<PAGE>
________________________________________________________________________________

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
                        COMMISSION FILE NUMBER 001-12878

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

                    TIME WARNER ENTERTAINMENT COMPANY, L.P.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                 <C>                               <C>
                     DELAWARE                                                             13-3666692

   (STATE OR OTHER JURISDICTION OF INCORPORATION                                       (I.R.S. EMPLOYER
          OR ORGANIZATION OF REGISTRANT)                                                IDENTIFICATION
                                                                                           NUMBER)

AMERICAN TELEVISION AND COMMUNICATIONS CORPORATION              DELAWARE                  13-2922502
WARNER COMMUNICATIONS INC.                                      DELAWARE                  13-2696809
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS         (STATE OR OTHER JURISDICTION     (I.R.S. EMPLOYER
CHARTER)                                            OF INCORPORATION OR ORGANIZATION)  (IDENTIFICATION
                                                                                           NUMBER)
</TABLE>

                              75 ROCKEFELLER PLAZA
                            NEW YORK, NEW YORK 10019
                                 (212) 484-8000
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)

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

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
             -------------------                 -----------------------------------------
<S>                                            <C>
      7 1/4% SENIOR DEBENTURES DUE 2008                   NEW YORK STOCK EXCHANGE
</TABLE>

            SECURITIES REGISTERED PURSUANT TO 12(G) OF THE ACT: NONE

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

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

                   DOCUMENTS INCORPORATED BY REFERENCE: NONE

________________________________________________________________________________







<PAGE>


                   Time Warner Entertainment Company, L.P.
                        Corporate Organization Chart


Included in the Form 10-K for Time Warner Entertainment Company, L.P. ("TWE")
is a chart illustrating TWE's corporate organization, providing the following
information:

      Time Warner Inc. owns 100% of the Time Warner General and Limited
      Partners.(1)

      Time Warner General and Limited Partners own 74.49% of TWE. TWE is also
      25.51%-owned by MediaOne Limited Partner.(2)

      TWE owns 100% of Time Warner Cable, Cable Networks - HBO and Filmed
      Entertainment-Warner Bros., and 64.8% of the TWE - A/N Partnership
      (Cable). The TWE - A/N Partnership is also 1.9%-owned by TWI Cable
      and 33-1/3% - owned by Advance/Newhouse.(3)



--------------
(1) Subsidiaries of Time Warner Inc. own 100% of the capital stock of each of
    the Time Warner General and Limited Partners.

(2) Pro rata priority capital and residual equity interests. In addition, the
    Time Warner General Partners own 100% of the priority capital interests that
    are junior to the pro rata priority capital interests. (See Note 9 to TWE's
    consolidated financial statements.)

(3) Direct or indirect common equity interests. In addition, TWI Cable
    indirectly owns preferred partnership interests.




<PAGE>

                                     PART I

ITEM 1. BUSINESS

    Time Warner Entertainment Company, L.P. ('TWE') is engaged principally in
four fundamental areas of business:

     Cable Networks, consisting principally of interests in pay cable television
     programming;

     Filmed Entertainment, consisting principally of interests in filmed
     entertainment, television production, and television broadcasting;

     Cable, consisting principally of interests in cable television systems; and

     Digital Media, consisting principally of interests in Internet-related and
     digital media businesses.

    The Time Warner Cable division of TWE also manages substantially all of the
cable television systems owned by Time Warner Inc., a Delaware corporation
('Time Warner'), and the combined cable television operations are conducted
under the name of Time Warner Cable.

    TWE is a Delaware limited partnership that was formed in 1992 to own and
operate substantially all of the business of Warner Bros., Home Box Office and
the cable television businesses owned and operated by Time Warner prior to such
time. Currently, Time Warner, through its wholly owned subsidiaries, owns
general and limited partnership interests in 74.49% of the pro rata priority
capital ('Series A Capital') and residual equity capital ('Residual Capital') of
TWE and 100% of the junior priority 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'). MediaOne has an
option to increase its Series A Capital and Residual Capital interests from
25.51% to up to 31.84% in certain events (see 'Description of Certain Provisions
of the TWE Partnership Agreement').

    Two Time Warner subsidiaries are the general partners of TWE (the 'Time
Warner General Partners'). In accordance with the partnership's governing
documents, as a result of MediaOne's August 1999 notice of intent to terminate
its covenant not to compete with TWE, MediaOne's right to participate in the
management of TWE's businesses terminated immediately and irrevocably. MediaOne
retains only certain protective governance rights pertaining to certain limited,
significant matters affecting TWE as a whole. The termination of the covenant
not to compete is necessary for MediaOne to complete its proposed merger with
AT&T Corp. ('AT&T').

    In 1995, TWE formed a cable television joint venture with the
Advance/Newhouse Partnership ('Advance/Newhouse') known as TWE-A/N. As of
December 31, 1999, TWE-A/N owned cable television systems (or interests) serving
6.7 million subscribers. TWE is the managing partner of TWE-A/N, which is owned
64.8% by TWE, 33.3% by Advance/Newhouse and 1.9% by TWI Cable Inc. For
information about certain transactions affecting TWE-A/N during 1999, see
Note 2, 'Cable Transactions -- TWE-A/N Transfers' to TWE's consolidated
financial statements on pages F-26 and F-27 herein.

THE TIME WARNER GENERAL PARTNERS

    At the time TWE was capitalized, thirteen direct or indirect wholly owned
subsidiaries of Time Warner contributed the assets and liabilities or the rights
to the cash flows of substantially all of Time Warner's Warner Bros., Home Box
Office and cable television businesses to TWE for general partnership interests.
During late 1993 through 1994, nine of the thirteen original general partners
were merged or dissolved into the other four, and in 1997 two additional
companies were merged. As a result, Warner Communications Inc. ('WCI,' a
subsidiary of Time Warner) and American Television and Communications
Corporation ('ATC,' a subsidiary of Time Warner) are the two remaining general
partners of TWE. They have succeeded to the general partnership interests of all
of the other former general partners. TWE does not have any ownership interest
in the businesses or assets of the Time Warner Gerneral Partners.

    The principal assets of the Time Warner General Partners currently include,
in addition to their interests in TWE: WCI's ownership of substantially all of
the Warner Music Group ('WMG'), which produces and

                                      I-1





<PAGE>

distributes recorded music and owns and administers music copyrights; WCI's 50%
interest in DC Comics, a New York general partnership which is 50% owned by TWE
('DC Comics'); WCI's 37.25% interest in Time Warner Entertainment Japan Inc., a
corporation organized under the laws of Japan ('TWE Japan'); certain securities
of TBS which in the aggregate represent an equity interest of approximately
10.6% in TBS; and 7.66% of the common stock of Time Warner Companies, Inc., the
assets of which consist primarily of investments in its consolidated and
unconsolidated subsidiaries, including TWE. In January, Time Warner announced
that it had entered into an agreement with Britain's EMI Group plc to contribute
substantially all of WCI's music assets into two equally-owned ventures (See
below).

RECENT EVENTS

    On January 10, 2000, Time Warner and America Online, Inc. ('America Online')
announced a strategic merger of equals (the 'AOL Merger') to create the world's
leading media and communications company. America Online is a world leader in
interactive services, web brands, Internet technologies and electronic commerce
services. The AOL Merger will be structured as an all-stock transaction pursuant
to which Time Warner's common stockholders will receive 1.5 shares of a new
holding company, to be named AOL Time Warner Inc., for each share of Time
Warner's common stock they own. America Online's stockholders will receive one
share of AOL Time Warner Inc. common stock for each share of America Online
common stock they own. Following completion of the AOL Merger, America Online
and Time Warner will each become a wholly owned subsidiary of AOL Time Warner.

    Initially, half of the 16 directors of AOL Time Warner will be selected by
America Online and half will be selected by Time Warner. Stephen Case, the
Chairman and Chief Executive Officer of America Online, will become Chairman of
the Board of AOL Time Warner and Gerald Levin, the Chairman and Chief Executive
Officer of Time Warner, will become Chief Executive Officer. AOL Time Warner
will be headquartered in New York City with additional executive offices in
Dulles, Virginia. Among other things, the AOL Merger is subject to regulatory
approvals and the approvals of the Company's and of America Online's
stockholders. Additional information on the AOL Merger is provided in
'Management's Discussion and Analysis of Results of Operations and Financial
Condition -- America Online-Time Warner Merger' at pages F-2 and F-3 and in
Note 17, 'Subsequent Events -- America Online-Time Warner Merger,' to TWE's
consolidated financial statements, at page F-43 herein.

    On January 24, 2000, Time Warner and Britain's EMI Group plc announced that
they had agreed to combine their global music operations into two equally-owned
ventures to be collectively known as Warner EMI Music. Under the agreement, Time
Warner will nominate six of the new company's 11-member Board of Directors.
Warner EMI Music will be headquartered in New York, with its non-U.S. operations
based in London. Completion of the transaction is subject to regulatory
approvals and approval by EMI shareholders. Additional information on the
formation of the joint venture is provided in Note 16, 'Subsequent
Events -- Warner-EMI Music Merger' to the TWE Gerneral Partner's consolidated
financial statements at page F-79 herein.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

    This Annual Report on Form 10-K includes certain 'forward-looking
statements' within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are based on management's current expectations and are
naturally subject to uncertainty and changes in circumstances. Actual results
may vary materially from the expectations contained herein due to changes in
economic, business, competitive, technological and/or regulatory factors. More
detailed information about those factors is set forth on pages F-12 and F-13 of
'Management's Discussion and Analysis of Results of Operations and Financial
Condition.' TWE is under no obligation to (and expressly disclaims any such
obligation to) update or alter its forward-looking statements whether as a
result of new information, future events or otherwise.

                                      I-2





<PAGE>

                             CABLE NETWORKS -- HBO

    TWE's Cable Networks business consists principally of the multichannel HBO
and Cinemax pay television programming services (collectively, the 'Home Box
Office Services'), operated by the Home Box Office division of TWE ('Home Box
Office').

    HBO is the nation's most widely distributed pay television service, which
together with its sister service, Cinemax, had approximately 35.7 million
subscriptions as of December 31, 1999.

GENERAL

    Through its Home Box Office division, TWE distributes HBO, the leading
domestic pay-TV service, as well as Cinemax. HBO and Cinemax offer uncut,
commercial-free motion pictures and high-quality original programming, such as
feature motion pictures, mini-series and television series produced specifically
by or for HBO. In addition, HBO offers sporting and special entertainment
events, such as concerts and comedy shows.

    The Home Box Office Services distribute their programming via cable and
other distribution technologies, including satellite distribution. The Services
generally enter into separate multi-year agreements, known as affiliation
agreements, with distributors that have agreed to carry them. With the
proliferation of new cable networks and services, competition for cable carriage
on the limited available analog channel capacity has intensified.

    The programming produced for HBO and Cinemax is generally transmitted via
satellites to receivers located at local operations centers for each affiliated
cable company, or to home satellite dish receivers. Individual dish owners
wishing to receive programming from one of the satellite distribution companies
must purchase a consumer decoder and arrange for its activation.

    The Home Box Office Services, being commercial free, generate their revenue
principally from the monthly fees paid by affiliates, which are generally
charged on a per subscriber basis. Individual subscribers to the Home Box Office
Services are generally billed monthly by their local cable company or DTH
packager for each service purchased and are free to cancel a service at any
time.

    As a result of acquisitions and mergers in the cable television industry in
recent years, the percentage of Home Box Office's revenue from affiliates that
are large DTH distribution companies or multiple system cable operators, such as
AT&T, has increased. Home Box Office attempts to assure continuity in its
relationships with affiliates and has entered into multi-year contracts with
affiliates, whenever possible. Although Home Box Office believes the prospects
of continued carriage and marketing of its programming services by the larger
affiliates are good, the loss of one or more of them as distributors of any
individual service could have a material adverse effect on its business.

PROGRAMMING

    A majority of HBO's programming and a large portion of that on Cinemax
consists of recently released, uncut and uncensored theatrical motion pictures.
Home Box Office's practice has been to negotiate licensing agreements of varying
duration for such programming with major motion picture studios and independent
producers and distributors. These agreements typically grant pay television
exhibition rights to recently released and certain older films owned by the
particular studio, producer or distributor in exchange for a negotiated fee,
which may be a function of, among other things, the films' box office
performances.

    Both HBO and Cinemax are made available in a multichannel format, allowing
subscribers to receive through participating distribution affiliates up to six
separately programmed channels of HBO (such as HBO-Family, providing G and
PG-rated programming only, or HBO-Zone, offering a younger, hipper programming
mix) and four separately programmed channels of Cinemax programming (such as
ThrillerMax or ActionMax).

    Home Box Office attempts to ensure access to future movies in a number of
ways. In addition to its exhibition of movies distributed by Warner Bros. and
its regular licensing agreements with numerous distributors, it has agreements
with DreamWorks SKG, Regency Entertainment, Sony Pictures Entertainment,

                                      I-3





<PAGE>

Inc. ('Sony Pictures') and Twentieth Century Fox Film Corporation ('Fox')
pursuant to which it has acquired exclusive rights to exhibit all or a
substantial portion of the films produced, acquired and/or released by these
entities during the term of each agreement. Home Box Office has also entered
into non-exclusive license agreements with Fox, Paramount Pictures Corporation,
Sony Pictures and Walt Disney Pictures for older, library films.

    HBO also defines itself by the exhibition of award-winning pay television
original movies and mini-series, sporting events such as boxing matches, sports
documentaries and sports news programs, including 'Real Sports with Bryant
Gumbel,' as well as dramatic and comedy specials and series, such as 'The
Sopranos,' and concert events, family programming and documentaries.

OTHER INTERESTS

    Time Warner Sports, a division of Home Box Office, operates TVKO
Pay-Per-View from HBO, an entity that distributes pay-per-view prize fights and
other pay-per-view programming.

    In 1999, Home Box Office's own production company, HBO Independent
Productions, produced 'Everybody Loves Raymond,' now in its fourth season on
CBS. Divisions of Home Box Office also produce comedy programming for HBO, such
as 'The Chris Rock Show,' and for other networks.

INTERNATIONAL

    HBO Ole, a 29.4%-owned partnership comprised of TWE (acting through its Home
Box Office and Warner Bros. divisions), a Venezuelan company and two other
motion picture companies, operates two Spanish-language pay television motion
picture services, HBO Ole and Cinemax, which are currently distributed in
Central and South America, Mexico and the Caribbean. TWE also has interests in
several advertiser-supported television services distributed by HBO Ole in Latin
America. HBO Brasil, another partnership in which TWE has a 23% interest,
distributes Portuguese-language pay television movie services in Brazil. TWE
also has a 40% interest in HBO Asia, a movie-based pay television service which,
together with Cinemax, is distributed to various countries in Southeast Asia.

    In addition to the Latin American and Asian ventures, Home Box Office has
interests in pay television services in Hungary, the Czech Republic, the Slovak
Republic, Poland and Romania.

                      OTHER BASIC CABLE NETWORK INTERESTS

    TWE holds a 50% interest in Comedy Central, an advertiser-supported basic
cable television service, which provides comedy programming. Comedy Central was
available in approximately 62 million homes at year-end 1999.

    TWE also holds a 50% interest in Court TV, which was available in
approximately 37.5 million homes at year-end 1999. Court TV is an
advertiser-supported basic cable television service whose newly expanded
programming includes coverage of live and taped legal proceedings during the day
and a mix featuring popular crime television series in syndication and real
crime stories in the evening.

                                  COMPETITION

    Each of the Home Box Office Services competes with other television
programming services for distribution on the limited number of analog channels
available on cable and other television systems. The Services compete for
viewers' attention with all other forms of programming provided to viewers,
including broadcast networks, local over-the-air television stations, other pay
and basic cable television services, home video, pay-per-view services, online
activities and other forms of news, information and entertainment. In addition,
the Services face competition for programming product with those same commercial
television networks, independent stations, and pay and basic cable television
services, some of which have exclusive contracts with motion picture studios and
independent motion picture distributors.

                                      I-4





<PAGE>

                              FILMED ENTERTAINMENT

    TWE's Filmed Entertainment businesses produce and distribute theatrical
motion pictures, television shows, animation and other programming, distribute
home video product, operate The WB Television Network, license rights to TWE's
characters, operate retail stores featuring consumer products based on TWE's
characters and brands and operate motion picture theaters. All of the foregoing
businesses are principally conducted by Warner Bros., which is a division of
TWE.

WARNER BROS. FEATURE FILMS

    Warner Bros. Pictures produces feature films both wholly on its own and
under co-financing arrangements with others. Warner Bros. Pictures also acquires
for distribution completed films produced and financed by others. Acquired
distribution rights may be limited to specified territories, media and/or
periods of time. The terms of Warner Bros. Pictures' agreements with independent
producers and other entities are separately negotiated and vary depending upon
the production, the amount and type of financing by Warner Bros., the media and
territories covered, the distribution term and other factors. In some cases,
producers, directors, actors, writers and others participate in the proceeds
generated by the motion pictures in which they are involved.

    Warner Bros. Pictures' strategy includes building movie franchises, which
will continue with the planned expansion of The Matrix into a series of films
and the introduction in 2001 of the first of a series of Harry Potter motion
pictures. Warner Bros. Pictures has also announced a strategic effort to release
films with a diversified mix of genres, talent and budgets. In response to the
rising cost of producing theatrical films, Warner Bros. Pictures has entered
into a number of joint venture agreements with other companies to co-finance
films, decreasing its financial risk while in most cases retaining substantially
all worldwide distribution rights. During 1999, Warner Bros. Pictures released a
total of 25 motion pictures for theatrical exhibition, of which six were wholly
financed by Warner Bros. Pictures and 19 were produced by or with others. 1999
releases from Warner Bros. Pictures (both wholly financed and co-produced)
included Analyze This, Any Given Sunday, Pokemon -- The First Movie, The Green
Mile, The Matrix, Three Kings and Wild Wild West. A total of 24 motion pictures
are currently slated to be released during 2000, of which four are wholly
financed by Warner Bros. Pictures and 20 are produced by or with others.

    Warner Bros. Pictures' joint venture arrangements include: (i) Bel-Air
Entertainment, a joint venture with Canal+ to co-finance on primarily a 50/50
basis the production, overhead and development costs of 10 to 20 motion pictures
through 2003; (ii) a joint venture with Village Roadshow Pictures to co-finance
under a 50/50 cost sharing arrangement the production of up to 40 motion
pictures through 2005; (iii) an exclusive arrangement with Alcon Entertainment
('Alcon') under which Warner Bros. Pictures will have substantially all
worldwide distribution rights in a minimum of 10 motion pictures produced and
financed by Alcon; and (iv) an arrangement with a wholly owned subsidiary of
Universal Pictures ('Universal') to co-finance on a 50/50 basis through 2000
certain motion pictures produced or acquired by Castle Rock, a subsidiary of
Time Warner, under which Warner Bros. and Universal each acquire distribution
rights in the U.S. and Canada to half of the Castle Rock pictures produced under
this arrangement and international distribution rights to the other half on an
alternating basis.

    Warner Bros. Pictures has distribution servicing agreements with Morgan
Creek Productions Inc. ('Morgan Creek') through June 2003 pursuant to which,
among other things, Warner Bros. provides domestic distribution services for all
Morgan Creek pictures and certain foreign distribution services for selected
pictures. Warner Bros. Pictures will also distribute eight motion pictures
produced by Franchise Entertainment LLC through its domestic servicing
arrangements with Morgan Creek.

HOME VIDEO

    Warner Home Video ('WHV') distributes for home video use pre-recorded
videocassettes and DVDs containing the filmed entertainment product of Warner
Bros. Pictures, WarnerVision Entertainment, Castle Rock, New Line Cinema and
Home Box Office divisions. WHV also distributes other companies' product for
which it has acquired the rights, including the distribution of DVDs on behalf
of Disney in Europe, the Middle East,

                                      I-5





<PAGE>

Africa and Australia. Under distribution agreements, WHV licenses video product
and shares in revenues generated by its customers.

    WHV sells its product in the United States and in major international
territories to retailers and wholesalers through its own sales force, with
warehousing and fulfillment handled by divisions of Warner Music Group and third
parties. In some international countries, WHV's product is distributed through
licensees. Videocassette product is manufactured under contract with independent
duplicators. DVD product is replicated by Warner Music Group companies and third
parties.

    In North America, WHV released five titles on videocassette for home rental
in 1999 with sales and licensed units exceeding one million units each: The
Matrix, Analyze This, Deep Blue Sea, Message in a Bottle and Rush Hour.
Additionally, WHV released 10 titles on videocassette in the North American
sell-through market that generated sales of more than one million units each.
Internationally, the following titles, among others, generated substantial home
video revenues in 1999: The Matrix, You've Got Mail, Lethal Weapon 4 and A
Perfect Murder.

    DVDs, capable of storing large volumes of digitized information -- enough
storage capacity for two full-length feature films on a double-sided or
dual-layered disc -- further increased their presence in the North American and
international markets during 1999. Since the inception of the format, WHV has
released over 500 titles on DVD in North America, of which 25 have generated
sales of more than 250,000 units each, headed by The Matrix, with sales in
excess of two million units. WHV is currently benefitting by releasing in DVD
format both first-run feature motion pictures and titles from WHV's extensive
catalogue.

TELEVISION

    Warner Bros. is one of the world's leading suppliers of television
programming. Warner Bros. both develops and produces new television series,
made-for-television movies, mini-series, reality-based entertainment shows and
animation programs and also distributes television programming for exhibition on
all U.S. networks, syndicated domestic television, cable syndication and a
growing array of international television distribution outlets. The distribution
library owned or managed by Warner Bros. currently has approximately 5,700
feature films, 32,000 television titles, 12,000 animated titles and 1,500
classic animated shorts.

    Warner Bros.' television programming is primarily produced by Warner Bros.
Television ('WBTV'), which produces primetime dramatic and comedy programming
for the major networks, and Telepictures Productions ('Telepictures'), which
specializes in reality-based and talk/variety series. Returning network
primetime series from WBTV include, among others, ER, Friends, The Drew Carey
Show, Whose Line Is It Anyway? and For Your Love, along with WBTV's newest
series, The West Wing. Telepictures is responsible for the development and
production of original programming primarily for syndicated television. In this
capacity, Telepictures has successfully launched, among others, The Rosie
O'Donnell Show.

    Warner Bros. Animation ('WBA') is responsible for the creation, development
and production of contemporary television and feature film animation, as well as
for the creative use and production of classic animated characters from Warner
Bros.', TBS's and DC Comic's libraries, including Looney Tunes and the
Hanna-Barbera libraries. Animation programming is important to TWE as a
foundation for various product merchandising and marketing revenue streams as
well as being an important source of initial and on-going programming for
various distribution outlets, including those owned by TWE (including
Kids' WB!).

    WBA continues to be a leading producer of original children's animation
programming, including the series Batman Beyond and various direct-to-video
projects, and also continues to distribute the popular Pokemon animated series
in the U.S.

    The expansion of off-network, pay-per-view, pay and basic cable and
satellite broadcasting has increased distribution opportunities for the Warner
Bros. and TBS libraries. A typical sale of a new series produced by or for WBTV
to a major domestic network grants that network an option to carry such series
for four years, after which time WBTV can enter into a new license agreement
with that or any other network as well as license the already-broadcast episodes
into off-network syndication (broadcast and/or cable). New series are also
licensed concurrently into the international marketplace and can, after a short
period of time, be sold in part or in whole

                                      I-6





<PAGE>

on home video. Warner Bros.' domestic distribution operation handles the
launching and supporting of first-run series produced directly for syndication,
as well as the sale of movie packages, off-network syndication strips (in which
shows originally produced for weekly broadcast on a network are aired five days
a week), and reruns of classic television series for cable and satellite
broadcasting.

    Warner Bros. International Television Distribution ('WBITD') is the world's
largest distributor of feature and television programming for television
exhibition outside of the United States. WBITD distributes programming in more
than 175 countries and in more than 40 languages. The introduction of new
technologies and programming services throughout the world has created many new
opportunities for WBITD. In conjunction with these new services seeking Warner
Bros.' programming, WBITD has formed strategic alliances with some of the
world's leading satellite, cable and over-the-air television broadcasters, and
is also active in the development and production of both English and local
language television programming with international partners.

BACKLOG

    Warner Bros.' backlog, representing the future revenue not yet recorded from
cash contracts for the licensing of theatrical and television product for pay
cable, network, basic cable and syndicated television exhibition, amounted to
$3.033 billion at December 31, 1999 (including amounts relating to the
intercompany licensing of film product to TWE's cable television networks of
$365 million and to Time Warner's cable television networks of $599 million).
The backlog excludes advertising barter contracts.

THE WB TELEVISION NETWORK

    The WB Television Network ('The WB') completed its fifth year of broadcast
operations in January 2000. During the l999/2000 broadcast season, The WB
expanded its primetime program line-up to six nights and is now airing 13 hours
of series programming from Sunday to Friday nights. The network's line-up
includes the family series 7th Heaven, as well as programming aimed at a teen
and young adult audience, such as Dawson's Creek, Charmed, Buffy the Vampire
Slayer, Felicity, Roswell, Popular and Angel.

    The WB's children's network, Kids' WB!, airs 19 hours of programming per
week with programming on weekday mornings, weekday afternoons and Saturday
mornings led by Pokemon, the No. 1-rated Saturday morning children's animation
series.

    As had been anticipated, during the fourth quarter of 1999 the WGN
Superstation discontinued its carriage of The WB programming and, as a result,
the total TV household coverage of The WB was reduced from approximately 90% to
83%. Seventy primary broadcast affiliates together with eight cable-only
affiliates provide coverage for The WB in the top 99 markets. Additional
coverage of approximately 5.4 million homes is provided by The WB 100+ Station
Group, a partnership with broadcast affiliates and cable operators in markets
100-212 that provides The WB and syndicated programming to those markets.

    Tribune Broadcasting owns a 22.25% interest in The WB. Key employees of The
WB hold an 11% interest in the network.

CONSUMER PRODUCTS AND STUDIO STORES

    Warner Bros. Consumer Products licenses rights in both domestic and
international markets to the names, photographs, logos and other representations
of characters and copyrighted material from the films and television series
produced or distributed by Warner Bros., including the superhero characters of
DC Comics, Hanna-Barbera characters, Turner classic films and the literary
phenomenon Harry Potter.

    Warner Bros. Studio Stores operates 146 stores in the United States.
Fifty-four other stores are owned and operated by franchisees in 14 countries or
territories throughout the world. Warner Bros. Studio Stores has recently
commenced a plan to improve the performance of its stores which includes the
closing of underperforming stores, the modification of other stores into
smaller, more efficient operations and the exploitation of potential e-commerce
opportunities. See also 'Management's Discussion and Analysis of Results

                                      I-7





<PAGE>

of Operations and Financial Condition,' at page F-5 and Note 3, 'Filmed
Entertainment Transactions -- 1999 Warner Bros. Retail Stores Write-Down,' to
TWE's consolidated financial statements at page F-27 herein for additional
information.

THEATERS

    Through joint ventures, Warner Bros. International Theatres at December 31,
1999 operated 107 multi-screen cinema complexes with 975 screens in 7 foreign
countries, including 30 theaters in Australia, 27 in the United Kingdom, 28 in
Japan, 10 in Portugal, 6 in Italy, 5 in Spain and 1 in Taiwan. In January 2000,
a partnership of a Warner Bros. affiliate and Viacom repurchased out of
bankruptcy a chain of theaters located in Colorado and California. The
partnership is in the process of disposing of a substantial number of the
acquired sites and may retain and operate a select few located primarily in
southern California.

                           OTHER ENTERTAINMENT ASSETS

THEME PARKS

    During 1999, Warner Bros. sold its interests in movie-related theme parks in
Germany and Spain to Premier Parks while retaining its interest in three parks
in Australia. Warner Bros. will continue to license its animated cartoon and
comic book characters to Premier's Six Flags theme parks in the United States
and Canada and has granted new licenses to Premier Parks for parks in Europe and
Central and South America.

                                  COMPETITION

    The production and distribution of theatrical motion pictures, television
and animation product and videocassettes/videodiscs/DVDs are highly competitive
businesses, as each competes with the other for viewers' attention, as well as
with other forms of entertainment and leisure time activities, including video
games, the Internet and other computer-related activities. Furthermore, there is
increased competition in the television industry evidenced by the increasing
number and variety of broadcast networks and basic cable and pay television
services now available. There is active competition among all production
companies in these industries for the services of producers, directors, writers,
actors and others and for the acquisition of literary properties. With respect
to the distribution of television product, there is significant competition from
independent distributors as well as major studios. Revenues for filmed
entertainment product depend in part upon general economic conditions, but the
competitive position of a producer or distributor is still greatly affected by
the quality of, and public response to, the entertainment product it makes
available to the marketplace. Network television is extremely competitive as
networks seek to attract audience share, television stations for affiliation,
advertisers and broadcast rights to television programming. Warner Bros.
competes in its character merchandising and other licensing and retail
activities with other licensors and retailers of character, brand and celebrity
names. Warner Bros.' operation of theaters is subject to varying degrees of
competition with respect to obtaining films and attracting patrons.

                                     CABLE

    TWE's Cable business consists principally of interests in cable television
systems that are generally managed by Time Warner Cable. Of the approximately
12.6 million subscribers served by Time Warner Cable at December 31, 1999,
approximately 1.8 million are in systems owned by TWI Cable Inc. ('TWI Cable'),
a wholly owned subsidiary of Time Warner which is not a part of TWE, and
approximately 10.8 million are in systems owned or managed by TWE. TWE's cable
systems include approximately 6.7 million subscribers in a joint venture between
TWE and Advance/Newhouse known as TWE-A/N. TWE-A/N is owned 33.3% by
Advance/Newhouse, 64.8% by TWE and 1.9% by TWI Cable. Time Warner Cable
generally manages all such systems and receives a fee for management of the
systems owned by TWI Cable and TWE-A/N.

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                               SYSTEMS OPERATIONS

    Time Warner Cable is one of the largest operators of cable television
systems in the United States with approximately 90% of its customers served by
clustered cable systems (as described below) with 100,000 subscribers or more.

    Over the past several years, Time Warner Cable has pursued a strategy of
upgrading its existing cable systems generally to 750 MHz capability, based on a
hybrid fiber optic/coaxial cable architecture. Upgraded systems can deliver
increased channel capacity and provide two-way transmission capability, with
improved network management systems. Upgrading also permits Time Warner Cable to
roll out new and advanced services, including digital and high-definition
television ('HDTV') programming, high-speed Internet service, video-on-demand,
telephony and other services. See 'New Cable Services' below.

    Time Warner Cable entered into a Social Contract with the Federal
Communications Commission ('FCC') in 1996 that required it to invest a total of
$4 billion in capital costs in connection with upgrades of generally all
domestic systems managed by Time Warner Cable by December 31, 2000. Of those
cable systems which are covered by the Social Contract, approximately 85% had
completed upgrades by December 31, 1999 and average analog channel capacity had
increased from approximately 50 channels to approximately 75 channels.

    Apart from upgrades, TWE has made approximately $310 million of additional
capital available to Time Warner Cable in 2000 to accelerate the rollout of its
digital and Internet services, in order to take advantage of the positive
customer response rates and to better position itself against competitive
services such as DTH satellite services.

    As of December 31, 1999, Time Warner Cable had 34 distinct geographic system
groupings serving more than 100,000 subscribers. This clustering strategy has
enabled, among other things, significant cost and marketing efficiencies, more
effective pursuit of local and regional cable advertisers, the development of
local news channels and the roll-out of advanced services over a geographically
concentrated customer base.

    In 1999, Time Warner Cable (i) closed a series of asset exchanges with
certain subsidiaries of AT&T (successor to TCI) under which AT&T received
systems serving approximately 575,000 subscribers in areas not strategic to Time
Warner Cable and Time Warner Cable received systems of comparable aggregate size
adjacent to or near major clusters in Florida, Hawaii, Maine, New York, Ohio,
Texas and Wisconsin and (ii) exchanged cable television systems serving
approximately 314,000 subscribers in Boston and Atlanta for other systems of
comparable aggregate size owned by MediaOne in Ohio, Maine and Palm Springs, CA.
Time Warner Cable also in 1999 obtained sole control of partnerships previously
held with Fanch Communications, retaining cable television systems serving
approximately 158,000 subscribers and approximately $280 million of cash, and
releasing interests in other systems owned by such partnerships. Time Warner
Cable has agreed to exchange its Indianapolis system (approximately 120,000
subscribers) for Comcast's Tallahassee and Lake County, Florida systems
(approximately 130,000 subscribers) in an asset exchange expected to close in
the first half of 2000.

FRANCHISES

    Cable systems are constructed and operated under non-exclusive franchises
granted by state or local governmental authorities. Franchises typically contain
many conditions, such as time limitations on commencement or completion of
construction; conditions of service, including number of channels, provision of
free services to schools and other public institutions; and the maintenance of
insurance and indemnity bonds. Cable franchises are subject to various federal,
state and local regulations. See 'Regulation and Legislation' below.

PROGRAMMING

    Programming is generally made available to customers through programming
tiers, which are packages of different programming services provided for
prescribed monthly fees. The available analog channel capacity of Time Warner
Cable's systems has been expanding as system upgrades are completed. As Time
Warner Cable

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<PAGE>

rolls out digital services in its systems, the number of channels of video
programming a customer may elect to receive are further increased such that over
150 video channels are available.

    Video programming available to customers includes local and distant
broadcast television stations, cable programming services like CNN, TNT and
ESPN, and premium cable services like HBO, Cinemax, Showtime and Starz! The
terms and conditions of carriage of programming services are generally
established through affiliation agreements between the programmers and Time
Warner Cable. Many programming services impose a monthly license fee per
subscriber upon the cable operator. Programming costs generally have been
increasing sharply in recent years and depending on the terms of any specific
agreement, the cost of providing any cable programming service may continue to
rise. While Time Warner Cable sometimes has the right to cancel contracts, and
can in any event refuse to renew them, it is unknown whether the loss of any one
popular supplier would have a material adverse effect on Time Warner Cable's
operations.

SERVICE CHARGES AND ADVERTISING

    Subscribers to Time Warner Cable's cable systems are charged monthly fees
based on the level of service selected, which fees in some cases include
equipment charges. A one-time installation fee is generally charged for
connecting subscribers to the cable television system. Although regulation of
certain cable programming rates ended on March 31, 1999, rates for 'basic'
programming and for equipment and installation continue to be regulated pursuant
to federal law. See 'Regulation and Legislation' below.

    Subscribers may purchase premium programming services and, in certain
systems, other per-channel services, for an additional monthly fee for each such
service, with discounts generally available for the purchase of more than one
service. Pay-per-view programming offers movies and special events, such as
boxing, for a separate charge. Time Warner Cable's systems increasingly offer
pay-per-view services on an 'impulse' basis, permitting a subscriber to place an
order over the cable system through his or her remote control or cable set-top
box.

    Subscription revenues continue to account for most of Time Warner Cable's
revenues, with pay-per-view and premium services contributing additional
revenues. Subscribers may discontinue purchasing services at any time.

    Time Warner Cable also generates revenue by selling advertising time to
national, regional and local businesses. Cable television operators receive an
allocation of advertising time availabilities on certain cable programming
services into which commercials can be inserted at the local system level. The
clustering of Time Warner Cable's systems expands the share of viewers that Time
Warner Cable reaches within a local DMA (Designated Market Area), which helps
local ad sales personnel to compete more effectively with broadcast and other
media. In addition, in many localities, contiguous cable system operators have
formed advertising interconnects to deliver locally inserted commercials across
wider geographic areas, replicating the reach of the broadcast stations as much
as possible. Twenty-two of Time Warner Cable's 39 field divisions participate in
a cable advertising interconnect.

                              LOCAL NEWS CHANNELS

    Time Warner Cable operates, alone or in partnerships, 24-hour local news
channels in New York City (NY1 News), Tampa Bay (Bay News 9), Orlando (Central
Florida News 13), Rochester, NY (R/News) and Austin (News 8 Austin).
Preparations to launch news channels are underway in two other large systems.

                               NEW CABLE SERVICES

DIGITAL CABLE SERVICES

    During 1999, Time Warner Cable began an aggressive roll-out of digital cable
service in many of its cable systems. As of December 31, 1999, Time Warner Cable
had approximately 430,000 digital service subscribers. Currently 30 of Time
Warner Cable's field divisions are offering digital cable, while the remaining
major divisions are expected to commence offering digital service in 2000. The
digital format of the signals allows

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<PAGE>

them to be compressed so that they occupy less bandwidth, which substantially
increases the number of channels that can be provided over a system. The digital
set-top boxes delivered to subscribing customers will offer a digital
programming tier with up to 100 networks, CD quality music services, more
pay-per-view options, more channels of multiplexed premium services, a digital
interactive program guide, and other features such as parental lockout options.

ROAD RUNNER

    In 1998, TWE, TWE-A/N, TWI Cable, MediaOne, and subsidiaries of Microsoft
Corp. ('Microsoft') and Compaq Computer Corp. ('Compaq') formed a joint venture
to operate and expand Time Warner Cable's and MediaOne's then-existing
high-speed online service business (the 'Road Runner Joint Venture'). The Road
Runner cable service provides high-speed Internet access and also offers content
optimized for broadband-capable networks. Road Runner affiliates with local
cable television system operators, principally Time Warner Cable and MediaOne,
in exchange for a percentage of the cable operator's retail revenue from
subscribers for the Road Runner service. Customers connect their personal
computers to the cable operators' two-way hybrid fiber optic/coaxial cable
system which, together with Road Runner's backbone network, enables customers to
access the Internet and Road Runner's content at speeds much greater than
traditional telephone modems.

    As of December 31, 1999, the Road Runner Joint Venture had affiliations in
37 localities and was available to approximately 13 million homes passed by
cable, and the service had approximately 550,000 subscribers (of which
approximately 330,000 are in Time Warner Cable systems). The Road Runner service
has been launched by Time Warner Cable in 23 of its 39 field divisions including
New York City. Roll-outs will continue during 2000. After conversion of all
outstanding preferred interests, the Road Runner Joint Venture is owned 8.6% by
TWI Cable, 20% by TWE, 26.3% by TWE-A/N, 25.1% by MediaOne, 10% by Microsoft and
10% by Compaq. See also Note 2, 'Cable Transactions -- Road Runner Joint
Venture' to TWE's consolidated financial statements at pages F-25 and F-26
herein.

    The Road Runner affiliates, including Time Warner Cable, have given the Road
Runner service certain rights of exclusivity with regard to high-speed Internet
services to residential subscribers' personal computers. However, as part of
Time Warner's ongoing discussions in connection with the proposed AOL Merger,
Time Warner has pledged to enter into agreements to provide multiple Internet
service providers (ISPs) on its cable systems, subject to existing contractual
limitations and partnership obligations; and Time Warner will endeavor to reach
accommodations with third parties to permit the implementation of multiple ISP
services as quickly as possible.

HDTV

    Pursuant to FCC order, television broadcast stations have been granted
additional over-the-air spectrum to provide, under a prescribed roll-out
schedule, high definition and digital television signals to the public. Time
Warner Cable's upgraded hybrid fiber optic/coaxial cable architecture should
provide a technologically superior means of distributing HDTV signals. To date,
Time Warner Cable has agreed to carry the high-definition television signals and
other digital signals that will be broadcast by television stations owned and
operated by the CBS and Fox networks; and Time Warner Cable is seeking similar
arrangements with other broadcasters. Time Warner Cable is also carrying the
HDTV version of HBO in certain areas.

VIDEO-ON-DEMAND

    By adding digital servers and software to its digital television service
platform, Time Warner Cable will be able to offer network-based 'true'
video-on-demand services, including 'virtual' VCR features such as pause, rewind
and fast forward. Time Warner Cable began testing of video-on-demand equipment
in 1999 in its Austin, Tampa Bay and Hawaii systems, and launched
video-on-demand service on a limited basis to customers in certain areas of
Hawaii in December 1999. Additional testing and launches in two or three
additional locations are expected in 2000.

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                                   TELEPHONY

    Time Warner Telecom Inc. ('Time Warner Telecom') is a facilities-based
integrated communications provider that offers a wide range of business
telephony services in selected metropolitan areas across the United States. Time
Warner Telecom was formed in 1998 through a restructuring of the business
telephony operations of Time Warner Cable. As part of this restructuring, TWE's
and TWE-A/N's interests in Time Warner Telecom were distributed to their
partners and TWE and TWE-A/N do not have any continuing equity interest in the
Time Warner Telecom operations. Following Time Warner Telecom's initial public
offering of equity securities in May 1999, Time Warner's interest in Time Warner
Telecom as of December 31, 1999 was diluted to approximately 48% of the equity.

    Time Warner Telecom's customers are principally medium and large-sized
telecommunications-intensive business end-users, long distance carriers,
Internet service providers, wireless communications companies and governmental
entities. Such customers are offered a wide range of integrated
telecommunications services, including dedicated transmission, local switched
data and video transmission services and certain Internet services. Its networks
have been constructed to date primarily through licensing the use of fiber
capacity from Time Warner Cable.

    Time Warner Cable is continuing to evaluate the most efficient and effective
way to offer residential telephony services to consumers, and is presently
exploring a strategy focused on Internet protocol, rather than circuit-switched,
telephony.

                                 INTERNATIONAL

    During 1999, TWE and TWE-A/N sold their interests in two cable systems in
France and, in addition, sold their interests in two cable and Internet access
services in Japan. As a result, Time Warner Cable no longer holds any interests
in cable systems outside the United States.

                                  COMPETITION

    Cable television systems face strong competition for viewer attention and
subscriptions from a wide variety of news, information and entertainment
providers. These include multichannel video providers like DTH, MMDS, SMATV
systems and telephone companies, other sources of video programs (such as
broadcast television and videocassettes) and additional sources for news,
entertainment and information, including the Internet. Cable television systems
also face strong competition from all media for advertising dollars.

    DTH. DTH services offer pre-packaged programming services that can be
received by relatively small and inexpensive receiving dishes. As of December
1999, satellite-delivered DTH services were reported to be serving over 11
million subscribers. (In addition to DTH, most cable programming is available to
owners of larger, more expensive C-Band satellite dishes.) Congress has recently
enacted legislation allowing carriage of local broadcast signals by DTH
providers under a copyright compulsory license similar to that granted to cable
television operators. DirectTV and Echostar have commenced offering local
broadcast signals in major metropolitan areas, with additional rollouts
scheduled. The ability of DTH providers to deliver local broadcast signals
reduces one advantage that cable operators previously had over DTH providers.

    MMDS/Wireless Cable. Wireless cable operators, including digital wireless
operators, use microwave technology to distribute video programming. Wireless
cable operators reportedly served over 800,000 subscribers nationwide as of June
1999.

    SMATV. Additional competition comes from private cable television systems
servicing condominiums, apartment complexes and certain other multiple unit
residential developments with local broadcast signals and many of the same
satellite-delivered program services offered by franchised cable television
systems. The operators of these private systems, known as SMATV systems, often
enter into exclusive agreements which preclude cable television operators from
serving residents of such private complexes, where state law permits.

    Overbuilds. Under the 1992 Cable Act, franchising authorities are prohibited
from unreasonably refusing to award additional franchises. There are an
increasing number of overlapping cable systems operating in Time

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<PAGE>

Warner Cable franchise areas. Municipalities themselves are authorized to
operate cable systems without a franchise and two municipally-owned systems are
presently in operation in Time Warner Cable franchise areas.

    Telephone Companies. The 1996 Telecommunications Act eliminated the
restriction against ownership and operation of cable systems by local telephone
companies within their local exchange service areas (subject to the restriction
against acquisition of greater than 10% of existing cable systems described
under 'Regulation and Legislation -- Ownership,' below). Telephone companies are
now free to enter the retail video distribution business, including through DTH,
MMDS and SMATV, as traditional franchised cable system operators, or as
operators of 'open video systems' subject to certain local authorizations and
local fees.

    Additional Competition. In addition to multichannel video providers, cable
television systems compete with all other sources of news, information and
entertainment including over-the-air television broadcast reception, live
events, movie theaters, home video products, and the Internet. In recent years,
the FCC has adopted policies providing for authorization of new technologies and
a more favorable operating environment for certain existing technologies that
provide, or may provide, substantial additional competition for cable television
systems.

    'On-Line' Competition. Time Warner Cable's systems face competition from a
variety of companies that service customers with various other forms of
'on-line' services, including DSL high-speed Internet access services and
dial-up services over ordinary telephone lines. Monthly prices of these ISPs are
often comparable to cable offerings. Other developing new technologies, such as
Internet access via satellite or wireless connections, compete with cable and
cable on-line services as well.

                           REGULATION AND LEGISLATION

    TWE's cable television systems, cable network, television network and
original programming businesses are subject, in part, to regulation by the FCC,
and the cable television systems business is also subject to regulation by some
state governments and substantially all local governments. The following is a
summary of current federal laws and regulations affecting the growth and
operation of these businesses and a description of certain state and local laws.
In addition, various legislative and regulatory proposals under consideration
from time to time by Congress and various federal agencies have in the past
materially affected, and may in the future materially affect, TWE.

                         PROGRAMMING AND CABLE NETWORKS

    Under the 1992 Cable Act, the FCC has issued regulations which generally
prohibit vertically integrated programmers, which include the Home Box Office
Services, from offering different prices, terms, or conditions to competing
multichannel video programming distributors unless the differential is justified
by certain permissible factors set forth in the regulations. The rules also
place certain restrictions on the ability of vertically integrated programmers
to enter into exclusive distribution arrangements with cable operators.

