, L.P. held by TWE-A/N ("Primestar" and collectively, the "Primestar
Assets") to Primestar, Inc. ("New Primestar"), a separate holding company. New
Primestar owns the DBS Operations and Primestar partnership interests formerly
owned by TCI Satellite Entertainment, Inc. and other previously existing
partners of Primestar. In exchange for contributing its interests in the
Primestar Assets, TWE received an approximate 24% equity interest in New
Primestar and realized approximately $240 million of debt reduction. TWE
deconsolidated the DBS Operations effective as of April 1, 1998 and the equity
interest in New Primestar received in the transaction is being accounted for
under the equity method of accounting. This transaction is referred to herein as
the "Primestar Roll-up Transaction."

TWE-A/N Transfers

         In early 1998, TW Companies (through a wholly owned subsidiary)
contributed cable television systems (or interests therein) serving
approximately 650,000 subscribers to TWE-A/N, subject to approximately $1
billion of debt, in exchange for common and preferred partnership interests
therein, and completed certain related transactions (collectively the "TWE-A/N
Transfers"). The debt assumed by TWE-A/N has not been guaranteed by the General
Partners, but has been guaranteed by TWI Cable Inc., a wholly owned subsidiary
of TW Companies, and certain of its subsidiaries.

Six Flags

         In April 1998, TWE sold its remaining 49% interest in Six Flags
Entertainment Corporation ("Six Flags") to Premier Parks Inc., a regional theme
park operator, for approximately $475 million of cash. TWE used the net,
after-tax proceeds from this transaction to reduce debt by approximately $300
million. A substantial portion of the gain on this transaction has been deferred
principally as a result of TWE's continuing guarantees of certain significant
long-term obligations of Six Flags relating to the Six Flags Over Texas and Six
Flags Over Georgia theme parks.


3.       GENERAL PARTNER GUARANTEES

         Each General Partner has guaranteed a pro rata portion of approximately
$5.8 billion of TWE's debt and accrued interest at June 30, 1998, based on the
relative fair value of the net assets each General Partner (or its predecessor)
contributed to TWE. Such indebtedness is recourse to each General Partner only
to the extent of its guarantee. There are no restrictions on the ability of the
General Partner guarantors to transfer assets, other than TWE assets, to parties
that are not guarantors.

                                       36



<PAGE>

<PAGE>




                              TWE GENERAL PARTNERS
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                   (UNAUDITED)


         The portion of TWE debt and accrued interest at June 30, 1998 that was
guaranteed by each General Partner is set forth below:

<TABLE>
<CAPTION>
                                                                                               TOTAL GUARANTEED BY
                                                                                               EACH GENERAL PARTNER
                                                                                               --------------------
GENERAL PARTNER                                                                                    %       AMOUNT
---------------                                                                                 ------     ------
                                                                                              (DOLLARS IN MILLIONS)
<S>                                                                                               <C>       <C>
WCI.......................................................................................       59.27     $3,436
ATC.......................................................................................       40.73      2,361
                                                                                                ------     ------
Total.....................................................................................      100.00     $5,797
                                                                                                ======     ======
</TABLE>


4.       CONTINGENCIES

         Pending legal proceedings are substantially limited to litigation
incidental to the businesses of the General Partners. In the opinion of
management, the ultimate resolution of these matters will not have a material
effect on the consolidated financial statements of the General Partners.


5.       ADDITIONAL FINANCIAL INFORMATION

         Additional financial information with respect to cash flows is as
follows:

<TABLE>
<CAPTION>
                                                                                   SIX MONTHS ENDED JUNE 30,
                                                                             --------------------------------------
                                                                                   1998                  1997
                                                                             ----------------       ---------------
                                                                              WCI        ATC         WCI        ATC
                                                                             -----      -----       -----      ----
                                                                                           (MILLIONS)
<S>                                                                           <C>        <C>         <C>        <C> 
Cash payments made for interest..........................................    $   5      $  -        $   7      $  -
Cash payments made for income taxes, net.................................      103         47         188        73
Tax-related distributions received from TWE..............................       82         56         114        78
Noncash capital distributions, net.......................................     (246)      (168)       (105)      (72)
</TABLE>


                                       37



<PAGE>

<PAGE>




                           PART II. OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS.