    The Telecommunications Competition and Deregulation Act of 1996 (the '1996
Telecommunications Act') contains certain provisions relating to violent and
sexually explicit programming. In addition to requiring manufacturers to build
television sets with the capability of blocking certain coded programming (the
so-called 'V-chip'), pursuant to the 1996 Telecommunications Act the cable and
broadcasting industries developed voluntary ratings for video programming
containing violent, sexually explicit or other indecent content and agreed to
voluntarily transmit signals containing such ratings.

                                     CABLE

    The following discussion summarizes the significant federal, state and local
laws and regulations affecting TWE's cable television systems operations.

    Federal Laws. The Cable Communications Policy Act of 1984 ('1984 Cable
Act'), the 1992 Cable Act and the 1996 Telecommunications Act are the principal
federal statutes governing the cable industry. These statutes regulate the cable
industry, among other things, with respect to: (i) cable systems rates for basic
service, equipment and installation; (ii) programming access and exclusivity
arrangements; (iii) access to cable channels

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<PAGE>

for public, educational and governmental programming; (iv) leased access terms
and conditions; (v) horizontal and vertical ownership of cable systems;
(vi) consumer protection and customer service requirements; (vii) franchise
renewals; (viii) television broadcast signal carriage requirements and
retransmission consent; (ix) technical standards; and (x) privacy of customer
information.

    Rate Regulation. Under federal laws, nearly all cable television systems are
subject to local rate regulation for basic service pursuant to a formula
established by the FCC and enforced by local franchising authorities. The 1992
Cable Act required the FCC to review rates for nonbasic service tiers, known as
'cable programming service tiers' ('CPST'), comprised of cable programming
services other than per-channel or per-program services. However, pursuant to
the 1996 Telecommunications Act, regulation of CPST rates terminated on
March 31, 1999. Regulation of basic service rates also ceases for any cable
system subject to 'effective competition.' The 1996 Telecommunications Act
expanded the definition of 'effective competition' to cover situations where a
local telephone company or its affiliate, or any multichannel video provider
using telephone company facilities, offers comparable video service by any means
except direct-to-home ('DTH').

    The FCC's rate regulations employ a benchmark system for measuring the
reasonableness of existing basic service rates. Alternatively, cable operators
have the opportunity to make cost-of-service showings which, in some cases, may
justify rates above the applicable benchmarks. The regulations also provide that
future rate increases may not exceed an inflation-indexed amount, plus increases
in certain costs beyond the cable operator's control, such as taxes, franchise
fees and programming costs. Cost-based adjustments to these capped rates can
also be made in the event a cable operator adds or deletes channels or
significantly upgrades its system.

    Local franchising authorities are empowered to order a reduction of existing
rates that exceed the maximum permitted level for basic service and associated
equipment, and refunds can be required.

    Carriage of Broadcast Television Signals. The 1992 Cable Act allows
commercial television broadcast stations that are 'local' to a cable system to
elect every three years either to require the cable system to carry the station,
subject to certain exceptions, or to negotiate for 'retransmission consent' to
carry the station. Broadcast stations may seek monetary or non-monetary
compensation in return for granting retransmission consent. Local non-commercial
television stations are also given mandatory carriage rights, subject to certain
exceptions. Unlike commercial stations, non-commercial stations are not given
the option to require negotiation of retransmission consent. In addition, cable
systems must obtain retransmission consent for the carriage of all 'distant'
commercial broadcast stations, except for certain 'superstations,' i.e.,
commercial satellite-delivered independent stations such as WGN. Time Warner
Cable has obtained retransmission consent agreements of at least three year
terms with the majority of broadcasters, but certain broadcasters have only
granted short-term arrangements to permit continued negotiations. If the parties
cannot agree on retransmission consent terms, Time Warner Cable may be forced to
delete the subject programming from one or more of its systems for an indefinite
period. The next three-year election between mandatory carriage and
retransmission consent for local commercial television stations will occur on
October 1, 2002.

    Deletion of Certain Programming. Cable television systems that serve 1,000
or more customers must delete the simultaneous or nonsimultaneous network
programming of a distant station upon the appropriate request of a local
television station holding local exclusive rights to such programming. FCC
regulations also enable television broadcast stations that have obtained
exclusive distribution rights for syndicated programming in their market to
require a cable system to delete or 'black out' such programming from non-local
television stations which are carried by the cable system.

    Public and Leased Access Channels. The 1984 Cable Act permits local
franchising authorities to require operators to set aside certain channels for
public, educational and governmental access programming. The 1984 Cable Act
further requires cable television systems with thirty-six or more activated
channels to designate a portion of their channel capacity for commercial leased
access by unaffiliated third parties. The 1992 Cable Act requires leased access
rates to be set according to a formula determined by the FCC.

    Ownership. The 1996 Telecommunications Act repealed the 1984 Cable Act's
restrictions on local exchange telephone companies ('LECs') from providing video
programming directly to customers within their

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local exchange telephone service areas. With certain limited exceptions, a LEC
may not acquire more than a 10% equity interest in an existing cable system
operating within the LEC's service area. The 1996 Telecommunications Act also
authorized LECs and others to operate 'open video systems' ('OVS') which are not
subject to the full array of regulatory obligations imposed on traditional cable
systems, although OVS operators can be required to obtain a franchise by a local
governmental body and/or to make payments in lieu of cable franchise fees. A
number of separate entities have been certified to operate open video systems in
areas where Time Warner Cable operates cable systems, including New York City,
Milwaukee, Kansas City and a number of cities in Texas.

    The 1996 Telecommunications Act eliminated the FCC rule prohibiting common
ownership between a cable system and a national broadcast television network,
and the statutory ban covering certain common ownership interests, operation or
control between a television station and cable system within the station's
Grade B signal coverage area. However, the parallel FCC rule against
cable/television station cross-ownership remains in place, subject to the
outcome of a pending review by the FCC. The FCC has initiated a rulemaking
proceeding in which it asks what restrictions, if any, should be placed on a
cable operator's ownership of a DTH service. Finally, the 1992 Cable Act
prohibits common ownership, control or interest in cable television systems and
MMDS facilities or SMATV systems having overlapping service areas, except in
limited circumstances. The 1996 Telecommunications Act exempts cable systems
facing 'effective competition' from the MMDS and SMATV cross-ownership
restrictions.

    The 1992 Cable Act directed the FCC to adopt so-called subscriber-limit
rules, establishing reasonable limits on the number of cable subscribers an
operator may reach through systems in which it holds an attributable interest.
The FCC has promulgated a rule imposing a limit of 30% of all cable, DTH and
other multi-channel video provider subscribers nationwide. Pursuant to the 1992
Cable Act, the FCC has also adopted so-called channel-occupancy rules that, with
certain exceptions, preclude a cable television system from devoting more than
40% of its first 75 activated channels to national video programming services in
which the cable system owner has an attributable interest. Time Warner Cable is
a party to a federal-court challenge to the validity of both the
channel-occupancy rules and the subscriber-limit rules. Pending this challenge,
the FCC has voluntarily stayed the effectiveness of the subscriber-limit rules
(with the exception of certain reporting requirements) but not the
channel-occupancy rules.

    Other FCC Regulations. Additional FCC regulations relate to a cable system's
carriage of local sports programming; privacy of customer information; equipment
compatibility; franchise transfers; franchise fees; closed captioning; equal
employment opportunity; pole attachments; restrictions on origination and
cablecasting by cable system operators; application of the rules governing
political broadcasts; customer service; technical standards; home wiring; and
limitations on advertising contained in nonbroadcast children's programming.

    Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of broadcast signals. In exchange for making
semi-annual payments to a federal copyright royalty pool and meeting certain
other obligations, cable operators obtain a statutory license to retransmit
broadcast signals. The amount of this royalty payment varies, depending on the
amount of system revenues from certain sources, the number of distant signals
carried, and the location of the cable system with respect to over-the-air
television stations.

    State and Local Regulation. Because a cable television system uses local
streets and rights-of-way, cable television systems are subject to local
regulation, typically imposed through the franchising process, and certain
states have also adopted cable television legislation and regulations. Cable
franchises are nonexclusive, granted for fixed terms and usually terminable if
the cable operator fails to comply with material provisions. No Time Warner
Cable franchise has been terminated due to breach. Franchises usually call for
the payment of fees (which are limited under the 1984 Cable Act to a maximum of
5% of the system's gross revenues from cable service) to the granting authority.
The terms and conditions of cable franchises vary materially from jurisdiction
to jurisdiction, and even from city to city within the same state, historically
ranging from reasonable to highly restrictive or burdensome.

    The 1992 Cable Act prohibits exclusive franchises and allows franchising
authorities to operate their own multichannel video distribution system without
having to obtain a franchise.

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    Renewal and Transfer of Franchises. The 1984 Cable Act established renewal
procedures and criteria designed to protect incumbent franchisees against
arbitrary denials of renewal. While these formal procedures are not mandatory
unless timely invoked by either the cable operator or the franchising authority,
they can provide substantial protection to incumbent franchisees.

    In the renewal process, a franchising authority may seek to impose new and
more onerous requirements, such as upgraded facilities, increased channel
capacity or enhanced services, although the municipality must take into account
the cost of meeting such requirements. Time Warner Cable may be required to make
significant additional investments in its cable television systems as part of
the franchise renewal process. Although Time Warner Cable has been successful in
the past in negotiating new franchise agreements, there can be no assurance as
to the approval of franchises in the future.

    A substantial number of Time Warner Cable's cable television franchises may
require local governmental approval in connection with the merger of America
Online and Time Warner, and a few states may impose similar requirements.
Applications have been submitted to appropriate state and local authorities
where such consent may be required. Other state and local authorities have been
provided notification of the pending merger.

                                 DIGITAL MEDIA

    During 1999, Time Warner created Time Warner Digital Media ('TW Digital
Media') to develop and implement a company-wide digital media strategy, to fund
and oversee digital media initiatives across Time Warner's and TWE's divisions
and to identify and pursue digital media-related investment opportunities. TW
Digital Media also serves as a resource for other transactions in the new media
and digital area, including Time Warner's pending merger with America Online.

    TW Digital Media currently funds and participates in the oversight of the
development of significant Time Warner and TWE Internet sites, including
Entertaindom.com. Entertaindom, launched in November 1999, is an
advertiser-supported entertainment destination site featuring
entertainment-related information and services, a mix of content from both TWE
brands and third party content providers, including animated shorts, music and
multiplayer games, e-commerce and community sites, such as ACMEcity.com, an
entertainment-focused personal home page community. TW Digital Media also funds
and participates in the development of new digital media business initiatives,
including online extensions of both existing brands and new brands, such as
Volume.com, a website targeting an African American audience.

    In December 1999, TW Digital Media launched a digital media investment fund
to invest up to $500 million in cash and non-cash (e.g., advertising and
promotion) currencies in non-controlling equity investments in companies engaged
in e-commerce, vertical and interactive content, technology, infrastructure and
other digital media-related activities. Investments made by TWE divisions in
digital media include Fortune City.

                    DESCRIPTION OF CERTAIN PROVISIONS OF THE
                           TWE PARTNERSHIP AGREEMENT

    The following description summarizes certain provisions of the TWE
Partnership Agreement relating to the ongoing operations of TWE. Such
description does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the provisions of the TWE Partnership
Agreement.

MANAGEMENT AND OPERATIONS OF TWE

    PARTNERS. The limited partnership interests in TWE are held by the Class A
Partners consisting of MediaOne and wholly owned subsidiaries of Time Warner and
the general partnership interests in TWE are held by the Class B Partners
consisting of wholly owned subsidiaries of Time Warner.

    BOARD OF REPRESENTATIVES. The business and affairs of TWE are managed under
the direction of a board of representatives (the 'Board of Representatives' or
the 'Board') that is comprised of representatives appointed

                                      I-16





<PAGE>

by subsidiaries of Time Warner (the 'Time Warner Representatives') and
representatives appointed by MediaOne (the 'MediaOne Representatives').

    The Time Warner Representatives control all Board decisions except for
certain limited, significant matters affecting TWE as a whole, which matters
also require the approval of the MediaOne Representatives.

    The managing general partners, both of which are wholly owned subsidiaries
of Time Warner, may take any action without the approval or consent of the Board
if such action may be authorized by the Time Warner Representatives without the
approval of the MediaOne Representatives.

    CABLE MANAGEMENT COMMITTEE. Prior to August 1999, the businesses and
operations of the cable television systems ('Cable Systems') of TWE and the
TWE-A/N Partnership were governed by a Cable Management Committee (the
'Management Committee') comprised of six voting members, three designated by
MediaOne and three designated by TWE. In August 1999, TWE received a notice from
MediaOne concerning the termination of its covenant not to compete with TWE. As
a result of the termination notice and the operation of the TWE partnership
agreement, MediaOne's rights to participate in the management of TWE's
businesses, including its rights to membership on the Management Committee,
terminated immediately and irrevocably. MediaOne retains its representation on
the TWE Board of Representatives as described above.

    DAY-TO-DAY OPERATIONS. TWE is managed on a day-to-day basis by the officers
of TWE, and each of TWE's principal divisions is managed on a day-to-day basis
by the officers of such division. The officers of Time Warner are also officers
of TWE.

CERTAIN COVENANTS

    COVENANT NOT TO COMPETE. For so long as any partner (or affiliate of any
partner) owns in excess of 5% of TWE and in the case of any Time Warner General
Partner, for one year thereafter, such partner (including its affiliates) is
generally prohibited from competing or owning an interest in the principal lines
of business of TWE -- cable, cable programming and filmed entertainment -- as
such businesses may evolve, subject to certain agreed upon exceptions (including
TBS), limited passive investments and inadvertent violations. The covenant not
to compete does not prohibit (i) MediaOne from conducting cable and certain
regional programming businesses in the 14-state region in which US WEST, Inc.
provides telephone service, (ii) any party from engaging in the cable business
in a region in which TWE is not then engaging in the cable business, subject to
TWE's right of first refusal with respect to such cable business, or (iii) any
party from engaging in the telephone or information services business. MediaOne
will not be bound by the covenant not to compete after August 2000.

    TRANSACTIONS WITH AFFILIATES. Subject to agreed upon exceptions for certain
types of arrangements, TWE has agreed not to enter into transactions with any
partner or any of its affiliates other than on an arm's-length basis.

REGISTRATION RIGHTS

    Within 60 days after June 30, 1999, and within 60 days after the last day of
each 18 month period after June 30, 1999, the Class A Partners holding,
individually or in the aggregate, at least 10% of the residual equity of TWE
will have the right to request that TWE reconstitute itself as a corporation and
register for sale in a public offering an amount of partnership interests held
by such Class A Partners determined by an investment banking firm so as to
maximize trading liquidity and minimize the initial public offering discount, if
any. Upon any such request, the parties will cause an investment banker to
determine the price at which the interests sought to be registered could be sold
in a public offering (the 'Appraised Value'). Upon determination of the
Appraised Value, TWE may elect either to register such interests or purchase
such interests at the Appraised Value, subject to certain adjustments. If TWE
elects to register the interests and the proposed public offering price (as
determined immediately prior to the time the public offering is to be declared
effective) is less than 92.5% of the Appraised Value, TWE will have a second
option to purchase such interests immediately prior to the time such public
offering would otherwise have been declared effective by the Securities and
Exchange Commission at the proposed public offering price less underwriting fees
and discounts. If TWE exercises its

                                      I-17





<PAGE>

purchase option, it will be required to pay the fees and expenses of the
underwriters. Upon exercise of either purchase option, TWE may also elect to
purchase the entire partnership interests of the Class A Partners requesting
registration at the relevant price, subject to certain adjustments.

    In addition to the foregoing, MediaOne will have the right to exercise an
additional demand registration right (in which the other Class A Partners would
be entitled to participate) beginning 18 months following the date on which TWE
reconstitutes itself as a corporation and registers the sale of securities
pursuant to a previously exercised demand registration right.

    At the request of any Time Warner General Partner, TWE will effect a public
offering of the partnership interests of the Time Warner General Partners or
reconstitute TWE as a corporation and register the shares held by the Time
Warner General Partners. In any such case, the Class A Partners will have
standard 'piggy-back' registration rights.

    Upon any reconstitution of TWE into a corporation, each partner will acquire
preferred and common equity in the corporation corresponding in both relative
value, rate of return and priority to the partnership interests it held prior to
such reconstitution, subject to certain adjustments to compensate the partners
for the effects of converting their partnership interests into capital stock.

CERTAIN PUT AND OPTION RIGHTS OF THE CLASS A PARTNERS

    CHANGE IN CONTROL PUT. Upon the occurrence of a change in control of Time
Warner, at the request of MediaOne, TWE will be required to elect either to
liquidate TWE within a two-year period or to purchase the interest of MediaOne
at fair market value (without any minority discount) as determined by investment
bankers. A 'change in control' of Time Warner shall be deemed to have occurred:

        (x) whenever, in any three-year period, a majority of the members of the
    Board of Directors of Time Warner elected during such three-year period
    shall have been so elected against the recommendation of the management of
    Time Warner or the Board of Directors shall be deemed to have been elected
    against the recommendation of such Board of Directors of Time Warner in
    office immediately prior to such election; provided, however, that for
    purposes of this clause (x) a member of such Board of Directors shall be
    deemed to have been elected against the recommendation of such Board of
    Directors if his or her initial election occurs as a result of either an
    actual or threatened election contest (as such terms are used in Rule 14a-11
    of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
    amended) or other actual or threatened solicitation of proxies or consents
    by or on behalf of a person other than such Board of Directors; or

        (y) whenever any person shall acquire (whether by merger, consolidation,
    sale, assignment, lease, transfer or otherwise, in one transaction or any
    related series of transactions), or otherwise beneficially owns voting
    securities of Time Warner that represent in excess of 50% of the voting
    power of all outstanding voting securities of Time Warner generally entitled
    to vote for the election of directors, if such person acquires or publicly
    announces its intention to initially acquire ten percent or more of such
    voting securities in a transaction that has not been approved by the
    management of Time Warner within 30 days after the date of such acquisition
    or public announcement.

    The consummation of the proposed AOL Merger will not constitute a 'change in
control' of Time Warner under the foregoing provisions.

    ASSIGNMENT OF PUT RIGHTS, ETC. TWE, with the consent of such assignee, may
assign to Time Warner, any general partner or any third party, the obligation to
pay the applicable put price in connection with the exercise of a change in
control put right by MediaOne and the right to receive the partnership interests
in payment therefor.

    With respect to any of the put rights of MediaOne, TWE may pay the
applicable put price in cash or Marketable Securities (defined as any debt or
equity securities that are listed on a national securities exchange or quoted on
NASDAQ) issued by TWE (or if TWE assigns its obligation to pay the put price to
Time Warner, by Time Warner). The amount of any Marketable Securities comprising
the applicable put price shall be determined

                                      I-18





<PAGE>

based on the market price of such securities during the seven months following
the closing of such put transaction.

    MEDIAONE OPTION. MediaOne has an option to increase its Series A Capital and
Residual Capital interests from 25.51% to up to 31.84%. Such option is
exercisable anytime through on or about May 31, 2005 at an exercise price
ranging from approximately $1.3 billion in 2000 to $1.8 billion in 2005,
depending on the year of exercise. Either TWE or MediaOne may elect that the
exercise price for the option be paid with partnership interests rather than
cash.

RESTRICTIONS ON TRANSFER BY TIME WARNER GENERAL PARTNERS

    TIME WARNER GENERAL PARTNERS. Any Time Warner General Partner is permitted
to dispose of any partnership interest (and any Time Warner General Partner and
any parent of any Time Warner General Partner may issue or sell equity) at any
time so long as, immediately after giving effect thereto, (i) Time Warner would
not own, directly or indirectly, less than (a) 43.75% of the residual equity of
TWE, if such disposition occurs prior to the date on which the Class A Partners
have received cash distributions of $500 million per $1 billion of investment,
and (b) 35% of the residual equity of TWE if such disposition occurs after such
date, (ii) no person or entity would own, directly or indirectly, a partnership
interest greater than that owned, directly or indirectly, by Time Warner, and
(iii) a subsidiary of Time Warner would be a managing general partner of TWE.

    No other dispositions are permitted, except that Time Warner may sell its
entire partnership interest subject to the Class A Partners' rights of first
refusal and 'tag-along' rights pursuant to which Time Warner must provide for
the concurrent sale of the partnership interests of the Class A Partners so
requesting.

                         CURRENCY RATES AND REGULATIONS

    TWE's foreign operations are subject to the risk of fluctuation in currency
exchange rates and to exchange controls. TWE cannot predict the extent to which
such controls and fluctuations in currency exchange rates may affect its
operations in the future or its ability to remit dollars from abroad. See
Note 1, 'Organization and Summary of Significant Accounting Policies -- Foreign
Currency Translation' and Note 12, 'Derivative Financial Instruments -- Foreign
Currency Risk Management' to TWE's consolidated financial statements set forth
at pages F-37 and F-38, respectively, herein. For the revenues of international
operations, see Note 13 'Segment Information' to TWE's consolidated financial
statements set forth on page F-40 herein.

                                   EMPLOYEES

    At December 31, 1999, TWE employed a total of approximately 30,000 persons.

                 BUSINESSES OF THE TIME WARNER GENERAL PARTNERS

    WCI conducts substantially all of Time Warner's vertically integrated
worldwide recorded music business and worldwide music publishing business under
the umbrella name Warner Music Group. The other General Partner does not conduct
operations independent of its ownership interest in TWE and certain other
investments.

                                     MUSIC

    In the United States and around the world, WCI, through its wholly owned
Warner Music Group division ('WMG'), is in the business of discovering and
signing musical artists and manufacturing, packaging, distributing and marketing
their recorded music.

    In January 2000, Time Warner announced that it had entered into an agreement
to combine WMG's global music operations with that of Britain's EMI Group plc
(the 'Warner-EMI Merger') to form two equally-owned ventures to be collectively
known as Warner EMI Music. (See below.)

                                      I-19





<PAGE>

                                 RECORDED MUSIC

    In the United States, WCI's recorded music business is principally conducted
through WMG's Warner Bros. Records Inc., Atlantic Recording Corporation, Elektra
Entertainment Group Inc. and London-Sire Records Inc. and their affiliated
labels, as well as through the WEA Inc. companies. WMG's recorded music
activities are also conducted in 67 countries outside the United States through
various subsidiaries, affiliates and non-affiliated licensees.

    The WEA Inc. companies include WEA Manufacturing Inc., which manufactures
compact discs (CDs), audio and videocassettes, CD-ROMs and DVDs for WMG's record
labels, Warner Home Video and for outside companies; Ivy Hill Corporation, which
produces printed material and packaging for WMG's recorded music products as
well as for a wide variety of other consumer products; and
Warner-Elektra-Atlantic Corporation ('WEA Corp.'), which markets and distributes
WMG's recorded music products to retailers and wholesale distributors. WMG also
owns a majority interest in Alternative Distribution Alliance ('ADA'), an
independent distribution company specializing in alternative rock music with a
focus on new artists.

DOMESTIC

    WMG's record labels in the United States -- Warner Bros., Atlantic, Elektra
and London-Sire -- each with a distinct identity, discover and sign musical
artists. The labels scout and sign talent in many different musical genres,
including pop, rock, jazz, country, hip hop, rap, reggae, folk, blues, gospel
and Christian music. Among the artists and albums that resulted in significant
U.S. sales for WMG during 1999 were: Kid Rock, Cher, Red Hot Chili Peppers,
Sugar Ray, Everlast, GooGoo Dolls, Faith Hill, Metallica, Brandy, Austin Powers:
The Spy Who Shagged Me soundtrack, Jewel and Busta Rhymes.

    WMG is a vertically integrated music company. After an artist has entered
into a contract with a WMG label, a master recording of the artist's music is
produced and provided to WMG's manufacturing operation, WEA Manufacturing, which
replicates the music primarily on CDs and audio cassettes. WEA Manufacturing is
also the largest manufacturer of DVDs in the world. Ivy Hill prints material
that is included with CDs and audio cassettes and creates packaging for them.
WEA Corp. and ADA, WMG's distribution arms, sell product and deliver it, either
directly or through sub-distributors and wholesalers, to thousands of record
stores, mass merchants and other retailers throughout the country. CDs and audio
cassettes are also increasingly being sold directly to consumers through
Internet retailers such as CDnow and amazon.com. Artists generally receive
royalties based upon the sales of their recordings and music videos, and many
receive non-refundable advance payments which are recoupable from such
royalties.

    At the same time a record is being distributed, the label's promotion,
marketing, advertising and publicity departments place advertisements in print
and electronic media, work to get the new album played on the radio, reviewed
and mentioned in publications and the artist booked for appearances on radio and
television. If a music video featuring an artist has been produced, the video is
distributed and promoted to music video outlets and often made available for
viewing on Internet music sites. Label personnel may also help organize a
concert tour that will further promote a new album. On January 19, 2000, WMG
entered into a consent order with the staff of the Federal Trade Commission (the
'Consent Order') with respect to the FTC's investigation of WMG's practices
related to minimum advertised price. Among other things, WMG has agreed that for
seven years it will not make the receipt of any funds for cooperative
advertising of its recorded music product contingent upon the price or price
level at which such product is advertised or promoted. The Consent Order remains
subject to approval by the FTC Commissioners, which has not yet been obtained.

    In addition to newly released records, each of WMG's labels markets and
sells albums from their extensive catalogues of prior releases, in which the
labels generally continue to own the copyright in perpetuity. Rhino Records
specializes in compilations and reissues of previously released music.

    WMG also has entered into joint venture arrangements pursuant to which WMG
companies manufacture, distribute and market (in most cases, domestically and
internationally) recordings owned by the joint ventures. Such agreements
typically provide a WMG label with an equity interest and a profit participation
in the venture, with financing furnished either solely by the WMG label or by
both parties. Included among these arrangements

                                      I-20





<PAGE>

are the labels Maverick, Tommy Boy, Sub Pop, Qwest and 143. WMG labels also
enter into agreements with unaffiliated third-party record labels such as Curb
Records to manufacture and distribute for a fee recordings that are marketed
under the owner's proprietary label.

    WMG has actively pursued new media opportunities. A leader in establishing
the DVD Audio format, WMG was a major force in the Madison Project, which tested
the sale to consumers of digitally downloaded music, and has made investments in
companies that stream recordings or music videos digitally. WMG's record labels'
online sites collectively experience the second-largest traffic volume among all
the major music companies.

    Through a 50/50 joint venture, WMG and Sony Music Entertainment Inc.
('Sony') have operated The Columbia House Company, a direct marketer of CDs,
audio and videocassettes in North America. In July 1999, Time Warner announced
an agreement with Sony to merge Columbia House with CDnow, Inc., a music and
video e-commerce company. Since that time, the parties had been pursuing the
receipt of regulatory approvals, but such approvals had not been received by the
March 13, 2000 termination date set forth in the merger agreement and at that
time the parties agreed to terminate the agreement. As a result, the merger will
not occur. On terminating the merger agreement Time Warner and Sony also each
elected to make an investment of $10.5 million in CDnow's common stock, in
addition to the $15 million of convertible loans each committed to make on
entering into the merger agreement.

INTERNATIONAL

    The Warner Music International ('WMI') division of WMG operates through
various subsidiaries and affiliates and their non-affiliated licensees in 67
countries around the world. WMI engages in the same activities as WMG's domestic
labels, discovering and signing artists and manufacturing, packaging,
distributing and marketing their recorded music. The artists signed to WMI and
its affiliates number more than a thousand. Significant album sales for WMI in
1999 were generated by the following artists: Cher, Red Hot Chili Peppers, Eric
Clapton, The Coors, Madonna, Luis Miguel, Mana and Phil Collins.

    In most cases, WMI also markets and distributes the records of those artists
for whom WMG's domestic record labels have international rights. In certain
countries, WMI licenses to unaffiliated third-party record labels the right to
distribute its records. WMI operates a plant in Germany that manufactures CDs,
laser discs and vinyl records for its affiliated companies, as well as for
outside companies and, as part of a joint venture, operates a plant in Australia
that also manufactures CDs.

    WMI recently acquired London Records, a leading British independent
recording company. Its artists include Faith No More, Fine Young Cannibals and
Salt `n' Pepa.

                                MUSIC PUBLISHING

    WMG's music publishing companies own or control the rights to more than one
million musical compositions, including numerous pop music hits, American
standards, folk songs and motion picture and theatrical compositions. The
catalogue includes works from a diverse range of artists and composers including
Eric Clapton, Comden & Green, George and Ira Gershwin, Michael Jackson, Madonna
and Cole Porter. Warner/Chappell also administers the music of several
television and motion picture companies, including Lucasfilm, Ltd. and Hallmark
Entertainment.

    Warner/Chappell also owns Warner Bros. Publications and CPP/Belwin, two of
the world's largest publishers of printed music. These two companies market
publications throughout the world containing the works of such artists as
Alabama, The Grateful Dead, Led Zeppelin, Madonna, Bob Seger and many others.

    The principal source of revenues to Warner/Chappell is license fees paid for
the use of its musical compositions on radio, television, in motion pictures and
in other public performances; royalties for the use of its compositions on CDs,
audio cassettes, music videos and in television commercials; and sales of
published sheet music and song books.

                                      I-21





<PAGE>

                               WARNER-EMI MERGER

    On January 24, 2000, Time Warner and Britain's EMI Group plc announced that
they had agreed to combine their global music operations into two equally-owned
ventures to be collectively known as Warner EMI Music. EMI's labels include
Angel/Blue Note Records, Capitol Records, Priority Records and Virgin Records.
EMI's roster of artists includes Garth Brooks, Janet Jackson, The Rolling Stones
and Spice Girls and its vast back catalogue includes the recordings of The
Beatles, Frank Sinatra and Nat King Cole. EMI's music publishing assets include
songs written by Diane Warren, Enya, Sting, Third Eye Blind, The Prodigy and
Robbie Williams. The Warner EMI Music Board of Directors will consist of 11
members, six designated by Time Warner and five designated by EMI. Roger Ames,
Chairman and Chief Executive Officer of WMG, will be the Chief Executive
Officer, and Ken Berry, CEO of EMI Recorded Music, will be the Chief Operating
Officer. Richard Parsons, President of Time Warner, and Eric Nicoli, Chairman of
EMI Group plc, will serve as Co-Chairmen. The new company will be headquartered
in New York with most of its non-U.S. operations based in London. Completion of
the transaction is subject to certain regulatory approvals and approval by EMI
shareholders. There can be no assurance that such approvals will be obtained.
Additional information on the formation of the joint ventures is provided in
Note 16, 'Subsequent Events -- Warner-EMI Music Merger,' to the TWE General
Partners' consolidated financial statements, at page F-79 herein.

                                  COMPETITION

    The revenues of a company in the recording industry depend upon public
acceptance of the company's recording artists and their music. Although WMG is
one of the largest recorded music companies in the world, its competitive
position is dependent on its continuing ability to attract and develop talent
that can achieve a high degree of public acceptance. The competition among
record companies for such talent is intense, as is the competition among
companies to sell the recordings created by these artists. The recorded music
business continues to be adversely affected by counterfeiting of both audio
cassettes and CDs, piracy and parallel imports and may be affected by a
consumer's ability to download quality sound reproductions from the Internet
without authorization from the Company. In response, the recorded music industry
has engaged in a coordinated effort to develop a secure technology for digital
music delivery. In addition, the recorded music business also has competition
from other forms of entertainment, such as television, pre-recorded
videocassettes, the Internet and computer and video games. Competition in the
music publishing business is intense. Although WMG's music publishing business
is one of the largest on a worldwide basis, it competes with every other music
publishing company in acquiring musical compositions and in having them recorded
and performed. In addition, the vast majority of WMG's music publishing revenues
are subject to rate regulation either by government entities or by collecting
societies throughout the world.

                                     OTHER

DC COMICS AND MAD MAGAZINE

    TWE and WCI each owns a 50% interest in DC Comics. DC Comics publishes more
than 60 regularly issued comics magazines, among the most popular of which are
Superman, Batman, Wonder Woman and The Sandman, as well as collections sold as
books. DC Comics also derives revenues from motion pictures, television
syndication, product licensing and books.

    WCI owns 100% of E.C. Publications, Inc., the publisher of MAD, a humor and
satirical magazine which is regularly published 12 times a year and also in
periodic special editions.

TURNER BROADCASTING SYSTEM, INC.

    In October 1996, Time Warner consummated the acquisition of Turner
Broadcasting System Inc. ('TBS') by acquiring the remaining approximately 80%
interest in TBS not already owned by Time Warner. The Time

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<PAGE>

Warner General Partners collectively own a 10.6% economic interest in TBS.
Through its subsidiaries, TBS owns and operates domestic and international
entertainment networks, including TBS Superstation, Turner Network Television
(TNT), Cartoon Network and Turner Classic Movies (TCM); and news networks,
including Cable News Network (CNN), Headline News, Cable News Network
International (CNNI), CNN en Espanol, CNN Financial Network (CNNfn) and
CNN/Sports Illustrated. TBS also has interests in sports franchises and motion
picture operations.

TWE JAPAN

    WCI owns a 37.25% interest in, MediaOne owns a 12.75% interest in, and each
of Toshiba and ITOCHU Corporation owns a 25% interest in, TWE Japan. TWE Japan
was organized to conduct TWE's businesses in Japan, including home video
distribution, theatrical film and television distribution and merchandising
businesses, and to expand and develop new business opportunities. Pursuant to
distribution and merchandising agreements entered into between TWE and TWE
Japan, TWE Japan receives distribution fees generally comparable to those
currently received by TWE for performing distribution services for unaffiliated
third parties.

ITEM 2. PROPERTIES

PROPERTIES OF TWE

    The following table sets forth certain information as of December 31, 1999
with respect to the principal properties (over 250,000 square feet in area)
owned or leased by TWE's Cable Networks -- HBO, Filmed Entertainment and cable
television businesses, all of which TWE considers adequate for its present
needs, and all of which were substantially used by TWE:

<TABLE>
<CAPTION>
                                                              APPROXIMATE
                                                              SQUARE FEET          TYPE OF OWNERSHIP;
        LOCATION                   PRINCIPAL USE           FLOOR SPACE/ACRES    EXPIRATION DATE OF LEASE
        --------                   -------------           -----------------    ------------------------
<S>                       <C>                              <C>                <C>
New York, New York        Business offices                 350,000 sq. ft.    Leased by TWE.
  1100 and 1114           (HBO)                            and 244,000 sq.    Leases expire in 2018.
  Avenue of the                                            ft.
  Americas

Burbank, California       Sound stages, administrative,    3,303,000          Owned by TWE.
  The Warner Bros.        technical                        sq. ft. of
  Studio                  and dressing room                improved
                          structures, screening            space on 158
                          theaters, machinery and          acres(a)
                          equipment facilities, back
                          lot and parking lot and
                          other Burbank properties
                          (Filmed Entertainment)

Baltimore, Maryland       Warehouse (Filmed                387,200 sq. ft.    Owned by TWE.
  White Marsh             Entertainment)

Valencia, California      Location filming (Filmed         232 acres          Owned by TWE.
  Undeveloped Land        Entertainment)
</TABLE>

---------

(a) Ten acres consist of various parcels adjoining The Warner Bros. Studio, with
    mixed commercial, office and residential uses.

PROPERTIES OF THE TIME WARNER GENERAL PARTNERS

    The following table sets forth certain information as of December 31, 1999
with respect to the principal properties of WCI and its subsidiaries (over
250,000 square feet in area), all of which WCI considers adequate for its
present needs, and all of which were substantially used by WCI. ATC, the other
Time Warner General Partner, does not own or lease any properties material to
its business.

                                      I-23





<PAGE>

<TABLE>
<CAPTION>
                                                                        APPROXIMATE
                                                                        SQUARE FEET           TYPE OF OWNERSHIP
             LOCATION                         PRINCIPAL USE             FLOOR SPACE        EXPIRATION DATE OF LEASE
             --------                         -------------             -----------        ------------------------
<S>                                 <C>                                 <C>           <C>
New York, New York                  Offices (Music)                        273,800    Leased by WCI and a subsidiary.
  1290 Ave. of the                                                                    Leases expire 2000-2012.
  Americas                                                                            Approximately 66,100 sq. ft. are
                                                                                      sublet to outside tenants.

Olyphant,                           Manufacturing, warehouses,           1,012,000    Owned and occupied by a subsidiary
  Pennsylvania                      distribution and office space                     of WCI.
  1400 and 1444 East                (Music)
  Lackawanna Avenue
Alsdorf, Germany                    Manufacturing, distribution and        269,000    Owned and occupied by a subsidiary
  Max-Planck Strasse 1-9            office space (Music)                              of WCI.

Terre Haute, Indiana                Manufacturing and office space         269,000    Leased by a subsidiary of WCI.
  4025 3rd Parkway                  (Music)                                           Lease expires in 2001.
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

    On June 24, 1997, plaintiffs in Six Flags Over Georgia LLC et al. v. Time
Warner Entertainment Company, L.P. et al., filed an amended complaint in the
Superior Court of Gwinnett County, Georgia, claiming that, inter alia,
defendants violated their fiduciary duties in operating the Six Flags Over
Georgia amusement park. On December 18, 1998, following a trial, a jury returned
a verdict in favor of plaintiffs. The total awarded to plaintiffs was
approximately $454 million in compensatory and punitive damages. Interest on the
judgment is accruing at the Georgia statutory rate of 12%. The case is now on
appeal to the Georgia Court of Appeals. Defendants have argued on appeal that,
because of legal errors in the trial court, they are entitled to judgment in
their favor, a new trial, or a reduced damage award. TWE and its 51% partner in
the amusement park have retained financial responsibility for this litigation
following their sale of the Six Flags companies to Premier Parks, Inc.

    On April 11, 1997, the Federal Trade Commission (FTC) notified
Warner-Elektra-Atlantic Corporation ('WEA Corp.') that it had commenced a
preliminary investigation into whether WEA Corp. and others may have violated,
or may be violating, laws against unfair competition by the adoption,
implementation, or maintenance of minimum advertising pricing programs. In light
of the Consent Order that WMG has entered into with the FTC staff (see Item 1.
Businesses of the Time Warner Gerneral Partners, on page I-20), WMG expects that
the FTC will discontinue its investigation of WEA Corp. without further action.

    On July 25, 1996, the Office of the Attorney General of the State of Florida
served WEA Corp. with a Civil Investigative Demand ('CID') that calls for the
production of documents in connection with an investigation to determine whether
there is, has been, or may be a conspiracy to fix the prices of compact discs
(CDs) or conduct consisting of unfair methods of competition or unfair trade
practices in the sale and marketing of CDs. WEA Corp. has produced documents in
compliance with this CID. By letter dated January 9, 1998, WEA Corp. was
notified by the Office of the Attorney General of the State of Florida that
certain documents that WEA Corp. had produced to its office were shared under a
confidentiality provision of Florida law with the Office of the Attorney General
of the State of Illinois and the Office of the Attorney General of the State of
New York. The investigation remains open.

    On May 30, 1995, Digital Distribution Inc. d/b/a Compact Disc Warehouse v.
CEMA Distribution et al. was filed in U.S. District Court for the Central
District of California. The plaintiff, purportedly representing a class of
direct purchasers of CDs, claimed several companies that distribute CDs to
wholesalers and retailers, including WEA Corp., had violated federal antitrust
laws by engaging in a conspiracy to fix prices of CDs, and sought injunctive
relief and treble damages. The District Court granted the defendants' motion to
dismiss on January 9, 1996, but the U.S. Court of Appeals for the Ninth Circuit
subsequently reversed that decision. On April 22, 1998, the Judicial Panel on
Multidistrict Litigation consolidated the case with four other pending cases,
for pretrial purposes, in the Central District of California. These other cases
include: Chandu Dani d/b/a Compact Disc Warehouse and Record Revolution v. EMI
Music Distribution et al. (C.D. Cal. 1997); Obie, inc.

                                      I-24





<PAGE>

d/b/a Chestnut Hill Compact Disc v. EMI Music Distribution et al. (S.D.N.Y.
1997); Third Street Jazz and Rock Holding Corporation v. EMI Music Distribution
et al (C.D. Cal. 1997); and Nathan Muchnick, Inc. v. Sony Music Entertainment,
Inc. et al. (S.D.N.Y.1998). The District Court has scheduled trial to begin
later this year. Although management believes the case is without any merit, an
adverse jury verdict could result in a material loss to Time Warner. Due to the
lack of specificity to plaintiff's claims, a range of loss is not determinable
at this time.

    In Ottinger & Silvey et al. v. EMI Music Distribution, Inc. et al.,
plaintiffs commenced suit on February 17, 1998 in the Circuit Court of Cocke
County, Tennessee. Plaintiffs purport to bring the suit on behalf of all persons
who indirectly purchased CDs from January 29, 1993 to the present from six
companies (including WEA Corp.) in Alabama, Arizona, California, the District of
Columbia, Florida, Kansas, Maine, Michigan, Minnesota, Mississippi, New Mexico,
North Carolina, North Dakota, South Dakota, Tennessee, West Virginia, and
Wisconsin. Plaintiffs claim that defendants are engaged in a conspiracy to fix
CD prices, in violation of the antitrust, unfair trade practices, and consumer
protection statutes of each of these jurisdictions. On May 11, 1998, defendants
filed a motion to dismiss the complaint for failure to state a cause of action.
Plaintiffs have not yet responded to the motion.

    In Bartholdi Cable Company, Inc. v. Time Warner Inc. et al., plaintiff
(formerly known as Liberty Cable Company, Inc.) filed suit in U.S. District
Court for the Eastern District of New York on March 29, 1996 against the
Company, asserting various federal antitrust, Lanham Act, and state law claims.
On June 18, 1997, defendants asserted certain counterclaims against Bartholdi
and certain individuals. The Court has declined motions to dismiss plaintiffs'
claims and defendants' counterclaims. The Court has also denied defendants'
motion for summary judgment. Discovery is underway.

    In Parker et. al. v. Time Warner Entertainment et al., two individuals filed
suit in June 1998 against TWE and Time Warner Cable in the Eastern District of
New York on behalf of a purported nationwide class, asserting violations of the
federal Cable Act's privacy provisions, 47 U.S.C. 'SS' 551, related to
defendants' alleged disclosure of personally identifiable information about
plaintiffs, as well as related state law claims. The lawsuit seeks damages under
the Cable Act, restitution of profits, punitive damages, interest, costs, and
attorney's fees. In December 1998, defendants filed a motion to dismiss the
plaintiffs' amended complaint, which the Court initially granted, but denied on
reconsideration. On December 8, 1999, defendants filed a motion to deny class
certification, which is presently pending.

    On February 4, 1999, the United States Department of Justice served a CID on
various motion picture studios including Warner Bros., calling for the
production of certain information and documents about distribution licenses and
relationships between the movie studios, including New Line and Warner Bros.,
and movie theaters. TWE believes the investigation was prompted by one theater
owner's complaints regarding studio distribution practices. TWE has not been
given any indication that any relief will be sought by the Department of Justice
and, to date, has only been asked to produce documents and information.

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

    Not applicable.

                                      I-25








<PAGE>

                                    PART II

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

    Not Applicable.

ITEM 6. SELECTED FINANCIAL DATA

    The selected financial information of TWE and the Time Warner General
Partners set forth at pages F-45 and F-81, respectively, herein, is
incorporated herein by reference.

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

    The information set forth under the caption 'Management's Discussion and
Analysis' at pages F-2 through F-13 and at pages F-48 through F-54 herein, is
incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The information set forth under the caption 'Foreign Currency Risk
Management' at pages F-10 and F-11 and at pages F-53 and F-54 is incorporated
herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The consolidated financial statements set forth at page F-14 through F-43 of
TWE and the report of independent auditors thereof set forth at page F-44
herein, and the consolidated financial statements set forth at pages F-55
through F-79 of the TWE General Partners and the report of independent auditors
thereon set forth at page F-80 herein, are incorporated herein by reference.

    Quarterly Financial Information set forth at page F-46 herein, is
incorporated herein by reference.

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

    Not Applicable.

                                      II-1






<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

REPRESENTATIVES AND DIRECTORS

    Set forth below is the name and age of each person who is a member with
voting rights of the Board of Representatives of TWE and each person who is a
director of one or both of the Time Warner General Partners, such person's
present principal occupation or employment, the name of the corporation or other
organization in which such occupation or employment is conducted and the name
and principal business of any corporation or other organization in which such
person held a material position or office or engaged in a material occupation or
employment during the last five years and such position, office, occupation or
employment. Messrs. Levin, Lillis, Parsons, Bressler, Williams, Ripp and Bogart
became members of the Board of Representatives of TWE on June 30, 1992,
September 15, 1993, February 1, 1995, January 1, 1996, September 5, 1997,
January 1, 2000, and January 1, 2000, respectively. The selection of TWE's Board
of Representatives is governed by the TWE Partnership Agreement. See
'Description of Certain Provisions of the TWE Partnership Agreement --
Management and Operations of TWE.' Mr. Levin became a director of WCI on
July 24, 1989 and of ATC on September 24, 1992. Mr. Parsons became a director of
each Time Warner General Partner on February 1, 1995. Mr. Bressler became a
director of each Time Warner General Partner on March 2, 1996. Mr. Bogart became
a director of each Time Warner General Partner on January 1, 2000.

    For a general discussion of the duties of the executive officers and
representatives of TWE, see 'Description of Certain Provisions of the TWE
Partnership Agreement -- Management and Operations of TWE.'

<TABLE>
<CAPTION>
<S>                              <C>                      <C>   <C>
Gerald M. Levin.                     TWE, WCI and ATC      60    Chairman of the Board and Chief Executive
                                                                 Officer of TWE and Time Warner since January
                                                                 1993. He is also a director of Time Warner.

Richard D. Parsons.............      TWE, WCI and ATC      51    President of TWE and Time Warner since
                                                                 February 1995. He served as a director of
                                                                 ATC, then an 82%-owned subsidiary of Time
                                                                 Warner, from 1989 until 1991 and is
                                                                 currently also a director of Citigroup Inc.,
                                                                 Estee Lauder Companies, Inc., Philip Morris
                                                                 Companies Inc. and Time Warner.

Richard J. Bressler............      TWE, WCI and ATC      42    Executive Vice President of TWE and Time
                                                                 Warner and Chairman and Chief Executive
                                                                 Officer of Time Warner Digital Media since
                                                                 July 1999. Prior to that, he served as
                                                                 Executive Vice President and Chief Financial
                                                                 Officer of TWE and Time Warner from January
                                                                 1998, having served as Senior Vice President
                                                                 and Chief Financial Officer of TWE and Time
                                                                 Warner from March 1995.

Christopher P. Bogart..........      TWE, WCI and ATC      34    Executive Vice President, General Counsel
                                                                 and Secretary of TWE and Time Warner since
                                                                 January 2000. Prior to that, he served as
                                                                 Vice President and Deputy General Counsel of
                                                                 TWE and Time Warner from March 1998 and as
                                                                 one of Time Warner's principal outside
                                                                 litigation counsel at Cravath, Swaine &
                                                                 Moore prior to that.

Joseph A. Ripp.................            TWE             48    Executive Vice President and Chief Financial
                                                                 Officer of TWE and Time Warner since July
                                                                 1999. Prior to that, he served as Executive
                                                                 Vice President, Chief Financial Officer and
                                                                 Treasurer of Time Inc., a wholly owned
                                                                 subsidiary of Time Warner, from April 1994.

                                                                               (table continued on next page)
</TABLE>


                                     III-1





<PAGE>

(table continued from previous page)

<TABLE>
<CAPTION>
                                     DIRECTOR AND/OR                     PRINCIPAL OCCUPATIONS OR
NAME                                REPRESENTATIVE OF      AGE     POSITIONS DURING THE PAST FIVE YEARS
----                                -----------------      ---     ------------------------------------
<S>                              <C>                      <C>    <C>
Charles M. Lillis..............            TWE             58    Chairman and Chief Executive Officer of
                                                                 MediaOne since June 1998, having served
                                                                 as President and Chief Executive Officer
                                                                 of MediaOne from May 1995 and Executive
                                                                 Vice President of US WEST, Inc. from
                                                                 1985 until June 1998. Mr. Lillis is a
                                                                 director of Ascent Entertainment Inc.,
                                                                 MediaOne and SUPERVALU Inc.

Pearre Williams................            TWE             45    President of Multimedia Ventures of
                                                                 MediaOne since July 1997. Prior to that,
                                                                 Mr. Williams served as the Vice
                                                                 President, Business Development of
                                                                 MediaOne from June 1995 and as Vice
                                                                 President, Corporate Development of
                                                                 US WEST, Inc. prior to that.
</TABLE>

EXECUTIVE OFFICERS

    Set forth below is the name and age of the executive officers of TWE and
each of the Time Warner General Partners, such person's present principal
occupation or employment, the name of the corporation or other organization in
which such occupation or employment is conducted and the name and principal
business of any corporation or other organization in which such person held a
material position or office or engaged in a material occupation or employment
during the last five years and such position, office, occupation or employment.
The executive officers of TWE indicated below became executive officers of the
Time Warner General Partners on September 25, 1992 or, if later, on the date
they became executive officers of TWE.

<TABLE>
<CAPTION>
<S>                              <C>   <C>
Gerald M. Levin................  60    See ' -- Representatives and Directors.'

Richard D. Parsons.............  51    See ' -- Representatives and Directors.'

Richard J. Bressler............  42    See ' -- Representatives and Directors.'

Christopher P. Bogart..........  34    See ' -- Representatives and Directors.'

Joseph A. Ripp.................  48    See ' -- Representatives and Directors.'

Edward I. Adler................  46    Senior Vice President, Corporate Communications of TWE and
                                       Time Warner since January 2000. Prior to that, he served as
                                       Vice President, Corporate Communications of TWE and Time
                                       Warner from September 1997; and Director of Media Relations
                                       from 1993.

Timothy A. Boggs...............  49    Senior Vice President, Global Policy of TWE and Time Warner
                                       since November 1999. Prior to that, he served as Senior Vice
                                       President of TWE and Time Warner from November 1992.

Andrew J. Kaslow...............  50    Senior Vice President, Human Resources of TWE and Time
                                       Warner since January 1999. Prior to that, he served as
                                       Senior Vice President, Human Resources at Becton Dickinson
                                       and Company (medical supplies and devices) from April 1996
                                       and Vice President, Human Resources at PepsiCo Inc.
                                       (beverages and snack foods) from September 1994.

John A. LaBarca................  57    Senior Vice President, Financial Operations of TWE and Time
                                       Warner since February 2000. Prior to that, he served as
                                       Senior Vice President and Controller of TWE and Time Warner
                                       from May 1997, having served TWE and Time Warner as Vice
                                       President and Controller from January 1995.

Joan N. Sumner.................  40    Senior Vice President of TWE and Time Warner since July
                                       1999. Prior to that, she served as a Vice President of TWE
                                       and Time Warner from November 1992.
</TABLE>

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

    Not Applicable.

                                     III-2





<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

    The executive officers of TWE and the Time Warner General Partners are
compensated by Time Warner for services provided to Time Warner pursuant to
employment agreements with Time Warner and receive no additional compensation
from TWE or any of the Time Warner General Partners. Time Warner provides the
services of such executive officers to TWE and is reimbursed for such services
pursuant to arrangements set forth in the TWE Partnership Agreement. See
Item 13 'Certain Relationships and Related Transactions -- Corporate Services.'
Members of the Board of Representatives of TWE and directors of the Time Warner
General Partners are not additionally compensated for such activities.

EXECUTIVE COMPENSATION SUMMARY TABLE

    The following table sets forth information concerning total compensation
paid to the Chief Executive Officer and each of the four most highly compensated
executive officers of Time Warner who served in such capacities at Time Warner
and TWE on December 31, 1999 (the 'named executive officers') for services
rendered to Time Warner during each of the last three fiscal years in their
capacities as executive officers.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                 LONG-TERM
                                                            ANNUAL COMPENSATION               COMPENSATION(5)
                                                 -----------------------------------------   ------------------
                                                                                OTHER            SECURITIES
                                                                               ANNUAL            UNDERLYING          ALL OTHER
NAME AND PRINCIPAL POSITION               YEAR     SALARY       BONUS      COMPENSATION(4)    OPTIONS AWARDED     COMPENSATION(6)
---------------------------               ----     ------       -----      ---------------    ---------------     ---------------
<S>                                       <C>    <C>          <C>          <C>               <C>                  <C>
Gerald M. Levin ........................  1999   $1,000,000   $9,000,000      $218,477             437,500           $590,167
 Chairman of the Board and Chief          1998    1,000,000    7,800,000       186,861           1,400,000            597,885
 Executive Officer                        1997      700,000    6,500,000       198,554             700,000            458,701
Richard D. Parsons .....................  1999   $  750,000   $4,750,000      $170,695             250,000           $498,245
 President                                1998      600,000    3,300,000       122,907             300,000            398,650
                                          1997      600,000    2,750,000       117,593             300,000            406,299
Richard J. Bressler ....................  1999   $  600,000   $2,000,000      $ 78,573             100,000           $371,532
 Executive Vice President(1)              1998      450,000    1,500,000        60,141             100,000            310,428
                                          1997      350,000    1,200,000        53,338             100,000            228,175
Peter R. Haje ..........................  1999   $  550,000   $1,250,000      $ 72,866              60,000           $383,418
 Executive Vice President and General     1998      550,000    1,250,000        69,294              90,000            387,321
 Counsel(2)                               1997      550,000    1,200,000        64,939              90,000            395,816
John A. LaBarca ........................  1999   $  350,000   $  575,000       --                   32,500           $218,078
 Senior Vice President and Controller(3)  1998      325,000      550,000       --                   50,000            219,651
                                          1997      325,000      525,000       --                   50,000            215,678
</TABLE>

---------

(1) Mr. Bressler became Executive Vice President of Time Warner and Chairman and
    Chief Executive Officer of its Time Warner Digital Media division on July
    15, 1999 having served as Executive Vice President and Chief Financial
    Officer of Time Warner from January 15, 1998 and as Senior Vice President
    and Chief Financial Officer prior to that.

(2) Mr. Haje retired from service as an executive officer on January 1, 2000.

(3) Mr. LaBarca became Senior Vice President, Financial Operations in February
    2000.

(4) In accordance with Securities and Exchange Commission ('SEC') rules, amounts
    totalling less than $50,000 have been omitted. The amounts of personal
    benefits shown in this column for 1999 that represent more than 25% of the
    applicable executive's total Other Annual Compensation include financial
    services of $90,000 to each of Messrs. Levin and Parsons, $53,333 to Mr.
    Bressler and $35,000 to Mr. Haje, transportation-related benefits (including
    an automobile allowance) of $114,662 to Mr. Levin and $76,465 to Mr. Parsons
    and automobile allowances of $24,000 to each of Messrs. Bressler and Haje.

(5) The number of stock options has been adjusted to reflect the two-for-one
    Time Warner Common Stock Split in December 1998 (the 'Time Warner Stock
    Split'). None of the options indicated was awarded with tandem stock
    appreciation rights. None of such executive officers was awarded restricted
    stock during the relevant period and, as of December 31, 1999, only Mr.
    Parsons held any such shares. Those shares were awarded in or prior to 1994
    under the Time Warner Inc. 1998 Restricted Stock Plan for Non-Employee
    Directors in his capacity then as a non-employee director. The value of Mr.
    Parsons' 8,426 restricted shares based on the closing price of Time Warner
    Common Stock on the New York Stock Exchange Composite Listing on
    December 31, 1999 was $609,305. Mr. Parsons receives the dividends paid in
    cash on such shares. The restrictions on these shares were removed effective
    January 9, 2000 as a result of the approval of the AOL Merger by Time
    Warner's Board of Directors.

(6) The amounts shown in this column for 1999 include the following:

       (a) In lieu of supplemental retirement plan benefits, Time Warner, as
    required by individual employment agreements, credited to an account for
    each named executive officer an amount equal to one-half of the total shown
    under the 'salary' column for each of 1999, 1998 and 1997. See 'Non-Current
    Compensation Accounts.'
                                              (footnotes continued on next page)

                                     III-3





<PAGE>

(footnotes continued from previous page)

       (b) Pursuant to the Time Warner Savings Plan (the 'Savings Plan'), a
    defined contribution plan available generally to employees of Time Warner,
    for the 1999 plan year, each executive named above deferred a portion of his
    annual compensation and Time Warner contributed $2,000 for the first $3,000
    so deferred by the executive ('Matching Contribution'). These Matching
    Contributions were invested under the Savings Plan in a Time Warner Common
    Stock fund. In addition, pursuant to a profit-sharing component of the
    Savings Plan, Time Warner may make annual contributions for the benefit of
    eligible employees of up to 12% of total eligible compensation; for 1999,
    Time Warner contributed 10%, including $16,000 for the account of each
    executive named above.

       (c) Time Warner maintains a program of life and disability insurance
    generally available to all salaried employees on the same basis. This group
    term life insurance coverage is reduced to $50,000 for each of the named
    executive officers (other than Mr. LaBarca), who are given an annual cash
    payment equal to the cost of replacing such reduced coverage under a
    voluntary group program available to employees generally. Such payments are
    included in the 'Other Annual Compensation' column. In addition, during
    1999, Time Warner maintained for certain members of senior management,
    including the named executive officers, certain supplemental life insurance
    benefits and paid premiums for this supplemental coverage of approximately
    $250 each. Time Warner also maintained split-dollar life insurance policies
    on the lives of the named executive officers and paid the following amounts
    allocated to the term portion of the split-dollar coverage for 1999: Mr.
    Levin, $17,687; Mr. Parsons, $5,631; Mr. Bressler, $2,225; Mr. Haje, $9,840;
    and Mr. LaBarca, $2,896. The actuarial equivalent of the value of the
    premiums paid by Time Warner for 1999 based on certain assumptions regarding
    interest rates and periods of coverage are: Mr. Levin, $71,917; Mr. Parsons,
    $104,995; Mr. Bressler, $53,282; Mr. Haje, $90,168; and Mr. LaBarca,
    $24,828. It is anticipated that Time Warner will recover the net after-tax
    cost of the premiums on these policies or the cash surrender value thereof.
    For a description of life insurance coverage for certain executive officers
    provided pursuant to the terms of their employment agreements, see
    'Employment Arrangements.'

STOCK OPTION GRANTS DURING 1999

    The following table sets forth certain information with respect to employee
options to purchase shares of Time Warner Common Stock ('options') awarded
during 1999 to the named executive officers. All such options were nonqualified
options. No stock apprectiation rights ('SARs'), alone or in tandem with such
stock options, were awarded in 1999.

                          STOCK OPTION GRANTS IN 1999

<TABLE>
<CAPTION>
                                                        INDIVIDUAL GRANTS(1)
                                           -----------------------------------------------
                                                         PERCENT
                                           NUMBER OF     OF TOTAL
                                           SECURITIES    OPTIONS     EXERCISE
                                           UNDERLYING   GRANTED TO   OR BASE                 GRANT DATE
                                            OPTIONS     EMPLOYEES     PRICE     EXPIRATION    PRESENT
NAME                                        GRANTED      IN 1999      ($/SH)       DATE       VALUE(2)
----                                        -------      -------      ------       ----       --------
<S>                                        <C>          <C>          <C>        <C>          <C>
Gerald M. Levin..........................   218,750         1.7%     $ 69.16     3/16/09     $6,138,125
                                            109,375          .8        86.45     3/16/09      2,393,125
                                            109,375          .8       103.74     3/16/09      1,869,219
Richard D. Parsons.......................   125,000         1.0%     $ 69.16     3/16/09     $3,507,500
                                             62,500          .5        86.45     3/16/09      1,367,500
                                             62,500          .5       103.74     3/16/09      1,068,125
Richard J. Bressler......................   100,000          .8%     $ 69.16     3/16/09     $2,806,000
Peter R. Haje............................    60,000          .5%     $ 69.16     3/16/09     $1,683,600
John A. LaBarca..........................    32,500          .3%     $ 69.16     3/16/09     $  911,950
</TABLE>

---------

(1) Options for executive officers are generally awarded pursuant to plans
    approved by Time Warner's stockholders and the terms are governed by the
    plans and the recipient's option agreement. The option exercise price is the
    fair market value of the Time Warner Common Stock on the date of grant
    except for the awards to Messrs. Levin and Parsons of which one quarter of
    the total award has an exercise price 25% above the fair market value of the
    Time Warner Common Stock on the date of grant and one quarter of which has
    an exercise price 50% above such fair market value. As of December 31, 1999,
    the options shown in the table become exercisable in installments of
    one-third on the first three anniversaries of the date of grant, subject to
    acceleration upon the occurrence of certain events. As a result of the
    approval of the AOL Merger by Time Warner's Board of Directors on January 9,
    2000, these options vested and are currently exercisable. Payment of the
    exercise price of an option may be made in cash or, in whole or in part, in
    full shares of Time Warner Common Stock already owned by the holder of the
    option. The payment of withholding taxes due upon exercise of an option may
    generally be made with shares of Time Warner Common Stock.

(2) These amounts represent the estimated present value of stock options at the
    date of grant calculated using the Black-Scholes option pricing model, based
    upon the following assumptions used in developing the grant valuations: an
    expected volatility of 23.0% based on a three-year period ending March 31,
    1999; an expected term to exercise of eight years; a risk-free rate of
    return based on the interest rate of a U.S. Treasury Strip in effect on the
    date of the award with an eight-year maturity (March 17, 1999  -- 5.38%);
    and a dividend yield of .26%. The actual value of the options, if any,
    realized by an officer will depend on the extent to which the market value
    of Time Warner Common Stock exceeds the exercise price of the option on the
    date the option is exercised. Consequently, there is no assurance that the
    value realized by an officer will be at or near the value estimated above.
    These amounts should not be used to predict stock performance.

                                     III-4





<PAGE>

OPTION EXERCISES AND VALUES IN 1999

    The following table sets forth as to each of the named executive officers
information on option exercises during 1999 and the status of his options on
December 31, 1999, as adjusted to reflect the Time Warner Stock Split: (i) the
number of shares of Time Warner Common Stock underlying options exercised during
1999; (ii) the aggregate dollar value realized upon exercise of such options;
(iii) the total number of shares of Time Warner Common Stock underlying
exercisable and nonexercisable stock options held on December 31, 1999; and
(iv) the aggregate dollar value of in-the-money exercisable and nonexercisable
stock options on December 31, 1999.

                     AGGREGATE OPTION EXERCISES DURING 1999
                                      AND
                       OPTION VALUES ON DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                                        DOLLAR VALUE OF
                       NUMBER OF                        NUMBER OF SHARES                  UNEXERCISED
                         SHARES       DOLLAR         UNDERLYING UNEXERCISED              IN-THE-MONEY
                       UNDERLYING      VALUE         OPTIONS ON 12/31/99(4)         OPTIONS ON 12/31/99*(4)
                        OPTIONS      REALIZED     ----------------------------   -----------------------------
NAME                   EXERCISED    ON EXERCISE   EXERCISABLE   NONEXERCISABLE   EXERCISABLE    NONEXERCISABLE
----                   ---------    -----------   -----------   --------------   -----------    --------------
<S>                    <C>          <C>           <C>           <C>              <C>            <C>
Gerald M. Levin(1)...    70,032     $3,091,212     6,740,006      1,137,494      $352,922,985    $24,804,976
Richard D. Parsons...     --            --         1,500,000        550,000      $ 72,716,748    $10,729,312
Richard J.
  Bressler(2)........     --            --           692,218        199,998      $ 36,345,826    $ 4,358,077
Peter R. Haje(3).....    80,000     $4,747,807     1,380,000        150,000      $ 82,606,851    $ 3,827,775
John A. LaBarca......    50,000     $2,682,500       159,002         82,498      $  7,921,195    $ 2,123,833
</TABLE>

---------

 *  Calculated using the closing price of $72.3125 per share on December 31,
1999 minus the option exercise price.

(1) The options exercised by Mr. Levin were awarded in 1989. Mr. Levin is the
    only executive officer listed above who holds SARs awarded in tandem with
    any of his stock options. 200,000 of Mr. Levin's options held on
    December 31, 1999 were awarded with tandem SARs; they all were awarded on or
    prior to September 22, 1989 and are currently exercisable; and at December
    31, 1999, they had a value of $11,024,500, but no separate value has been
    attributed to these SARs. These SARs are exercisable for Time Warner Common
    Stock or cash, subject to a $250,000 limit on the amount of cash that may be
    received upon their exercise.

(2) Includes 196,000 exercisable options that Mr. Bressler has transferred to a
    family-owned limited partnership. At December 31, 1999, these options had a
    value of $10,142,542.

(3) Includes 60,000 exercisable options that Mr. Haje has transferred to a
    family-owned limited partnership. At December 31, 1999, these options had a
    value of $2,550,150.

(4) All options held by the named executive officers became immediately
    exercisable in full upon the approval by Time Warner's Board of Directors of
    the AOL Merger on January 9, 2000.

    The option exercise price of all the options held by the named executive
officers is the fair market value of the Time Warner Common Stock on the date of
grant except for half of the regular annual options awarded to Messrs. Levin and
Parsons in 1996 through 1999 (see 'Stock Option Grants in 1999') and 1,000,000
of Mr. Levin's options awarded in 1993, half of which have an exercise price 25%
above the fair market value of Time Warner Common Stock on the date of grant and
the other half of which have an exercise price 50% above such fair market value.
All such nonqualified options permit a portion of each award to be transferred
by gift directly or indirectly to members of the holder's immediate family. In
November 1999, Time Warner's Board of Directors approved amendments to Time
Warner's stock option plans to permit optionees to defer receipt of the shares
of Time Warner Common Stock receivable upon exercise of options to a future date
elected by the optionee, thereby deferring the recognition of income by the
optionee (and Time Warner's tax deduction) until such future date. During the
deferral period, the shares are not outstanding, do not vote and do not pay
dividends; however, Time Warner has agreed to pay the optionee dividend
equivalents during the deferral period.

    The options held by executive officers remain exercisable for the full term
of their employment agreements in the event their employment terminates as a
result of Time Warner's breach. For some executive officers, some of their
options remain exercisable for the full term of the options if their employment
is terminated for any reason other than for cause, including death. Otherwise,
options may generally be exercised for one or three years after death or total
disability (depending on their date of grant) and five years after retirement.
All options terminate one month after the holder's employment is terminated for
cause or immediately if such termination for cause is for fraud,
misappropriation or embezzlement. The terms of the options shown in the chart
are

                                     III-5





<PAGE>

generally ten years, although 640,000 options held by Mr. Levin have a term of
15 years from the date of their award in 1989.

EMPLOYMENT ARRANGEMENTS

    Time Warner is, and during 1999 was, a party to employment agreements with
the five named executive officers and certain directors or representatives of
the Time Warner General Partners and TWE. These agreements have been filed with
the SEC as exhibits to Time Warner's periodic filings. In addition, each such
person participates in Time Warner's employee benefit plans available to its
employees generally.

    Among other things, the agreements with the named executive officers
typically provide for: a fixed term of employment in a specified executive post;
annual salary; contributions to a non-current compensation account, generally
equal to 50% of annual salary, which is invested and paid out as described below
under 'Non-Current Compensation Accounts'; an annual bonus in the discretion of
the Compensation Committee of the Time Warner Board of Directors, all or a
portion of which may be deferred at the election of the executive officer (Mr.
Levin may also defer a portion of his salary); and life insurance benefits to be
provided by split dollar policies, generally for the life of the executive and
pursuant to which Time Warner recovers an amount equal to the net after-tax cost
to Time Warner of the premiums on such policy or the cash surrender value
thereof, as well as $50,000 of group term life insurance under an insurance
program generally provided by Time Warner to its employees and a cash payment
equal to the premium for the coverage that would have otherwise been provided
under the general terms of such program. The agreements also typically include
provisions for the executive's participation in Time Warner stock option and
other compensation and benefit plans.

    Generally, such agreements include a narrow definition of the 'cause' for
which an executive's employment may be terminated and in that event, the
executive will only receive earned and unpaid base salary and contributions to
the non-current compensation account accrued through such date of termination.

    These agreements typically provide that in the event of Time Warner's
material breach or termination of the executive's employment during the term of
employment without cause, the executive will be entitled to elect either (a) to
receive a lump-sum payment equal to the present value of the compensation
otherwise payable during the remaining portion of the executive's term of
employment (including any advisory period) or (b) to remain an employee of Time
Warner through the end of such period and, without having to perform any
services, receive such compensation as if there had been no breach or
termination. Mr. Bressler is also entitled to a minimum of one year of severance
and to receive from Time Warner either the stock options he would have received
for the remainder of the term of employment or the value of such options in
cash. Executives are not generally required to mitigate damages after such a
termination, other than as necessary to prevent Time Warner from losing any tax
deductions to which it otherwise would have been entitled for any payments
deemed to be 'contingent on a change' under the Internal Revenue Code of 1986,
as amended (the 'Code'). In addition, these agreements typically provide that if
an executive thereafter obtains other employment, the total cash salary and
bonus received therefrom for services prior to the expiration of the executive's
employment term (up to the amount of compensation paid to the executive by Time
Warner for such period) must be paid over to Time Warner as received except that
the executive officer may retain and not pay over to Time Warner an amount equal
to the severance he would have received in accordance with Time Warner's
personnel policies if he had been job eliminated.

    If an executive becomes disabled during the term of his employment
agreement, the executive typically will receive full salary, bonus and
non-current compensation contribution for six months and 75% thereof through the
end of the employment term or, in the case of Mr. Bressler, for one year, if
longer. Non-current compensation contributions will be maintained and paid after
giving effect to the executive's base salary after disability. Any such payments
will be reduced by amounts received from Worker's Compensation, Social Security
and disability insurance policies maintained by Time Warner.

    If an executive dies during the term of an employment agreement, generally
the executive's beneficiaries will receive the executive's earned and unpaid
salary and non-current compensation contribution to the last day of the month in
which the death occurs and a pro rata portion of the executive's bonus for the
year of his death.

    The minimum annual salaries and non-current compensation contributions under
these agreements for the named executive officers are as shown for 1999 in the
Summary Compensation Table, except for Mr. Bressler, whose current annual salary
is $700,000 with a non-current compensation contribution equal to one-half of
the

                                     III-6





<PAGE>

annual salary, and for Mr. Haje, who has retired from service as an executive
officer effective January 1, 2000. The expiration dates of these agreements and
the amounts of the individual life insurance coverage for the lifetime of such
persons (except for Mr. LaBarca who is covered to age 65) are: Mr.
Levin -- December 31, 2003 and $6 million; Mr. Parsons -- December 31, 2004 and
$5 million; Mr. Bressler -- December 31, 2004 and $4 million; Mr.
Haje -- December 31, 1999 (not including a two-year advisory period) and $4
million; and Mr. LaBarca -- April 30, 2002 (not including a one-year advisory
period) and $1.6 million. Mr. Levin's agreement allows him, effective no earlier
than June 30, 2002 and with not less than six months' prior notice to Time
Warner, to give up his executive positions and become an advisor to Time Warner
for the remainder of the agreement term. In that case, his advisory compensation
would be equal to his annual salary and non-current compensation contribution.
Mr. Parsons' agreement will terminate on December 31, 2001 if Mr. Parsons has
not been designated Chief Operating Officer of Time Warner by June 30, 2001 with
an effective date no later than January 1, 2002.

NON-CURRENT COMPENSATION ACCOUNTS

    Time Warner deposited non-current compensation contributions for each named
executive officer in 1999 into separate accounts in a grantor trust established
by Time Warner. An investment advisor is appointed for each such account subject
to approval by the relevant executive. Funds are invested in securities as
directed by the investment advisor, with the assumed after-tax effect upon Time
Warner of gains, losses and income, and distributions thereof, and of interest
expenses and brokerage commissions and other direct expenses attributed thereto,
being credited or charged to the account. Payments are generally made to the
officer from the account in installments to liquidate the account over a period
of ten years, or such shorter period as the officer elects, commencing on the
later of the end of the employment term or the date the executive ceases to be
an employee. Such payments include an amount equal to the assumed tax benefit to
Time Warner of the compensation deduction available for tax purposes for the
portion of the account represented by the net appreciation in such account, even
though Time Warner might not actually receive such tax benefit. Commencing in
1999, Time Warner's executive officers could elect to have half or all of these
non-current compensation contributions credited to Time Warner's Deferred
Compensation Plan instead of the grantor trust accounts. This Plan is an
unfunded, nonqualified plan that permits higher-paid employees to make
tax-deferred savings of certain compensation that exceeds the federal law limits
for tax qualified benefit plans. Participants select crediting rates for their
amounts credited to the Plan. These rates are based on the actual returns of
mutual funds and other investments offered under the Savings Plan.

    Amounts paid by Time Warner to the non-current compensation accounts of the
named executive officers for 1999 and the portion, if any, of the 1999 annual
bonus elected to be deferred by any such officer are included in the amounts
shown in the Summary Compensation Table above.

TIME WARNER EMPLOYEES' PENSION PLAN

    The Time Warner Employees' Pension Plan (the 'Old Pension Plan'), which
provides benefits to eligible employees, including officers, of Time Warner and
certain of its subsidiaries, was amended effective as of January 1, 2000, as
described below, and renamed the Time Warner Pension Plan -- TWI (the 'Amended
Pension Plan' and, together with the Old Pension Plan, the 'Pension Plans').
Because of certain grandfathering provisions, the benefit of participants with a
minimum of ten years of benefit service whose age and years of benefit service
equal or exceed 65 years as of January 1, 2000, including Mr. Levin, will be
determined under either the provisions of the Old Pension Plan or the Amended
Pension Plan, whichever produces the greater benefit.

    Under the Old Pension Plan, a participant accrues benefits on the basis of
1 2/3% of the average annual compensation (defined as the highest average annual
compensation for any five consecutive full and partial calendar years of
employment, which includes regular salary, overtime and shift differential
payments, and non-deferred bonuses paid according to a regular program) for each
year of service up to 30 years and 1/2% for each year of service over 30.
Compensation for purposes of calculating average annual compensation under the
Pension Plans is limited to $200,000 per year for 1988 through 1993 and $150,000
per year for 1994 and thereafter (each subject to adjustments provided in the
Code). Eligible employees become vested in all benefits under the Pension Plans
on the earlier of five years of service or certain other events.

                                     III-7





<PAGE>

    Under the Amended Pension Plan, a participant accrues benefits equal to the
sum of 1.25% of a participant's average annual compensation not in excess of his
covered compensation up to the average Social Security wage base and 1.67% of
his average annual compensation in excess of such covered compensation
multiplied by his years of benefit service (not in excess of 30).

    Under the Old Pension Plan, employees who are at least 60 years old and have
completed at least ten years of service may elect early retirement and receive
the full amount of their annual pension ('early retirement'). An early
retirement supplement is payable to an employee terminating employment at age 55
and before age 60, after 20 years of service, equal to the actuarial equivalent
of such person's accrued benefit, or, if greater, an annual amount equal to the
lesser of 35% of such person's average compensation determined under the Old
Pension Plan or such person's accrued benefit at age 60 plus Social Security
benefits at age 65. The supplement ceases when the regular pension commences at
age 60. Under the Amended Pension Plan, employees who are at least 62 years old
and have completed at least ten years of service may elect early retirement and
receive the full unreduced amount of their annual pension.

    Annual pension benefits under the Old Pension Plan are reduced by a Social
Security offset determined by a formula that takes into account credited service
up to 35 years, covered compensation up to the average Social Security wage base
and a disparity factor based on the age at which Social Security benefits are
payable (the 'Social Security Offset'). Under both of the Pension Plans, the
pension benefit of participants on December 31, 1977 in the former Time
Employees' Profit-Sharing Savings Plan (the 'Profit Sharing Plan') is further
reduced by a fixed amount attributable to a portion of the employer
contributions and investment earnings credited to such employees' account
balances in the Profit Sharing Plan as of such date (the 'Profit Sharing Plan
Offset').

    Federal law limits both the amount of compensation that is eligible for the
calculation of benefits and the amount of benefits derived from employer
contributions that may be paid to participants under both of the Pension Plans.
However, as permitted by the Employee Retirement Income Security Act of 1974, as
amended ('ERISA'), Time Warner has adopted the Time Warner Excess Benefit
Pension Plan (the 'Excess Plan'), which provides for payments by Time Warner of
certain amounts which employees of Time Warner would have received under the
Pension Plans if eligible compensation were limited to $250,000 in 1994
(increased 5% per year thereafter, to a maximum of $350,000) and there were no
payment restrictions. For purposes of the Excess Plan, the $200,000 limit (as
indexed for years after 1989) on eligible compensation will only apply to
compensation received in 1988 through 1993; the $250,000 limit (as adjusted)
will apply to compensation received in 1994 and thereafter.

    The following table shows the estimated annual pension payable upon
retirement to employees in specified remuneration and years-of-service
classifications under the Amended Pension Plan. The amounts shown in the table
do not reflect the effect of the previously-described (1) Profit Sharing Plan
Offset or (2) early retirement supplements. The amount of the estimated annual
pension is based upon a pension formula which applies to all participants in
both the Amended Pension Plan and the Excess Plan. The estimated amounts are
based on the assumption that payments under the Amended Pension Plan will
commence upon normal retirement (generally age 65) or early retirement, that the
Amended Pension Plan will continue in force in its present form and that no
joint and survivor annuity will be payable (which would on an actuarial basis
reduce benefits to the employee but provide benefits to a surviving
beneficiary). Amounts calculated under the pension formula which exceed ERISA
limits will be paid under the Excess Plan from Time Warner's assets and are
included in the amounts shown in the following table.

<TABLE>
<CAPTION>
                                                        ESTIMATED ANNUAL PENSION FOR
HIGHEST CONSECUTIVE                                      YEARS OF CREDITED SERVICE
FIVE YEAR AVERAGE                           ----------------------------------------------------
COMPENSATION                                   10         15         20         25         30
------------                                   --         --         --         --         --
<S>                                         <C>        <C>        <C>        <C>        <C>
$200,000..................................  $ 31,870   $ 47,800   $ 63,740   $ 79,670   $ 95,610
 400,000..................................    65,200     97,800    130,410    163,010    195,610
 600,000..................................    98,530    147,800    197,070    246,340    295,610
 800,000..................................   131,870    197,810    263,740    329,680    395,620
</TABLE>

    The amount of covered compensation that would be considered in the
determination of the highest five consecutive full or partial years of
compensation under the Pension Plans and the Excess Plan for each of Messrs.
Levin, Parsons, Bressler, Haje and LaBarca is limited as a result of the
imposition of the limitations on eligible compensation. However, because
combined payments under the Pension Plans and the Excess Plan are based on the
highest average annual compensation for any five consecutive full or partial
calendar years of

                                     III-8





<PAGE>

employment (taking into account the compensation limits only for 1988 and
thereafter), the compensation used for determining benefits under such Plans for
Mr. Levin (and employees who participated in the Old Pension Plan prior to 1988)
will include eligible compensation in years prior to 1988 which exceeded these
limits. The estimated annual benefits payable under the Amended Pension Plan and
the Excess Plan, as of February 1, 2000, would be based on average compensation
of $729,248 for Mr. Levin; $290,095 for Mr. Parsons; $290,095 for Mr. Bressler;
$290,095 for Mr. Haje; and $290,095 for Mr. LaBarca, with 27.8, 5.0, 11.2, 9.4
and 6.8 years of credited service, respectively. In addition, pursuant to his
employment agreement, Mr. Parsons will be entitled to receive supplemental
payments from Time Warner that will achieve a total retirement benefit equal to
what he would have received if he had five additional years of credited service
under the Amended Pension Plan. Pursuant to his employment agreement,
Mr. LaBarca will be entitled to receive supplemental payments from Time Warner
that will achieve a total retirement benefit equal to what he would have
received if he had an additional .9 of a year of service for each year he was
employed by Time Warner up to a maximum of nine additional years. The estimated
annual pension payable to Mr. Levin under the Old Pension Plan and the Excess
Plan upon his retirement based on the indicated remuneration and years of
service would be $337,889, without reflecting the effect of the
previously-described Social Security or Profit Sharing Plan Offsets.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

OWNERSHIP BY PARTNERS OF TWE

    The table below sets forth, as of March 15, 2000, the pro rata priority
capital and residual equity interests of each Time Warner General Partner and
each Limited Partner in TWE. Subsidiaries of Time Warner and the Time Warner
General Partners collectively own 74.49% of the pro rata priority capital and
residual equity capital and 100% of the priority capital interests junior to the
pro rata priority capital interests. TW/TAE, Inc., Time Warner Companies, Inc.
and each Time Warner General Partner is a direct or indirect wholly owned
subsidiary of Time Warner. MediaOne Group, Inc. is a wholly owned subsidiary of
MediaOne.

<TABLE>
<CAPTION>
                                                              RESIDUAL
                                                               EQUITY
TIME WARNER GENERAL PARTNERS                                  INTEREST
----------------------------                                  --------
<S>                                                           <C>
American Television and Communications Corporation..........    25.77%
Warner Communications, Inc..................................    37.50%

LIMITED PARTNERS
MediaOne Group, Inc.........................................    25.51%
Time Warner Companies, Inc..................................     5.61%
TW/TAE, Inc.................................................     5.61%
                                                               ------
                                                               100.00%
                                                               ------
                                                               ------
</TABLE>

    The address of the principal executive offices of each of the companies
listed above is as follows: Time Warner Companies, Inc., TW/TAE, Inc. and Warner
Communications Inc.: 75 Rockefeller Plaza, New York, New York 10019; American
Television and Communications Corporation: 290 Harbor Drive, Stamford,
Connecticut 06902; and MediaOne Group, Inc.: 188 Inverness Drive West,
Englewood, CO 80112.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

    Set forth below is the name, address and stock ownership of each person or
group of persons known by TWE to own beneficially securities of Time Warner
having more than 5% of the voting power of Time Warner's voting securities and,
unless otherwise indicated, is based on information provided to Time Warner as
of February 1, 2000 by the beneficial owner. Subsidiaries of Time Warner
collectively own 74.49% of the pro rata priority capital and residual equity
partnership interests in TWE.

                                     III-9





<PAGE>
<TABLE>
<CAPTION>
                                                               SHARES OF
                                                                 STOCK                    PERCENT OF
NAME AND ADDRESS                                              BENEFICIALLY   PERCENT OF     VOTING
OF BENEFICIAL OWNER                                              OWNED        CLASS(1)     POWER(2)
-------------------                                           ------------    --------     --------
<S>                                                           <C>            <C>          <C>
TIME WARNER COMMON STOCK
Capital Research and Management Company(3) .................   59,438,350        5.0%        4.5%
  333 South Hope Street
  Los Angeles, CA 90071

FMR Corp.(4) ...............................................   91,409,736        7.7         7.3
  82 Devonshire Street
  Boston, MA 02109

Janus Capital Corporation(5) ...............................   92,187,046        7.7         7.3
  100 Fillmore Street
  Denver, CO 80206

R.E. Turner(6) .............................................  110,823,084        9.6         9.1
  c/o Turner Broadcasting System, Inc.
  One CNN Center
  Atlanta, GA 30303

TIME WARNER SERIES LMCN-V STOCK
Liberty Media Corporation(7) ...............................  114,123,884      100.0         *
  9197 South Peoria Street
  Englewood, CO 80112
</TABLE>
---------
 *  Less than 1%.

(1) Under certain circumstances, each share of Time Warner Series LMCN-V Common
    Stock is convertible into one share of Time Warner Common Stock; such
    circumstances are not currently present.

(2) Each share of Series LMCN-V Common Stock currently has 1/100 of a vote on
    certain limited matters.

(3) Beneficial ownership is as of December 31, 1999. Capital Research and
    Management Company, an investment adviser, has filed with the SEC Amendment
    No. 3, dated February 10, 2000, to its statement on Schedule 13G to the
    effect that (a) it (directly or indirectly) has sole dispositive power over
    all these shares, (b) it has voting power over none of these shares,
    (c) the shares of Time Warner Common Stock reported as beneficially owned
    include 4,760,064 shares of Time Warner Common Stock reported as issuable
    upon the conversion of 2,380,000 shares of 7.00% automatic common exchange
    securities due 2000 of Houston Industries Incorporated (the 'Houston ACEs')
    (these shares have been excluded from the calculation of voting power),
    (d) all of the reported shares are held for the benefit of its clients and
    (e) it and each of its subsidiary investment management companies acts
    separately in exercising investment direction over its managed accounts.

(4) Beneficial ownership is as of December 31, 1999. FMR Corp., a holding
    company, has filed with the SEC Amendment No. 3, dated February 14, 2000, to
    its statement on Schedule 13G to the effect that (a) it (directly or
    indirectly) has sole dispositive power over all these shares, (b) it has
    sole voting power over 4,857,887 of these shares and no shared voting power,
    (c) these shares are held principally by Fidelity Management & Research
    Company, a wholly-owned investment adviser, (d) the shares of Time Warner
    Common Stock reported as beneficially owned include 2,365,400 shares of Time
    Warner Common Stock reported as issuable upon the conversion of 1,182,700
    shares of Houston ACEs (these shares have been excluded from the calculation
    of voting power), (e) these shares are, for the most part, held by
    investment companies and institutional accounts managed by subsidiaries of
    FMR Corp. and (f) the family of Edward C. Johnson 3d, including
    Mr. Johnson, the Chairman of FMR Corp., and his daughter Abigail Johnson, a
    director, and trusts for the family members' benefit may be deemed to form a
    controlling group with respect to FMR Corp.

(5) Beneficial ownership is as of December 31, 1999; Janus Capital Corporation,
    an investment adviser, has filed with the SEC Amendment No. 1, dated
    February 14, 2000, to its statement on Schedule 13G to the effect that
    (a) because it acts as an investment adviser to several investment companies
    and individual and institutional clients, it may be deemed the beneficial
    owner of these shares, which are held by its clients, (b) it may be deemed
    to share dispositive and voting power over all these shares with Thomas
    H. Bailey, Chairman of the Board, President and owner of approximately
    12.2% of Janus Capital Corporation, and (c) the shares of Time Warner
    Common Stock reported as beneficially owned include 4,057,718 shares of
    Time Warner Common Stock reported as issuable upon conversion of convertible
    securities (these shares have been excluded from the calculation of voting
    power).

(6) Includes (a) 579,884 shares of Time Warner Common Stock owned by a
    corporation wholly owned by Mr. Turner, (b) 2,600,998 shares of Time Warner
    Common Stock held by a trust over which Mr. Turner has sole voting and
    dispositive control, (c) 6,028,896 shares of Time Warner Common Stock held
    by a limited partnership of which Mr. Turner is the sole general partner,
    (d) 4,000,000 shares of Time Warner Common Stock, that, on May 12, 2000,
    Mr. Turner has the right to put to a broker at $19.815 per share and the
    broker has a right to call from Mr. Turner at $30.05 per share (which call
    Mr. Turner may settle in cash), (e) 770,000 shares of Time Warner Common
    Stock owned by Mr. Turner's wife and (f) 5,000,000 shares of Time Warner
    Common Stock held by the Turner Foundation, Inc., of which Mr. Turner is one
    of six trustees; and excludes 4,175,000 of Time Warner Common Stock subject
    to options to purchase Time Warner Common Stock issued by Time Warner which,
    on February 1, 2000, were unexercised but were exercisable within 60 days
    from that date (but such shares are included in the percent-of-class
    calculation but not voting power). Mr. Turner disclaims beneficial ownership
    of shares held by his wife and the Turner Foundation, Inc.

(7) Consists of shares beneficially owned by Liberty Media Corporation, through
    its direct and indirect subsidiaries; excludes 559,066 shares of Time Warner
    Common Stock held by an indirect wholly owned subsidiary of AT&T Corp. In
    March 1999, AT&T Corp. acquired Tele-Communications, Inc., and Liberty Media
    Corporation (its subsidiary), but incumbent management of Liberty Media
    Corporation has voting and investment control over the Time Warner Series
    LMCN-V Common Stock.
                                     III-10





<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT

    The following table sets forth as of February 1, 2000 for each current
representative of TWE and each current member of the board of directors of one
or more of the Time Warner General Partners, the five most highly compensated
executive officers of TWE and the Time Warner General Partners in 1999 and for
all current representatives, directors and executive officers of TWE and the
Time Warner General Partners as a group, information concerning the beneficial
ownership of Time Warner Common Stock.

<TABLE>
<CAPTION>
                                                              COMMON STOCK BENEFICIALLY OWNED(1)
                                                              -----------------------------------
                                                              NUMBER OF      OPTION      PERCENT
NAME                                                            SHARES     SHARES(2)    OF CLASS
----                                                          ----------   ----------   ---------
<S>                                                           <C>          <C>          <C>
Christopher P. Bogart(5)....................................        28       100,000        *
Richard J. Bressler(5)......................................    11,298       892,216        *
Peter R. Haje(5)............................................    20,021     1,530,000        *
John A. LaBarca(5)..........................................     4,091       241,500        *
Gerald M. Levin(3)(5).......................................   886,962     7,877,500        *
Richard D. Parsons(5).......................................    22,650     2,050,000        *
Joseph A. Ripp (4)(5).......................................    13,446       281,000        *
Charles M. Lillis...........................................        --            --        *
Pearre Williams.............................................        --            --        *
All current representatives, directors and executive
  officers (12 persons) as a group(3)(4)(5).................   973,818     11,986,868      1.1%
</TABLE>

---------

*   Represents beneficial ownership of less than one percent of issued and
    outstanding stock on February 1, 2000.

(1) Beneficial ownership as reported in the above table has been determined in
    accordance with Rule 13d-3 of the SEC. Unless otherwise indicated,
    beneficial ownership includes both sole voting and sole investment power.
    This table does not include any Time Warner Common Stock which may be held
    by the Time Warner General Partners or other Time Warner subsidiaries or
    pension and profit-sharing plans of other corporations or endowment funds of
    educational and charitable institutions for which various directors and
    officers may serve as directors or trustees. As of February 1, 2000, the
    only equity securities of Time Warner beneficially owned by the named
    persons or group were shares of Time Warner Common Stock and options to
    purchase Time Warner Common Stock.

(2) Reflects shares of Time Warner Common Stock subject to options to purchase
    Time Warner Common Stock issued by Time Warner which, on February 1, 2000,
    were unexercised but were exercisable within a period of 60 days from that
    date. These shares are excluded from the column headed 'Number of Shares.'
    196,000 of the stock options shown for Mr. Bressler and 60,000 of the stock
    options shown for Mr. Haje have been transferred to a limited partnership
    owned by their respective families. As a result of the Time Warner Board of
    Directors' approval of the AOL Merger on January 9, 2000, all then
    outstanding options, by their terms, vested and became exercisable.

(3) Includes 30,000 shares of Time Warner Common Stock held by Mr. Levin's wife,
    as to which Mr. Levin disclaims any beneficial ownership.

(4) Includes 400 shares of Time Warner Common Stock held by Mr. Ripp's adult
    son, as to which Mr. Ripp disclaims any beneficial ownership.