         On May 12, 1998, the U.S. Department of Justice brought a civil action
in the United States District Court for the District of Columbia against
Primestar, Inc. ("Primestar"), each of its cable company owners, including TWE,
and The News Corporation Limited and MCI Telecommunications Corporation, to
enjoin on antitrust grounds Primestar's proposed acquisition of certain assets
relating to the high-power, direct broadcast satellite business of American Sky
Broadcasting LLC. For further information with respect to such proposed
acquisition, see Footnote 2 "Acquisitions and Dispositions - Cable
Transactions," to TWE's consolidated financial statements included herein.

         On September 13, 1995, Francis Ford Coppola, Fred Fuchs and FFC, Inc.
("Coppola") filed a lawsuit in the Superior Court of California, County of Los
Angeles, against Warner Bros. entitled Coppola v. Warner Bros., alleging that
Warner Bros. unlawfully interfered with Coppola's efforts to develop with
another film studio a previously unproduced film project based on "Pinocchio."
Among other things, Coppola asked that the Court declare that any prior
agreement between Coppola and Warner Bros. to produce the film was void or that
it be rescinded. In 1997, the Court granted the plaintiffs' motion to declare
that any alleged agreement between Warner Bros. and Coppola was void under the
Copyright Act's statute of frauds provision. On June 1, 1998 the case went to
trial and on July 2, 1998, the jury found in Coppola's favor with respect to the
interference claims and awarded $20 million compensatory damages; on July 9,
1998, the jury awarded $60 million in punitive damages for these claims. Warner
Bros. intends to move for judgment notwithstanding the verdict and for a new
trial, which motions will be decided no later than 60 days after judgment is
entered. If the motions are denied, Warner Bros. intends to appeal the jury
verdict.

         Reference is made to the litigation entitled Samuel D. Moore, et al. v.
American Federation of Television and Radio Artists, et al., described on page
I-27 of TWE's Annual Report on Form 10-K for the year ended December 31, 1997
(the "1997 Form 10-K"). By Order dated June 22, 1998, the Court granted
plaintiffs' motion to certify its Order denying class certification for appeal
to the 11th Circuit Court of Appeals, and granted plaintiffs' motion for entry
of judgment pursuant to Rule 54(b) on the ERISA claims against the Record
Company Defendants. Based on the Court's Order, plaintiffs have filed a motion
with the 11th Circuit Court of Appeals seeking interlocutory review of the
Court's Order denying class certification, which motion was opposed by the
Record Company Defendants.

         Reference is made to the purported class action entitled Ottinger &
Silvey, et al., v. EMI Music Distribution, Inc., Sony Music Entertainment, Inc.,
Warner Elektra Atlantic Corporation, UNI Distribution Corporation, Bertelsmann
Music Group, Inc., and Polygram Group Distribution, Inc., described on pages
I-29 and I-30 of the 1997 Form 10-K. On May 11, 1998, Warner Elektra Atlantic
Corporation and other defendants filed a motion to dismiss the complaint for
failure to state a cause of action.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      Exhibits.

                  The exhibits listed on the accompanying Exhibit Index are
filed or incorporated by reference as a part of this report and such Exhibit
Index is incorporated herein by reference.

         (b)      Reports on Form 8-K.

                  No Current Report on Form 8-K was filed by TWE during the
quarter ended June 30, 1998.


                                       38



<PAGE>

<PAGE>




                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                            AND TWE GENERAL PARTNERS


                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
each of the registrants has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.


                          TIME WARNER ENTERTAINMENT COMPANY, L.P.
                          By: Warner Communications Inc.,
                                 as General Partner


                          By:      /S/ RICHARD J. BRESSLER
                             ------------------------------------
                          Name:    Richard J. Bressler
                          Title:   Executive Vice President and
                                   Chief Financial Officer


                          AMERICAN TELEVISION AND COMMUNICATIONS CORPORATION
                          WARNER COMMUNICATIONS INC.


                          By:      /S/ RICHARD J. BRESSLER
                             ------------------------------------
                          Name:    Richard J. Bressler
                          Title:   Executive Vice President and
                                   Chief Financial Officer


Dated:    August 13, 1998



<PAGE>

<PAGE>




                                  EXHIBIT INDEX
                     PURSUANT TO ITEM 601 OF REGULATION S-K

<TABLE>
<CAPTION>
Exhibit No.                                          Description of Exhibit
-----------                                          ---------------------------
<S>                                                  <C>
27                                                   Financial Data Schedule.
</TABLE>


                          STATEMENT OF DIFFERENCES
                          ------------------------

  The trademark symbol shall be expressed as............................. 'TM'



<PAGE>