(5) Includes an aggregate of approximately 75,950 shares of Time Warner Common
    Stock held by a trust under an employee stock plan of Time Warner and its
    subsidiaries for the benefit of current representatives, directors and
    executive officers (including 28 shares for Mr. Bogart, 9,028 shares for
    Mr. Bressler, 4,091 shares for Mr. LaBarca, 22,066 shares for Mr. Levin, 324
    shares for Mr. Parsons and 12,646 shares for Mr. Ripp). Approximately 7,045
    shares of Time Warner Common Stock are held by the trust under the Time
    Warner Savings Plan for the benefit of Mr. Haje.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CORPORATE SERVICES

    Time Warner provides TWE with corporate support services and facilities
(including, without limitation, internal accounting, financial, tax, legal and
similar administrative and other services) as may be necessary or appropriate
for TWE to conduct the businesses that were contributed to TWE in the manner
that such businesses were conducted by Time Warner and its subsidiaries prior
to the capitalization of TWE on June 30, 1992 (the 'TWE Capitalization'). As
compensation and reimbursement for the cost of providing such services and
facilities, TWE paid Time Warner fees in the amount of $73 million, $72 million
and $72 million in 1999, 1998, and 1997, respectively.

OPTION REIMBURSEMENT

    Upon the exercise of options to purchase securities of Time Warner by any
officer or other employee of TWE or of any 'strategic venture' of TWE,
including, without limitation, TWE Japan, or of Time Warner or any of its
subsidiaries who in such capacity performs substantially all of his or her
duties on behalf of TWE or

                                     III-11





<PAGE>

any such 'strategic venture,' TWE or such 'strategic venture' must reimburse
Time Warner for the amount by which the market price of such securities on the
exercise date exceeds the exercise price, or with respect to options granted
prior to the TWE Capitalization, the greater of the exercise price and the
market price of such securities as of the TWE Capitalization (such reimbursement
is hereinafter called a 'Stock Option Distribution'). At December 31, 1999, TWE
had accrued $1.29 billion of Stock Option Distributions payable to Time Warner.
Such amount, which is not payable until the underlying options are exercised and
then only subject to limitations on cash distributions in accordance with the
TWE credit agreement, will be adjusted in subsequent accounting periods based on
changes in the quoted market prices for the underlying securities. Such amount
would increase (decrease) by approximately $27 milion for each one dollar
increase (decrease) in the closing price of Time Warner Common Stock. See
Notes 8 and 9 to the TWE consolidated financial statements, which are presented
herein at pages F-31 through F-34.

TWE JAPAN DISTRIBUTION AGREEMENTS

    Concurrently with the closing of the TWE Japan transaction, TWE and TWE
Japan entered into distribution and merchandising agreements pursuant to which
TWE granted to TWE Japan the right to engage in theatrical and non-theatrical,
television and home video distribution in Japan as well as the right to engage
in the licensing and merchandising of TWE's copyrights and trademarks in Japan.
Such agreements provide that TWE Japan will receive distribution fees generally
comparable to those currently received by TWE for performing distribution
services for unaffiliated third parties.

OTHER ARRANGEMENTS AND TRANSACTIONS

    The TWE Partnership Agreement expressly permits Time Warner and TWE to
continue certain arrangements and transactions that prior to the TWE
Capitalization existed between Time Warner and certain of the subsidiaries of
Time Warner that contributed assets to TWE at the TWE Capitalization, to the
extent that such arrangements and transactions relate to the businesses that
were contributed. The TWE Partnership Agreement also permits Time Warner to
enter into additional similar arrangements and transactions with TWE in the
ordinary course of business consistent with past practice as well as any new
arrangements and transactions with TWE on an arm's-length basis. For additional
information regarding such arrangements, see Note 15 to TWE's consolidated
financial statements included herein at pages F-41 and F-42 and Note 14 to
the TWE General Partner's consolidated financial statements included herein
at page F-77.

    For information with respect to WCI's payment of a special dividend to Time
Warner and the establishment of a revolving credit agreement, see Note 6 to the
TWE General Partner's consolidated financial statements at page F-70 herein.

                                     III-12






<PAGE>

                                    PART IV

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

(a)(1)-(2) Financial Statements and Schedules:

    The list of consolidated financial statements and schedules set forth in the
accompanying Index to Consolidated Financial Statements and Other Financial
Information at page F-1 herein is incorporated herein by reference. Such
consolidated financial statements and schedules are filed as part of this
report.

    All other financial statement schedules are omitted because the required
information is not applicable, or because the information required is included
in the consolidated financial statements and notes thereto.

(3) Exhibits:

    The exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as 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
December 31, 1999.

                                      IV-1






<PAGE>

                                   SIGNATURES

    PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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, IN THE CITY
OF NEW YORK, STATE OF NEW YORK, ON MARCH 29, 2000.

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

                           By: /s/ JOSEPH A. RIPP
                               ___________________________________________
                               NAME: JOSEPH A. RIPP
                               TITLE:  EXECUTIVE VICE PRESIDENT AND CHIEF
                               FINANCIAL OFFICER

                           AMERICAN TELEVISION AND COMMUNICATIONS CORPORATION
                           ('ATC')
                           WARNER COMMUNICATIONS INC. ('WCI')

                           By:  /s/ JOSEPH A. RIPP
                               ___________________________________________
                               NAME: JOSEPH A. RIPP
                               TITLE:  EXECUTIVE VICE PRESIDENT AND CHIEF
                               FINANCIAL OFFICER

    PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED ON MARCH 29, 2000.

<TABLE>
<CAPTION>
                  SIGNATURE                                        TITLE
                  ---------                                        -----
<C>                                            <S>
             /s/ GERALD M. LEVIN               Director of ATC and WCI and Chairman of the
--------------------------------------------     Board and Chief Executive Officer of each
              (GERALD M. LEVIN)                  Registrant (Principal Executive Officer)

            /s/ JOSEPH A. RIPP                 Executive Vice President and Chief Financial
--------------------------------------------     Officer of each Registrant (Principal
              (JOSEPH A. RIPP)                   Financial Officer)

            /s/ JAMES W. BARGE                 Vice President and Controller of each
--------------------------------------------     Registrant (Principal Accounting Officer)
              (JAMES W. BARGE)

         /s/ CHRISTOPHER P. BOGART             Director of ATC and WCI
--------------------------------------------
           (CHRISTOPHER P. BOGART)

          /s/ RICHARD J. BRESSLER              Director of ATC and WCI
--------------------------------------------
            (RICHARD J. BRESSLER)

           /s/ RICHARD D. PARSONS              Director of ATC and WCI
--------------------------------------------
            (RICHARD D. PARSONS)
</TABLE>

                                      IV-2





<PAGE>

        TIME WARNER ENTERTAINMENT COMPANY, L.P. AND TWE GENERAL PARTNERS
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND OTHER FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                   PAGE
                                                              ---------------
                                                                       TWE
                                                                     GENERAL
                                                              TWE    PARTNERS
                                                              ---    --------
<S>                                                           <C>    <C>
Management's Discussion and Analysis of Results of
  Operations and Financial Condition........................  F-2      F-48
Consolidated Financial Statements:
    Balance Sheets..........................................  F-14     F-55
    Statements of Operations................................  F-15     F-56
    Statements of Cash Flows................................  F-16     F-57
    Statements of Partnership Capital and Shareholders'
      Equity................................................  F-17     F-58
    Notes to Consolidated Financial Statements..............  F-18     F-60
Report of Independent Auditors..............................  F-44     F-80
Selected Financial Information..............................  F-45     F-81
Quarterly Financial Information.............................  F-46
Financial Statement Schedule II -- Valuation and Qualifying
  Accounts..................................................  F-47     F-82
</TABLE>

                                      F-1




<PAGE>


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

DESCRIPTION OF BUSINESS

    Time Warner Entertainment Company, L.P. ('TWE' or the 'Company') classifies
its business interests into four fundamental areas: Cable Networks, consisting
principally of interests in cable television programming; Filmed Entertainment,
consisting principally of interests in filmed entertainment, television
production and television broadcasting; Cable, consisting principally of
interests in cable television systems; and Digital Media, consisting principally
of interests in Internet-related and digital media businesses. TWE also manages
the cable properties owned by Time Warner Inc. ('Time Warner') and the combined
cable television operations are conducted under the name of Time Warner Cable.

USE OF EBITA

    TWE evaluates operating performance based on several factors, including its
primary financial measure of 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.
These business combinations include 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, which
created over $10 billion of intangible assets that generally are being amortized
over a twenty to forty year period. The exclusion of noncash amortization
charges also is 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, generally are 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.

AT&T-MEDIAONE MERGER

    At the time of this filing, MediaOne Group, Inc. ('MediaOne'), a limited
partner in TWE, had agreed to be acquired by AT&T Corp. ('AT&T'). In August
1999, TWE received a notice from MediaOne concerning the termination of its
covenant not to compete with TWE. The termination of that covenant is necessary
for MediaOne to complete its proposed merger with AT&T. As a result of the
termination notice and the operation of the TWE partnership agreement,
MediaOne's rights to participate in the management of TWE's businesses
terminated immediately and irrevocably. MediaOne retains only certain protective
governance rights pertaining to certain limited matters affecting TWE as a
whole.

AMERICA ONLINE-TIME WARNER MERGER

    In January 2000, Time Warner and America Online, Inc. ('America Online')
announced that they had entered into an agreement to merge (the 'Merger') by
forming a new holding company named AOL Time Warner Inc. ('AOL Time Warner').
The Merger will create a leading, fully integrated media and communications
company that will combine Time Warner's and TWE's collection of media,
entertainment and news brands and its technologically advanced cable
infrastructure with America Online's extensive Internet franchises and
technology. Management believes that the combined company will be well
positioned to expand the use of the Internet in consumers' everyday lives and,
accordingly, provide Time Warner's and TWE's content businesses with increased
access to consumers through a new and growing distribution medium. Management
further believes that the Merger will result in significant new business and
other value-creation opportunities,

                                     F-2





<PAGE>



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

including additional opportunities for e-commerce, growth in subscribers for
each company's products and services, and cost and operating efficiencies from
cross-promotional and other opportunities.

    As a result of the Merger, the former shareholders of America Online will
have an approximate 55% interest in AOL Time Warner and the former shareholders
of Time Warner will have an approximate 45% interest in the combined entity,
expressed on a fully diluted basis. The Merger is expected to be accounted for
by AOL Time Warner as an acquisition of Time Warner under the purchase method of
accounting for business combinations.

    The Merger is expected to close in the fall of 2000 and is subject to
customary closing conditions, including the approval of the shareholders of each
of America Online and Time Warner and all necessary regulatory approvals. There
can be no assurance that such approvals will be obtained.

TRANSACTIONS AFFECTING COMPARABILITY OF RESULTS OF OPERATIONS

    As more fully described herein, the comparability of TWE's operating results
has been affected by certain significant transactions and nonrecurring items in
each period.

    For 1999, the significant, nonrecurring items included (i) net pretax gains
in the amount of $2.119 billion relating to the sale or exchange of various
cable television systems and investments, (ii) an approximate $215 million net
pretax gain recognized in connection with the early termination and settlement
of a long-term, home video distribution agreement, (iii) an approximate $97
million pretax gain recognized in connection with the sale of an interest in
CanalSatellite, a satellite television platform servicing France and Monaco and
(iv) a one-time, noncash pretax charge of approximately $106 million relating to
Warner Bros.'s retail stores.

    For 1998, the significant, nonrecurring items included (i) net pretax gains
of approximately $90 million relating to the sale or exchange of various cable
television systems and investments and (ii) a pretax charge of approximately
$210 million principally to reduce TWE's carrying value of its investment in
Primestar, Inc. ('Primestar').

    For 1997, the significant, nonrecurring items included (i) net pretax gains
of approximately $200 million relating to the sale or exchange of various cable
television systems, (ii) a pretax gain of approximately $250 million relating to
the sale of its interest in E! Entertainment Television, Inc.
('E! Entertainment') and (iii) an extraordinary loss of $23 million on the
retirement of debt.

    In order to meaningfully assess underlying operating trends, management
believes that the results of operations for each period should be analyzed after
excluding the effects of these significant nonrecurring gains. As such, the
following discussion and analysis focuses on amounts and trends adjusted to
exclude the impact of these unusual items. However, unusual items may occur in
any period. Accordingly, investors and other financial statement users
individually should consider the types of events and transactions for which
adjustments have been made.

    In addition to the above significant and nonrecurring items, the
comparability of TWE's Cable division results has been affected further by
certain 1998 cable-related transactions, as described more fully in Note 2 to
the accompanying consolidated financial statements. While these transactions had
a significant effect on the comparability of the Cable division's EBITA and
operating income, principally due to the deconsolidation of the related
operations, they did not have a significant effect on the comparability of TWE's
net income.

COST SAVINGS

    Since 1997, together with Time Warner, TWE has been engaged in a
company-wide cost management program. The program's purpose is to control costs
by identifying more efficient ways of conducting its

                                      F-3





<PAGE>



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

businesses. As part of these cost savings initiatives, TWE implemented some
changes to its pension plans in 1999. As a result of these changes, and when
taken together with other changes in actuarial assumptions that include a 100
basis point increase in pension discount rates, TWE expects to reduce its
pension expense by approximately $25 million in 2000.

RESULTS OF OPERATIONS

1999 VS. 1998

    EBITA and operating income are as follows:

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                         ------------------------------------------
                                                               EBITA              OPERATING INCOME
                                                         ------------------      ------------------
                                                          1999        1998        1999        1998
                                                         ------      ------      ------      ------
                                                                         (MILLIONS)
<S>                                                      <C>         <C>         <C>         <C>
Filmed Entertainment-Warner Bros(a)....................  $  787      $  498      $  665      $  369
Broadcasting-The WB Network............................     (92)        (93)        (96)        (96)
Cable Networks-HBO.....................................     527         454         527         454
Cable(b)...............................................   3,517       1,369       3,139         992
Digital Media..........................................      (8)         --          (8)         --
                                                         ------      ------      ------      ------
Total..................................................  $4,731      $2,228      $4,227      $1,719
                                                         ------      ------      ------      ------
                                                         ------      ------      ------      ------
</TABLE>

---------

(a) 1999 results include a net pretax gain of $215 million recognized in
    connection with the early termination and settlement of a long-term, home
    video distribution agreement, a $97 million pretax gain relating to the sale
    of an interest in CanalSatellite, offset in part by a one-time, noncash
    pretax charge of $106 million relating to Warner Bros.'s retail stores.

(b) The comparability of the Cable division's operating results has been
    affected by certain 1998 cable-related transactions in addition to net
    pretax gains relating to the sale or exchange of certain cable television
    systems and investments of $2.119 billion in 1999 and $90 million in 1998.

CONSOLIDATED RESULTS

    TWE had revenues of $13.164 billion and net income of $2.759 billion for the
year ended December 31, 1999, compared to revenues of $12.246 billion and net
income of $326 million for the year ended December 31, 1998.

    As previously described, the comparability of TWE's operating results for
1999 and 1998 has been affected by certain significant, nonrecurring items
recognized in each period. These nonrecurring items consisted of approximately
$2.325 billion of net pretax gains in 1999, compared to $120 million of net
pretax losses in 1998.

    TWE's net income increased to $2.759 billion in 1999, compared to $326
million in 1998. However, excluding the significant effect of the nonrecurring
items referred to earlier, net income increased by $149 million to $609 million
in 1999 from $460 million in 1998. As more fully discussed below, this
improvement principally resulted from an overall increase in TWE's business
segment operating income, offset in part by higher equity losses from certain
investments accounted for under the equity method of accounting.

    As a U.S. partnership, TWE is not subject to U.S. federal and state income
taxation. Income and withholding taxes of $150 million and $92 million for the
years ended December 31, 1999 and 1998, respectively, have been provided for the
operations of TWE's domestic and foreign subsidiary corporations.

BUSINESS SEGMENT RESULTS

    Filmed Entertainment-Warner Bros.  Revenues increased to $6.628 billion in
1999, compared to $6.051 billion in 1998. EBITA increased to $787 million in
1999 from $498 million in 1998. Operating income

                                      F-4





<PAGE>


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

increased to $665 million in 1999 from $369 million in 1998. Revenues benefited
from increases in worldwide theatrical, home video and television distribution
operations, offset in part by lower revenues from consumer products operations.
The increase in worldwide home video revenues primarily resulted from increased
sales of DVDs. The operating results in 1999 were affected by various
significant, nonrecurring items, including an approximate $215 million net
pretax gain recognized in connection with the early termination and settlement
of a long-term, home video distribution agreement, a pretax gain of $97 million
recognized in connection with the sale of an interest in CanalSatellite and a
one-time, noncash pretax charge of $106 million relating to Warner Bros.'s
retail stores. Excluding the effect of these significant nonrecurring items,
EBITA and operating income increased principally as a result of improved results
from worldwide theatrical, home video and domestic television syndication
operations. These improvements were offset in part by lower results from
consumer products operations and lower net gains on the sale of other assets.

    The decline in Warner Bros.'s consumer products operations relates, in part,
to its retail stores. In the fourth quarter of 1999, Warner Bros. adopted a plan
designed to improve the performance of its retail stores. The plan is expected
to be executed largely over a three-year period and involves closing certain
underperforming stores, transforming other stores into smaller and more
efficient stores, and exploiting potential e-commerce opportunities. As a result
of this plan, Warner Bros. recorded a one-time, noncash pretax charge of $106
million to reduce the carrying value of certain fixed assets and leasehold
improvements used in its retail stores. The charge represented the excess of the
carrying value of those assets over the discounted future operating cash flows,
adjusted to reflect a shorter recovery period due to planned store closures.

    Broadcasting-The WB Network.  Revenues increased to $384 million in 1999,
compared to $260 million in 1998. EBITA improved to a loss of $92 million in
1999 from a loss of $93 million in 1998. Operating losses of $96 million were
the same in both 1999 and in 1998. Revenues increased principally as a result of
one additional night of weekly prime-time programming in comparison to the prior
year and advertising rate increases, offset in part by lower prime-time
television ratings. Prime-time television ratings were, and are expected to
continue to be, negatively affected by lower household delivery associated with
the WGN Superstation discontinuing its carriage of The WB Network's programming
beginning in the fall of 1999. The marginal EBITA loss improvement and flat
operating losses principally resulted from the fact that significant revenue
increases were offset by the combination of higher programming costs associated
with the expanded programming schedule and higher start-up costs associated with
The WB Network 100+ station group, a distribution alliance for The WB Network in
smaller markets.

    Cable Networks-HBO.  Revenues increased to $2.169 billion in 1999, compared
to $2.052 billion in 1998. EBITA and operating income increased to $527 million
in 1999 from $454 million in 1998. Revenues benefited primarily from an increase
in subscriptions to 35.7 million from 34.6 million at the end of 1998. EBITA and
operating income increased principally due to the revenue gains, increased cost
savings, and higher income from Comedy Central, a 50%-owned equity investee.

    Cable.  Revenues increased to $4.496 billion in 1999, compared to $4.378
billion in 1998. EBITA increased to $3.517 billion in 1999 from $1.369 billion
in 1998. Operating income increased to $3.139 billion in 1999 from $992 million
in 1998. These operating results were affected by certain cable-related
transactions that occurred in 1998 (the '1998 Cable Transactions') and by net
pretax gains of $2.119 billion recognized in 1999 and $90 million in 1998
related to the sale or exchange of various cable television systems and
investments. The 1998 Cable Transactions principally resulted in the
deconsolidation or transfer of certain operations and are described more fully
in Note 2 to the accompanying consolidated financial statements. Excluding the
effect of the 1998 Cable Transactions, revenues increased due to growth in basic
cable subscribers, increases in basic cable rates, increases in advertising and
pay-per-view revenues and an increase in revenues from providing Road
Runner-branded, high-speed online services. Similarly, excluding the effect of
the 1998 Cable Transactions and

                                      F-5





<PAGE>



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

the one-time gains, EBITA and operating income increased principally as a result
of the revenue increases, offset in part by higher programming costs.

    As of December 31, 1999 and 1998, there were 12.6 million subscribers under
the management of TWE's Cable division.

    Digital Media.  Digital Media operating results reflect start-up costs
associated with TWE's digital media businesses, including the November 1999
launch of Entertaindom, TWE's entertainment Web destination. Digital Media had
$8 million of operating losses on $1 million of revenues during 1999. Due to the
start-up nature of these businesses, losses are expected to continue.

    Interest and Other, Net.  Interest and other, net, decreased to $818 million
of expense in 1999, compared to $945 million of expense in 1998. Interest
expense decreased to $561 million in 1999, compared to $566 million in 1998,
principally due to interest savings associated with the Company's 1998 debt
reduction efforts. There was other expense, net of $257 million in 1999,
compared to $379 million in 1998. This decrease principally related to the
absence of an approximate $210 million charge recorded in 1998 to reduce the
carrying value of an interest in Primestar, offset in part by higher losses in
1999 from certain investments accounted for under the equity method of
accounting.

    Minority Interest.  Minority interest expense increased to $427 million in
1999, compared to $284 million in 1998. Minority interest expense increased
primarily due to the allocation of a portion of the higher net pretax gains in
1999 relating to the sale or exchange of various cable television systems and
investments owned by the TWE-Advance/Newhouse Partnership ('TWE-A/N') to the
minority owners of that partnership. Excluding the significant effect of the
gains recognized in each period, minority interest expense decreased slightly in
1999 principally due to a higher allocation of losses to a minority partner in
The WB Network.

1998 VS. 1997

    EBITA and operating income are as follows:

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                             --------------------------------------
                                                                  EBITA           OPERATING INCOME
                                                             ---------------      -----------------
                                                              1998     1997        1998      1997
                                                             ------   ------      -------   -------
                                                                           (MILLIONS)
<S>                                                          <C>      <C>         <C>       <C>
Filmed Entertainment-Warner Bros...........................  $  498   $  387      $  369    $  264
Broadcasting-The WB Network................................     (93)     (88)        (96)      (88)
Cable Networks-HBO.........................................     454      391         454       391
Cable(a)...................................................   1,369    1,184         992       877
                                                             ------   ------      ------    ------
Total......................................................  $2,228   $1,874      $1,719    $1,444
                                                             ------   ------      ------    ------
                                                             ------   ------      ------    ------
</TABLE>

---------

(a) The comparability of the Cable division's operating results has been
    affected by certain 1998 cable-related transactions in addition to net
    pretax gains relating to the sale or exchange of certain cable television
    systems and investments of approximately $90 million and $200 million
    recognized in 1998 and 1997, respectively.

CONSOLIDATED RESULTS

    TWE had revenues of $12.246 billion and net income of $326 million for the
year ended December 31, 1998, compared to revenues of $11.318 billion, income of
$637 million before an extraordinary loss on the retirement of debt and net
income of $614 million for the year ended December 31, 1997.

    As previously described, the comparability of TWE's operating results for
1998 and 1997 has been affected by certain significant, nonrecurring items
recognized in each period. These nonrecurring items consisted of

                                      F-6





<PAGE>

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

approximately $120 million of net losses in 1998, compared to approximately $450
million of net gains in 1997. In addition, net income in 1997 included an
extraordinary loss on the retirement of debt of $23 million.

    TWE's net income decreased to $326 million in 1998, compared to $614 million
in 1997. However, excluding the significant effect of the nonrecurring items
referred to above, net income increased by $229 million to $460 million in 1998,
compared to $231 million in 1997. As discussed more fully below, this
improvement principally resulted from an overall increase in TWE's business
segment operating income, including the positive effect of certain cable system
transfers in 1998 (the 'TWE-A/N Transfers'), offset in part by an increase in
interest expense associated with the TWE-A/N Transfers and higher losses from
certain investments accounted for under the equity method of accounting. The
TWE-A/N Transfers are described more fully in Note 2 to the accompanying
financial statements.

    As a U.S. partnership, TWE is not subject to U.S. federal and state income
taxation. Income and withholding taxes of $92 million and $85 million for the
years ended December 31, 1998 and 1997, respectively, have been provided for the
operations of TWE's domestic and foreign subsidiary corporations.

BUSINESS SEGMENT RESULTS

    Filmed Entertainment-Warner Bros.  Revenues increased to $6.051 billion in
1998, compared to $5.462 billion in 1997. EBITA increased to $498 million in
1998 from $387 million in 1997. Operating income increased to $369 million in
1998 from $264 million in 1997. Revenues benefited from a significant increase
in licensing fees from television production and distribution operations,
principally relating to the initial off-network domestic syndication
availability of Friends and the initial off-network basic cable availability of
ER, as well as an increase in revenues from consumer products licensing
operations. EBITA and operating income benefited principally from the revenue
gains and cost savings, offset in part by lower international syndication sales
of library product and lower results from theatrical releases. In addition,
EBITA and operating income for each period included certain one-time gains on
the sale of assets that were comparable in amount and therefore, did not have
any significant effect on operating trends.

    Broadcasting-The WB Network.  Revenues were $260 million in 1998, compared
to $136 million in 1997. EBITA decreased to a loss of $93 million in 1998 from a
loss of $88 million in 1997. Operating losses increased to $96 million in 1998
from $88 million in 1997. Revenues increased as a result of higher advertising
sales relating to improved television ratings and the addition of a fourth night
of prime-time programming in January 1998 and a fifth night in September 1998.
Despite the revenue increase, operating losses increased because of a lower
allocation of losses to a minority partner in the network. However, excluding
this minority interest effect, operating losses improved principally as a result
of the revenue gains, which outweighed higher programming costs associated with
the expanded programming schedule.

    Cable Networks-HBO.  Revenues increased to $2.052 billion in 1998, compared
to $1.923 billion in 1997. EBITA and operating income increased to $454 million
in 1998 from $391 million in 1997. Revenues benefited primarily from an increase
in subscriptions to 34.6 million from 33.6 million at the end of 1997. EBITA and
operating income improved principally as a result of the revenue gains and, to a
lesser extent, cost savings and higher income from Comedy Central, a 50%-owned
equity investee.

    Cable.  Revenues increased to $4.378 billion in 1998, compared to $4.243
billion in 1997. EBITA increased to $1.369 billion in 1998 from $1.184 billion
in 1997. Operating income increased to $992 million in 1998 from $877 million in
1997. These operating results were affected by the 1998 Cable Transactions and
by net pretax gains of $90 million recognized in 1998 and $200 million in 1997
related to the sale or exchange of various cable television systems and
investments. Excluding the effect of the 1998 Cable Transactions, revenues
increased principally as a result of an increase in basic cable subscribers,
increases in regulated cable rates and

                                      F-7





<PAGE>



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

an increase in advertising revenues. Similarly, excluding the effect of the 1998
Cable Transactions and the one-time gains, EBITA and operating income increased
principally as a result of the revenue gains, offset in part by higher
depreciation related to capital spending.

    Interest and Other, Net.  Interest and other, net, increased to $945 million
of expense in 1998, compared to $326 million of expense in 1997. Interest
expense increased to $566 million in 1998, compared to $490 million in 1997
principally due to higher average debt levels associated with the TWE-A/N
Transfers. There was other expense, net, of $379 million in 1998, compared to
other income of $164 million in 1997, primarily due to lower investment-related
income, as well as higher losses associated with TWE's asset securitization
program. The significant decrease in investment-related income principally
resulted from the absence of an approximate $250 million pretax gain recognized
in 1997 in connection with the sale of an interest in E! Entertainment, the
inclusion of an approximate $210 million charge recorded in 1998 principally
to reduce the carrying value of an interest in Primestar and higher losses
in 1998 from certain investments accounted for under the equity method of
accounting.

    Minority Interest.  Minority interest expense decreased to $284 million in
1998, compared to $324 million in 1997. Minority interest expense decreased
primarily due to the allocation of a portion of higher net pretax gains in 1997
relating to the sale or exchange of various cable television systems owned by
TWE-A/N to the minority owners of that partnership. Excluding the effect of the
gains recognized in each period, minority interest expense for 1998 and 1997 was
comparable in amount and did not have any significant effect on operating
trends.

FINANCIAL CONDITION AND LIQUIDITY

DECEMBER 31, 1999

1999 FINANCIAL CONDITION

    At December 31, 1999, TWE had $6.7 billion of debt, $517 million of cash and
equivalents (net debt of $6.2 billion) and $7.1 billion of partners' capital.
This compares to $6.6 billion of debt, $87 million of cash and equivalents (net
debt of $6.5 billion), $217 million of preferred stock of a subsidiary, $603
million of Time Warner General Partners' Senior Capital and $5.1 billion of
partners' capital at December 31, 1998.

SENIOR CAPITAL DISTRIBUTIONS

    In July 1999, TWE paid a $627 million distribution to the Time Warner
General Partners to redeem the remaining portion of their senior priority
capital interests, including a priority capital return of $173 million. Time
Warner used a portion of the proceeds received from this distribution to repay
all $400 million of outstanding borrowings under its credit agreement with TWE.

REDEMPTION OF REIT PREFERRED STOCK

    In March 1999, a subsidiary of TWE (the 'REIT') redeemed all of its shares
of preferred stock ('REIT Preferred Stock') at an aggregate cost of $217
million, which approximated net book value. The redemption was funded with
borrowings under TWE's bank credit agreement.

CASH FLOWS

    During 1999, TWE's cash provided by operations amounted to $2.713 billion
and reflected $4.731 billion of business segment EBITA, $860 million of noncash
depreciation expense, less $2.119 billion of net pretax gains on the sale or
exchange of cable television systems and investments, $498 million of interest
payments, $132 million of income taxes, $73 million of corporate expenses, $15
million of proceeds repaid under TWE's

                                      F-8





<PAGE>


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

asset securitization program and $41 million related to an increase in working
capital requirements, other balance sheet accounts and noncash items. Cash
provided by operations of $2.288 billion in 1998 reflected $2.228 billion of
business segment EBITA, $927 million of noncash depreciation expense and $166
million of proceeds from TWE's asset securitization program, less $90 million of
net pretax gains on the sale or exchange of cable television systems and
investments, $537 million of interest payments, $91 million of income taxes, $72
million of corporate expenses and $243 million related to an increase in working
capital requirements, other balance sheet accounts and noncash items.

    Cash used by investing activities was $605 million in 1999, compared to $745
million in 1998. The decrease principally resulted from the collection of TWE's
$400 million loan to Time Warner and lower capital expenditures, offset in part
by a $298 million decrease in investment proceeds. Investment proceeds decreased
largely relating to the 1998 sale of TWE's remaining interest in Six Flags
Entertainment Corporation and the receipt of approximately $650 million of
proceeds in 1998 upon the formation of a cable joint venture in Texas, offset in
part by the receipt of approximately $280 million of net proceeds in 1999 in
connection with an exchange of cable television systems. Capital expenditures
decreased to $1.475 billion in 1999, compared to $1.603 billion in 1998.

    Cash used by financing activities was $1.678 billion in 1999, compared to
$1.778 million in 1998. The use of cash in 1999 principally resulted from the
redemption of REIT Preferred Stock at an aggregate cost of $217 million, the
payment of $1.2 billion of capital distributions to Time Warner and $106 million
of debt reduction. The use of cash in 1998 principally reflected $1.153 billion
of distributions paid to Time Warner and the use of investment proceeds to
reduce debt in connection with TWE's 1998 debt reduction efforts.

    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 keep the business positioned for sustained,
long-term growth. Capital spending by TWE's Cable division amounted to $1.319
billion in 1999, compared to $1.451 billion in 1998. Capital spending by TWE's
Cable division for 2000 is budgeted to be approximately $1.674 billion,
reflecting higher spending on variable capital to facilitate a more aggressive
roll-out of Time Warner Cable's popular digital cable and Road Runner-branded
high-speed online service. Capital spending 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 and consistent
with Time Warner Cable's long-term strategic plan, Time Warner Cable agreed with
the Federal Communications Commission (the 'FCC') in 1996 to invest a total of
$4 billion in capital costs in connection with the upgrade of its cable
infrastructure. 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. As of December 31, 1999, Time Warner Cable had
approximately $250 million remaining under this commitment, of which
approximately $50 million is expected to be incurred for the upgrade of TWE's
and TWE-A/N's owned and managed cable television systems. Management expects to
satisfy this commitment by December 31, 2000 when Time Warner Cable's
technological upgrade of its cable television systems is scheduled to be
completed.

OFF-BALANCE SHEET ASSETS

    As discussed below, TWE believes that the value of certain off-balance sheet
assets should be considered, along with other factors discussed elsewhere
herein, in evaluating TWE's financial condition and prospects for future results
of operations, including its ability to meet its capital and liquidity needs.

                                      F-9





<PAGE>



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

  Intangible Assets

    As a creator and distributor of branded information and entertainment
copyrights, TWE has a significant amount of internally generated intangible
assets whose value is not fully reflected in the consolidated balance sheet.
Such intangible assets extend across TWE's principal business interests, but are
best exemplified by its interest in Warner Bros.' and HBO's copyrighted film and
television product libraries, and the creation or extension of brands. Generally
accepted accounting principles do not recognize the value of such assets, except
at the time they may be acquired in a business combination accounted for by the
purchase method of accounting.

    Because TWE normally owns the copyrights to such creative material, it
continually generates revenue through the sale of such products across different
media and in new and existing markets. The value of film and television-related
copyrighted product and trademarks is continually realized by the licensing of
films and television series to secondary markets and the licensing of
trademarks, such as the Looney Tunes characters and Batman, to the retail
industry and other markets. In addition, technological advances, such as the
introduction of the home videocassette in the 1980's and, potentially, the
current exploitation of DVDs, have historically generated significant revenue
opportunities through the repackaging and sale of such copyrighted products in
the new technological format. Accordingly, such intangible assets have
significant off-balance sheet asset value that is not fully reflected in TWE's
consolidated balance sheet.

  Warner Bros. Backlog

    Warner Bros.'s 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 $3.033 billion at December 31, 1999 (including amounts
relating to TWE's cable television networks of $365 million and $599 million to
Time Warner's cable television networks).

    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 received periodically
over the term of the related licensing agreements or on an accelerated basis
using a $500 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. As of December 31, 1999, including cash received
under the securitization facility and other advanced payments, approximately
$700 million of cash licensing fees had been collected against the backlog. 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.

FOREIGN CURRENCY RISK MANAGEMENT

    Time Warner uses foreign exchange contracts primarily to hedge the risk that
unremitted or future license fees owed to TWE domestic companies for the sale or
anticipated sale of U.S. copyrighted products abroad may be adversely affected
by changes in foreign currency exchange rates. As part of its overall strategy
to manage the level of exposure to the risk of foreign currency exchange rate
fluctuations, Time Warner hedges a portion of its foreign currency exposures
anticipated over the ensuing twelve month period, including those related to
TWE. At December 31, 1999, Time Warner had effectively hedged approximately half
of TWE's estimated foreign currency exposures that principally relate to
anticipated cash flows to be remitted to the U.S. over the ensuing twelve month
period. To hedge this exposure, Time Warner used foreign exchange contracts that
generally have maturities of three months or less, which generally will be
rolled over to provide continuing coverage throughout the year. TWE is
reimbursed by or reimburses Time Warner for Time Warner contract gains

                                      F-10





<PAGE>

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

and losses related to TWE's foreign currency exposure. Time Warner often closes
foreign exchange contracts by purchasing an offsetting purchase contract. At
December 31, 1999, Time Warner had contracts for the sale of
$843 million and the purchase of $468 million of foreign currencies at fixed
rates. Of Time Warner's $375 million net sale contract position, $393 million of
the foreign exchange sale contracts and $108 million of the foreign exchange
purchase contracts related to TWE's foreign currency exposure, compared to
contracts for the sale of $298 million and the purchase of $101 million of
foreign currencies at fixed rates at December 31, 1998.

    Based on Time Warner's outstanding foreign exchange contracts related to
TWE's exposure at December 31, 1999, each 5% devaluation of the U.S. dollar as
compared to the level of foreign exchange rates for currencies under contract at
December 31, 1999 would result in approximately $14 million of net unrealized
losses on foreign exchange contracts. Conversely, a 5% appreciation of the U.S.
dollar as compared to the level of foreign exchange rates for currencies under
contract at December 31, 1999 would result in $14 million of net unrealized
gains on contracts. Consistent with the nature of the economic hedge provided by
such foreign exchange contracts, such unrealized gains or losses largely would
be offset by corresponding decreases or increases, respectively, in the dollar
value of future foreign currency license fee payments that would be received in
cash within the ensuing twelve month period from the sale of U.S. copyrighted
products abroad.

EURO CONVERSION

    Effective January 1, 1999, the 'euro' was established as a single currency
valid in more than two-thirds of the member countries of the European Union.
These member countries have a three-year transitional period to physically
convert their sovereign currencies to the euro. By July 1, 2002, all
participating member countries must eliminate their currencies and replace their
legal tender with euro-denominated bills and coins. Notwithstanding this
transitional period, many commercial transactions are expected to become euro-
denominated well before the July 2002 deadline. Accordingly, TWE continues to
evaluate the short-term and long-term effects of the euro conversion on its
European operations, principally filmed entertainment.

    TWE believes that the most significant short-term impact of the euro
conversion is the need to modify its accounting and information systems to
handle an increasing volume of transactions during the transitional period in
both the euro and sovereign currencies of the participating member countries.
TWE has identified its accounting and information systems in need of
modification and an action plan has been formulated to address the nature and
timing of remediation efforts. Remediation efforts have begun and the plan is
expected to be substantially completed well before the end of the transitional
period. This timetable will be adjusted, if necessary, to meet the anticipated
needs of TWE's vendors and customers. Based on preliminary information, costs to
modify its accounting and information systems are not expected to be material.

    TWE believes that the most significant long-term business risk of the euro
conversion may be increased pricing pressures for its products and services
brought about by heightened consumer awareness of possible cross-border price
differences. However, TWE believes that these business risks may be offset to
some extent by lower material costs, other cost savings and marketing
opportunities. Notwithstanding such risks, management does not believe that the
euro conversion will have a material effect on TWE's financial position, results
of operations or cash flows in future periods.

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. TWE
took various precautions related to the fact that many older computer programs,
computer hardware and chip-based devices might have failed to recognize dates
beginning on January 1, 2000 as being valid dates, and as a result might have
failed to operate or might have operated improperly as such dates were
introduced.

                                      F-11






<PAGE>


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

    During 1999, TWE completed its efforts to minimize the risk of disruption
related to Year 2000 issues. This program was described in TWE's reports filed
with the Securities and Exchange Commission (the 'SEC'). To date, TWE has
experienced few problems related to Year 2000 compliance, and the problems that
have been identified have been addressed. TWE is not aware of any remaining
significant problems related to Year 2000 issues but is continuing to monitor
the status of suppliers, vendors and other entities with which it
does business.

    Through the end of 1999, TWE, as a whole, incurred approximately $60 million
related to its Year 2000 remediation program, which started in 1996. These
expenditures were funded from the Company's operating cash flow. TWE anticipates
that its remediation program, and related expenditures, may continue into 2001
as temporary solutions to Year 2000 problems are replaced with upgraded
equipment. Future expenditures are not expected to be significant.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

    The SEC encourages companies to disclose forward-looking information so that
investors can better understand a company's future prospects and make informed
investment decisions. This document, 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. 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, whether as a result of such changes, new
information, future events or otherwise.

    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, technological
developments 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 with the SEC and:

   - For TWE's cable business, more aggressive than expected competition from
     new technologies and other types of video programming distributors,
     including DBS and DSL; increases in government regulation of basic cable or
     equipment rates or other terms of service (such as 'digital must-carry' or
     common carrier requirements); increased difficulty in obtaining franchise
     renewals; the failure of new equipment (such as digital set-top boxes) or
     services (such as digital cable and high-speed on-line services or
     telephony over cable or video on demand) to function properly, to appeal to
     enough consumers or to be available at reasonable prices and 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 (and the negative impact on premium
     programmers of increases in basic cable rates); increased regulation of
     distribution agreements; 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.

                                      F-12





<PAGE>

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


   - 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.

   - For TWE's digital media businesses, their ability to locate and invest in
     profitable businesses, to develop products and services that are
     attractive, accessible and commercially viable in terms of content,
     technology and cost; their ability to manage costs and generate revenues;
     aggressive competition from existing and developing technologies and
     products; the resolution of issues concerning commercial activities via the
     Internet; including security, reliability, cost, ease of use and access;
     and the possibility of increased government regulation of new media
     services.

    In addition, TWE's overall financial strategy, including growth in
operations, maintaining its financial ratios and strengthened balance sheet,
could be adversely affected by increased interest rates, failure to meet
earnings expectations, significant acquisitions or other transactions,
consequences of the euro conversion and changes in TWE's plans, strategies and
intentions.

                                      F-13





<PAGE>

                    TIME WARNER ENTERTAINMENT COMPANY, L.P.
                           CONSOLIDATED BALANCE SHEET
                                  DECEMBER 31,
                                   (MILLIONS)

<TABLE>
<CAPTION>
                                                               1999         1998
                                                              -------      -------
<S>                                                           <C>          <C>
ASSETS
CURRENT ASSETS
Cash and equivalents........................................  $   517      $    87
Receivables, including $1.354 billion and $765 million due
 from Time Warner, less allowances of $668 and $506
 million....................................................    3,328        2,618
Inventories.................................................    1,220        1,312
Prepaid expenses............................................      246          166
                                                              -------      -------
Total current assets........................................    5,311        4,183

Noncurrent inventories......................................    2,274        2,327
Loan receivable from Time Warner............................       --          400
Investments.................................................      774          886
Property, plant and equipment...............................    6,488        6,041
Cable television franchises.................................    5,464        3,773
Goodwill....................................................    3,731        3,854
Other assets................................................      801          766
                                                              -------      -------
Total assets................................................  $24,843      $22,230
                                                              -------      -------
                                                              -------      -------

LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable............................................  $ 1,791      $ 1,473
Participations and programming costs payable................    1,717        1,515
Debt due within one year....................................        6            6
Other current liabilities, including $893 and $370 million
 due to Time Warner.........................................    2,209        1,942
                                                              -------      -------
Total current liabilities...................................    5,723        4,936

Long-term debt..............................................    6,655        6,578
Other long-term liabilities, including $1.292 and $1.130
 billion due to Time Warner.................................    3,501        3,267
Minority interests..........................................    1,815        1,522
Preferred stock of subsidiary holding solely a mortgage note
 of its parent..............................................       --          217
Time Warner General Partners' Senior Capital................       --          603

PARTNERS' CAPITAL
Contributed capital.........................................    7,338        7,341
Partnership deficit.........................................     (189)      (2,234)
                                                              -------      -------
Total partners' capital.....................................    7,149        5,107
                                                              -------      -------
Total liabilities and partners' capital.....................  $24,843      $22,230
                                                              -------      -------
                                                              -------      -------
</TABLE>

See accompanying notes.

                                      F-14





<PAGE>

                    TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                            YEARS ENDED DECEMBER 31,
                                   (MILLIONS)

<TABLE>
<CAPTION>
                                                               1999         1998         1997
                                                              -------      -------      -------
<S>                                                           <C>          <C>          <C>
Revenues(a).................................................  $13,164      $12,246      $11,318
                                                              -------      -------      -------

Cost of revenues(a)(b)......................................   (8,377)      (7,842)      (7,234)
Selling, general and administrative(a)(b)...................   (2,381)      (2,266)      (2,410)
Amortization of goodwill and other intangible assets........     (504)        (509)        (430)
Gain on sale or exchange of cable systems and
 investments(a).............................................    2,119           90          200
Gain on early termination of video distribution agreement...      215           --           --
Gain on sale of interest in CanalSatellite..................       97           --           --
Write-down of retail store assets...........................     (106)          --           --
                                                              -------      -------      -------

Business segment operating income...........................    4,227        1,719        1,444
Interest and other, net(a)..................................     (818)        (945)        (326)
Corporate services(a).......................................      (73)         (72)         (72)
Minority interest...........................................     (427)        (284)        (324)
                                                              -------      -------      -------

Income before income taxes..................................    2,909          418          722
Income taxes................................................     (150)         (92)         (85)
                                                              -------      -------      -------

Income before extraordinary item............................    2,759          326          637
Extraordinary loss on retirement of debt....................       --           --          (23)
                                                              -------      -------      -------

Net income..................................................  $ 2,759      $   326      $   614
                                                              -------      -------      -------
                                                              -------      -------      -------
</TABLE>

---------
(a) Includes the following income (expenses) resulting from transactions with
    the partners of TWE and other related companies:

<TABLE>
<S>                                                           <C>          <C>          <C>
   Revenues.................................................  $   564      $   695      $   431
   Cost of revenues.........................................     (266)        (220)        (167)
   Selling, general and administrative......................      (55)         (26)          18
   Gain on sale or exchange of cable systems and
    investments.............................................      308           --           --
   Interest and other, net..................................       20            6           30
   Corporate expenses.......................................      (73)         (72)         (72)

(b) Includes depreciation expense of:.......................  $   860      $   927      $   940
                                                              -------      -------      -------
                                                              -------      -------      -------
</TABLE>

See accompanying notes.
                                      F-15






<PAGE>


                    TIME WARNER ENTERTAINMENT COMPANY, L.P.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                            YEARS ENDED DECEMBER 31,
                                   (MILLIONS)

<TABLE>
<CAPTION>
                                                               1999         1998         1997
                                                              -------      -------      -------
<S>                                                           <C>          <C>          <C>
OPERATIONS
Net income..................................................  $ 2,759      $   326      $   614
Adjustments for noncash and nonoperating items:
   Extraordinary loss on retirement of debt.................       --           --           23
   Depreciation and amortization............................    1,364        1,436        1,370
   Amortization of film costs...............................    1,897        1,936        1,833
   Gain on sale or exchange of cable systems and
    investments.............................................   (2,119)         (90)        (200)
   Equity in losses of investee companies after
    distributions...........................................      157          149           57
Changes in operating assets and liabilities:
   Receivables..............................................     (707)        (825)        (273)
   Inventories..............................................   (1,805)      (2,174)      (1,947)
   Accounts payable and other liabilities...................      798        1,178          393
   Other balance sheet changes..............................      369          352          (36)
                                                              -------      -------      -------

Cash provided by operations.................................    2,713        2,288        1,834
                                                              -------      -------      -------

INVESTING ACTIVITIES
Investments and acquisitions................................     (478)        (388)        (172)
Capital expenditures........................................   (1,475)      (1,603)      (1,565)
Investment proceeds.........................................      948        1,246          485
Collection of loan to Time Warner...........................      400           --           --
                                                              -------      -------      -------

Cash used by investing activities...........................     (605)        (745)      (1,252)
                                                              -------      -------      -------

FINANCING ACTIVITIES
Borrowings..................................................    2,658        1,514        3,400
Debt repayments.............................................   (2,764)      (1,898)      (3,085)
Issuance of preferred stock of subsidiary...................       --           --          243
Redemption of preferred stock of subsidiary.................     (217)          --           --
Capital distributions.......................................   (1,200)      (1,153)        (934)
Other.......................................................     (155)        (241)        (100)
                                                              -------      -------      -------

Cash used by financing activities...........................   (1,678)      (1,778)        (476)
                                                              -------      -------      -------

INCREASE (DECREASE) IN CASH AND EQUIVALENTS.................      430         (235)         106

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD.................       87          322          216
                                                              -------      -------      -------

CASH AND EQUIVALENTS AT END OF PERIOD.......................  $   517      $    87      $   322
                                                              -------      -------      -------
                                                              -------      -------      -------
</TABLE>

See accompanying notes.

                                      F-16





<PAGE>


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

<TABLE>
<CAPTION>
                                                              TIME WARNER             PARTNERS' CAPITAL
                                                                GENERAL     -------------------------------------
                                                               PARTNERS'                  PARTNERSHIP     TOTAL
                                                                SENIOR      CONTRIBUTED    EARNINGS     PARTNERS'
                                                                CAPITAL       CAPITAL      (DEFICIT)     CAPITAL
                                                              -----------   -----------   -----------   ---------
<S>                                                           <C>           <C>           <C>           <C>
BALANCE AT DECEMBER 31, 1996................................    $1,543        $7,537        $  (963)     $ 6,574

Net income..................................................                                    614          614
Foreign currency translation adjustments....................                                    (29)         (29)
Unrealized gains on securities..............................                                      7            7
                                                                                            -------      -------
   Comprehensive income.....................................                                    592          592

Stock option, tax-related and Senior Capital
 distributions..............................................      (535)                        (723)        (723)
Allocation of income to Time Warner General Partners' Senior
 Capital....................................................       110                         (110)        (110)
                                                                ------        ------        -------      -------
BALANCE AT DECEMBER 31, 1997................................     1,118         7,537         (1,204)       6,333

Net income..................................................                                    326          326
Foreign currency translation adjustments....................                                     (1)          (1)
Unrealized gains on securities..............................                                      2            2
Realized and unrealized losses on derivative financial
 instruments................................................                                     (6)          (6)
                                                                                            -------      -------
   Comprehensive income.....................................                                    321          321

Stock option, tax-related and Senior Capital
 distributions..............................................      (579)                      (1,287)      (1,287)
Distribution of Time Warner Telecom interests...............                    (191)                       (191)
Allocation of income to Time Warner General Partners' Senior
 Capital....................................................        64                          (64)         (64)
Other.......................................................                      (5)                         (5)
                                                                ------        ------        -------      -------
BALANCE AT DECEMBER 31, 1998................................       603         7,341         (2,234)       5,107

Net income..................................................                                  2,759        2,759
Foreign currency translation adjustments....................                                      1            1
Unrealized gains on securities..............................                                     39           39
Realized and unrealized gains on derivative financial
 instruments................................................                                      5            5
                                                                                            -------      -------
   Comprehensive income.....................................                                  2,804        2,804

Stock option, tax-related and Senior Capital
 distributions..............................................      (627)                        (735)        (735)
Allocation of income to Time Warner General Partners' Senior
 Capital....................................................        24                          (24)         (24)
Other.......................................................                      (3)                         (3)
                                                                ------        ------        -------      -------
BALANCE AT DECEMBER 31, 1999................................    $   --        $7,338        $  (189)     $ 7,149
                                                                ------        ------        -------      -------
                                                                ------        ------        -------      -------
</TABLE>

See accompanying notes.


                                      F-17





<PAGE>

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

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

    Time Warner Entertainment Company, L.P., a Delaware limited partnership
('TWE'), classifies its business interests into four fundamental areas: Cable
Networks, consisting principally of interests in cable television programming;
Filmed Entertainment, consisting principally of interests in filmed
entertainment, television production and television broadcasting; Cable,
consisting principally of interests in cable television systems; and Digital
Media, consisting principally of interests in Internet-related and digital media
businesses.

    Each of the business interests within Cable Networks, Filmed Entertainment,
Cable and Digital Media is important to TWE's objective of increasing partner
value through the creation, extension and distribution of recognizable brands
and copyrights throughout the world. Such brands and copyrights include (1) HBO
and Cinemax, the leading pay-television services, (2) the unique and extensive
film, television and animation libraries of Warner Bros. and trademarks such as
the Looney Tunes characters and Batman, (3) The WB Network, a national
broadcasting network launched in 1995 as an extension of the Warner Bros. brand
and as an additional distribution outlet for Warner Bros.'s collection of
children's cartoons and television programming, (4) Time Warner Cable, currently
the largest operator of cable television systems in the U.S. and (5) Internet
websites, such as Entertaindom.com.

    Financial information for TWE's various business segments is presented
herein as an indication of financial performance (Note 13). Except for start-up
losses incurred in connection with The WB Network and Digital Media, TWE's
principal business segments generate significant operating income and cash flow
from operations. The cash flow from operations generated by such business
segments is considerably greater than their operating income due to significant
amounts of noncash amortization of intangible assets recognized principally in
Time Warner 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
business segments amounted to $504 million in 1999, $509 million in 1998 and
$430 million in 1997.

    Certain of Time Warner's 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 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'). Certain of Time Warner's subsidiaries are the general partners
of TWE ('Time Warner General Partners').

BASIS OF CONSOLIDATION AND ACCOUNTING FOR INVESTMENTS

    The consolidated financial statements include 100% of the assets,
liabilities, revenues, expenses, income, loss and cash flows of TWE and all
companies in which TWE has a controlling voting interest ('subsidiaries'), as if
TWE and its subsidiaries were a single company. Significant intercompany
accounts and transactions between the consolidated companies have been
eliminated. Significant accounts and transactions between TWE and its partners
and affiliates are disclosed as related party transactions (Note 15).

    Investments in companies in which TWE has significant influence, but less
than a controlling voting interest, are accounted for using the equity method.
Under the equity method, only TWE's investment in and amounts due to and from
the equity investee are included in the consolidated balance sheet; only TWE's
share of the investee's earnings is included in the consolidated operating
results; and only the dividends, cash distributions, loans or other cash
received from the investee, less any additional cash investments, loan
repayments or other cash paid to the investee, are included in the consolidated
cash flows.

                                      F-18





<PAGE>


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

    Investments in companies in which TWE does not have a controlling interest,
or an ownership and voting interest so large as to exert significant influence,
are accounted for at market value if the investments are publicly traded and
there are no resale restrictions greater than one year. If there are resale
restrictions greater than one year, or if the investment is not publicly
traded, then the investment is accounted for at cost. Unrealized gains and
losses on investments accounted for at market value are reported as a component
of accumulated other comprehensive income (loss) in partners' capital until the
investment is sold, at which time the realized gain or loss is included in
income. Dividends and other distributions of earnings from both market-value
and cost-method investments are included in income when declared.

    The effect of any changes in TWE's ownership interests resulting from the
issuance of capital by consolidated subsidiaries or equity investees to
unaffiliated parties is included in income.

FOREIGN CURRENCY TRANSLATION

    The financial position and operating results of substantially all foreign
operations are consolidated using the local currency as the functional currency.
Local currency assets and liabilities are translated at the rates of exchange on
the balance sheet date, and local currency revenues and expenses are translated
at average rates of exchange during the period. Resulting translation gains or
losses, which have not been material, are included as a component of accumulated
other comprehensive income (loss) in partners' capital.

USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.

    Significant estimates inherent in the preparation of the accompanying
consolidated financial statements include management's forecast of anticipated
revenues and cash flows from investments and the distribution of theatrical and
television product in order to evaluate the ultimate recoverability of accounts
receivable, film inventory and investments recorded as assets in the
consolidated balance sheet. Accounts receivable and sales of home video product
in the filmed entertainment industry are subject to customers' rights to return
unsold items. Management periodically reviews such estimates and it is
reasonably possible that management's assessment of recoverability of accounts
receivable, individual films and television product, and investments may change
based on actual results and other factors.

REVENUES AND COSTS

  Cable and Cable Networks

    A significant portion of cable system and cable programming revenues are
derived from subscriber fees. Subscriber fees are recorded as revenue in the
period the service is provided. The costs of rights to exhibit feature films and
other programming on pay cable services during one or more availability periods
('programming costs') generally are recorded when the programming is initially
available for exhibition, and are allocated to the appropriate availability
periods and amortized as the programming is exhibited.

  Digital Media

    Digital media revenues primarily are derived from advertising and e-commerce
activities. Advertising revenues are recognized in the period that the
advertisements are exhibited. Revenues from e-commerce activities are recognized
when the products are sold.

                                      F-19





<PAGE>


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

  Filmed Entertainment

    Feature films are produced or acquired for initial exhibition in theaters
followed by distribution in the home video, pay cable, basic cable, broadcast
network and syndicated television markets. Generally, distribution to the
theatrical, home video and pay cable markets (the primary markets) is completed
principally within eighteen months of initial release. Thereafter, feature films
are distributed to the basic cable, broadcast network and syndicated television
markets (the secondary markets). Theatrical revenues are recognized as the films
are exhibited. Home video revenues, less a provision for returns, are recognized
when the home videos are sold. Revenues from the distribution of theatrical
product to cable, broadcast network and syndicated television markets are
recognized when the films are available to telecast.

    Television films and series are initially produced for the networks or
first-run television syndication (the primary markets) and may be subsequently
licensed to foreign or domestic cable and syndicated television markets (the
secondary markets). Revenues from the distribution of television product are
recognized when the films or series are available to telecast, except for barter
agreements where the recognition of revenue is deferred until the related
advertisements are exhibited.

    License agreements for the telecast of theatrical and television product in
the cable, broadcast network and syndicated television markets are routinely
entered into well in advance of their available date for telecast, which is
generally determined by the telecast privileges granted under previous license
agreements. Accordingly, there are significant contractual rights to receive
cash and barter under these licensing agreements. For cash contracts, the
related revenues will not be recognized until such product is available for
telecast under the contractual terms of the related license agreement. For
barter contracts, the related revenues will not be recognized until the product
is available for telecast and the advertising spots received under such
contracts are either used or sold to third parties. All of these contractual
rights for which revenue is not yet recognizable is referred to as 'backlog.'
Excluding advertising barter contracts, Warner Bros.' backlog amounted to $3.033
billion at December 31, 1999 (including amounts relating to the licensing of
film product to TWE's cable television networks of $365 million and $599 million
to Time Warner's cable television networks).

    Inventories of theatrical and television product are stated at the lower of
unamortized cost or net realizable value. Cost principally consists of direct
production costs and production overhead. A portion of the cost to acquire WCI
in 1989 was allocated to its theatrical and television product, including an
allocation to product that had been exhibited at least once in all markets
('Library'). Library product is amortized on a straight-line basis over twenty
years. Individual films and series are amortized, and the related participations
and residuals are accrued, based on the proportion that current revenues from
the film or series bear to an estimate of total revenues anticipated from all
markets. These estimates are revised periodically and losses, if any, are
provided in full. Current film inventories generally include the unamortized
cost of completed feature films allocated to the primary markets, television
films and series in production pursuant to a contract of sale, film rights
acquired for the home video market and advances pursuant to agreements to
distribute third-party films in the primary markets. Noncurrent film inventories
generally include the unamortized cost of completed theatrical and television
films allocated to the secondary markets, theatrical films in production and the
Library.

  Proposed Changes to Film Accounting Standards

    In October 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ('AcSEC') issued an exposure
draft of a proposed Statement of Position, 'Accounting by Producers and
Distributors of Films' (the 'SOP'). The proposed rules would establish new
accounting standards for producers and distributors of films, including changes
in revenue recognition and accounting for advertising, development and overhead
costs.

    AcSEC currently is in the process of finalizing these proposed rules. Based
on AcSEC's conclusions reached as of the end of 1999, the SOP would require that
advertising costs for theatrical and television product

                                      F-20





<PAGE>



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

be expensed as incurred. This compares to TWE's existing policy of capitalizing
and then expensing advertising costs for theatrical product over the related
revenue streams. In addition, the SOP would require development costs for
abandoned projects and certain indirect overhead costs to be charged directly to
expense, instead of those costs being capitalized to film costs, which currently
is required under the existing accounting model. The SOP would also require all
film costs to be classified in the balance sheet as a noncurrent asset. The
proposed SOP's provisions in other areas, such as revenue recognition, generally
are consistent with TWE's existing accounting policies.

    At the time that TWE adopts the final provisions of the SOP, it expects to
record a one-time, noncash pretax charge of approximately $525 to $550 million
primarily to reduce the carrying value of its film inventory. This charge will
be reflected as a cumulative effect of a change in accounting principle.

    The provisions of the SOP are still being deliberated by AcSEC and could
change prior to the issuance of a final standard, which is expected to occur by
the end of the second quarter of 2000. The SOP is expected to be effective for
calendar-year companies on January 1, 2001, with early application encouraged.
TWE expects to adopt the provisions of the SOP upon issuance.

  Revenue Classification Changes

    In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, 'Revenue Recognition in Financial Statements'
('SAB 101'), which will be effective for TWE in the second quarter of 2000.
SAB 101 clarifies certain existing accounting principles for the recognition and
classification of revenues in financial statements. While TWE's existing revenue
recognition policies are consistent with the provisions of SAB 101, the new
rules are expected to result in some changes as to how the filmed entertainment
industry classifies its revenues, particularly relating to distribution
arrangements for third-party and co-financed joint venture product. As a result,
TWE is in the process of evaluating the overall impact of SAB 101 on its
consolidated financial statements. It is expected that both annual revenues and
costs in TWE's filmed entertainment business will be reduced by an equal amount
of approximately $1.5 to $2 billion as a result of these classification changes.
However, other aspects of SAB 101 are not expected to have a significant effect
on TWE's consolidated financial statements.

ADVERTISING

    Through 1999, in accordance with Financial Accounting Standards Board
('FASB') Statement No. 53, 'Financial Reporting by Producers and Distributors of
Motion Picture Films,' advertising costs for theatrical and television product
have been capitalized and amortized over the related revenue streams in each
market that such costs are intended to benefit, which generally does not exceed
three months. Other advertising costs are expensed upon the first exhibition of
the advertisement. Advertising expense, excluding theatrical and television
product, amounted to $288 million in 1999, $284 million in 1998 and $288 million
in 1997.

CASH AND EQUIVALENTS

    Cash equivalents consist of commercial paper and other investments that are
readily convertible into cash and have original maturities of three months or
less.

FINANCIAL INSTRUMENTS

    Effective July 1, 1998, TWE adopted FASB Statement No. 133, 'Accounting for
Derivative Instruments and Hedging Activities' ('FAS 133'). FAS 133 requires
that all derivative financial instruments that qualify for hedge accounting,
such as foreign exchange contracts, be recognized in the financial statements
and measured at fair value regardless of the purpose or intent for holding them.
Changes in the fair value of derivative financial

                                     F-21





<PAGE>


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

instruments are either recognized periodically in income or partners' capital
(as a component of comprehensive income), depending on whether the derivative is
being used to hedge changes in fair value or cash flows. The adoption of
FAS 133 did not have a material effect on TWE's financial statements.

    The carrying value of TWE's financial instruments approximates fair value,
except for differences with respect to long-term, fixed-rate debt (Note 6) and
certain differences relating to cost method investments and other financial
instruments that are not significant. The fair value of financial instruments is
generally determined by reference to market values resulting from trading on a
national securities exchange or in an over-the-counter market. In cases where
quoted market prices are not available, fair value is based using present value
or other valuation techniques.

PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment are stated at cost. Additions to cable
property, plant and equipment generally include material, labor, overhead and
interest. Depreciation is provided generally on the straight-line method over
useful lives ranging up to thirty years for buildings and improvements and up to
sixteen years for furniture, fixtures, cable television and other equipment.
Property, plant and equipment consists of:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               1999      1998
                                                              -------   -------
                                                                 (MILLIONS)
<S>                                                           <C>       <C>
Land and buildings..........................................  $   545   $   797
Cable television equipment..................................    7,613     6,612
Furniture, fixtures and other equipment.....................    2,407     2,313
                                                              -------   -------
                                                               10,565     9,722
    Less accumulated depreciation...........................   (4,077)   (3,681)
                                                              -------   -------
Total.......................................................  $ 6,488   $ 6,041
                                                              -------   -------
                                                              -------   -------
</TABLE>

INTANGIBLE ASSETS

    As a creator and distributor of branded information and entertainment
copyrights, TWE has a significant and growing number of intangible assets,
including goodwill, cable television franchises, film and television libraries
and other copyrighted products and trademarks. In accordance with generally
accepted accounting principles, TWE does not recognize the fair value of
internally generated intangible assets. Costs incurred to create and produce
copyrighted product, such as feature films and television series, generally are
either expensed as incurred, or capitalized as tangible assets, as in the case
of cash advances and inventoriable product costs. However, accounting
recognition is not given to any increasing asset value that may be associated
with the collection of the underlying copyrighted material. Additionally, costs
incurred to create or extend brands, such as the start-up of The WB Network,
generally result in losses over an extended development period and are
recognized as a reduction of income as incurred, while any corresponding brand
value created is not recognized as an intangible asset in the consolidated
balance sheet. On the other hand, intangible assets acquired in business
combinations accounted for by the purchase method of accounting are capitalized
and amortized over their expected useful life as a noncash charge against future
results of operations. Accordingly, the intangible assets reported in the
consolidated balance sheet do not reflect the fair value of TWE's internally
generated intangible assets, but rather are limited to intangible assets
resulting from certain acquisitions in which the cost of the acquired companies
exceeded the fair value of their tangible assets at the time of acquisition.

    TWE amortizes goodwill over periods up to forty years using the
straight-line method. Cable television franchises, film and television libraries
and other intangible assets are amortized over periods up to twenty years using
the straight-line method. Amortization of intangible assets amounted to $504
million in 1999, $509

                                     F-22





<PAGE>


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

million in 1998 and $430 million in 1997. Accumulated amortization of intangible
assets at December 31, 1999 and 1998 amounted to $3.942 billion and $3.505
billion, respectively.

    TWE periodically reviews the carrying value of acquired intangible assets
for each acquired entity to determine whether an impairment may exist. TWE
considers relevant cash flow and profitability information, including estimated
future operating results, trends and other available information, in assessing
whether the carrying value of intangible assets can be recovered. If it is
determined that the carrying value of intangible assets will not be recovered
from the undiscounted future cash flows of the acquired business, the carrying
value of such intangible assets would be considered impaired and reduced by a
charge to operations in the amount of the impairment. An impairment charge is
measured as any deficiency in the amount of estimated undiscounted future cash
flows of the acquired business available to recover the carrying value related
to the intangible assets.

INCOME TAXES

    As a Delaware limited partnership, TWE is not subject to U.S. federal and
state income taxation. However, certain of TWE's operations are conducted by
subsidiary corporations that are subject to domestic or foreign taxation. Income
taxes are provided on the income of such corporations using the liability method
prescribed by FASB Statement No. 109, 'Accounting for Income Taxes.'

STOCK OPTIONS

    Time Warner has various stock option plans under which it may grant options
to purchase Time Warner common stock to employees of Time Warner and TWE. In
accordance with Accounting Principles Board Opinion No. 25, 'Accounting for
Stock Issued to Employees' ('APB 25'), compensation cost for stock options is
recognized in income based on the excess, if any, of the quoted market price of
the stock at the grant date of the award or other measurement date over the
amount an employee must pay to acquire the stock. Generally, the exercise price
for stock options granted to employees of TWE equals or exceeds the fair market
value of Time Warner common stock at the date of grant, thereby resulting in no
recognition of compensation expense by Time Warner, nor charged to TWE.

COMPREHENSIVE INCOME

    In accordance with FASB Statement No. 130, 'Reporting Comprehensive Income,'
TWE reports comprehensive income and its components in financial statements.
Comprehensive income consists of net income and other gains and losses affecting
partners' capital that, under generally accepted accounting principles, are
excluded from net income. For TWE, such items consist primarily of unrealized
gains and losses on marketable equity investments and foreign currency
translation gains and losses.

    The following summary sets forth the components of other comprehensive
income (loss) accumulated in partners' capital:

<TABLE>
<CAPTION>
                                         FOREIGN                      DERIVATIVE      ACCUMULATED
                                         CURRENCY      UNREALIZED     FINANCIAL          OTHER
                                       TRANSLATION      GAINS ON      INSTRUMENT     COMPREHENSIVE
                                      GAINS (LOSSES)   SECURITIES   GAINS (LOSSES)   INCOME (LOSS)
                                      --------------   ----------   --------------   -------------
                                                               (MILLIONS)
<S>                                   <C>              <C>          <C>              <C>
Balance at December 31, 1998........       $(43)          $ 9            $(6)            $(40)
1999 activity.......................          1            39              5               45
                                           ----           ---            ---             ----
Balance at December 31, 1999........       $(42)          $48            $(1)            $  5
                                           ----           ---            ---             ----
                                           ----           ---            ---             ----
</TABLE>

                                     F-23





<PAGE>


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

RECLASSIFICATIONS

    Certain reclassifications have been made to the prior years' financial
statements to conform to the 1999 presentation.

2.  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
cable television systems and develop new services, Time Warner, TWE and the
TWE-Advance/Newhouse Partnership ('TWE-A/N') completed a series of transactions
in 1999 and 1998. These transactions, which related to the cable television
business and related ancillary businesses, enhanced Time Warner Cable's
geographic clustering of cable television properties or reduced existing debt
and/or Time Warner Cable's share of future funding requirements for such
businesses. These transactions are discussed more fully below.

GAIN ON SALE OR EXCHANGE OF CABLE TELEVISION SYSTEMS AND INVESTMENTS

    During the past three years, largely in an effort to enhance its geographic
clustering of cable television properties, TWE sold or exchanged various cable
television systems and investments. The 1999 transactions included a number of
transactions generally involving large exchanges of cable television systems. In
these transactions, Time Warner Cable exchanged cable television systems serving
approximately (i) 575,000 subscribers for other cable television systems of
comparable size owned by TCI Communications, Inc. ('TCI'), a subsidiary of AT&T
Corp. (the 'TCI Cable Trades') and (ii) 314,000 subscribers for other cable
television systems of comparable size owned by MediaOne. In addition, in 1999,
Time Warner Cable obtained sole control of certain partnerships previously held
with Fanch Communications, retaining cable television systems serving
approximately 158,000 subscribers and approximately $280 million of net cash
proceeds, in exchange for its interests in other cable television systems
formerly owned by such partnerships. The systems acquired by Time Warner Cable
were accounted for under the purchase method of accounting for business
combinations. As such, the net assets received were recorded at fair value
based on the negotiated terms of the transactions. In connection with these and
other transactions, the operating results of TWE include net pretax gains of
$2.119 billion in 1999, $90 million in 1998 and $200 million in 1997.

TIME WARNER TELECOM REORGANIZATION

    In July 1998, in an effort to combine their Time Warner Telecom operations
into a single entity that is intended to be self-financing, Time Warner, TWE and
TWE-A/N completed a reorganization of their Time Warner Telecom operations (the
'Time Warner Telecom Reorganization'), whereby (i) those operations conducted by
Time Warner, TWE and TWE-A/N were each contributed to a new holding company
named Time Warner Telecom LLC ('Time Warner Telecom'), and then (ii) TWE's and
TWE-A/N's interests in Time Warner Telecom were distributed to their partners,
Time Warner, MediaOne and the Advance/Newhouse Partnership ('Advance/Newhouse'),
a limited partner in TWE-A/N. Time Warner Telecom is an integrated
communications provider in selected metropolitan areas across the United States
where it offers a wide range of telephony and data services to business
customers. As a result of the Time Warner Telecom Reorganization, TWE and
TWE-A/N do not have continuing equity interests in the Time Warner Telecom
operations. TWE and TWE-A/N recorded the distribution of their Time Warner
Telecom operations to their respective partners based on the $242 million
historical cost of the net assets, of which $191 million was recorded as a
reduction in partners' capital and $51 million was recorded as a reduction in
minority interest in TWE's consolidated balance sheet.

PRIMESTAR

    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
Partners' and collectively, the 'Primestar Assets') to Primestar, Inc.

                                     F-24







<PAGE>


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

('Primestar'), a separate holding company. As a result of that transfer and
similar transfers by the other previously existing partners of Primestar
Partners, Primestar Partners became an indirect wholly owned subsidiary of
Primestar. In exchange for contributing its interests in the Primestar Assets,
TWE received approximately 48 million shares of Primestar common stock
(representing an approximate 24% equity interest) and realized approximately
$240 million of debt reduction. As a result of this transaction, effective as of
April 1, 1998, TWE deconsolidated the DBS Operations and the 24% equity interest
in Primestar received in the transaction is being accounted for under the equity
method of accounting. This transaction is referred to as the 'Primestar Roll-up
Transaction.'

    In the fourth quarter of 1998, TWE recorded a charge of approximately $210
million principally to reduce the carrying value of its interest in Primestar.
This charge reflected a significant decline in the fair value of Primestar
during that quarter. The decline in Primestar's value was confirmed by the sale
of its operations and assets to DirecTV, a competitor of Primestar owned by
Hughes Electronics Corp., which occurred during the first half of 1999.

    As a result of the sale to DirecTV, Primestar began to wind down its
operations during 1999. TWE recognized its share of Primestar's 1999 losses
under the equity method of accounting. As of December 31, 1999, Primestar has
substantially completed the wind down of its operations. As such, future
wind-down losses are not expected to be material to TWE's operating results.

    The foregoing losses are included in interest and other, net in TWE's 1999
consolidated statement of operations.

TCI CABLE TRANSACTIONS

    During 1999 and 1998, Time Warner, TWE, TWE-A/N and TCI completed a number
of significant cable-related transactions. These transactions consisted of (i)
the formation in December 1998 of a cable television joint venture in Texas (the
'Texas Cable Joint Venture') that is managed by Time Warner Cable, (ii) the
expansion in August 1998 of an existing joint venture in Kansas City, which is
managed by Time Warner Cable, through the contribution by TCI of a contiguous
cable television system serving approximately 95,000 subscribers, subject to
approximately $200 million of debt and (iii) the TCI Cable Trades in 1999,
as previously discussed above. The Kansas City joint venture is being accounted
for under the equity method of accounting.

    The Texas Cable Joint Venture is a 50-50 cable television joint venture
between TWE-A/N and TCI. TWE-A/N contributed cable television systems serving
approximately 545,000 subscribers, subject to approximately $650 million of
debt. TCI contributed cable television systems serving approximately 565,000
subscribers, subject to approximately $650 million of debt. TWE-A/N did not
recognize a gain or loss on the transaction and the initial investment in the
Texas Cable Joint Venture was recorded based on the historical cost basis of
the contributed net assets. The Texas Cable Joint Venture is being accounted
for under the equity method of accounting.

    As a result of the formation of the Texas Cable Joint Venture, the combined
debt of TWE and TWE-A/N was reduced by approximately $650 million. Also, as a
result of the Texas and Kansas City transactions, TWE benefited from the
geographic clustering of cable television systems and the number of subscribers
under the management of Time Warner Cable was increased by approximately 660,000
subscribers.

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 online
businesses (the 'Road Runner Joint Venture'). In exchange for contributing these
operations, Time Warner received a common equity interest in the Road Runner
Joint Venture
                                     F-25






<PAGE>


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

of 10.7%, TWE received a 25% interest, TWE-A/N received a 32.9%
interest and MediaOne received a 31.4% interest. In exchange for Microsoft and
Compaq contributing $425 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 (the 'Preferred Equity
Interests'). Accordingly, on a fully diluted basis, the Road Runner Joint
Venture is owned 8.6% by Time Warner, 20% by TWE, 26.3% by TWE-A/N, 25.1% by
MediaOne, 10% by Microsoft and 10% by Compaq. No gain or loss was recognized on
the transaction. As such, each of TWE's and TWE-A/N's initial interest in the
Road Runner Joint Venture was recorded based on the historical cost basis of
the contributed net assets. In addition, 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.

    If the Road Runner Joint Venture does not successfully complete a public
offering of its common stock by December 31, 2001, Microsoft and Compaq may put
their Preferred Equity Interests back to the venture at an independently
determined fair value, plus any accrued and unpaid dividends at a rate of 6% per
annum. Microsoft and Compaq also have the right to put their Preferred Equity
Interests back to the venture upon the occurrence of certain early termination
events, as set forth in the partnership agreement. If these termination rights
are triggered and exercised, the put price paid to Microsoft and Compaq will
equal the amount of their original investment plus a cumulative annual preferred
return of 15%.

    The aggregate $425 million of capital contributed by Microsoft and Compaq is
being used by the Road Runner Joint Venture to continue to expand the roll out
of high-speed online services. Time Warner Cable has entered into an affiliation
agreement with the Road Runner Joint Venture, pursuant to which Time Warner
Cable provides Road Runner's high-speed online services to customers in its
cable franchise areas through its technologically advanced, high-capacity cable
architecture. In exchange, Time Warner Cable initially retains 70% of the
subscription revenues and 30% of the national advertising and transactional
revenues generated from the delivery of these online services to its cable
subscribers. Time Warner Cable's share of these subscription revenues will
change periodically to 75% by 2006.

TWE-A/N TRANSFERS

    As of December 31, 1999, TWE-A/N owned cable television systems (or
interests therein) serving approximately 6.7 million subscribers, of which
5.5 million subscribers were served by consolidated, wholly owned cable
television systems and 1.2 million subscribers were served by unconsolidated,
partially owned cable television systems. TWE-A/N had approximately
$1.4 billion of debt at December 31, 1999.

    TWE-A/N is owned approximately 64.8% by TWE, the managing partner, 33.3% by
Advance/Newhouse and 1.9% indirectly by Time Warner. TWE consolidates the
partnership, and the partnership interests owned by Advance/Newhouse and Time
Warner are reflected in TWE's consolidated financial statements as minority
interest. In accordance with the partnership agreement, Advance/Newhouse can
require TWE to purchase its equity interest for fair market value at specified
intervals following the death of both of its principal shareholders. In
addition, TWE or Advance/Newhouse can initiate a restructuring of the
partnership, in which Advance/Newhouse would withdraw from the partnership and
receive one-third of the partnership's net assets.

    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 in TWE-A/N, and completed certain
transactions relating to Paragon Communications ('Paragon' and 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. Prior to this transaction, the economic ownership
of Paragon was held 50% by subsidiaries of Time Warner, 25% beneficially by
TWE and 25% beneficially by TWE-A/N. The debt assumed by TWE-A/N has been
guaranteed by TWI Cable and certain of its subsidiaries,

                                     F-26





<PAGE>

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

including Paragon. TWE-A/N accounted for this transaction at fair value under
the purchase method of accounting for business combinations.

    Paragon was a partnership formerly owning cable television systems serving
approximately 1 million subscribers. As part of the TWE-A/N Transfers, TWE and
TWE-A/N exchanged substantially all of their aggregate 50% 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.
The TWE-A/N Transfers were accounted for effective as of January 1, 1998 and TWE
has continued to consolidate TWE-A/N.

    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 year ended
December 31, 1997, revenues of $11.379 billion, depreciation expense of $947
million, operating income before noncash amortization of intangible assets of
$1.989 billion, operating income of $1.496 billion and net income of $607
million.

3.  FILMED ENTERTAINMENT TRANSACTIONS

1999 GAIN ON TERMINATION OF VIDEO DISTRIBUTION AGREEMENT

    In March 1999, Warner Bros. and Metro-Goldwyn-Mayer, Inc. ('MGM') terminated
a long-term distribution agreement under which Warner Bros. had exclusive
worldwide distribution rights for MGM/United Artists home video product. In
connection with the early termination and settlement of this distribution
agreement, Warner Bros. recognized a net pretax gain of approximately
$215 million, which has been included in operating income in the accompanying
consolidated statement of operations.

1999 GAIN ON SALE OF INTEREST IN CANALSATELLITE

    In December 1999, Warner Bros. sold its 10% interest in CanalSatellite, a
satellite television distribution service in France and Monaco, to Canal+, a
large French media and entertainment company. In connection with the sale,
Warner Bros. recognized a pretax gain of $97 million, which has been included in
operating income in the accompanying consolidated statement of operations.

1999 WARNER BROS. RETAIL STORES WRITE-DOWN

    In the fourth quarter of 1999, Warner Bros. recorded a one-time, noncash
pretax charge of $106 million to reduce the carrying value of certain fixed
assets and leasehold improvements used in its retail stores. This charge
resulted from a plan adopted in December 1999 that is designed to improve the
performance of Warner Bros.'s retail store operations. The plan is expected to
be executed largely over a three-year period and involves closing certain
underperforming stores, transforming other stores into smaller and more
efficient stores, and exploiting potential e-commerce opportunities.

    The charge represents the excess of the carrying value of the assets used in
Warner Bros.'s retail stores over the discounted future operating cash flows,
adjusted to reflect a shorter recovery period due to planned store closures. The
charge has been included in operating income in the accompanying consolidated
statement of operations.

1998 SALE OF 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

                                     F-27





<PAGE>

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

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. As of December 31, 1999,
approximately $330 million of the original $400 million gain on the sale of
TWE's interest had been deferred, principally as a result of uncertainties
surrounding its realization. Those uncertainties relate to ongoing litigation
as described in Note 14 and TWE's continuing guarantees of Premier's long-term
obligations to make minimum payments to the limited partners of the Six Flags
Over Texas and Six Flags Over Georgia theme parks. If current trends continue,
TWE expects the deferred gain to be recognized over the next several years,
subject to the resolution of the Six Flags litigation. That is, the deferred
gain will not fall below the estimated exposure relating to the Six Flags
litigation. In addition, upon closing of the America Online-Time Warner merger,
any portion of the deferred gain not attributable to the Six Flags litigation
is likely to be eliminated in purchase accounting.

4.  OTHER INVESTMENTS

    TWE's other investments consist of:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              --------------
                                                              1999      1998
                                                              ----      ----
                                                                (MILLIONS)
<S>                                                           <C>       <C>
Equity method investments...................................  $542      $574
Cost and fair-value method investments......................   232       312
                                                              ----      ----
Total.......................................................  $774      $886
                                                              ----      ----
                                                              ----      ----
</TABLE>

    At December 31, 1999, companies accounted for using the equity method
included: Comedy Partners, L.P. (50% owned), certain cable system joint ventures
(generally 50% owned), the Road Runner Joint Venture (46% owned on a
fully diluted basis), Six Flags (49% owned in 1997), certain international cable
and programming joint ventures (20% to 50% owned), Courtroom Television Network
(50% owned) and Primestar (24% owned). A summary of combined financial
information as reported by the equity investees of TWE is set forth below:

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                            ------------------------------
                                                             1999        1998        1997
                                                            ------      ------      ------
                                                                      (MILLIONS)
<S>                                                         <C>         <C>         <C>
Revenues..................................................  $1,704      $2,329      $2,207
Depreciation and amortization.............................    (333)       (706)       (235)
Operating income (loss)...................................     140        (265)        118
Net loss..................................................    (130)       (352)        (82)
Current assets............................................     385         665         412
Total assets..............................................   2,919       5,228       3,046
Current liabilities.......................................     303         628         993
Long-term debt............................................   1,881       2,917       1,625
Total liabilities.........................................   2,224       3,699       2,734
Total shareholders' equity or partners' capital...........     695       1,529         312
</TABLE>

    In the first quarter of 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 interest and other, net in the accompanying
consolidated statement of operations.

                                     F-28





<PAGE>


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


5.  INVENTORIES

    Inventories consist of:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                 -------------------------------------------
                                                         1999                   1998
                                                 --------------------   --------------------
                                                 CURRENT   NONCURRENT   CURRENT   NONCURRENT
                                                 -------   ----------   -------   ----------
                                                                 (MILLIONS)
<S>                                              <C>       <C>          <C>       <C>
Film costs:
    Released, less amortization................  $  652      $  774     $  614      $  744
    Completed and not released.................      60          17        179          76
    In process and other.......................       8         532         23         572
    Library, less amortization.................      --         508         --         560
Programming costs, less amortization...........     411         443        426         375
Merchandise....................................      89          --         70          --
                                                 ------      ------     ------      ------
Total..........................................  $1,220      $2,274     $1,312      $2,327
                                                 ------      ------     ------      ------
                                                 ------      ------     ------      ------
</TABLE>

    Excluding the Library, the unamortized cost of completed films at
December 31, 1999 amounted to $1.502 billion, over 90% of which is expected to
be amortized within three years after release.

6.  LONG-TERM DEBT

    Long-term debt consists of:

<TABLE>
<CAPTION>
                                           WEIGHTED AVERAGE                DECEMBER 31,
                                           INTEREST RATE AT               ---------------
                                           DECEMBER 31, 1999  MATURITIES   1999     1998
                                           -----------------  ----------  ------   ------
                                                                            (MILLIONS)
<S>                                        <C>                <C>         <C>      <C>
Bank credit agreement borrowings.........        6.85%          2002      $2,496   $2,711
Commercial paper.........................        6.46%          2000         360       62
Fixed-rate senior notes and debentures...        8.56%        2002-2033    3,799    3,805
                                                                          ------   ------
Total....................................                                 $6,655   $6,578
                                                                          ------   ------
                                                                          ------   ------
</TABLE>

BANK CREDIT AGREEMENT

    TWE and TWE-A/N, together with Time Warner and certain of its consolidated
subsidiaries, have a revolving credit facility (the 'Bank Credit Agreement').
The Bank Credit Agreement permits borrowings in an aggregate amount of up to
$7.5 billion, with no scheduled reduction in credit availability prior to
maturity in November 2002. The borrowers under the Bank Credit Agreement are
Time Warner and a number of its consolidated subsidiaries, consisting of Time
Warner Companies, Inc. ('TW Companies'), Turner Broadcasting System, Inc.
('TBS'), TWI Cable, TWE and TWE-A/N. Borrowings under the Bank Credit Agreement
are limited to (i) $6 billion in the aggregate for Time Warner, TW Companies,
TBS and TWI Cable, (ii) $7.5 billion in the case of TWE and (iii) $2 billion in
the case of TWE-A/N, subject in each case to an aggregate borrowing limit of
$7.5 billion and certain other limitations and adjustments. Such borrowings bear
interest at specific rates for each of the borrowers (generally equal to LIBOR
plus a margin of 35 basis points) and each borrower is required to pay a
commitment fee of .125% per annum on the unused portion of its commitment, which
margin and fee vary based on the credit rating or financial leverage of the
applicable borrower. Borrowings may be used for general business purposes and
unused credit is available to support commercial paper borrowings. The Bank
Credit Agreement contains certain covenants generally for each borrower relating
to, among other things, additional indebtedness; liens on assets; cash flow
coverage and leverage ratios; and dividends, distributions and other restricted
cash payments or transfers of assets from the borrowers to their respective
shareholders, partners or affiliates.


                                     F-29





<PAGE>

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

DEBT GUARANTEES

    Each Time Warner General Partner has guaranteed a pro rata portion of
approximately $5.3 billion of TWE's debt and accrued interest at December 31,
1999, based on the relative fair value of the net assets each Time Warner
General Partner (or its predecessor) contributed to TWE (the 'Time Warner
General Partner Guarantees'). Such indebtedness is recourse to each Time Warner
General Partner only to the extent of its guarantee. The indenture pursuant to
which TWE's notes and debentures have been issued (the 'Indenture') requires the
majority consent of the holders of the notes and debentures to terminate the
Time Warner General Partner Guarantees. There are generally no restrictions on
the ability of the Time Warner General Partner guarantors to transfer material
assets, other than TWE assets, to parties that are not guarantors. In addition,
in connection with the TWE-A/N Transfers (Note 2), approximately $1.396 billion
of TWE-A/N's debt and accrued interest at December 31, 1999 has been guaranteed
by TWI Cable and certain of its subsidiaries.

INTEREST EXPENSE AND MATURITIES

    TWE periodically refinances its debt in an effort to lower its overall cost
of borrowings and to stagger debt maturities. In connection with such
refinancings, TWE recognized an extraordinary loss on the retirement of debt of
$23 million in 1997.

    Interest expense amounted to $561 million in 1999, $566 million in 1998 and
$490 million in 1997. The weighted average interest rate on TWE's total debt was
7.8% and 7.5% at December 31, 1999 and 1998, respectively.

    Annual repayments of long-term debt for the five years subsequent to
December 31, 1999 consist only of $3.5 billion due in 2002. This includes all
borrowings under the Bank Credit Agreement, as well as any commercial paper
borrowings supported thereby. TWE has the intent and ability under the Bank
Credit Agreement to continue to refinance its commercial paper borrowings on a
long-term basis.

FAIR VALUE OF DEBT

    Based on the level of interest rates prevailing at December 31, 1999 and
1998, the fair value of TWE's fixed-rate debt exceeded its carrying value by
$160 million in 1999 and $764 million in 1998. Unrealized gains or losses on
debt do not result in the realization or expenditure of cash and generally are
not recognized for financial reporting purposes unless the debt is retired prior
to its maturity.

7.  INCOME TAXES

    Domestic and foreign pretax income (loss) are as follows:

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              -------------------------
                                                               1999      1998     1997
                                                              -------    -----    -----
                                                                     (MILLIONS)
<S>                                                           <C>        <C>      <C>
Domestic....................................................  $2,717     $438     $654
Foreign.....................................................     192      (20)      68
                                                              ------     ----     ----
Total.......................................................  $2,909     $418     $722
                                                              ------     ----     ----
                                                              ------     ----     ----
</TABLE>

                                     F-30





<PAGE>

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

    As a partnership, TWE is not subject to U.S. federal, state or local income
taxation. However, certain of TWE's operations are conducted by subsidiary
corporations that are subject to domestic or foreign taxation. Income taxes
(benefits) of TWE and subsidiary corporations are as set forth below:

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                             ------------------------
                                                             1999      1998      1997
                                                             ----      ----      ----
                                                                    (MILLIONS)
<S>                                                          <C>       <C>       <C>
Federal:
    Current................................................  $ 17      $ 6       $ 2
    Deferred...............................................    --       (7)      (10)
Foreign:
    Current(a).............................................   109      106        69
    Deferred...............................................    16      (15)       22
State and local:
    Current................................................     7        4         4
    Deferred...............................................     1       (2)       (2)
                                                             ----      ---       ---
Total income taxes.........................................  $150      $92       $85
                                                             ----      ---       ---
                                                             ----      ---       ---
</TABLE>

---------
(a) Includes foreign withholding taxes of $75 million in 1999, $62 million in
    1998 and $58 million in 1997.

    The financial statement basis of TWE's assets exceeds the corresponding tax
basis by $9.2 billion at December 31, 1999, principally as a result of
differences in accounting for depreciable and amortizable assets for financial
statement and income tax purposes.

8.  PREFERRED STOCK OF SUBSIDIARY

    In 1997, a newly formed, substantially owned subsidiary of TWE (the 'REIT')
issued 250,000 shares of preferred stock ('REIT Preferred Stock'). The REIT was
intended to qualify as a real estate investment trust under the Internal Revenue
Code of 1986, as amended.

    In March 1999, the REIT redeemed all of its shares of REIT Preferred Stock
at an aggregate cost of $217 million, which approximated net book value. The
redemption was funded with borrowings under TWE's bank credit agreement.

9.  PARTNERS' CAPITAL

PARTNERSHIP CAPITAL AND ALLOCATION OF INCOME

    Each partner's interest in TWE generally consists of the undistributed
priority capital and residual equity amounts that were initially assigned to
that partner or its predecessor based on the estimated fair value of the net
assets each contributed to the partnership ('Undistributed Contributed
Capital'), plus, with respect to the priority capital interests only, any
undistributed priority capital return. The priority capital return consists of
net partnership income allocated to date in accordance with the provisions of
the TWE partnership agreement and the right to be allocated additional
partnership income which, together, provides for the various priority capital
rates of return as specified in the following table. The sum of Undistributed
Contributed Capital and the undistributed priority capital return is referred to
herein as 'Cumulative Priority Capital.' Cumulative Priority Capital is not
necessarily indicative of the fair value of the underlying priority capital
interests principally due to above-market rates of return on certain priority
capital interests as compared to securities of comparable credit risk and
maturity, such as the 13.25% rate of return on the Series B Capital interest
owned by the Time Warner General Partners. Furthermore, the ultimate realization
of Cumulative Priority Capital could be affected by the fair value of TWE, which
is subject to fluctuation.

                                     F-31





<PAGE>

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

    A summary of the priority of Undistributed Contributed Capital, ownership of
Undistributed Contributed Capital and Cumulative Priority Capital at
December 31, 1999 and priority capital rates of return thereon is as set forth
below:

<TABLE>
<CAPTION>
                                                                             PRIORITY      TIME     LIMITED PARTNERS
                                                UNDISTRIBUTED   CUMULATIVE    CAPITAL     WARNER    -----------------
                                                 CONTRIBUTED     PRIORITY    RATES OF    GENERAL     TIME
PRIORITY OF UNDISTRIBUTED CONTRIBUTED CAPITAL    CAPITAL(a)      CAPITAL     RETURN(b)   PARTNERS   WARNER   MEDIAONE
---------------------------------------------   -------------   ----------   ---------   --------   ------   --------
                                                        (BILLIONS)                                    (OWNERSHIP%)
<S>                                             <C>             <C>          <C>         <C>        <C>      <C>
Series A Capital.......................             $5.6          $14.5        13.00%      63.27%    11.22%   25.51%
Series B Capital.......................              2.9(d)         7.7        13.25%     100.00%       --       --
Residual Capital.......................              3.3(d)         3.3(c)        --(c)    63.27%    11.22%   25.51%
</TABLE>

---------
(a) Excludes partnership income or loss allocated thereto.

(b) To the extent income allocations are concurrently distributed, the priority
    capital rates of return on the Series A Capital and Series B Capital are 11%
    and 11.25%, respectively.

(c) Residual Capital is not entitled to stated priority rates of return and, as
    such, its Cumulative Priority Capital is equal to its Undistributed
    Contributed Capital. However, in the case of certain events such as the
    liquidation or dissolution of TWE, Residual Capital is entitled to any
    excess of the then fair value of the net assets of TWE over the aggregate
    amount of Cumulative Priority Capital and special tax allocations.

(d) The Undistributed Contributed Capital relating to the Series B Capital has
    priority over the priority returns on the Series A Capital. The
    Undistributed Contributed Capital relating to the Residual Capital has
    priority over the priority returns on the Series B Capital and the Series A
    Capital.

    Because Undistributed Contributed Capital is generally based on the fair
value of the net assets that each partner initially contributed to the
partnership, the aggregate of such amounts is significantly higher than TWE's
partners' capital as reflected in the consolidated financial statements, which
is based on the historical cost of the contributed net assets. For purposes of
allocating partnership income or loss to the partners, partnership income or
loss is based on the fair value of the net assets contributed to the partnership
and results in significantly less partnership income, or results in partnership
losses, in contrast to the net income reported by TWE for financial statement
purposes, which is also based on the historical cost of contributed net assets.

    Under the TWE partnership agreement, partnership income, to the extent
earned, is first allocated to the partners' capital accounts so that the
economic burden of the income tax consequences of partnership operations is
borne as though the partnership were taxed as a corporation ('special tax
allocations'). After any special tax allocations, partnership income is
allocated to the Series A Capital and Series B Capital, in order of priority, at
rates of return ranging from 13.00% to 13.25% per annum, and finally to the
Residual Capital. Partnership losses generally are allocated first to eliminate
prior allocations of partnership income to, and then to reduce the Undistributed
Contributed Capital of, the Residual Capital, Series B Capital and Series A
Capital, in that order, then to reduce any special tax allocations. To the
extent partnership income is insufficient to satisfy all special allocations in
a particular accounting period, the right to receive additional partnership
income necessary to provide for the various priority capital rates of return is
carried forward until satisfied out of future partnership income, including any
partnership income that may result from any liquidation, sale or dissolution of
TWE.

    The Series B Capital owned by subsidiaries of Time Warner may be increased
if certain operating performance targets are achieved over a ten-year period
ending on December 31, 2001, although it does not appear likely at this time
that such targets will be achieved. In addition, MediaOne has an option to
obtain up to an additional 6.33% of Series A Capital and Residual Capital
interests. The determination of the amount of additional interests that
MediaOne is eligible to acquire is based on the compounded annual growth rate
of TWE's adjusted cable EBITDA, as defined in the option agreement, over the
life of the option. The option is exercisable at any time through May 2005.
The option exercise price is dependent upon the year of exercise and ranges from
an exercise price of approximately $1.3 billion in 2000 to $1.8 billion in 2005.
Either MediaOne or TWE may elect that the exercise price be paid with
partnership interests rather than cash.

                                     F-32





<PAGE>

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

CAPITAL DISTRIBUTIONS

    Distributions and loans to the partners are subject to partnership and
credit agreement limitations. Generally, TWE must be in compliance with the cash
flow coverage and leverage ratios, restricted payment limitations and other
credit agreement covenants in order to make such distributions or loans.

    In July 1999, TWE borrowed $627 million under its bank credit agreement and
paid a distribution to the Time Warner General Partners to redeem the remaining
portion of their senior priority capital interests representing the return of
$454 million and a priority capital return of $173 million. Time Warner used a
portion of the proceeds received from this distribution to repay all $400
million of outstanding borrowings under its credit agreement with TWE. Senior
Capital distributions paid in prior periods consisted of $579 million in 1998
(representing the return of $455 million and a priority capital return of $124
million) and $535 million in 1997 (representing the return of $455 million and a
priority capital return of $80 million).

    TWE reimburses Time Warner for the amount by which the market price on the
exercise date of Time Warner common stock options exercised by employees of TWE
exceeds the exercise price or, with respect to options granted prior to the TWE
capitalization, the greater of the exercise price and $13.88, the market price
of the common stock at the time of the TWE capitalization on June 30, 1992
('Stock Option Distributions'). TWE accrues Stock Option Distributions and a
corresponding liability with respect to unexercised options when the market
price of Time Warner 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 common stock declines. Stock
Option Distributions are paid when the options are exercised. At December 31,
1999 and 1998, TWE had recorded a liability for Stock Option Distributions of
$1.292 billion and $1.130 billion, respectively, based on the unexercised
options and the market prices at such dates of $72.31 and $62.06, respectively,
per Time Warner common share. This liability reflects the accrual of
$388 million and $973 million of Stock Option Distributions in 1999 and
1998, respectively, when the market price of Time Warner common stock
increased during such periods. TWE paid Stock Option Distributions to Time
Warner in the amount of $226 million in 1999, $260 million in 1998 and
$75 million in 1997.

    Cash distributions are required to be made to the partners to permit them to
pay income taxes at statutory rates based on their allocable taxable income from
TWE ('Tax Distributions'), including any taxable income generated by the
Beneficial Assets, subject to limitations referred to herein. The aggregate
amount of such Tax Distributions is computed generally by reference to the taxes
that TWE would have been required to pay if it were a corporation. Tax
Distributions are paid to the partners on a current basis. TWE paid Tax
Distributions to the Time Warner General Partners in the amount of $347 million
in 1999, $314 million in 1998 and $324 million in 1997.

    In addition to Stock Option Distributions, Tax Distributions and Senior
Capital Distributions, quarterly cash distributions may be made to the partners
to the extent of excess cash, as defined in the TWE partnership agreement. Such
cash distributions will generally be made on a priority and pro rata basis with
respect to each partner's interest in the Series A Capital, Series B Capital and
Residual Capital. However, cash distributions to the Time Warner General
Partners with respect to their Series A Capital and Residual Capital interests
will be deferred until the limited partners receive aggregate distributions
(excluding Tax Distributions) of approximately $800 million. Similarly, cash
distributions with respect to the Time Warner General Partners' Series B Capital
interest will be deferred until the limited partners receive aggregate
distributions of $1.6 billion. If any such deferral occurs, a portion of the
corresponding partnership income allocations with respect to such deferred
amounts will be made at a rate higher than otherwise would have been the case.
In addition, if a division of TWE or a substantial portion thereof is sold, the
net proceeds of such sale, less expenses and proceeds used to repay outstanding
debt, will be required to be distributed with respect to the partners'
partnership interests. Similar distributions are required to be made in the
event of a financing or refinancing of debt. Subject to any

                                     F-33





<PAGE>

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

limitations on the incurrence of additional debt contained in the TWE
partnership and credit agreements, and the Indenture, TWE may borrow funds to
make distributions.

    In addition, in connection with the Time Warner Telecom Reorganization, TWE
recorded a $191 million noncash distribution to its partners based on the
historical cost of the net assets (Note 2).

10. STOCK OPTION PLANS

    Time Warner has various stock option plans under which Time Warner may grant
options to purchase Time Warner common stock to employees of Time Warner and
TWE. Such options have been granted to employees of TWE with exercise prices
equal to, or in excess of, fair market value at the date of grant. Accordingly,
in accordance with APB 25 and related interpretations, compensation cost
generally has not been recognized by Time Warner, nor charged to TWE, related to
such stock option plans. Generally, the options become exercisable over a
three-year vesting period and expire ten years from the date of grant. Had
compensation cost for Time Warner's stock option plans been determined based on
the fair value method set forth under FASB Statement No. 123, 'Accounting for
Stock-Based Compensation' ('FAS 123'), TWE's allocable share of compensation
cost would have decreased its net income to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                         --------------------------------
                                                          1999         1998         1997
                                                         ------       ------       ------
                                                                    (MILLIONS)
<S>                                                      <C>          <C>          <C>
Net income:
    As reported........................................  $2,759        $326         $614
                                                         ------        ----         ----
                                                         ------        ----         ----
    Pro forma..........................................  $2,710        $285         $584
                                                         ------        ----         ----
                                                         ------        ----         ----
</TABLE>

    For purposes of applying FAS 123, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants to TWE employees in
1999, 1998 and 1997: dividend yields of 0.3%, 0.5% and 1%, respectively;
expected volatility of 23.6%, 21.7% and 22.2%, respectively; risk-free interest
rates of 5.4%, 5.5% and 6.3%, respectively; and expected lives of 5 years in all
periods.

    In December 1998, Time Warner completed a two-for-one common stock split.
Accordingly, the following stock option information gives effect to this stock
split.

    The weighted average fair value of an option granted to TWE employees during
the year was $20.61 in 1999, $11.03 in 1998 and $6.09 in 1997.

                                     F-34





<PAGE>


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

    A summary of stock option activity with respect to employees of TWE is as
follows:

<TABLE>
<CAPTION>
                                                                          WEIGHTED-
                                                              THOUSANDS    AVERAGE
                                                                 OF       EXERCISE
                                                               SHARES       PRICE
                                                              ---------   ---------
<S>                                                           <C>         <C>
Balance at January 1, 1997..................................    60,622     $17.46
Granted.....................................................     7,839      20.68
Exercised...................................................    (7,045)     14.37
Cancelled(a)................................................    (2,412)     16.76
                                                               -------
Balance at December 31, 1997................................    59,004     $18.28
Granted.....................................................     5,767      37.82
Exercised...................................................   (15,957)     16.42
Cancelled(a)................................................    (1,073)     14.36
                                                               -------
Balance at December 31, 1998................................    47,741     $21.35
Granted.....................................................     3,809      66.17
Exercised...................................................    (6,587)     17.54
Cancelled(a)................................................      (157)     37.11
                                                               -------
Balance at December 31, 1999................................    44,806     $25.66
                                                               -------
                                                               -------
</TABLE>

---------

(a) Includes all options cancelled and forfeited during the year, as well as
    options related to employees who have been transferred out of and into TWE
    to and from other Time Warner divisions.

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                               1999     1998     1997
                                                              ------   ------   ------
                                                                    (THOUSANDS)
<S>                                                           <C>      <C>      <C>
Exercisable.................................................  34,688   33,370   43,022
</TABLE>

    The following table summarizes information about stock options outstanding
with respect to employees of TWE at December 31, 1999:

<TABLE>
<CAPTION>
                                OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                       -------------------------------------   ------------------------
                                       WEIGHTED-
                                        AVERAGE    WEIGHTED-                  WEIGHTED-
                          NUMBER       REMAINING    AVERAGE       NUMBER       AVERAGE
        RANGE OF       OUTSTANDING    CONTRACTUAL  EXERCISE    EXERCISABLE    EXERCISE
     EXERCISE PRICES   AT 12/31/99       LIFE        PRICE     AT 12/31/99      PRICE
     ---------------   ------------   -----------  ---------   ------------   ---------
                       (THOUSANDS)                             (THOUSANDS)
    <S>                <C>            <C>          <C>         <C>            <C>
    Under $10                351      0.1 years     $ 8.37           351       $ 8.37
    $10.00 to $ 15.00      3,967      2.2 years     $12.65         3,967       $12.65
    $15.01 to $ 20.00     12,821      5.3 years     $18.52        11,488       $18.50
    $20.01 to $ 30.00     18,150      4.8 years     $21.68        16,963       $21.62
    $30.01 to $ 45.00      4,523      8.0 years     $34.69         1,522       $34.53
    $45.01 to $ 65.00      2,382      8.6 years     $55.04           396       $48.07
    $65.01 to $103.74      2,612      9.1 years     $68.07             1       $69.16
                          ------                                  ------
    Total                 44,806      5.4 years     $25.66        34,688       $20.30
                          ------                                  ------
                          ------                                  ------
</TABLE>

    TWE reimburses Time Warner for the use of Time Warner stock options on the
basis described in Note 9.

    In January 2000, Time Warner and America Online, Inc. ('America Online')
announced that they had agreed to merge. In connection with this merger, all
outstanding Time Warner stock options held by TWE employees at that time became
fully vested and exercisable, pursuant to the terms of Time Warner's stock
option plans (Note 17).

                                     F-35





<PAGE>

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

11. BENEFIT PLANS

    TWE and its subsidiaries have defined benefit pension plans covering
substantially all domestic employees. Pension benefits are based on formulas
that reflect the employees' years of service and compensation levels during
their employment period. Time Warner's common stock represents approximately 13%
and 12% of plan assets at December 31, 1999 and 1998, respectively. A summary of
activity for TWE's defined benefit pension plans is as follows:

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                           ---------------------------
                                                            1999      1998      1997
                                                           -------   -------   -------
                                                                   (MILLIONS)
<S>                                                        <C>       <C>       <C>
COMPONENTS OF PENSION EXPENSE
Service cost.............................................   $ 51      $ 42      $ 33
Interest cost............................................     41        36        31
Expected return on plan assets...........................    (44)      (35)      (26)
Net amortization and deferral............................     (3)       --        --
                                                            ----      ----      ----
Total....................................................   $ 45      $ 43      $ 38
                                                            ----      ----      ----
                                                            ----      ----      ----
</TABLE>

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                               ------------
                                                               1999   1998
                                                              -----   -----
                                                                (MILLIONS)
<S>                                                           <C>     <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at beginning of year...........  $ 586   $ 461
Service cost................................................     51      42
Interest cost...............................................     41      36
Actuarial (gain) loss(a)....................................   (181)     61
Benefits paid...............................................    (16)    (14)
                                                              -----   -----
Projected benefit obligation at end of year.................    481     586
                                                              -----   -----
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year..............    480     364
Actual return on plan assets................................     71     112
Employer contribution.......................................     17      18
Benefits paid...............................................    (15)    (14)
Asset transfers.............................................    (30)     --
                                                              -----   -----

Fair value of plan assets at end of year....................    523     480
                                                              -----   -----

Overfunded (unfunded) projected benefit obligation..........     42    (106)
Additional minimum liability(b).............................     (2)     (4)
Unrecognized actuarial gain(a)..............................   (181)    (10)
Unrecognized prior service cost.............................      2       5
                                                              -----   -----
Accrued pension expense.....................................  $(139)  $(115)
                                                              -----   -----
                                                              -----   -----
</TABLE>

---------

(a) Reflects certain changes in actuarial assumptions made during 1999,
    including a shortening of the expected service period and an increase in the
    discount rate.
(b) The additional minimum liability is offset fully by a corresponding
    intangible asset recognized in the consolidated balance sheet.

                                     F-36





<PAGE>


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

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                              1999     1998     1997
                                                              ----     ----     ----
<S>                                                           <C>      <C>      <C>
WEIGHTED-AVERAGE PENSION ASSUMPTIONS
Discount rate...............................................  7.75%    6.75%    7.25%
Expected return on plan assets..............................     9%       9%       9%
Rate of compensation increase...............................     6%       6%       6%
</TABLE>

    Included above are projected benefit obligations and accumulated benefit
obligations for unfunded defined benefit pension plans of $44 million and $33
million as of December 31, 1999, respectively; and $39 million and $27 million
as of December 31, 1998, respectively.

    Certain domestic employees of TWE participate in multi-employer pension
plans as to which the expense amounted to $34 million in 1999, $35 million in
1998 and $29 million in 1997. Employees of TWE's operations in foreign countries
participate to varying degrees in local pension plans, which in the aggregate
are not significant.

    Certain TWE employees also participate in Time Warner's savings and profit
sharing plans, as to which the expense amounted to $30 million in 1999, $35
million in 1998 and $30 million in 1997. Contributions to the savings plans are
based upon a percentage of the employees' elected contributions. Contributions
to the profit sharing plans generally are determined by management.

12. DERIVATIVE FINANCIAL INSTRUMENTS

    TWE uses derivative financial instruments principally to manage the risk
that changes in exchange rates will affect the amount of unremitted or future
license fees to be received from the sale of U.S. copyrighted products abroad.
The following is a summary of TWE's foreign currency risk management strategy
and the effect of this strategy on TWE's consolidated financial statements.

FOREIGN CURRENCY RISK MANAGEMENT

    Foreign exchange contracts are used primarily by Time Warner to hedge the
risk that unremitted or future license fees owed to TWE domestic companies for
the sale or anticipated sale of U.S. copyrighted products abroad may be
adversely affected by changes in foreign currency exchange rates. As part of its
overall strategy to manage the level of exposure to the risk of foreign currency
exchange rate fluctuations, Time Warner hedges a portion of its foreign currency
exposures anticipated over the ensuing twelve month period, including those
related to TWE. At December 31, 1999, Time Warner had effectively hedged
approximately half of TWE's estimated foreign currency exposures that
principally relate to anticipated cash flows to be remitted to the U.S. over the
ensuing twelve month period. To hedge this exposure, Time Warner used foreign
exchange contracts that generally have maturities of three months or less, which
generally will be rolled over to provide continuing coverage throughout the
year. Time Warner often closes foreign exchange sale contracts by purchasing an
offsetting purchase contract. Time Warner reimburses or is reimbursed by TWE for
contract gains and losses related to TWE's foreign currency exposure. Foreign
exchange contracts are placed with a number of major financial institutions in
order to minimize credit risk.

    TWE records these foreign exchange contracts at fair value in its
consolidated balance sheet and the related gains or losses on these contracts
are deferred in partners' capital (as a component of comprehensive income).
These deferred gains and losses are recognized in income in the period in which
the related license fees being hedged are received and recognized in income.
However, to the extent that any of these contracts are not considered to be
perfectly effective in offsetting the change in the value of the license fees
being hedged, any changes in fair value relating to the ineffective portion of
these contracts are immediately recognized in income. Gains and losses on
foreign exchange contracts are generally included as a component of interest and
other, net, in TWE's consolidated statement of operations.

                                     F-37





<PAGE>

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

    At December 31, 1999, Time Warner had contracts for the sale of $843 million
and the purchase of $468 million of foreign currencies at fixed rates. Of Time
Warner's $375 million net sale contract position, $393 million of the foreign
exchange sale contracts and $108 million of the foreign exchange purchase
contracts related to TWE's foreign currency exposure, primarily Japanese yen
(23% of net contract position related to TWE), European currency (70%), and
Canadian dollars (6%), compared to a net sale contract position of $197 million
of foreign currencies at December 31, 1998. TWE had deferred approximately $1
million of net losses on foreign exchange contracts at December 31, 1999, which
is substantially expected to be recognized in income over the next twelve
months. For the years ended December 31, 1999, 1998 and 1997, TWE recognized $15
million in gains, $2 million in losses and $14 million in gains, respectively,
on foreign exchange contracts, which were or are expected to be largely offset
by corresponding decreases and increases, respectively, in the dollar value of
foreign currency license fee payments that have been or are anticipated to be
received in cash from the sale of U.S. copyrighted products abroad. Time Warner
places foreign currency contracts with a number of major financial institutions
in order to minimize counterparty credit risk.

13. SEGMENT INFORMATION

    TWE classifies its business interests into four fundamental areas: Cable
Networks, consisting principally of interests in cable television programming;
Filmed Entertainment, consisting principally of interests in filmed
entertainment, television production and television broadcasting; Cable,
consisting principally of interests in cable television systems; and Digital
Media, consisting principally of interests in Internet-related and digital media
businesses. Time Warner's Digital Media segment commenced operations in 1999.

    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 accounting policies of the business segments
are the same as those described in the summary of significant accounting
policies (Note 1). Intersegment sales are accounted for at fair value as if the
sales were to third parties.

    The operating results of TWE's cable segment reflect (i) the TWE-A/N
Transfers, effective as of January 1, 1998, (ii) the Primestar Roll-up
Transaction, effective as of April 1, 1998, (iii) the formation of the Road
Runner Joint Venture, effective as of June 30, 1998, (iv) the Time Warner
Telecom Reorganization, effective as of July 1, 1998 and (v) the formation of
the Texas Cable Joint Venture, effective as of December 31, 1998.

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                           ---------------------------
                                                            1999      1998      1997
                                                           -------   -------   -------
                                                                   (MILLIONS)
<S>                                                        <C>       <C>       <C>
REVENUES
Filmed Entertainment-Warner Bros. .......................  $ 6,628   $ 6,051   $ 5,462
Broadcasting-The WB Network..............................      384       260       136
Cable Networks-HBO.......................................    2,169     2,052     1,923
Cable....................................................    4,496     4,378     4,243
Digital Media............................................        1        --        --
Intersegment elimination.................................     (514)     (495)     (446)
                                                           -------   -------   -------
Total....................................................  $13,164   $12,246   $11,318
                                                           -------   -------   -------
                                                           -------   -------   -------
</TABLE>


                                     F-38





<PAGE>

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

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                              ------------------------
                                                               1999     1998     1997
                                                              ------   ------   ------
                                                                     (MILLIONS)
<S>                                                           <C>      <C>      <C>
EBITA(a)
Filmed Entertainment-Warner Bros.(b)........................  $  787   $  498   $  387
Broadcasting-The WB Network.................................     (92)     (93)     (88)
Cable Networks-HBO..........................................     527      454      391
Cable(c)....................................................   3,517    1,369    1,184
Digital Media...............................................      (8)      --       --
                                                              ------   ------   ------
Total.......................................................  $4,731   $2,228   $1,874
                                                              ------   ------   ------
                                                              ------   ------   ------
</TABLE>

---------

(a) EBITA represents business segment operating income before noncash
    amortization of intangible assets. After deducting amortization of
    intangible assets, TWE's business segment operating income was $4.227
    billion in 1999, $1.719 billion in 1998 and $1.444 billion in 1997.

(b) 1999 results include a net pretax gain of $215 million recognized in
    connection with the early termination and settlement of a long-term, home
    video distribution agreement and a $97 million pretax gain relating to the
    sale of an interest in CanalSatellite, offset in part by a one-time, noncash
    charge of $106 million relating to Warner Bros.'s retail stores.

(c) Includes net pretax gains relating to the sale or exchange of certain cable
    television systems and investments of $2.119 billion in 1999, $90 million in
    1998 and $200 million in 1997.


<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                           ---------------------------
                                                            1999      1998      1997
                                                           -------   -------   -------
                                                                   (MILLIONS)
<S>                                                        <C>       <C>       <C>
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Filmed Entertainment-Warner Bros. .......................   $150      $166      $181
Broadcasting-The WB Network..............................      1         1         1
Cable Networks-HBO.......................................     29        23        22
Cable....................................................    679       737       736
Digital Media............................................      1        --        --
                                                            ----      ----      ----
Total....................................................   $860      $927      $940
                                                            ----      ----      ----
                                                            ----      ----      ----
</TABLE>

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                           ---------------------------
                                                            1999      1998      1997
                                                           -------   -------   -------
                                                                   (MILLIONS)
<S>                                                        <C>       <C>       <C>
AMORTIZATION OF INTANGIBLE ASSETS(a)
Filmed Entertainment-Warner Bros. .......................   $122      $129      $123
Broadcasting-The WB Network..............................      4         3        --
Cable Networks-HBO.......................................     --        --        --
Cable....................................................    378       377       307
Digital Media............................................     --        --        --
                                                            ----      ----      ----
Total....................................................   $504      $509      $430
                                                            ----      ----      ----
                                                            ----      ----      ----
</TABLE>

---------

(a) 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.

                                     F-39





<PAGE>


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

    Information as to the assets and capital expenditures is as follows:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                           ---------------------------
                                                            1999      1998      1997
                                                           -------   -------   -------
                                                                   (MILLIONS)
<S>                                                        <C>       <C>       <C>
ASSETS
Filmed Entertainment-Warner Bros. .......................  $ 8,894   $ 8,800   $ 8,098
Broadcasting-The WB Network..............................      284       244       113
Cable Networks-HBO.......................................    1,284     1,159     1,080
Cable....................................................   13,820    11,314    10,771
Digital Media............................................        3        --        --
Corporate(a).............................................      558       713       669
                                                           -------   -------   -------
Total....................................................  $24,843   $22,230   $20,731
                                                           -------   -------   -------
                                                           -------   -------   -------
</TABLE>

---------

(a) Consists principally of cash, cash equivalents and other investments.


<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                           ---------------------------
                                                            1999      1998      1997
                                                           -------   -------   -------
                                                                   (MILLIONS)
<S>                                                        <C>       <C>       <C>
CAPITAL EXPENDITURES
Filmed Entertainment-Warner Bros. .......................  $  128    $  122    $  144
Broadcasting-The WB Network..............................       2         1         1
Cable Networks-HBO.......................................      18        23        19
Cable....................................................   1,319     1,451     1,401
Digital Media............................................       2        --        --
Corporate................................................       6         6        --
                                                           ------    ------    ------
Total....................................................  $1,475    $1,603    $1,565
                                                           ------    ------    ------
                                                           ------    ------    ------
</TABLE>

    Information as to operations in different geographical areas is as follows:

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                           ---------------------------
                                                            1999      1998      1997
                                                           -------   -------   -------
                                                                   (MILLIONS)
<S>                                                        <C>       <C>       <C>
REVENUES(a)
United States............................................  $10,758   $10,167   $ 9,086
United Kingdom...........................................      461       459       488
Germany..................................................      275       263       284
Japan....................................................      268       162       172
France...................................................      202       163       152
Canada...................................................      157       145       137
Other international......................................    1,043       887       999
                                                           -------   -------   -------
Total....................................................  $13,164   $12,246   $11,318
                                                           -------   -------   -------
                                                           -------   -------   -------
</TABLE>

---------

(a) Revenues are attributed to countries based on location of customer.

    Because a substantial portion of TWE's international revenues is derived
from the sale of U.S. copyrighted products abroad, assets located outside the
United States are not material.

                                     F-40






<PAGE>

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

14. COMMITMENTS AND CONTINGENCIES

    TWE's total rent expense amounted to $233 million in 1999, $218 million in
1998 and $218 million in 1997. The minimum rental commitments under
noncancellable long-term operating leases are: 2000-$177 million; 2001-$176
million; 2002-$174 million; 2003-$158 million; 2004-$141 million; and after
2004-$1.076 billion.

    TWE's minimum commitments and guarantees under certain programming,
licensing, franchise and other agreements aggregated approximately $8 billion at
December 31, 1999, which are payable principally over a five-year period.

    TWE is subject to certain litigation relating to Six Flags. In December
1998, a jury returned an adverse verdict in the Six Flags matter in the amount
of $454 million. TWE and its former 51% partner in Six Flags are financially
responsible for this judgment. Management believes that there were numerous
legal errors in the case and has appealed the verdict. In management's opinion
and considering the gain deferred on the sale of Six Flags described
in Note 3 to cover this potential exposure, the resolution of this matter is
not expected to have a material effect on TWE's financial statements.

    TWE is subject to numerous other legal proceedings. In management's opinion
and considering established reserves, the resolution of these matters will not
have a material effect, individually and in the aggregate, on TWE's
consolidated financial statements.

15. RELATED PARTY TRANSACTIONS

    In the normal course of conducting their businesses, TWE and its
subsidiaries and affiliates have had various transactions with Time Warner and
its subsidiaries, generally on terms resulting from a negotiation between the
affected units that in management's view results in reasonable allocations.
Employees of TWE participate in various Time Warner medical, stock option and
other benefit plans for which TWE is charged its allocable share of plan
expenses, including administrative costs. In addition, Time Warner provides
TWE with certain corporate services, including accounting, tax, legal and
administration, for which TWE paid a fee in the amount of $73 million in 1999,
$72 million in 1998 and $72 million in 1997.

    TWE was required to pay a $130 million advisory fee to MediaOne over a
five-year period that ended September 15, 1998 for MediaOne's expertise in
telecommunications, telephony and information technology, and its participation
in the management and technological upgrade of TWE's cable systems.

    TWE has management services agreements with Time Warner's cable business,
pursuant to which TWE manages, or provides services to, the cable television
systems owned by Time Warner. Such cable television systems also pay fees to TWE
for the right to carry cable television programming provided by TWE's cable
networks. Similarly, TWE's cable television systems pay fees to Time Warner for
the right to carry cable television programming provided by Time Warner's cable
networks.

    TWE's Cable division has sold or exchanged various cable television systems
to MediaOne in an effort to strengthen its geographic clustering of cable
television properties. See Note 2 for further information.

    TWE's Filmed Entertainment-Warner Bros. division has various service
agreements with Time Warner's Filmed Entertainment-TBS division, pursuant to
which TWE's Filmed Entertainment-Warner Bros. division provides certain
management and distribution services for Time Warner's theatrical, television
and animated product, as well as certain services for administrative and
technical support.

    Time Warner's Cable Networks-TBS division has license agreements with TWE,
pursuant to which the cable networks have acquired broadcast rights to certain
film and television product. In addition, Time Warner's

                                     F-41







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

Music division provides home videocassette distribution services to certain
TWE operations, and certain TWE units place advertising in magazines published
by Time Warner's Publishing division.

    Time Warner had a credit agreement with TWE allowing it to borrow up to $400
million from TWE through September 15, 2000. During 1999, Time Warner used a
portion of the proceeds received from the final distribution of the Senior
Capital interests in TWE to repay all $400 million of outstanding borrowings
under this agreement.

    In addition to transactions with its partners, TWE has had transactions with
the Columbia House Company partnerships, Comedy Partners, L.P., Time Warner
Telecom, the Road Runner Joint Venture and other equity investees of Time Warner
and the Entertainment Group, generally with respect to sales of products and
services in the ordinary course of business. TWE also has distribution and
merchandising agreements with Time Warner Entertainment Japan Inc., a company
owned by certain former and existing partners of TWE to conduct TWE's businesses
in Japan.

16. ADDITIONAL FINANCIAL INFORMATION

CASH FLOWS

    TWE established an asset securitization facility on December 31, 1997, which
effectively provides for the accelerated receipt of up to $500 million of cash
through the year 2000 on available licensing contracts. Assets securitized under
this facility consist of cash contracts for the licensing of theatrical and
television product for broadcast network and syndicated television exhibition,
under which revenues have not been recognized because such product is not
available for telecast until a later date ('Backlog Contracts'). In connection
with this securitization facility, TWE sells, on a revolving and nonrecourse
basis, certain of its Backlog Contracts ('Pooled Backlog Contracts') to a wholly
owned, special purpose entity which, in turn, sells a percentage ownership
interest in the Pooled Backlog Contracts to a third-party, commercial paper
conduit sponsored by a financial institution.

    Because the Backlog Contracts securitized under this facility consist of
cash contracts for the licensing of theatrical and television product that have
already been produced, the recognition of revenue for such completed product is
only dependent upon the commencement of the availability period for telecast
under the terms of the licensing agreements. Accordingly, the proceeds received
under the program are classified as deferred revenues in long-term liabilities
in the accompanying consolidated balance sheet. In 1999, approximately $15
million of proceeds were repaid under this securitization program. This compares
to net proceeds received of approximately $166 million in 1998.

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

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                           ---------------------------
                                                            1999      1998      1997
                                                           -------   -------   -------
                                                                   (MILLIONS)
<S>                                                        <C>       <C>       <C>
Cash payments made for interest..........................   $498      $537      $493
Cash payments made for income taxes, net.................    132        91        95
Noncash capital contributions (distributions), net.......    388       973       399
</TABLE>

    Noncash investing activities in 1999 included the exchange of certain cable
television systems. Noncash investing activities in 1998 included the exchange
of certain cable television systems, the Time Warner Telecom Reorganization, the
formation of the Road Runner Joint Venture and the TWE-A/N Transfers (Note 2).

                                     F-42





<PAGE>

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

INTEREST AND OTHER, NET

    Interest and other, net, consists of:


<TABLE>
<CAPTION>
                                                                 YEARS ENDED
                                                                 DECEMBER 31,
                                                              ------------------
                                                              1999   1998   1997
                                                              ----   ----   ----
                                                                  (MILLIONS)
                                                              ------------------
<S>                                                           <C>    <C>    <C>
Interest expense............................................  $(561) $(566) $(490)
Write-down of investment in Primestar.......................    --    (210)   --
Gain on sale of investment in E! Entertainment
  Television, Inc. .........................................    --     --     250
Other investment-related activity, principally net losses on
  corporate-related equity investees........................   (185)  (119)   (38)
Corporate finance-related activity, including losses on
  asset securitization programs.............................    (58)   (25)     3
Miscellaneous...............................................    (14)   (25)   (51)
                                                               ----   ----   ----
Total interest and other, net...............................  $(818) $(945) $(326)
                                                               ----   ----   ----
                                                               ----   ----   ----
</TABLE>

OTHER CURRENT LIABILITIES

    Other current liabilities consist of:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ---------------
                                                               1999     1998
                                                              ------   ------
                                                                (MILLIONS)
<S>                                                           <C>      <C>
Accrued expenses............................................  $1,566   $1,395
Accrued compensation........................................     381      298
Deferred revenues...........................................     262      249
                                                              ------   ------
Total.......................................................  $2,209   $1,942
                                                              ------   ------
                                                              ------   ------
</TABLE>

17. SUBSEQUENT EVENT

  America Online-Time Warner Merger

    In January 2000, Time Warner and America Online announced that they had
entered into an agreement to merge (the 'Merger') by forming a new holding
company named AOL Time Warner Inc. ('AOL Time Warner'). As a result of the
Merger, the former shareholders of America Online will have an approximate 55%
interest in AOL Time Warner and the former shareholders of Time Warner will have
an approximate 45% interest in the combined entity, expressed on a fully diluted
basis. The Merger is expected to be accounted for by AOL Time Warner as an
acquisition of Time Warner under the purchase method of accounting for business
combinations.

    The Merger is expected to close in the fall of 2000 and is subject to
customary closing conditions, including the approval of the shareholders of each
of America Online and Time Warner and all necessary regulatory approvals. There
can be no assurance that such approvals will be obtained.


                                     F-43









<PAGE>



                         REPORT OF INDEPENDENT AUDITORS

THE PARTNERS OF
TIME WARNER ENTERTAINMENT COMPANY, L.P.

    We have audited the accompanying consolidated balance sheet of Time Warner
Entertainment Company, L.P. ('TWE') as of December 31, 1999 and 1998, and the
related consolidated statements of operations, cash flows and partnership
capital for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
TWE's management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TWE at
December 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

                                          ERNST & YOUNG LLP

New York, New York
February 2, 2000


                                     F-44



<PAGE>

                    TIME WARNER ENTERTAINMENT COMPANY, L.P.
                         SELECTED FINANCIAL INFORMATION

    The selected financial information for each of the five years in the period
ended December 31, 1999 set forth below has been derived from and should be read
in conjunction with the consolidated financial statements and other financial
information presented elsewhere herein. Capitalized terms are as defined and
described in such consolidated financial statements, or elsewhere herein.
Certain reclassifications have been made to conform to the 1999 presentation.

    The selected historical financial information for 1998 reflects (i) the
TWE-A/N Transfers, effective as of January 1, 1998, (ii) the Primestar Roll-up
Transaction, effective as of April 1, 1998, (iii) the formation of the Road
Runner Joint Venture, effective as of June 30, 1998, (iv) the Time Warner
Telecom Reorganization, effective as of July 1, 1998 and (v) the formation of
the Texas Cable Joint Venture, effective as of December 31, 1998. The selected
historical financial information for 1995 reflects the consolidation by TWE of
TWE-A/N resulting from the formation of such partnership, effective as of
April 1, 1995, and the consolidation of Paragon, effective as of July 6, 1995.
The selected historical financial information gives effect to the
deconsolidation of Six Flags resulting from the disposition by TWE of a 51%
interest in Six Flags, effective as of June 23, 1995.

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                 -----------------------------------------------
                                                  1999      1998      1997      1996      1995
SELECTED OPERATING STATEMENT INFORMATION         -------   -------   -------   -------   -------
                                                                   (MILLIONS)
<S>                                              <C>       <C>       <C>       <C>       <C>
Revenues.......................................  $13,164   $12,246   $11,318   $10,852   $ 9,517
Depreciation and amortization..................   (1,364)   (1,436)   (1,370)   (1,235)   (1,039)
Business segment operating income(a)(b)........    4,227     1,719     1,444     1,078       960
Interest and other, net(c).....................     (818)     (945)     (326)     (522)     (580)
Income before extraordinary item...............    2,759       326       637       210        97
Net income(d)..................................    2,759       326       614       210        73
</TABLE>

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                 -----------------------------------------------
                                                  1999      1998      1997      1996      1995
SELECTED BALANCE SHEET INFORMATION               -------   -------   -------   -------   -------
                                                                   (MILLIONS)
<S>                                              <C>       <C>       <C>       <C>       <C>
Cash and equivalents...........................  $   517   $    87   $   322   $   216   $   209
Total assets...................................   24,843    22,230    20,731    19,973    18,905
Debt due within one year.......................        6         6         8         7        47
Long-term debt.................................    6,655     6,578     5,990     5,676     6,137
Preferred stock of subsidiary..................       --       217       233        --        --
Time Warner General Partners' Senior Capital...       --       603     1,118     1,543     1,426
Partners' capital..............................    7,149     5,107     6,333     6,574     6,478
</TABLE>

---------

(a) Includes net pretax gains of approximately $2.119 billion in 1999, $90
    million in 1998 and $200 million in 1997 relating to the sale or exchange of
    certain cable television systems and investments.

(b) 1999 includes a net pretax gain of approximately $215 million recognized in
    connection with the early termination and settlement of a long-term, home
    video distribution agreement, a pretax gain of $97 million relating to the
    sale of an interest in CanalSatellite and a one-time, noncash pretax charge
    of $106 million relating to Warner Bros.'s retail stores.

(c) Includes a pretax charge of approximately $210 million in 1998 to reduce the
    carrying value of an interest in Primestar and a pretax gain of
    approximately $250 million in 1997 related to the sale of an interest in E!
    Entertainment.

(d) Net income includes an extraordinary loss on the retirement of debt of $23
    million in 1997 and $24 million in 1995.

                                      F-45


<PAGE>
                    TIME WARNER ENTERTAINMENT COMPANY, L.P.
                  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         OPERATING
                                                                         INCOME OF     NET
                                                                          BUSINESS    INCOME
QUARTER                                                       REVENUES    SEGMENTS    (LOSS)
-------                                                       --------   ----------   ------
                                                                         (MILLIONS)
<S>                                                           <C>        <C>          <C>
1999
1st(a)......................................................  $ 2,934      $  651     $  312
2nd(a)......................................................    3,060       1,212        767
3rd(a)......................................................    3,474         863        561
4th(a)......................................................    3,696       1,501      1,119
Year(a).....................................................   13,164       4,227      2,759

1998
1st(b)......................................................  $ 2,910      $  369     $  108
2nd(b)......................................................    2,850         455        155
3rd(b)......................................................    3,220         468        172
4th(c)......................................................    3,266         427       (109)
Year(b)(c)..................................................   12,246       1,719        326
</TABLE>

---------

(a) 1999 operating income has been affected by certain significant nonrecurring
    items. These items consisted of (i) a net pretax gain of approximately $215
    million in the first quarter relating to the early termination and
    settlement of a long-term home video distribution agreement, (ii) a net
    pretax gain of approximately $97 million in the fourth quarter relating to
    the sale of an interest in CanalSatellite, (iii) a one-time, noncash pretax
    charge of approximately $106 million in the fourth quarter relating to
    Warner Bros.'s retail stores and (iv) net pretax gains relating to the sale
    and exchange of various cable television systems and investments of $760
    million in the second quarter, $358 million in the third quarter, $1.001
    billion in the fourth quarter, thereby aggregating $2.119 billion for the
    year.

(b) 1998 operating income includes net pretax gains relating to the sale and
    exchange of various cable television systems and investments of $14 million
    in the first quarter, $70 million in the second quarter, $6 million in the
    third quarter, thereby aggregating $90 million for the year.

(c) Net income (loss) for the fourth quarter of 1998 includes a charge of
    approximately $210 million principally to reduce the carrying value of an
    interest in Primestar.

                                       F-46

<PAGE>


                     TIME WARNER ENTERTAINMENT COMPANY, L.P.
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                                  ADDITIONS
                                                                     BALANCE AT   CHARGED TO              BALANCE
                                                                      BEGINNING    COSTS AND              AT END
                               DESCRIPTION                            OF PERIOD    EXPENSES  DEDUCTIONS  OF PERIOD
                               -----------                            ---------    --------  ----------  ---------
                                                                                       (MILLIONS)
<S>                                                                   <C>         <C>        <C>         <C>

1999:
Reserves deducted from accounts receivable:
   Allowance for doubtful accounts................................      $271         $114       $ (95)(a)    $290
   Reserves for sales returns and allowances......................       235          456        (313)(b)     378
                                                                        ----         ----        ----        ----
Total.............................................................      $506         $570       $(408)       $668
                                                                        ====         ====       =====        ====

1998:
Reserves deducted from accounts receivable:
   Allowance for doubtful accounts................................      $218         $144      $  (91)(a)    $271
   Reserves for sales returns and allowances......................       206          338        (309)(b)     235
                                                                        ----         ----        ----        ----
Total.............................................................      $424         $482       $(400)       $506
                                                                        ====         ====       =====        ====

1997:
Reserves deducted from accounts receivable:
   Allowance for doubtful accounts................................      $195         $113      $  (90)(a)    $218
   Reserves for sales returns and allowances......................       178          289        (261)(b)     206
                                                                        ----         ----       -----        ----
Total.............................................................      $373         $402       $(351)       $424
                                                                        ====         ====       =====        ====
</TABLE>


(a) Represents uncollectible receivables charged against the reserve.
(b) Represents returns or allowances applied against the reserve.

                                     F-47




<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 based on the
relative fair value of the net assets each contributed to TWE (the 'General
Partner Guarantees'). Since then, eleven of the thirteen original general
partners have 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 (collectively, the 'General
Partners'). They have succeeded to the general partnership interests and have
assumed the General Partner Guarantees of the eleven former general partners.

    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 investments in TWE, TW Companies, Turner
Broadcasting System, Inc. and Time Warner Telecom LLC, and its revolving credit
agreement with TW Companies. Capitalized terms are as defined and described in
the accompanying consolidated financial statements, or elsewhere herein.

INVESTMENT IN TWE

    TWE was capitalized in June 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 junior priority capital ('Series B Capital') of TWE. TW Companies
holds 11.22% of the Series A Capital and Residual Capital limited partnership
interests. 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').

    At the time of this filing, MediaOne had agreed to be acquired by AT&T Corp.
('AT&T'). In August 1999, TWE received a notice from MediaOne concerning the
termination of its covenant not to compete with TWE. The termination of that
covenant is necessary for MediaOne to complete its proposed merger with AT&T. As
a result of the termination notice and the operation of the TWE partnership
agreement, MediaOne's rights to participate in the management of TWE's
businesses terminated immediately and irrevocably. MediaOne retains only certain
protective governance rights pertaining to certain limited matters affecting TWE
as a whole. Because WCI and ATC jointly control TWE, each will continue to
account for its investment in TWE under the equity method of accounting.

AMERICA ONLINE-TIME WARNER MERGER

    In January 2000, Time Warner Inc. ('Time Warner') and America Online, Inc.
('America Online') announced that they had entered into an agreement to merge
(the 'Merger') by forming a new holding company named AOL Time Warner Inc. ('AOL
Time Warner'). The Merger will create a leading, fully integrated media and
communications company that will combine Time Warner's and TWE's collection of
media, entertainment and news brands and its technologically advanced cable
infrastructure with America Online's extensive Internet franchises and
technology. Management believes that the combined company will be well
positioned to expand the use of the Internet in consumers' everyday lives and,
accordingly, provide Time Warner's and TWE's content businesses with increased
access to consumers through a new and growing distribution medium. Management
further believes that the Merger will result in significant new business and
other value-creation opportunities,

                                      F-48





<PAGE>

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

including additional opportunities for e-commerce, growth in subscribers for
each company's products and services, and cost and operating efficiencies from
cross-promotional and other opportunities.

    As a result of the Merger, the former shareholders of America Online will
have an approximate 55% interest in AOL Time Warner and the former shareholders
of Time Warner will have an approximate 45% interest in the combined entity,
expressed on a fully diluted basis. The Merger is expected to be accounted for
by AOL Time Warner as an acquisition of Time Warner under the purchase method of
accounting for business combinations.

    The Merger is expected to close in the fall of 2000 and is subject to
customary closing conditions, including the approval of the shareholders of each
of America Online and Time Warner and all necessary regulatory approvals. There
can be no assurance that such approvals will be obtained.

WARNER-EMI MUSIC MERGER

    In January 2000, Time Warner and EMI Group plc ('EMI') announced they had
entered into an agreement to combine their global music operations into two
jointly owned ventures, to be referred to collectively as Warner EMI Music. WCI
will control the joint ventures through majority board representation, among
other factors, and is expected to account for the transaction under the purchase
method of accounting.

    The joint ventures will combine the domestic strength of WCI's music
operations with the international strength of EMI's music operations. Management
believes that this complementary strategic fit will better position the combined
company to capitalize on incremental growth opportunities relating to online
sales of music product, the digital distribution of music and the continuing
globalization of the music industry. In addition, management believes that the
combination will result in significant cost savings and operating efficiencies,
including economies of scale in manufacturing and distribution, consolidation of
duplicative functions and shared investment costs in new media and technology.
Management expects these synergies to approximate $400 million annually by the
end of the third year following the closing of the transaction. In order to
realize these synergies, management expects that the joint venture will incur up
to $700 million of one-time costs.

    As part of the transaction, each company will contribute its music
operations to the joint ventures, subject to a comparable amount of debt. As of
December 31, 1999, EMI had approximately $1.5 billion of net debt. EMI
shareholders also will receive an aggregate, special cash dividend of
approximately $1.3 billion. This dividend is expected to be financed through a
combination of proceeds from debt incurred or assumed by the joint ventures and
consideration to be paid by Time Warner directly to EMI for a new class of EMI
equity securities. The new class of EMI equity securities to be held by
Time Warner will convert automatically into an 8% common equity interest in EMI,
on a fully diluted basis, if EMI's share price reaches `L'9 for a short period
of time within the first three-and-a-half years after closing.

    The transaction is expected to close by the end of 2000, subject to
customary closing conditions, including regulatory approvals and the approval of
EMI's shareholders. There can be no assurance that such approvals will be
obtained.

COLUMBIA HOUSE-CDNOW MERGER

    In July 1999, Time Warner announced an agreement with Sony Corporation of
America ('Sony') to merge their jointly owned music and video club operations of
the Columbia House Company Partnerships ('Columbia House') with CDnow, Inc.
('CDNOW'), a music and video e-commerce company. Since that time, the parties
have been pursuing the receipt of regulatory approvals. While awaiting these
approvals, the March 13th termination date in the merger agreement was reached,
and the parties recently terminated the agreement. Accordingly, the merger will
not occur.

                                      F-49





<PAGE>

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

    In lieu of the merger, Time Warner and Sony each committed $25.5 million of
funding to CDNOW to help support the future growth of its business. Each
company's funding will be in the form of a $10.5 million equity investment and a
$15 million long-term convertible debt interest.

    Time Warner will continue to evaluate strategic alternatives for Columbia
House's operations. Those alternatives are focused primarily on ways to improve
Columbia House's declining operating performance, including online initiatives,
joint ventures and other strategic actions. In connection with some of these
alternatives, WCI may be required to record a significant, noncash charge to
reduce the carrying value of its interest in Columbia House.

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.

RESULTS OF OPERATIONS

1999 VS. 1998

    WCI had revenues of $3.834 billion and net income of $1.207 billion in 1999,
compared to revenues of $4.025 billion and net income of $218 million in 1998.
EBITA decreased to $458 million from $483 million. Operating income decreased to
$199 million from $216 million. Revenues decreased primarily due to lower
domestic and international recorded music sales, as well as declines in music
publishing operations. The worldwide revenue decline principally related to less
popular releases in comparison to the prior year, as well as industry-wide
softness in various international markets, such as Brazil and Japan. EBITA and
operating income decreased principally as a result of the decline in worldwide
revenues and lower results from Columbia House, an equity investee, offset in
part by increased cost savings, lower artist royalty costs and higher income
from DVD manufacturing operations. Management expects that the revenue decline
relating to lower worldwide sales levels will continue into the first quarter of
2000, which could continue to affect operating results negatively.

    WCI's equity in the pretax income of TWE was $1.724 billion in 1999,
compared to $248 million in 1998. TWE's pretax income increased significantly in
1999 as compared to 1998 because of the effect of certain significant
nonrecurring items recognized in each period, as described more fully in Note 3
to the accompanying consolidated financial statements. These nonrecurring items
consisted of approximately $2.325 billion in net pretax gains in 1999, compared
to $120 million of net pretax losses in 1998. Excluding the significant effect
of these nonrecurring items, TWE's pretax income increased principally from an
overall increase in its business segment operating income, offset in part by
higher equity losses from certain investments accounted for under the equity
method of accounting.

    Interest and other, net was $123 million of income in 1999 compared to $15
million of income in 1998. Interest expense increased to $24 million in 1999
from $23 million in 1998. There was other income, net, of $147 million in 1999,
compared to other income, net, of $38 million in 1998, principally because of
the recognition of an approximate $53 million pretax gain in 1999 in connection
with the initial public offering of a

                                      F-50





<PAGE>

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

20% interest in Time Warner Telecom Inc. (the 'Time Warner Telecom IPO'), an
integrated communications provider that provides telephony and data services to
businesses, and lower equity losses from certain investments accounted for under
the equity method of accounting.

    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.

1998 VS. 1997

    WCI had revenues of $4.025 billion and net income of $218 million in 1998,
compared to revenues of $3.691 billion, income of $522 million before an
extraordinary loss on the retirement of debt and net income of $514 million in
1997. EBITA increased to $483 million from $434 million. Operating income
increased to $216 million from $146 million. Revenues benefited from an increase
in domestic and international recorded music sales principally relating to
higher compact disc sales of a broad range of popular releases from new and
established artists and movie soundtracks, as well as lower returns of product.
EBITA and operating income increased principally as a result of the revenue
gains and cost savings, offset in part by higher artist costs and the absence of
certain one-time gains recognized in 1997.

    WCI's equity in the pretax income of TWE was $248 million in 1998, compared
to $428 million in 1997. TWE's pretax income decreased in 1998 as compared to
1997 because of the effect of certain significant nonrecurring items recognized
in each period, consisting of gains and losses relating to the sale or exchange
of cable television systems and other investment-related activity. These
nonrecurring items amounted to approximately $120 million of net pretax losses
in 1998, compared to approximately $450 million of net pretax gains in 1997.
Excluding the significant effect of these nonrecurring items, TWE's pretax
income increased principally as a result of an overall increase in its business
segment operating income (including the positive effect of the TWE-A/N
Transfers), offset in part by an increase in interest expense associated with
the TWE-A/N Transfers and higher losses from certain investments accounted for
under the equity method of accounting. 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 in TWE-A/N, as well as certain related transactions
(collectively, the 'TWE-A/N Transfers').

    Interest and other, net was $15 million of income in 1998 compared to $452
million of income in 1997. Interest expense was $23 million in 1998 and 1997.
There was other income, net, of $38 million in 1998, compared to other income,
net, of $475 million in 1997, principally because of the recognition of a $437
million pretax gain in 1997 in connection with the disposal of WCI's interest in
Hasbro, Inc. ('Hasbro').

    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.

                                      F-51





<PAGE>

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

FINANCIAL CONDITION AND LIQUIDITY

DECEMBER 31, 1999

1999 FINANCIAL CONDITION

    WCI had $8.7 billion of equity at December 31, 1999, compared to $7.7
billion of equity at December 31, 1998. WCI's equity increased principally due
to the increase in net income. Cash and equivalents decreased to $107 million at
December 31, 1999, compared to $160 million at December 31, 1998. WCI had no
long-term debt due to TW Companies under its revolving credit agreement at the
end of either period.

    The total capitalization of ATC at December 31, 1999 consisted of equity
capital of $2.1 billion, compared to $1.5 billion at December 31, 1998. ATC's
equity increased principally due to the increase in net income. 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.

SENIOR CAPITAL DISTRIBUTIONS

    In July 1999, TWE paid a $627 million distribution to the General Partners
to redeem the remaining portion of their senior priority capital interests,
including a priority capital return of $173 million. Of the $627 million
distribution, WCI and ATC received $372 million and $255 million, respectively.

CASH FLOWS

    In 1999, WCI's cash provided by operations amounted to $69 million and
reflected $458 million of EBITA, $74 million of noncash depreciation expense,
$442 million of distributions from TWE (excluding $269 million representing the
return of a portion of the General Partners' Senior Capital interests that has
been classified as a source of cash from investing activities) and $145 million
of proceeds received under WCI's asset securitization program, less $17 million
of interest payments, $805 million of income taxes ($658 million of which was
paid to Time Warner under a tax sharing agreement) and $228 million related to
an increase in other working capital requirements, balance sheet accounts and
noncash items. Cash provided by WCI's operations of $430 million in 1998
reflected $483 million of EBITA, $72 million of noncash depreciation expense,
$414 million of distributions from TWE (excluding $270 million representing the
return of a portion of the General Partners' Senior Capital interests that has
been classified as a source of cash from investing activities), less $11 million
of interest payments, $208 million of income taxes ($119 million of which was
paid to Time Warner under a tax sharing agreement), $245 million of proceeds
repaid under WCI's asset securitization program and $75 million related to an
increase in other working capital requirements, balance sheet accounts and
noncash items.

    Cash used by investing activities was $80 million in 1999, compared to cash
provided by investing activities $232 million in 1998. The decrease is
principally a result of an increase in capital expenditures, higher investment
spending and a decrease in investment proceeds.

    Cash used by financing activities was $42 million in 1999, compared to $604
million in 1998, principally as a result of a decrease in advances to TW
Companies.

    Management believes that WCI's operating cash flow and borrowing
availability under its revolving credit agreement with TW Companies are
sufficient to fund 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. In 1999,
the General Partners received an aggregate $1.2 billion of distributions,
consisting of $627 million of Senior Capital distributions (representing the
return of $454 million

                                      F-52





<PAGE>

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

of contributed capital and the distribution of $173 million of priority capital
return), $347 million of tax-related distributions and $226 million of stock
option related distributions. In 1998, the General Partners received an
aggregate $1.153 billion of distributions from TWE, consisting of $579 million
of Senior Capital distributions (representing the return of $455 million of
contributed capital and the distribution of $124 million of priority capital
return), $314 million of tax-related distributions and $260 million of stock
option related distributions. Of such aggregate distributions, WCI received $711
million in 1999 and $684 million in 1998, and ATC received $489 million in 1999
and $469 million in 1998.

OFF-BALANCE SHEET ASSETS

    WCI believes that the value of certain off-balance sheet assets should be
considered, along with other factors discussed elsewhere herein, in evaluating
its financial condition and prospects for future results of operations,
including its ability to fund its capital and liquidity needs.

    As a creator and distributor of entertainment copyrights, WCI has a
significant amount of internally generated intangible assets whose value is not
fully reflected in its consolidated balance sheet. Such intangible assets extend
across WCI's principal business interests, but are best exemplified by WCI's
collection of copyrighted music product. Generally accepted accounting
principles do not recognize the value of such assets, except at the time they
may be acquired in a business combination accounted for by the purchase method
of accounting.

    Because WCI normally owns the copyrights to such creative material, it
continually generates revenue through the sale of such products across different
media and in new and existing markets. Technological advances, such as the
introduction of the compact disc and home videocassette in the 1980's and the
current exploitation of DVDs, have historically generated significant revenue
opportunities through the repackaging and sale of such copyrighted products in
the new technological format. Accordingly, such intangible assets have
significant off-balance sheet asset value that is not fully reflected in the
consolidated balance sheet of WCI.

FOREIGN CURRENCY RISK MANAGEMENT

    Time Warner uses foreign exchange contracts primarily to hedge the risk that
unremitted or future royalties owed to WCI domestic companies for the sale or
anticipated sale of U.S. copyrighted products abroad may be adversely affected
by changes in foreign currency exchange rates. As part of its overall strategy
to manage the level of exposure to the risk of foreign currency exchange rate
fluctuations, Time Warner hedges a portion of its, TWE's and WCI's combined
foreign currency exposures anticipated over the ensuing twelve-month period. At
December 31, 1999, Time Warner had effectively hedged approximately 50% of WCI's
total estimated foreign currency exposures that principally relate to
anticipated cash flows to be remitted to the U.S. over the ensuing twelve-month
period. To hedge this exposure, Time Warner used foreign exchange contracts that
generally have maturities of three months or less, which generally will be
rolled over to provide continuing coverage throughout the year. Time Warner is
reimbursed by or reimburses WCI for Time Warner contract gains and losses
related to WCI's foreign currency exposure. Time Warner often closes foreign
exchange sale contracts by purchasing an offsetting purchase contract. At
December 31, 1999, Time Warner had contracts for the sale of $843 million and
the purchase of $468 million of foreign currencies at fixed rates. Of Time
Warner's $375 million net sale contract position, $442 million of foreign
exchange sale contracts and $217 million of foreign exchange purchase contracts
related to WCI's foreign currency exposure, compared to contracts for the sale
of $431 million and the purchase of $157 million of foreign currencies at
December 31, 1998.

    Based on Time Warner's foreign exchange contracts outstanding related to
WCI's exposure at December 31, 1999, each 5% devaluation of the U.S. dollar as
compared to the level of foreign exchange rates for currencies under contract at
December 31, 1999 would result in approximately $22 million of unrealized losses
and $11 million of unrealized gains on foreign exchange contracts involving
foreign currency sales and

                                      F-53





<PAGE>

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

purchases, respectively. Conversely, a 5% appreciation of the U.S. dollar would
result in $22 million of unrealized gains and $11 million of unrealized losses,
respectively. Consistent with the nature of the economic hedge provided by such
foreign exchange contracts, such unrealized gains or losses largely would be
offset by corresponding decreases or increases, respectively, in the dollar
value of future foreign currency royalty payments that would be received in cash
within the ensuing twelve-month period from the sale of U.S. copyrighted
products abroad.

EURO CONVERSION

    Effective January 1, 1999, the 'euro' was established as a single currency
valid in more than two-thirds of the member countries of the European Union.
These member countries have a three-year transitional period to physically
convert their sovereign currencies to the euro. By July 1, 2002, all
participating member countries must eliminate their currencies and replace their
legal tender with euro-denominated bills and coins. Notwithstanding this
transitional period, many commercial transactions are expected to become euro-
denominated well before the July 2002 deadline. Accordingly, WCI continues to
evaluate the short-term and long-term effects of the euro conversion on its
European operations.

    WCI believes that the most significant short-term impact of the euro
conversion is the need to modify its accounting and information systems to
handle an increasing volume of transactions during the transitional period in
both the euro and sovereign currencies of the participating member countries.
WCI has identified its accounting and information systems in need of
modification and an action plan has been formulated to address the nature and
timing of remediation efforts. Remediation efforts have begun and the plan is
expected to be substantially completed well before the end of the transitional
period. This timetable will be adjusted, if necessary, to meet the anticipated
needs of WCI's vendors and customers. Based on preliminary information, costs to
modify its accounting and information systems have not been, and are not
expected to be, material.

    WCI believes that the most significant long-term business risk of the euro
conversion may be increased pricing pressures for its products and services
brought about by heightened consumer awareness of possible cross-border price
differences. However, WCI believes that these business risks may be offset to
some extent by lower material costs, other cost savings and marketing
opportunities. Notwithstanding such risks, management does not believe that the
euro conversion will have a material effect on WCI's financial position, results
of operations or cash flows in future periods.

YEAR 2000 TECHNOLOGY PREPAREDNESS

    WCI, together with TWE, like most large companies, depends on many different
computer systems and other chip-based devices for the continuing conduct of its
business. WCI took various precautions related to the fact that many older
computer programs, computer hardware and chip-based devices might have failed to
recognize dates beginning on January 1, 2000 as being valid dates, and as a
result might have failed to operate or might have operated improperly as such
dates were introduced.

    During 1999, WCI completed its efforts to minimize the risk of disruption
related to Year 2000 issues. This program was described in WCI reports filed
with the Securities and Exchange Commission. To date, WCI has experienced few
problems related to Year 2000 compliance, and the problems that have been
identified have been addressed. WCI is not aware of any remaining significant
problems related to Year 2000 issues but is continuing to monitor the status of
suppliers, vendors and other entities with which it does business.

    Through the end of 1999, WCI incurred approximately $32 million related to
its Year 2000 remediation program, which started in 1996. These expenditures
were funded from the Company's operating cash flows. WCI anticipates that its
remediation program, and related expenditures, may continue into 2001 as
temporary solutions to Year 2000 problems are replaced with upgraded equipment.
Future expenditures are not expected to be significant.

                                      F-54








<PAGE>

                              TWE GENERAL PARTNERS
                          CONSOLIDATED BALANCE SHEETS
                                  DECEMBER 31,
                      (MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                      WCI                      ATC
                                                              --------------------      ------------------
                                                               1999         1998         1999        1998
                                                              -------      -------      ------      ------
<S>                                                           <C>          <C>          <C>         <C>
ASSETS
CURRENT ASSETS
Cash and equivalents........................................  $   107      $   160      $   --      $   --
Receivables, less allowances of $290 and $278 million.......    1,528        1,454          --          --
Inventories.................................................      155          151          --          --
Prepaid expenses............................................      727          670          --          --
                                                              -------      -------      ------      ------
Total current assets........................................    2,517        2,435          --          --

Investments in and amounts due to and from TWE..............    2,476        1,632       2,170       1,494
Investments in TW Companies.................................      103          103          60          61
Other investments...........................................    1,497        1,350         449         404
Music catalogues, contracts and copyrights..................      779          876          --          --
Goodwill....................................................    3,612        3,509          --          --
Other assets, primarily property, plant and equipment.......      497          443          --          --
                                                              -------      -------      ------      ------
Total assets................................................  $11,481      $10,348      $2,679      $1,959
                                                              -------      -------      ------      ------
                                                              -------      -------      ------      ------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................  $   258      $   224      $   --      $   --
Royalties payable...........................................      857          855          --          --
Other current liabilities...................................      534          548          --          --
                                                              -------      -------      ------      ------
Total current liabilities...................................    1,649        1,627          --          --

Long-term liabilities, including $766, $670, $542 and $477
 million, respectively, due to TW Companies.................    1,095        1,020         542         477

SHAREHOLDERS' EQUITY
Common stock, no par value, 1,000 and 20,000 shares
 authorized, 100 and 11,582 shares issued and outstanding...        1            1           1           1
Preferred stock of WCI, $.01 par value, 125 thousand shares
 authorized, 90 thousand shares outstanding and $90 million
 liquidation preference.....................................       --           --          --          --
Paid-in capital.............................................    9,926       10,195       2,338       2,523
Retained earnings (accumulated deficit).....................      833           (1)        172        (360)
                                                              -------      -------      ------      ------
                                                               10,760       10,195       2,511       2,164
Due from TW Companies, net..................................   (1,437)      (1,908)        (38)       (346)
Reciprocal interest in TW Companies stock...................     (586)        (586)       (336)       (336)
                                                              -------      -------      ------      ------
Total shareholders' equity..................................    8,737        7,701       2,137       1,482
                                                              -------      -------      ------      ------
Total liabilities and shareholders' equity..................  $11,481      $10,348      $2,679      $1,959
                                                              -------      -------      ------      ------
                                                              -------      -------      ------      ------
</TABLE>

See accompanying notes.

                                      F-55





<PAGE>

                              TWE GENERAL PARTNERS
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                            YEARS ENDED DECEMBER 31,
                                   (MILLIONS)

<TABLE>
<CAPTION>
                                                                          WCI                        ATC
                                                              ---------------------------   ----------------------
                                                               1999      1998      1997      1999    1998    1997
                                                              -------   -------   -------   ------   -----   -----
<S>                                                           <C>       <C>       <C>       <C>      <C>     <C>
Revenues(a).................................................  $ 3,834   $ 4,025   $ 3,691   $   --   $  --   $  --
                                                              -------   -------   -------   ------   -----   -----

Cost of revenues(a)(b)......................................   (1,926)   (2,244)   (2,122)      --      --      --
Selling, general and administrative(a)(b)...................   (1,450)   (1,298)   (1,135)      --      --      --
Amortization of goodwill and other intangibles..............     (259)     (267)     (288)      --      --      --
                                                              -------   -------   -------   ------   -----   -----

Business segment operating income...........................      199       216       146       --      --      --
Equity in pretax income of TWE(a)...........................    1,724       248       428    1,185     170     294
Interest and other, net(a)(c)...............................      123        15       452       67      24      30
                                                              -------   -------   -------   ------   -----   -----

Income before income taxes..................................    2,046       479     1,026    1,252     194     324
Income taxes(a).............................................     (839)     (261)     (504)    (503)   (102)   (145)
                                                              -------   -------   -------   ------   -----   -----

Income before extraordinary item............................    1,207       218       522      749      92     179
Extraordinary loss on retirement of debt, net of $6 and
 $3 million income tax benefit..............................       --        --        (8)      --      --      (6)
                                                              -------   -------   -------   ------   -----   -----

Net income..................................................  $ 1,207   $   218   $   514   $  749   $  92   $ 173
                                                              -------   -------   -------   ------   -----   -----
                                                              -------   -------   -------   ------   -----   -----
</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>      <C>     <C>
    Revenues...............................................   $   215   $   214   $   185   $   --   $  --   $  --
    Cost of revenues.......................................       (25)      (34)      (36)      --      --      --
    Selling, general and administrative....................       (21)      (41)      (17)      --      --      --
    Equity in pretax income of TWE.........................       (64)      (41)      (18)      --      --      --
    Interest and other, net................................       118        72        62       --      --      --
    Income taxes...........................................      (658)     (119)     (370)    (442)    (65)   (111)

(b) Includes depreciation expense of:......................   $    74   $    72   $    83   $   --   $  --   $  --
                                                              -------   -------   -------   ------   -----   -----
                                                              -------   -------   -------   ------   -----   -----
</TABLE>

(c) Includes an approximate $53 million pretax gain recognized by WCI and $36
    million recognized by ATC in 1999 in connection with the initial public
    offering of a 20% interest in Time Warner Telecom Inc. (Note 4). Includes a
    $437 million pretax gain recognized by WCI in 1997 in connection with the
    sale of common stock of Hasbro, Inc. (Note 5).

See accompanying notes.

                                      F-56








<PAGE>

                              TWE GENERAL PARTNERS
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            YEARS ENDED DECEMBER 31,
                                   (MILLIONS)

<TABLE>
<CAPTION>
                                                                        WCI                         ATC
                                                              -----------------------      ---------------------
                                                               1999     1998    1997       1999    1998    1997
                                                              -------   -----   -----      -----   -----   -----
<S>                                                           <C>       <C>     <C>        <C>     <C>     <C>
OPERATIONS
Net income..................................................  $ 1,207   $ 218   $ 514      $ 749   $  92   $ 173
   Adjustments for noncash and nonoperating items:
   Extraordinary loss on retirement of debt.................       --      --       8         --      --       6
   Depreciation and amortization............................      333     339     371         --      --      --
   Excess (deficiency) of distributions over equity in
    pretax income of TWE....................................   (1,282)    166    (144)      (881)    114     (99)
   Equity in losses (income) of other investee companies
    after distributions.....................................      (12)     45      32        (10)     (2)     --
Changes in operating assets and liabilities:
   Receivables..............................................      (93)   (608)    119         --      --      --
   Inventories..............................................       (3)    (11)     24         --      --      --
   Accounts payable and other liabilities...................     (131)    147      60         --      --      --
   Other balance sheet changes..............................       50     134    (647)        (4)     16      11
                                                              -------   -----   -----      -----   -----   -----

Cash provided (used) by operations..........................       69     430     337       (146)    220      91
                                                              -------   -----   -----      -----   -----   -----

INVESTING ACTIVITIES
Investments and acquisitions................................     (237)    (65)    (66)        --      --      --
Capital expenditures........................................     (134)   (106)    (99)        --      --      --
Investment proceeds.........................................       22     133     131         --      --      --
Proceeds received from return of TWE Senior Capital.........      269     270     270        185     185     185
                                                              -------   -----   -----      -----   -----   -----

Cash provided (used) by investing activities................      (80)    232     236        185     185     185
                                                              -------   -----   -----      -----   -----   -----

FINANCING ACTIVITIES
Dividends...................................................     (513)   (505)   (365)      (347)   (341)   (248)
Increase in amounts due to (from) TW Companies, net.........      471     (99)   (197)       308     (64)    (28)
                                                              -------   -----   -----      -----   -----   -----
Cash used by financing activities...........................      (42)   (604)   (562)       (39)   (405)   (276)
                                                              -------   -----   -----      -----   -----   -----

INCREASE (DECREASE) IN CASH AND EQUIVALENTS.................      (53)     58      11         --      --      --

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD.................      160     102      91         --      --      --
                                                              -------   -----   -----      -----   -----   -----

CASH AND EQUIVALENTS AT END OF PERIOD.......................  $   107   $ 160   $ 102      $  --   $  --   $  --
                                                              -------   -----   -----      -----   -----   -----
                                                              -------   -----   -----      -----   -----   -----
</TABLE>

See accompanying notes.

                                      F-57








<PAGE>

                                      WCI
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (MILLIONS)

<TABLE>
<CAPTION>
                                                                                                     RECIPROCAL
                                                                         RETAINED       DUE FROM     INTEREST IN
                                                                         EARNINGS          TW            TW
                                                    COMMON   PAID-IN   (ACCUMULATED    COMPANIES,     COMPANIES    SHAREHOLDERS'
                                                    STOCK    CAPITAL     DEFICIT)         NET           STOCK         EQUITY
                                                    ------   -------   ------------   ------------   -----------   -------------
<S>                                                 <C>      <C>       <C>            <C>            <C>           <C>
BALANCE AT DECEMBER 31, 1996......................    $1     $10,735      $  393        $(1,002)        $(586)        $9,541
Net income........................................                           514                                         514
Foreign currency translation adjustments..........                           (45)                                        (45)
Unrealized losses on securities, net of $91
 million tax benefit(a)...........................                          (129)                                       (129)
                                                                          ------                                      ------
   Comprehensive income...........................                           340                                         340

Increase in stock option distribution liability to
 TW Companies(b)..................................                          (236)                                       (236)
Dividends.........................................              (270)        (50)                                       (320)
Transfers to TW Companies, net....................                                         (807)                        (807)
Other.............................................                             3                                           3
                                                      --     -------      ------        -------         -----         ------
BALANCE AT DECEMBER 31, 1997......................     1      10,465         450         (1,809)         (586)         8,521
Net income........................................                           218                                         218
Foreign currency translation adjustments..........                            (6)                                         (6)
Unrealized gains on securities, net of $1 million
 tax expense......................................                             1                                           1
Realized and unrealized losses on derivative
 financial instruments, net of $2 million tax
 benefit..........................................                            (4)                                         (4)
                                                                          ------                                      ------
   Comprehensive income...........................                           209                                         209

Increase in stock option distribution liability to
 TW Companies(b)..................................                          (577)                                       (577)
Dividends.........................................              (270)        (81)                                       (351)
Transfers to TW Companies, net....................                                          (99)                         (99)
Other.............................................                            (2)                                         (2)
                                                      --     -------      ------        -------         -----         ------
BALANCE AT DECEMBER 31, 1998......................     1      10,195          (1)        (1,908)         (586)         7,701
Net income........................................                         1,207                                       1,207
Foreign currency translation adjustments..........                           (55)                                        (55)
Unrealized gains on securities, net of $9 million
 tax expense......................................                            14                                          14
Realized and unrealized gains on derivative
 financial instruments, net of $4 million tax
 expense..........................................                             7                                           7
                                                                          ------                                      ------
   Comprehensive income...........................                         1,173                                       1,173

Increase in stock option distribution liability to
 TW Companies(b)..................................                          (230)                                       (230)
Dividends.........................................              (269)       (110)                                       (379)
Transfers to TW Companies, net....................                                          471                          471
Other.............................................                             1                                           1
                                                      --     -------      ------        -------         -----         ------
BALANCE AT DECEMBER 31, 1999......................    $1     $ 9,926      $  833        $(1,437)        $(586)        $8,737
                                                      --     -------      ------        -------         -----         ------
                                                      --     -------      ------        -------         -----         ------
</TABLE>

---------
(a) Includes a $13 million reduction (net of $9 million tax effect) related to
    realized gains on the sale of securities in 1997.

(b) 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 $230 million in 1999, $577 million in 1998 and $236 million
    in 1997 were accrued because of an increase in the market price of Time
    Warner common stock (Note 3).

See accompanying notes.

                                      F-58





<PAGE>

                                      ATC
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (MILLIONS)

<TABLE>
<CAPTION>
                                                                                                     RECIPROCAL
                                                                         RETAINED       DUE FROM     INTEREST IN
                                                                         EARNINGS          TW            TW
                                                    COMMON   PAID-IN   (ACCUMULATED    COMPANIES,     COMPANIES    SHAREHOLDERS'
                                                    STOCK    CAPITAL     DEFICIT)         NET           STOCK         EQUITY
                                                    ------   -------   ------------   ------------   -----------   -------------
<S>                                                 <C>      <C>       <C>            <C>            <C>           <C>
BALANCE AT DECEMBER 31, 1996......................    $1     $2,893        $ 27          $(254)         $(336)        $2,331
Net income........................................                          173                                          173
Foreign currency translation adjustments..........                          (12)                                         (12)
Unrealized gains on securities, net of $1 million
 tax expense......................................                            2                                            2
                                                                           ----                                       ------
   Comprehensive income...........................                          163                                          163

Increase in stock option distribution liability to
 TW Companies(a)..................................                         (163)                                        (163)
Dividends.........................................             (185)        (33)                                        (218)
Transfers to TW Companies, net....................                                         (28)                          (28)
Other.............................................                            2                                            2
                                                      --     ------        ----          -----          -----         ------
BALANCE AT DECEMBER 31, 1997......................     1      2,708          (4)          (282)          (336)         2,087
Net income........................................                           92                                           92
Realized and unrealized losses on derivative
 financial instruments, net of $1 million tax
 benefit..........................................                           (2)                                          (2)
                                                                           ----                                       ------
   Comprehensive income...........................                           90                                           90

Increase in stock option distribution liability to
 TW Companies(a)..................................                         (396)                                        (396)
Dividends.........................................             (185)        (50)                                        (235)
Transfers to TW Companies, net....................                                         (64)                          (64)
                                                      --     ------        ----          -----          -----         ------
BALANCE AT DECEMBER 31, 1998......................     1      2,523        (360)          (346)          (336)         1,482
Net income........................................                          749                                          749
Unrealized gains on securities, net of $6 million
 tax expense......................................                           10                                           10
Realized and unrealized gains on derivative
 financial instruments, net of $1 million tax
 expense..........................................                            1                                            1
                                                                           ----                                       ------
   Comprehensive income...........................                          760                                          760

Increase in stock option distribution liability to
 TW Companies(a)..................................                         (158)                                        (158)
Dividends.........................................             (185)        (70)                                        (255)
Transfers to TW Companies, net....................                                         308                           308
                                                      --     ------        ----          -----          -----         ------
BALANCE AT DECEMBER 31, 1999......................    $1     $2,338        $172          $ (38)         $(336)        $2,137
                                                      --     ------        ----          -----          -----         ------
                                                      --     ------        ----          -----          -----         ------
</TABLE>

---------
(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 $158 million in 1999, $396 million in 1998 and $163 million
    in 1997 were accrued because of an increase in the market price of Time
    Warner common stock (Note 3).

See accompanying notes.

                                      F-59








<PAGE>

                              TWE GENERAL PARTNERS
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

    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 based on the
relative fair value of the net assets each contributed to TWE (the 'General
Partner Guarantees,' see Note 7). 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.'

    In addition to the 1997 General Partner Mergers, WCI acquired two wholly
owned subsidiaries of Turner Broadcasting System, Inc. ('TBS') in 1997 that
conduct certain of TBS's cable television programming operations in the United
Kingdom (the 'TBS UK Merger,' see Note 2). 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 and the TBS UK Merger have each 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 consolidated financial statements of WCI reflect the TWOI Merger and the TBS
UK Merger for all periods presented herein.

    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 its
ownership interests in TWE and certain other investments.

    TW Companies's $14 billion acquisition of WCI as of December 31, 1989, and
$1.3 billion acquisition of the minority interest in ATC on June 26, 1992 were
accounted for by the purchase method of accounting. WCI subsequently contributed
filmed entertainment and cable assets to TWE, and ATC subsequently contributed
its cable assets. The financial statements of WCI reflect an allocable portion
of TW Companies's cost to acquire the Music business and certain other assets of
WCI, and each General Partner's investment in TWE (and the financial statements
of TWE) reflect an allocable portion of TW Companies's cost to acquire the
filmed entertainment and cable assets of WCI and the ATC minority interest.

BASIS OF CONSOLIDATION AND ACCOUNTING FOR INVESTMENTS

    The consolidated financial statements include 100% of the assets,
liabilities, revenues, expenses, income, loss and cash flows of each General
Partner and all companies in which the General Partner has a controlling voting
interest ('subsidiaries'), as if the General Partner and its subsidiaries were a
single company. Significant intercompany accounts and transactions between the
consolidated companies have been eliminated.

                                      F-60





<PAGE>

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

    Investments in TWE, and certain other companies in which the General
Partners have significant influence, but less than a controlling voting
interest, are accounted for using the equity method. Under the equity method,
only the General Partner's investment in and amounts due to and from the equity
investee are included in the consolidated balance sheet; only its share of the
investee's earnings is included in the consolidated operating results; and only
the dividends, cash distributions, loans or other cash received from the
investee, less any additional cash investments, loan repayments or other cash
paid to the investee, are included in the consolidated cash flows.

    Investments in companies in which the General Partners do not have a
controlling interest, or an ownership and voting interest so large as to exert
significant influence, are accounted for at market value if the investments are
publicly traded and there are no resale restrictions greater than one year. If
there are resale restrictions greater than one year, or if the investment is not
publicly traded, then the investment is accounted for at cost. Unrealized gains
and losses on investments accounted for at market value are reported net-of-tax
as a component of accumulated other comprehensive income in retained earnings
until the investment is sold, at which time the realized gain or loss is
included in income. Dividends and other distributions of earnings from both
market value and cost method investments are included in income when declared.

    The effect of any changes in each General Partner's ownership interests
resulting from the issuance of equity capital by consolidated subsidiaries or
equity investees to unaffiliated parties is included in income.

FOREIGN CURRENCY TRANSLATION

    The financial position and operating results of substantially all foreign
operations are consolidated using the local currency as the functional currency.
Local currency assets and liabilities are translated at the rates of exchange on
the balance sheet date, and local currency revenues and expenses are translated
at average rates of exchange during the period. Resulting translation gains or
losses, which have not been material, are included as a component of accumulated
other comprehensive loss in partners' capital.

USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.

    Significant estimates inherent in the preparation of the accompanying
consolidated financial statements include management's forecast of anticipated
revenues and cash flows from investments and the sale of future and existing
music-related products in order to evaluate the ultimate recoverability of
accounts receivable, artist advances and investments recorded as assets in the
WCI consolidated balance sheet. Accounts receivable and sales in the music
industry are subject to customers' rights to return unsold items. Management
periodically reviews such estimates and it is reasonably possible that
management's assessment of recoverability of accounts receivable, individual
artist advances and investments may change based on actual results and other
factors.

REVENUES AND COSTS

    In accordance with industry practice, certain products (such as compact
discs and cassettes) are sold to customers with the right to return unsold
items. Revenues from such sales are recognized when the products are shipped
based on gross sales less a provision for future returns.

    Inventories of WCI consist of cassette tapes, compact discs and related
music and music publishing products. Inventories of cassette tapes and compact
discs are stated at the lower of cost or estimated realizable value. Cost is
determined using first-in, first-out; last-in, first-out; and average cost
methods. Returned goods included in inventory are valued at estimated realizable
value, but not in excess of cost.

                                      F-61





<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ADVERTISING

    Advertising costs are expensed upon the first exhibition of the
advertisement, except for certain direct-response advertising, for which the
costs are capitalized and amortized over the expected period of future benefits.
Direct-response advertising principally consists of product promotional
mailings, catalogues and other promotional costs incurred in WCI's
direct-marketing businesses. Deferred advertising costs are generally amortized
using the straight-line method over a period of twelve months or less subsequent
to the promotional event. Deferred advertising costs for WCI amounted to $15
million at the end of 1999 and $10 million at the end of 1998. Advertising
expense for WCI amounted to $214 million in 1999, $220 million in 1998 and $183
million in 1997.

CASH EQUIVALENTS

    Cash equivalents consist of commercial paper and other investments that are
readily convertible into cash and have original maturities of three months or
less.

FINANCIAL INSTRUMENTS

    Effective July 1, 1998, WCI adopted Financial Accounting Standards Board
('FASB') Statement No. 133, 'Accounting for Derivative Instruments and Hedging
Activities' ('FAS 133'). FAS 133 requires that all derivative financial
instruments, such as foreign exchange contracts, be recognized in the financial
statements and measured at fair value regardless of the purpose or intent for
holding them. Changes in the fair value of derivative financial instruments are
either recognized periodically in income or shareholders' equity (as a component
of comprehensive income), depending on whether the derivative is being used to
hedge changes in fair value or cash flows. The adoption of FAS 133 did not have
a material effect on WCI's financial statements.

    The carrying value of WCI's financial instruments approximates fair value,
except for certain differences relating to cost method investments and other
financial instruments that are not significant. The fair value of financial
instruments, such as investments, is generally determined by reference to market
values resulting from trading on a national securities exchange or in an
over-the-counter market. In cases where quoted market prices are not available,
fair value is based on estimates using present value or other valuation
techniques.

PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment are stated at cost. Depreciation is provided
generally on the straight-line method over useful lives ranging up to thirty
years for buildings and improvements and up to fifteen years for furniture,
fixtures and other equipment.

INTANGIBLE ASSETS

    As a creator and distributor of entertainment copyrights, WCI has a
significant and growing number of intangible assets, including goodwill, music
catalogues, contracts and copyrights. In accordance with generally accepted
accounting principles, WCI does not recognize the fair value of internally
generated intangible assets. Costs incurred to create and produce copyrighted
product, such as compact discs, DVDs and cassettes, generally are either
expensed as incurred, or capitalized as tangible assets as in the case of cash
advances and inventoriable product costs. However, accounting recognition is not
given to any increasing asset value that may be associated with the collection
of the underlying copyrighted material. Additionally, costs incurred to create
or extend brands generally result in losses over an extended development period
and are recognized as a reduction of income as incurred, while any corresponding
brand value created is not recognized as an intangible asset in the consolidated
balance sheet. On the other hand, intangible assets acquired in business
combinations accounted for by the purchase method of accounting are capitalized
and amortized over their expected useful life as a noncash charge against future
results of operations. Accordingly, the intangible assets reported in the
consolidated balance sheet do not reflect the fair value of WCI's internally
generated intangible assets, but rather

                                      F-62



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are limited to intangible assets resulting from certain acquisitions, including
TW Companies's acquisition of WCI, in which the cost of the acquired companies
exceeded the fair value of their tangible assets at the time of acquisition. TW
Companies's allocable portion of its cost to acquire the Music business and
certain other assets of WCI is reflected in the consolidated financial
statements of WCI under the pushdown method of accounting.

    WCI amortizes goodwill over periods up to forty years using the
straight-line method. Music catalogues, contracts and copyrights are amortized
over periods up to twenty years using the straight-line method. Amortization of
intangible assets amounted to $259 million in 1999, $267 million in 1998 and
$288 million in 1997. Accumulated amortization of intangible assets at
December 31, 1999 and 1998 amounted to $2.437 billion and $2.184 billion,
respectively.

    WCI periodically reviews the carrying value of acquired intangible assets
for each acquired entity to determine whether an impairment may exist. WCI
considers relevant cash flow and profitability information, including estimated
future operating results, trends and other available information, in assessing
whether the carrying value of intangible assets can be recovered. If it is
determined that the carrying value of intangible assets will not be recovered
from the undiscounted future cash flows of the acquired business, the carrying
value of such intangible assets would be considered impaired and reduced by a
charge to operations in the amount of the impairment. An impairment charge is
measured as any deficiency in the amount of estimated undiscounted future cash
flows of the acquired business available to recover the carrying value related
to the intangible assets.

INCOME TAXES

    The domestic operating results of the General Partners are included in the
consolidated U.S. federal, state and local income tax returns of WCI or
subsidiaries of Time Warner Inc. ('Time Warner'). The foreign operations of WCI
are subject to taxation by foreign jurisdictions. Both domestic and foreign
income tax provisions are reflected in the consolidated statements of operations
of the General Partners on a stand-alone basis consistent with the liability
method prescribed by FASB Statement No. 109, 'Accounting for Income Taxes.'
Under the liability method, deferred income taxes reflect tax carryforwards and
the net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial statement and income tax purposes, as
determined under enacted tax laws and rates. The financial effect of changes in
tax laws or rates is accounted for in the period of enactment. The subsequent
realization of tax carryforwards acquired in acquisitions is accounted for as a
reduction of goodwill.

    Under a tax-sharing agreement between the General Partners and Time Warner,
each General Partner pays to, or receives from, Time Warner amounts equal to the
total domestic income taxes, or tax benefits, provided by, or attributable to,
the partner. Accordingly, no domestic income tax balances are reflected in the
consolidated balance sheets of the General Partners.

    As a Delaware limited partnership, TWE is not subject to U.S. federal and
state income taxation. However, certain of TWE's operations are conducted by
subsidiary corporations that are subject to domestic or foreign taxation. 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.

COMPREHENSIVE INCOME

    In accordance with FASB Statement No. 130, 'Reporting Comprehensive Income,'
the General Partners report comprehensive income and its components in the
financial statements. Comprehensive income consists of net income and other
gains and losses affecting shareholders' equity that, under generally accepted
accounting principles, are excluded from net income. For the General Partners,
such items consist primarily of unrealized gains and losses on marketable equity
investments, gains and losses on certain derivative financial instruments and
foreign currency translation gains and losses.

                                      F-63



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

    The following summary sets forth the components of WCI's other comprehensive
loss accumulated in shareholders' equity:

<TABLE>
<CAPTION>
                                                  FOREIGN                    DERIVATIVE       ACCUMULATED
                                                 CURRENCY     UNREALIZED      FINANCIAL          OTHER
                                                TRANSLATION    GAINS ON      INSTRUMENT      COMPREHENSIVE
                                                  LOSSES      SECURITIES   GAINS (LOSSES)        LOSS
                                                -----------   ----------   ---------------   -------------
                                                                       (MILLIONS)
<S>                                             <C>           <C>          <C>               <C>
Balance at December 31, 1998..................     $ (53)        $ 4             $(4)            $(53)
1999 activity.................................       (55)         14               7              (34)
                                                   -----         ---             ---             ----
Balance at December 31, 1999..................     $(108)        $18             $ 3             $(87)
                                                   -----         ---             ---             ----
                                                   -----         ---             ---             ----
</TABLE>

RECLASSIFICATIONS

    Certain reclassifications have been made to the prior years' financial
statements to conform to the 1999 presentation.

2.  TBS UK MERGER

    In June 1997, WCI acquired TBS's interests in Turner Broadcasting System
Europe Limited ('TBSEL') and Turner Entertainment Networks International Limited
('TENIL'), wholly owned subsidiaries of TBS, which conduct certain of TBS's
cable television programming operations in the United Kingdom. To acquire TBSEL
and TENIL, WCI issued 90 thousand shares of a new series of preferred stock.
Each share of preferred stock is entitled to a liquidation preference of $1,000
per share and entitles the holder thereof to receive an $80 annual dividend per
share, payable in cash on a quarterly basis. The TBS UK Merger was accounted for
as a merger of entities under common control effective as of January 1, 1997,
similar to the pooling-of-interest method of accounting for business
combinations. The operating results of the companies acquired are not material
to WCI's results of operations.

3.  TWE

    The General Partners' investment in and amounts due to and from TWE at
December 31, 1999 and 1998 consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1999                                              WCI      ATC
-----------------                                              ---      ---
                                                                (MILLIONS)
<S>                                                           <C>      <C>
Investment in TWE...........................................  $2,342   $1,644
Stock option related distributions due from TWE.............     766      526
Other net liabilities due to TWE, principally related to
  home video distribution...................................    (632)      --
                                                              ------   ------
Total.......................................................  $2,476   $2,170
                                                              ------   ------
                                                              ------   ------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998                                              WCI      ATC
-----------------                                              ---      ---
                                                                (MILLIONS)
<S>                                                           <C>      <C>
Investment in TWE...........................................  $1,457   $1,034
Stock option related distributions due from TWE.............     670      460
Other net liabilities due to TWE, principally related to
  home video distribution...................................    (495)      --
                                                              ------   ------
Total.......................................................  $1,632   $1,494
                                                              ------   ------
                                                              ------   ------
</TABLE>

PARTNERSHIP STRUCTURE

    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 junior priority capital ('Series B Capital') of TWE. TW Companies holds
11.22% of the Series A Capital and

                                      F-64



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Residual Capital limited partnership interests. 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').

AT&T -- MEDIAONE MERGER

    At the time of this filing, MediaOne had agreed to be acquired by AT&T Corp.
('AT&T'). In August 1999, TWE received a notice from MediaOne concerning the
termination of its covenant not to compete with TWE. The termination of that
covenant is necessary for MediaOne to complete its proposed merger with AT&T. As
a result of the termination notice and the operation of the TWE partnership
agreement, MediaOne's rights to participate in the management of TWE's
businesses terminated immediately and irrevocably. MediaOne retains only certain
protective governance rights pertaining to certain limited matters affecting TWE
as a whole. Each of WCI and ATC will continue to account for its investment in
TWE under the equity method of accounting.

PARTNERSHIP CAPITAL AND ALLOCATION OF INCOME

    Each partner's interest in TWE generally consists of the undistributed
priority capital and residual equity amounts that were initially assigned to
that partner or its predecessor based on the estimated fair value of the net
assets each contributed to TWE ('Undistributed Contributed Capital'), plus, with
respect to the priority capital interests only, any undistributed priority
capital return. The priority capital return consists of net partnership income
allocated to date in accordance with the provisions of the TWE partnership
agreement and the right to be allocated additional partnership income which,
together, provides for the various priority capital rates of return as specified
in the table below. The sum of Undistributed Contributed Capital and the
undistributed priority capital return is referred to herein as 'Cumulative
Priority Capital.' Cumulative Priority Capital is not necessarily indicative of
the fair value of the underlying priority capital interests principally due to
above-market rates of return on certain priority capital interests as compared
to securities of comparable credit risk and maturity, such as the 13.25% rate of
return on the Series B Capital interest owned by the General Partners.
Furthermore, the ultimate realization of Cumulative Priority Capital could be
affected by the fair value of TWE, which is subject to fluctuation.

    A summary of the priority of Undistributed Contributed Capital, the General
Partner's ownership of Undistributed Contributed Capital and Cumulative Priority
Capital at December 31, 1999 and priority capital rates of return thereon is as
set forth below:

<TABLE>
<CAPTION>
                                                                                                      %
                                                                                   PRIORITY         OWNED
                                                   UNDISTRIBUTED      CUMULATIVE    CAPITAL          BY
                                                    CONTRIBUTED        PRIORITY    RATES OF        GENERAL
                                                    CAPITAL(A)         CAPITAL     RETURN(B)      PARTNERS
PRIORITY OF UNDISTRIBUTED CONTRIBUTED CAPITAL      -------------      ----------   ---------      ---------
                                                                          (BILLIONS)
<S>                                                <C>                <C>          <C>            <C>
Series A Capital.................................      $5.6             $14.5        13.00%         63.27%
Series B Capital.................................       2.9(d)            7.7        13.25%        100.00%
Residual Capital.................................       3.3(d)            3.3(c)        --(c)       63.27%
</TABLE>

---------

(a) Excludes partnership income or loss allocated thereto.
(b) To the extent income allocations are concurrently distributed, the priority
    capital rates of return on the Series A Capital and Series B Capital are 11%
    and 11.25%, respectively.
(c) Residual Capital is not entitled to stated priority rates of return and, as
    such, its Cumulative Priority Capital is equal to its Undistributed
    Contributed Capital. However, in the case of certain events such as the
    liquidation or dissolution of TWE, Residual Capital is entitled to any
    excess of the then fair value of the net assets of TWE over the aggregate
    amount of Cumulative Priority Capital and special tax allocations.
(d) The Undistributed Contributed Capital relating to the Series B Capital has
    priority over the priority returns on the Series A Capital. The
    Undistributed Contributed Capital relating to the Residual Capital has
    priority over the priority returns on the Series B Capital and the Series A
    Capital.

    Because Undistributed Contributed Capital is generally based on the fair
value of the net assets that each partner initially contributed to the
partnership, the aggregate of such amounts is significantly higher than TWE's
partners' capital as reflected in the consolidated financial statements, which
is based on the historical cost of the contributed net assets. For purposes of
allocating partnership income or loss to the partners, partnership income

                                      F-65



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

or loss is based on the fair value of the net assets contributed to the
partnership and results in significantly less partnership income, or results in
partnership losses, in contrast to the net income reported by TWE for financial
statement purposes, which is also based on the historical cost of contributed
net assets.

    Under the TWE partnership agreement, partnership income, to the extent
earned, is first allocated to the partners' capital accounts so that the
economic burden of the income tax consequences of partnership operations is
borne as though the partnership were taxed as a corporation ('special tax
allocations'). After any special tax allocations, partnership income is
allocated to the Series A Capital and Series B Capital, in order of priority, at
rates of return ranging from 13.00% to 13.25% per annum, and finally to the
Residual Capital. Partnership losses generally are allocated first to eliminate
prior allocations of partnership income to, and then to reduce the Undistributed
Contributed Capital of, the Residual Capital, Series B Capital and Series A
Capital, in that order, and then to reduce any special tax allocations. To the
extent partnership income is insufficient to satisfy all special allocations in
a particular accounting period, the right to receive additional partnership
income necessary to provide for the various priority capital rates of return is
carried forward until satisfied out of future partnership income, including any
partnership income that may result from any liquidation, sale or dissolution of
TWE. TWE reported net income of $2.759 billion, $326 million and $614 million in
1999, 1998 and 1997, respectively, no portion of which was allocated to the
limited partners.

    The Series B Capital owned by the General Partners may be increased if
certain operating performance targets are achieved over a ten-year period ending
on December 31, 2001, although it does not appear likely at this time that such
targets will be achieved. In addition, MediaOne has an option to obtain up to an
additional 6.33% of Series A Capital and Residual Capital interests. The
determination of the amount of additional interests that MediaOne is eligible to
acquire is based on the compounded annual growth rate of TWE's adjusted cable
EBITDA, as defined in the option agreement, over the life of the option. The
option is exercisable at any time through May 2005. The option exercise price is
dependent upon the year of exercise and ranges from an exercise price of
approximately $1.3 billion in 2000 to $1.8 billion in 2005. Either MediaOne or
TWE may elect that the exercise price be paid with partnership interests rather
than cash.

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.

    Through July 1999, the Time Warner General Partners held senior priority
capital interests ('Senior Capital') in TWE. At that time, the Time Warner
General Partners received a $627 million distribution from TWE in full
redemption of the remaining portion of their Senior Capital interests plus
related priority capital return. This distribution increased the cumulative cash
distributions received from TWE relating to the Time Warner General Partners'
Senior Capital interests to $2.1 billion. A portion of the proceeds received
from the July 1999 distribution was used to repay all $400 million of
outstanding borrowings under Time Warner's credit agreement with TWE.

    At December 31, 1999 and 1998, the General Partners had recorded $1.292
billion and $1.130 billion, respectively, of stock option related distributions
due from TWE, based on closing prices of Time Warner common stock of $72.31 and
$62.06, 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 1999, the General Partners received distributions
from TWE in the amount of $1.2 billion, consisting of $627 million of Senior
Capital distributions (representing the return of $454 million of contributed
capital and the distribution of $173 million of priority capital return), $347
million of tax-related distributions and $226 million of stock option related
distributions. During 1998, the General Partners received distributions from TWE
in the amount of $1.153 billion, consisting of $579 million of Senior Capital
distributions (representing the return of $455

                                      F-66



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

million of contributed capital and the distribution of $124 million of priority
capital return), $314 million of tax-related distributions and $260 million of
stock option related distributions. During 1997, the General Partners received
distributions from TWE in the amount of $934 million, consisting of $535 million
of Senior Capital distributions (representing the return of $455 million of
contributed capital and the distribution of $80 million of priority capital
return), $324 million of tax-related distributions and $75 million of stock
option related distributions. Of such aggregate distributions, WCI received $711
million in 1999, $684 million in 1998 and $554 million in 1997, and ATC received
$489 million in 1999, $469 million in 1998 and $380 million in 1997. In addition
to the tax, stock option and General Partners' senior priority capital
distributions, TWE may make other capital distributions to its partners that are
also subject to certain limitations contained in the TWE partnership and credit
agreements.

    In addition, in connection with the 1998 reorganization of Time Warner
Cable's business telephony operations into a separate entity now named Time
Warner Telecom Inc. (the 'Time Warner Telecom Reorganization'), TWE made a $191
million noncash distribution to its partners, of which WCI and ATC received an
interest in Time Warner Telecom recorded at $72 million and $49 million,
respectively, based on TWE's historical cost of the net assets.

SIGNIFICANT ITEMS AND TRANSACTIONS

    The comparability of TWE's summarized financial information has been
affected by a number of significant items and transactions occurring in all
periods. These transactions are summarized below. For a more comprehensive
description of these transactions, see Notes 2 and 3 to the accompanying TWE
consolidated financial statements.

    For 1999, the significant items included (i) net pretax gains in the amount
of $2.119 billion relating to the sale or exchange of various cable television
systems and investments, (ii) an approximate $215 million net pretax gain
recognized in connection with the early termination and settlement of a
long-term, home video distribution agreement, (iii) an approximate $97 million
pretax gain recognized in connection with the sale of an interest in
CanalSatellite, a satellite television platform servicing France and Monaco and
(iv) a one-time, noncash pretax charge of approximately $106 million relating to
Warner Bros.'s retail stores.

    For 1998, the significant items included (i) net pretax gains of
approximately $90 million relating to the sale or exchange of various cable
television systems and investments and (ii) a pretax charge of approximately
$210 million principally to reduce TWE's carrying value of its investment in
Primestar.

    For 1997, the significant, nonrecurring items included (i) net pretax gains
of approximately $200 million relating to the sale or exchange of various cable
television systems and (ii) a pretax gain of approximately $250 million relating
to the sale of its interest in E! Entertainment Television, Inc.

    In addition, the comparability of TWE's operating results has been affected
further by certain 1998 transactions, which included (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 interests in the
partnership, as well as related transactions, effective as of January 1, 1998
(the 'TWE-A/N Transfers'), (ii) the transfer of Time Warner Cable's direct
broadcast satellite operations to Primestar, Inc. effective as of April 1, 1998
(the 'Primestar Roll-up Transaction'), (iii) the formation of the Road Runner
joint venture to operate and expand Time Warner Cable's and MediaOne's existing
high-speed online businesses, effective as of June 30, 1998 (the 'Road Runner
Joint Venture'), (iv) the reorganization of Time Warner's, TWE's and TWE-A/N's
business telephony operations, effective as of July 1, 1998 (the 'Time Warner
Telecom Reorganization'), (v) the formation of a joint venture in Texas that
owns cable television systems serving approximately 1.1 million subscribers,
effective as of December 31, 1998 (the 'Texas Cable

                                      F-67



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Joint Venture') and (vi) the sale of TWE's remaining 49% interest in Six Flags
Entertainment Corporation in April 1998 to Premier Parks Inc., a regional theme
park operator.

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, the Primestar Roll-up
Transaction effective as of April 1, 1998, the formation of the Road Runner
Joint Venture effective as of June 30, 1998, the Time Warner Telecom
Reorganization effective as of July 1, 1998 and formation of the Texas Cable
Joint Venture effective as of December 31, 1998:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                               1999        1998       1997
                                                              -------   ----------   -------
                                                                        (MILLIONS)
<S>                                                           <C>       <C>          <C>
OPERATING STATEMENT INFORMATION
Revenues....................................................  $13,164    $12,246     $11,318
Depreciation and amortization...............................   (1,364)    (1,436)     (1,370)
Business segment operating income(a)........................    4,227      1,719       1,444
Interest and other, net(b)..................................     (818)      (945)       (326)
Minority interest...........................................     (427)      (284)       (324)
Income before income taxes..................................    2,909        418         722
Income before extraordinary item............................    2,759        326         637
Net income..................................................    2,759        326         614
</TABLE>

---------

(a) Includes a net pretax gain of approximately $215 million in 1999 in
    connection with the early termination and settlement of a long-term, home
    video distribution agreement, a pretax gain of approximately $97 million in
    1999 relating to the sale of an interest in CanalSatellite, a one-time,
    noncash pretax charge of approximately $106 million in 1999 relating to
    certain Warner Bros.'s retail stores and net pretax gains of approximately
    $2.119 billion in 1999, $90 million in 1998 and $200 million in 1997 related
    to the sale or exchange of certain cable television systems and investments.
(b) Includes a pretax charge of approximately $210 million in 1998 principally
    to reduce the carrying value of an interest in Primestar, Inc.
    ('Primestar'). 1997 includes a pretax gain of approximately $250 million
    related to the sale of an interest in E! Entertainment Television, Inc.

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                              ------------------------------------
                                                               1999           1998          1997
                                                              -------      ----------      -------
                                                                           (MILLIONS)
<S>                                                           <C>          <C>             <C>
CASH FLOW INFORMATION
Cash provided by operations.................................  $ 2,713       $ 2,288        $ 1,834
Capital expenditures........................................   (1,475)       (1,603)        (1,565)
Investments and acquisitions................................     (478)         (388)          (172)
Investment proceeds.........................................      948         1,246            485
Collection of loan to Time Warner...........................      400            --             --
Borrowings..................................................    2,658         1,514          3,400
Debt repayments.............................................   (2,764)       (1,898)        (3,085)
Issuance of preferred stock of subsidiary...................       --            --            243
Redemption of preferred stock of subsidiary.................     (217)           --             --
Capital distributions.......................................   (1,200)       (1,153)          (934)
Other financing activities, net.............................     (155)         (241)          (100)
Increase (decrease) in cash and equivalents.................      430          (235)           106
</TABLE>

                                      F-68



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               1999      1998
                                                              -------   -------
                                                                 (MILLIONS)
<S>                                                           <C>       <C>
BALANCE SHEET INFORMATION
Cash and equivalents........................................  $   517   $    87
Total current assets........................................    5,311     4,183
Total assets................................................   24,843    22,230
Total current liabilities...................................    5,723     4,936
Long-term debt..............................................    6,655     6,578
Minority interests..........................................    1,815     1,522
Preferred stock of subsidiary...............................       --       217
General Partners' Senior Capital............................       --       603
Partners' capital...........................................    7,149     5,107
</TABLE>

4.  GAIN ON TIME WARNER TELECOM'S INITIAL PUBLIC OFFERING

    Time Warner Telecom Inc. ('Time Warner Telecom'), an integrated
communications provider that provides a wide range of telephony and data
services to businesses, was formed in July 1998 when Time Warner, TWE and
TWE-A/N completed a reorganization of their business telephony operations. As
part of that reorganization, TWE's and TWE-A/N's interests in Time Warner
Telecom were distributed to their partners, Time Warner, MediaOne and the
Advance/Newhouse Partnership ('Advance/Newhouse'), a limited partner in TWE-A/N.

    In May 1999, Time Warner Telecom completed an initial public offering of 20%
of its common stock (the 'Time Warner Telecom IPO'). Time Warner Telecom issued
approximately 21 million shares of common stock at a price of $14 per share and
raised net proceeds of approximately $270 million, of which $180 million was
paid to Time Warner and TWE in satisfaction of certain obligations. In turn,
Time Warner and TWE used those proceeds principally to reduce bank debt. In
connection with the Time Warner Telecom IPO and certain related transactions,
WCI's ownership interest in Time Warner Telecom was diluted from approximately
28% to approximately 22% and ATC's ownership interest in Time Warner Telecom was
diluted from approximately 19% to approximately 15%. As a result, WCI and ATC
recognized pretax gains of approximately $53 million and $36 million,
respectively. These gains have been included in interest and other, net, in the
accompanying consolidated statements of operations.

    As of December 31, 1999, Time Warner Telecom is owned 48% by Time Warner,
including 22% by WCI and 15% by ATC, 15% by MediaOne, 15% by Advance/Newhouse
and 22% by other third parties. Time Warner's and the General Partners'
interests in Time Warner Telecom are being accounted for under the equity method
of accounting.

5.  OTHER INVESTMENTS

    WCI's other investments consist of:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ---------------
                                                               1999     1998
                                                              ------   ------
                                                                (MILLIONS)
<S>                                                           <C>      <C>
Equity method investments...................................  $1,355   $1,280
Cost and fair-value method investments......................     142       70
                                                              ------   ------
Total.......................................................  $1,497   $1,350
                                                              ------   ------
                                                              ------   ------
</TABLE>

    In December 1997, WCI sold all of its 18.1 million shares of common stock of
Hasbro, Inc. ('Hasbro') to TW Companies in exchange for a $610 million, 6.7%
note receivable due December 2002 (the 'TW Companies Note Receivable'). TW
Companies, in turn, simultaneously used these shares to redeem certain
mandatorily

                                      F-69



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

redeemable preferred securities of a subsidiary held by third party investors.
In connection therewith, WCI recognized a $437 million pretax gain in 1997,
which has been classified in interest and other, net, in the accompanying
consolidated statement of operations. The TW Companies Note Receivable has been
classified in shareholders' equity under the caption 'Due from TW Companies,
net.'

    In addition to TWE and its equity investees, companies accounted for using
the equity method include: Time Warner Telecom (approximately 22% and 15% owned
by WCI and ATC, respectively; 48% owned by Time Warner), the Columbia House
Company partnerships (10% to 50% owned by WCI; 50% owned in total by Time
Warner), other music joint ventures (generally 50% owned) and Cinamerica
Theatres, L.P. (sold in 1997, but previously 50% owned). A summary of combined
financial information as reported by the equity investees of WCI is set forth
below:

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                              ----------------------------
                                                               1999       1998       1997
                                                              ------   ----------   ------
                                                                       (MILLIONS)
<S>                                                           <C>      <C>          <C>
Revenues....................................................  $1,360     $1,275     $1,336
Depreciation and amortization...............................     (85)       (43)       (13)
Operating income (loss).....................................     (76)        (1)        80
Net income (loss)...........................................    (216)      (109)       (36)
Current assets..............................................   1,185      1,183        792
Total assets................................................   2,295      2,065      1,132
Current liabilities.........................................     991        587        418
Long-term debt..............................................   1,486      1,807      1,303
Total liabilities...........................................   2,583      2,464      1,791
Total shareholders' deficit or partners' capital............    (288)      (399)      (659)
</TABLE>

    WCI and ATC own 28.9 thousand and 14.8 thousand shares, respectively, of TW
Companies common stock. Such investments are accounted for at historical cost,
less the portion (collectively estimated at 85%) attributable to TW Companies'
ownership of the General Partners, which is deducted from shareholders' equity
under the caption 'Reciprocal interest in TW Companies stock.' The TW Companies
common stock owned by the General Partners may only be sold pursuant to an
effective registration statement or in a transaction exempt from the
registration requirements of the Securities Act of 1933. In addition to TW
Companies common stock, ATC also owns certain TW Companies debt securities. Such
debt securities, which were not significant at December 31, 1999, are held by
ATC for the purpose of satisfying its obligations under its stock options and
restricted stock awards subsequent to the acquisition of the ATC minority
interest.

6.  BORROWING ARRANGEMENTS WITH TW COMPANIES

    WCI and ATC each has a revolving credit agreement with TW Companies, which
provides for borrowings from TW Companies of up to $1 billion. Each credit
agreement expires on December 31, 2008. Interest on any borrowings under each
credit agreement is payable quarterly at the prime rate. Each of WCI's and ATC's
obligation to TW Companies under the credit agreement is subordinate to the
General Partner Guarantees. At December 31, 1999 and 1998, there were no
borrowings outstanding under these credit agreements.

    Interest expense for WCI was $24 million in 1999 and $23 million in both
1998 and 1997. Interest expense for ATC was not material in any of the three
years ended December 31, 1999.

7.  GENERAL PARTNER GUARANTEES

    Each General Partner has guaranteed a pro rata portion of approximately $5.3
billion of TWE's debt and accrued interest at December 31, 1999, 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

                                      F-70



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

its guarantee. The indenture pursuant to which TWE's notes and debentures have
been issued (the 'Indenture') requires the consent of a majority of such holders
to effect a termination; however, the Indenture permits the General Partners to
engage in mergers and consolidations. 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.

    The portion of TWE debt and accrued interest at December 31, 1999 that was
guaranteed by each General Partner, individually and on a consolidated basis for
each General Partner and its subsidiaries, is set forth below:

<TABLE>
<CAPTION>
                                                               TOTAL GURANTEED BY
                                                              EACH GENERAL PARTNER
                                                              ---------------------
GENERAL PARTNER                                                   %        AMOUNT
---------------                                               ---------   ---------
                                                              (DOLLARS IN MILLIONS)
<S>                                                           <C>         <C>
WCI.........................................................    59.27      $3,168
ATC.........................................................    40.73       2,177
                                                               ------      ------
Total.......................................................   100.00      $5,345
                                                               ------      ------
                                                               ------      ------
</TABLE>

8.  INCOME TAXES

    Domestic and foreign pretax income (loss) are as follows:

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                   ---------------------------------------------
                                                        1999            1998           1997
                                                   ---------------   -----------   -------------
                                                    WCI      ATC     WCI    ATC     WCI     ATC
                                                   ------   ------   ----   ----   ------   ----
                                                                     (MILLIONS)
<S>                                                <C>      <C>      <C>    <C>    <C>      <C>
Domestic.........................................  $1,816   $1,174   $372   $202   $  896   $277
Foreign..........................................     230       78    107     (8)     130     47
                                                   ------   ------   ----   ----   ------   ----
Total............................................  $2,046   $1,252   $479   $194   $1,026   $324
                                                   ------   ------   ----   ----   ------   ----
                                                   ------   ------   ----   ----   ------   ----
</TABLE>

    Income taxes (benefits) are as set forth below:

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                   ---------------------------------------------
                                                        1999            1998           1997
                                                   ---------------   -----------   -------------
                                                    WCI      ATC     WCI    ATC     WCI     ATC
                                                   ------   ------   ----   ----   ------   ----
                                                                     (MILLIONS)
<S>                                                <C>      <C>      <C>    <C>    <C>      <C>
Federal..........................................   $528     $361    $100   $ 48    $272    $ 82
State and local..................................    156       97      35     17      95      26
Foreign
    Current(a)...................................    164       41     174     45     144      28
    Deferred.....................................     (9)       4     (48)    (8)     (7)      9
                                                    ----     ----    ----   ----    ----    ----
Total............................................   $839     $503    $261   $102    $504    $145
                                                    ----     ----    ----   ----    ----    ----
                                                    ----     ----    ----   ----    ----    ----
</TABLE>

---------

(a) Includes foreign withholding taxes set forth elsewhere herein.

    Foreign withholding taxes included in the foreign tax provision are as
follows:

<TABLE>
<CAPTION>
                                                              WCI    ATC
                                                              ----   ----
                                                              (MILLIONS)
<S>                                                           <C>    <C>
1999........................................................  $66    $27
1998........................................................   57     25
1997........................................................   64     24
</TABLE>

    No U.S. income or foreign withholding taxes have been recorded by WCI on the
permanently reinvested earnings of foreign subsidiaries aggregating
approximately $900 million at December 31, 1999. If such earnings

                                      F-71



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

were to be repatriated, it is expected that any additional U.S. income tax would
be offset by the utilization of the accompanying foreign tax credits.

    The differences between the income tax (tax benefit) expected for WCI at the
U.S. federal statutory income tax rate and the total income taxes provided are
as follows:

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER
                                                                       31,
                                                              ---------------------
                                                              1999    1998    1997
                                                              -----   -----   -----
                                                                   (MILLIONS)
<S>                                                           <C>     <C>     <C>
Taxes on income at U.S. federal statutory rate..............  $716    $168    $359
Nondeductible expenses......................................    73      73      71
Foreign income taxed at different rates, net of U.S. foreign
  tax credits...............................................   (35)     (8)     16
State and local taxes, net..................................   101      23      62
Other.......................................................   (16)      5      (4)
                                                              ----    ----    ----
Total.......................................................  $839    $261    $504
                                                              ----    ----    ----
                                                              ----    ----    ----
</TABLE>

    The relationship between income taxes and income before income taxes for the
other General Partner is principally affected by the amortization of goodwill
and certain other financial statement expenses that are not deductible for
income tax purposes.

    U.S. federal tax carryforwards of WCI included in the consolidated tax
return of Time Warner at December 31, 1999 consisted of $29 million of net
operating losses and $105 million of investment tax credits. The utilization of
certain carryforwards is subject to limitations under U.S. federal income tax
laws. The U.S. federal tax carryforwards expire in varying amounts as follows
for income tax reporting purposes:

<TABLE>
<CAPTION>
                                                                  CARRYFORWARDS
                                                              ----------------------
                                                                 NET      INVESTMENT
                                                              OPERATING      TAX
                                                               LOSSES      CREDITS
                                                              ---------   ----------
                                                                    (MILLIONS)
<S>                                                           <C>         <C>
2000........................................................     $ 1         $ 25
2001........................................................       1           33
Thereafter up to 2010.......................................      27           47
                                                                 ---         ----
                                                                 $29         $105
                                                                 ---         ----
                                                                 ---         ----
</TABLE>

9.  STOCK OPTION PLANS

    Time Warner has various stock option plans under which Time Warner may grant
options to purchase Time Warner common stock to employees of Time Warner and
WCI. Such options have been granted to employees of WCI with exercise prices
equal to, or in excess of, fair market value at the date of grant. Accordingly,
in accordance with Accounting Principles Board Opinion No. 25, 'Accounting for
Stock Issued to Employees' and related interpretations, compensation cost
generally has not been recognized by Time Warner, nor charged to WCI, related to
such stock option plans. Generally, the options become exercisable over a
three-year vesting period and expire ten years from the date of grant. Had
compensation cost for Time Warner's stock option plans been determined based on
the fair value at the grant dates for all awards made subsequent to 1994
consistent with the method set forth under FASB Statement No. 123, 'Accounting
for Stock-Based Compensation' ('FAS

                                      F-72



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

123'), WCI's allocable share of compensation cost would have been changed to the
pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                              ---------------------------
                                                               1999       1998      1997
                                                                       (MILLIONS)
<S>                                                           <C>      <C>          <C>
Net income:
    As reported.............................................  $1,207      $218      $514
                                                              ------      ----      ----
                                                              ------      ----      ----
    Pro forma...............................................  $1,192      $207      $506
                                                              ------      ----      ----
                                                              ------      ----      ----
</TABLE>

    For purposes of applying FAS 123, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants to WCI employees in
1999, 1998 and 1997: dividend yields of 0.3%, 0.5% and 1%, respectively;
expected volatility of 23.7%, 21.7% and 21.6%, respectively; risk-free interest
rates of 5.5%, 5.4% and 6.1%, respectively; and expected lives of 5 years in all
periods.

    In December 1998, Time Warner completed a two-for-one common stock split.
Accordingly, the following stock option information gives effect to this stock
split.

    The weighted average fair value of an option granted to WCI employees during
the year was $20.74 ($12.24, net of taxes), $11.69 ($6.90, net of taxes) and
$7.18 ($4.24, net of taxes) for the years ended December 31, 1999, 1998 and
1997, respectively.

    A summary of stock option activity with respect to employees of WCI is as
follows:

<TABLE>
<CAPTION>
                                                                          WEIGHTED-
                                                              THOUSANDS    AVERAGE
                                                                 OF       EXERCISE
                                                               SHARES       PRICE
                                                               ------       -----
<S>                                                           <C>         <C>
Balance at January 1, 1997..................................    27,366     $15.10
Granted.....................................................     1,536      25.14
Exercised...................................................    (3,728)     13.92
Cancelled(a)................................................       (34)     13.98
                                                               -------
Balance at December 31, 1997................................    25,140     $15.72

Granted.....................................................     2,254      39.99
Exercised...................................................    (8,915)     14.49
Cancelled(a)................................................     1,013      13.27
                                                               -------
Balance at December 31, 1998................................    19,492     $18.97

Granted.....................................................     2,234      66.30
Exercised...................................................    (5,985)     16.34
Cancelled(a)................................................       (53)     27.15
                                                               -------
Balance at December 31, 1999................................    15,688     $26.68
                                                               -------
                                                               -------
</TABLE>

---------

 (a) Includes all options cancelled and forfeited during the year, as well as
     options related to employees who have been transferred out of and into WCI
     to and from other Time Warner divisions.

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                               1999     1998     1997
                                                               ----     ----     ----
                                                                    (THOUSANDS)
<S>                                                           <C>      <C>      <C>
Exercisable.................................................  11,489   15,638   21,920
</TABLE>

                                      F-73



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

    The following table summarizes information about stock options outstanding
with respect to employees of WCI at December 31, 1999:

<TABLE>
<CAPTION>
                          OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                  ------------------------------------   ------------------------
                                 WEIGHTED-
                                  AVERAGE    WEIGHTED-                  WEIGHTED-
    RANGE OF        NUMBER       REMAINING    AVERAGE       NUMBER       AVERAGE
    EXERCISE      OUTSTANDING   CONTRACTUAL  EXERCISE    EXERCISABLE    EXERCISE
     PRICES       AT 12/31/99      LIFE        PRICE     AT 12/31/99      PRICE
     ------       -----------      ----        -----     -----------      -----
                  (THOUSANDS)                            (THOUSANDS)
<S>               <C>           <C>          <C>         <C>            <C>
Under $10              336       0.1 years    $ 9.30           336       $ 9.30
$10.00 to $15.00     4,617       1.4 years    $11.70         4,617       $11.70
$15.01 to $20.00     4,391       4.3 years    $18.47         4,391       $18.47
$20.01 to $30.00     1,826       6.6 years    $23.03         1,399       $22.63
$30.01 to $45.00     1,558       7.9 years    $35.36           512       $35.07
$45.01 to $65.00     1,320       8.5 years    $54.18           234       $48.46
$65.01 to $69.16     1,640       9.1 years    $68.11            --           --
                    ------                                  ------
Total               15,688       4.8 years    $26.68        11,489       $17.34
                    ------                                  ------
                    ------                                  ------
</TABLE>

    In January 2000, Time Warner and America Online, Inc. ('America Online')
announced that they had agreed to merge. In connection with this merger, all
outstanding Time Warner stock options held by WCI employees at that time became
fully vested and exercisable, pursuant to the terms of Time Warner's stock
option plans (Note 16).

10. BENEFIT PLANS

    Prior to 1999, WCI and its subsidiaries sponsored defined benefit pension
plans covering substantially all domestic employees. Pension benefits under
those plans were based on formulas that reflected the employees' years of
service and compensation levels during their employment period. Effective
January 1, 1999, substantially all of WCI's plans were merged into the defined
benefit pension plans of TW Companies. The remaining few WCI-sponsored plans
relating to its domestic operations are not material to the consolidated
financial statements of WCI. In addition to its domestic employees, employees of
WCI's operations in foreign countries participate to varying degrees in local
pension plans, which in the aggregate are not significant. For 1999, WCI made
contributions of $1 million and recognized expense of $15 million related to its
domestic employees covered under all defined benefit plans.

    A summary of activity of WCI's defined benefit pension plans for periods
prior to 1999 when it was a sponsor is as follows:

<TABLE>
<CAPTION>
                                                               YEARS ENDED
                                                               DECEMBER 31,
                                                              --------------
                                                              1998      1997
                                                              ----      ----
                                                                (MILLIONS)
<S>                                                           <C>       <C>
COMPONENTS OF PENSION EXPENSE
Service cost................................................  $ 13      $ 11
Interest cost...............................................    14        13
Expected return on plan assets..............................   (12)      (11)
Net amortization and deferral...............................     1         1
                                                              ----      ----
Total.......................................................  $ 16      $ 14
                                                              ----      ----
                                                              ----      ----
</TABLE>

                                      F-74



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              ------------
                                                                  1998
                                                                  ----
                                                               (MILLIONS)
<S>                                                           <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at beginning of year...........      $188
Service cost................................................        13
Interest cost...............................................        14
Actuarial loss..............................................        25
Benefits paid...............................................       (11)
                                                                  ----
Projected benefit obligation at end of year.................       229
                                                                  ----
</TABLE>

<TABLE>
<S>                                                           <C>
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year..............       147
Actual return on plan assets................................        38
Employer contribution.......................................         8
Benefits paid...............................................       (11)
                                                                  ----
Fair value of plan assets at end of year....................       182
                                                                  ----
Unfunded projected benefit obligation.......................       (47)
Additional minimum liability(a).............................        (6)
Unrecognized actuarial loss.................................         3
Unrecognized prior service cost.............................         7
                                                                  ----
Accrued pension expense.....................................      $(43)
                                                                  ----
                                                                  ----
</TABLE>

---------

 (a) The additional minimum liability is offset fully by a corresponding
     intangible asset recognized in the consolidated balance sheet.

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              --------------
                                                              1998      1997
                                                              ----      ----
<S>                                                           <C>       <C>
WEIGHTED-AVERAGE PENSION ASSUMPTIONS
Discount rate...............................................  6.75%     7.25%
Expected return on plan assets..............................     9%        9%
Rate of compensation increase...............................     6%        6%
</TABLE>

    Certain domestic employees of WCI also participate in Time Warner's savings
plans and profit sharing plans, as to which the expense amounted to $7 million
in 1999, $13 million in 1998 and $13 million in 1997. Contributions to the
savings plans are based upon a percentage of the employees' elected
contributions. Contributions to the profit sharing plans are generally
determined by management.

11. DERIVATIVE FINANCIAL INSTRUMENTS

    WCI uses derivative financial instruments principally to manage the risk
that changes in exchange rates will affect the amount of unremitted or future
royalties to be received from the sale of U.S. copyrighted products abroad. The
following is a summary of WCI's foreign currency risk management strategy and
the effect of this strategy on WCI's financial statements.

FOREIGN CURRENCY RISK MANAGEMENT

    Foreign exchange contracts are used primarily by Time Warner to hedge the
risk that unremitted or future royalties owed to WCI domestic companies for the
sale or anticipated sale of U.S. copyrighted products abroad

                                      F-75



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

may be adversely affected by changes in foreign currency exchange rates. As part
of its overall strategy to manage the level of exposure to the risk of foreign
currency exchange rate fluctuations, Time Warner hedges a portion of its, TWE's
and WCI's combined foreign currency exposures anticipated over the ensuing
twelve-month period. At December 31, 1999, Time Warner had effectively hedged
approximately half of WCI's total estimated foreign currency exposures that
principally relate to anticipated cash flows to be remitted to the U.S. over the
ensuing twelve-month period. To hedge this exposure, Time Warner used foreign
exchange contracts that generally have maturities of three months or less, which
generally will be rolled over to provide continuing coverage throughout the
year. Time Warner often closes foreign exchange sale contracts by purchasing an
offsetting purchase contract. Time Warner reimburses or is reimbursed by WCI for
contract gains and losses related to WCI's foreign currency exposure. Foreign
exchange contracts are placed with a number of major financial institutions in
order to minimize credit risk.

    WCI records these foreign exchange contracts at fair value in its
consolidated balance sheet and the related gains or losses on these contracts
are deferred in shareholders' equity (as a component of comprehensive income).
These deferred gains and losses are recognized in income in the period in which
the related royalties being hedged are received and recognized in income.
However, to the extent that any of these contracts are not considered to be
perfectly effective in offsetting the change in the value of the royalties being
hedged, any changes in fair value relating to the ineffective portion of these
contracts are immediately recognized in income. Gains and losses on foreign
exchange contracts are generally included as a component of interest and other,
net, in WCI's consolidated statement of operations.

    At December 31, 1999, Time Warner had contracts for the sale of $843 million
and the purchase of $468 million of foreign currencies at fixed rates. Of Time
Warner's $375 million net sale contract position, $442 million of foreign
exchange sale contracts and $217 million of foreign exchange purchase contracts
related to WCI's foreign currency exposure, primarily Japanese yen (73% of net
contract position related to WCI) and English pounds (16%), compared to
contracts for the sale of $431 million and the purchase of $157 million of
foreign currencies at December 31, 1998. WCI had deferred approximately $3
million of net gains on foreign exchange contracts at December 31, 1999, which
is all expected to be recognized in income over the next twelve months. For the
years ended December 31, 1999, 1998 and 1997, WCI recognized $25 million in
losses, $7 million in losses and $26 million in gains, respectively, on foreign
exchange contracts, which were or are expected to be largely offset by
corresponding decreases and increases, respectively, in the dollar value of
foreign currency royalty payments that have been or are anticipated to be
received in cash from the sale of U.S. copyrighted products abroad.

12. GEOGRAPHICAL INFORMATION

    Information as to WCI's operations in different geographical areas is as
follows:

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                              ---------------------------
                                                               1999      1998      1997
                                                              -------   -------   -------
                                                                      (MILLIONS)
<S>                                                           <C>       <C>       <C>
REVENUES(A)
United States...............................................  $2,025    $2,167    $1,895
United Kingdom..............................................     271       255       215
Germany.....................................................     335       307       298
Japan.......................................................     221       252       265
France......................................................     135       143       132
Other international.........................................     847       901       886
                                                              ------    ------    ------
Total.......................................................  $3,834    $4,025    $3,691
                                                              ------    ------    ------
                                                              ------    ------    ------
</TABLE>

---------
(a) Revenues are attributable to countries based on location of customer.

                                      F-76



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

    Because a substantial portion of WCI's international revenues is derived
from the sale of U.S. copyrighted products abroad, assets located outside the
United States are not material.

13. COMMITMENTS AND CONTINGENCIES

    WCI's total rent expense amounted to $49 million in 1999, $60 million in
1998 and $51 million in 1997. The minimum rental commitments of WCI under
noncancellable long-term operating leases are: 2000-$49 million; 2001-$49
million; 2002-$44 million; 2003-$43 million; 2004-$39 million and after
2004-$334 million.

    WCI's minimum commitments and guarantees under certain artists and other
agreements at December 31, 1999 aggregated approximately $534 million, which are
payable principally over a five-year period. Each General Partner is jointly and
severally liable for all liabilities, commitments and contingencies of TWE and
the Time Warner Service Partnerships, except for approximately $5.3 billion of
TWE's indebtedness and accrued interest, which is recourse to each General
Partner only to the extent of its guarantee (Note 7).

    WCI is subject to a class action lawsuit alleging collusive pricing
practices by the major record companies in their capacity as distributors of
compact discs to CD wholesalers and retailers. The trial presently is scheduled
for the fall of 2000. Although management believes the case is without merit, an
adverse jury verdict could result in a material loss to WCI. Due to the lack of
specificity to plaintiffs' claims, a range of loss is not determinable at this
time.

    The General Partners and TWE are subject to numerous other legal
proceedings, including certain litigation relating to Six Flags. In management's
opinion and considering established reserves, the resolution of these matters
will not have a material effect, individually and in the aggregate, on the
financial statements of the General Partners.

14. RELATED PARTY TRANSACTIONS

    In the normal course of conducting their businesses, the General Partners
have had various transactions with Time Warner, TW Companies and TWE units,
generally on terms resulting from a negotiation between the affected units that
in management's view results in reasonable allocations. Employees of WCI
participate in various Time Warner medical, stock option and other benefit plans
for which WCI is charged its allocable share of plan expenses, including
administrative costs. ATC does not have a significant number of employees. Time
Warner's corporate group provides various other services to WCI. The
consolidated financial statements of the General Partners include transactions
with Time Warner relating to domestic income taxes or tax benefits (Note 8). The
Music division of WCI provides home videocassette distribution services to
certain TWE operations.

    TW Companies had a credit agreement with TWE allowing it to borrow up to
$400 million from TWE through September 15, 2000. During 1999, TW Companies used
a portion of the proceeds received from the final distribution of the senior
priority capital interests in TWE to repay all $400 million of outstanding
borrowings under this agreement.

    WCI earns interest income at a rate of 6.7% from TW Companies on a $610
million note receivable, which was received in December 1997 in exchange for
WCI's common stock of Hasbro. In addition, WCI has had transactions with the
Columbia House Company partnership and other music joint ventures and with
equity investees of Time Warner, generally with respect to sales of product in
the ordinary course of business.

15. ADDITIONAL FINANCIAL INFORMATION

    As of December 31, 1999, WCI had an accounts receivable securitization
facility, which provides for the accelerated receipt of up to $330 million of
cash on available receivables. In connection with this securitization facility,
WCI sells, on a revolving and nonrecourse basis, certain of its accounts
receivables ('Pooled

                                      F-77



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Receivables') to a wholly owned, special purpose entity which, in turn, sells a
percentage ownership interest in the Pooled Receivables to a third-party,
commercial paper conduit sponsored by a financial institution. This
securitization transaction has been accounted for as a sale in accordance with
FASB Statement No. 125, 'Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities.' Accordingly, accounts receivables
sold under this securitization program have been reflected as a reduction in
receivables in the accompanying consolidated balance sheet. Net proceeds
received (repaid) under this securitization program were $145 million in 1999,
$(245) million in 1998 and $122 million in 1997.

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

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                              ------------------------------------------------
                                                   1999             1998             1997
                                              --------------   --------------   --------------
                                               WCI      ATC     WCI      ATC     WCI      ATC
                                              -----    -----   -----    -----   -----    -----
                                                                 (MILLIONS)
<S>                                           <C>      <C>     <C>      <C>     <C>      <C>
Cash payments made for interest.............  $  17    $  --   $  11    $  --   $  14    $  --
Cash payments made for income taxes, net....    805      442     208       65     513      111
Tax-related distributions received from
  TWE.......................................    205      142     186      128     192      132
Noncash capital distributions, net..........   (230)    (158)   (577)    (396)   (236)    (163)
</TABLE>

    Noncash investing activities in 1998 included the Time Warner Telecom
Reorganization (Note 3). Noncash financing activities in 1997 included the sale
of WCI's interest in Hasbro in exchange for the TW Companies Note Receivable
(Note 5).

    Other current liabilities of WCI consist of:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              -------------
                                                              1999    1998
                                                              -----   -----
                                                               (MILLIONS)
<S>                                                           <C>     <C>
Accrued expenses............................................  $263    $286
Accrued compensation........................................   199     150
Accrued income taxes........................................    19      49
Deferred revenues...........................................    53      63
                                                              ----    ----
Total.......................................................  $534    $548
                                                              ----    ----
                                                              ----    ----
</TABLE>

16. SUBSEQUENT EVENTS (UNAUDITED)

America Online-Time Warner Merger

    In January 2000, Time Warner and America Online announced that they had
entered into an agreement to merge (the 'Merger') by forming a new holding
company named AOL Time Warner Inc. ('AOL Time Warner'). As part of the Merger,
each issued and outstanding share of each class of common stock of Time Warner
will be converted into 1.5 shares of an identical series of common stock of AOL
Time Warner. In addition, each issued and outstanding share of each class of
preferred stock of Time Warner will be converted into one share of preferred
stock of AOL Time Warner, which will have substantially identical terms except
that such shares will be convertible into approximately 6.25 shares of AOL Time
Warner common stock. Lastly, each issued and outstanding share of common stock
of America Online will be converted into one share of common stock of AOL Time
Warner.

    As a result of the Merger, the former shareholders of America Online will
have an approximate 55% interest in AOL Time Warner and the former shareholders
of Time Warner will have an approximate 45% interest in the combined entity,
expressed on a fully diluted basis. The Merger is expected to be accounted for
by

                                      F-78



<PAGE>
                              TWE GENERAL PARTNERS
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AOL Time Warner as an acquisition of Time Warner under the purchase method of
accounting for business combinations.

    The Merger is expected to close in the fall of 2000 and is subject to
customary closing conditions, including the approval of the shareholders of each
of America Online and Time Warner and all necessary regulatory approvals. There
can be no assurance that such approvals will be obtained.

Warner-EMI Music Merger

    In January 2000, Time Warner and EMI Group plc ('EMI') announced they had
entered into an agreement to combine their global music operations into two
jointly owned ventures, to be referred to collectively as Warner EMI Music. WCI
will control the joint ventures through majority board representation, among
other factors, and will account for the transaction under the purchase method of
accounting.

    As part of the transaction, each company will contribute its music
operations to the joint ventures, subject to a comparable amount of debt. As of
December 31, 1999, EMI had approximately $1.5 billion of net debt. EMI
shareholders also will receive an aggregate special cash dividend of
approximately $1.3 billion. This dividend is expected to be financed through a
combination of proceeds from debt incurred or assumed by the joint ventures and
consideration to be paid by Time Warner directly to EMI for a new class of EMI
equity securities. The new class of EMI equity securities to be held by Time
Warner will convert automatically into an 8% common equity interest in EMI, on a
fully diluted basis, if EMI's share price reaches `L'9 for a short period of
time within the first three-and-a-half years after closing.

    The transaction is expected to close by the end of 2000, subject to
customary closing conditions, including regulatory approvals and the approval of
EMI's shareholders. There can be no assurance that such approvals will be
obtained.

                                      F-79





<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS OF
WARNER COMMUNICATIONS INC.
AMERICAN TELEVISION AND COMMUNICATIONS CORPORATION

    We have audited the accompanying consolidated balance sheets of Warner
Communications Inc. ('WCI') and American Television and Communications
Corporation ('ATC'), as of December 31, 1999 and 1998, and the related
consolidated statements of operations, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of WCI and ATC at
December 31, 1999 and 1998, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.


                                          ERNST & YOUNG LLP


New York, New York
February 2, 2000

                                      F-80








<PAGE>

                              TWE GENERAL PARTNERS
                         SELECTED FINANCIAL INFORMATION

WCI SELECTED HISTORICAL FINANCIAL INFORMATION

    Selected historical financial information is not presented for ATC because
ATC has no independent business operations, nor does it have significant amounts
of debt or other liabilities. The financial position and results of operations
of ATC are principally derived from its investments in TWE, TW Companies, TBS
and Time Warner Telecom and its revolving credit agreement with TW Companies.

    The selected historical financial information of WCI set forth below has
been derived from and should be read in conjunction with the consolidated
financial statements and other financial information of WCI presented elsewhere
herein. Capitalized terms are as defined and described in such consolidated
financial statements, or elsewhere herein.

    The selected historical financial information for 1997 reflects the merger
of two former General Partners, WCCI and TWOI, into WCI (the 'WCCI Merger' and
the 'TWOI Merger,' respectively). 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 was accounted for as a merger of entities
under common control, similar to the pooling-of-interest method of accounting
for business combinations. Accordingly, the selected financial information of
WCI has been restated to reflect the TWOI Merger for all periods presented.

    The selected historical financial information for 1995 reflects a
recapitalization of WCI, in which TW Companies made a $2.642 billion capital
contribution to WCI (consisting of a $2.5 billion subordinated reset note
receivable due from WCI and $142 million of cash) and WCI used the cash proceeds
therefrom to repay its obligations to TW Companies under their revolving credit
agreement.

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                     ----------------------------------------------
                                                      1999     1998       1997       1996     1995
SELECTED OPERATING STATEMENT INFORMATION             ------   ------   ----------   ------   ------
                                                                       (MILLIONS)
<S>                                                  <C>      <C>      <C>          <C>      <C>
Revenues...........................................  $3,834   $4,025     $3,691     $3,949   $4,196
Depreciation and amortization......................    (333)    (339)      (371)      (370)    (356)
Business segment operating income..................     199      216        146        332      302
Equity in pretax income of TWE(a)..................   1,724      248        428        166      108
Interest and other, net(b).........................     123       15        452        (53)      17
Income before extraordinary item...................   1,207      218        522        185      169
Net income.........................................   1,207      218        514        185      160
</TABLE>

---------

 (a) Includes approximately $1.378 billion in 1999, $(70) million in 1998 and
     $265 million in 1997, relating to WCI's proportionate share of net gains
     (losses) recognized by TWE in connection with the sale or exchange of cable
     television systems and other investment-related assets in 1999, 1998 and
     1997, a pretax gain in connection with the early termination and settlement
     of a long-term, home video distribution agreement in 1999, a pretax gain
     relating to the sale of an interest in CanalSatellite in 1999 and a pretax
     noncash charge relating to Warner Bros.'s retail stores.

 (b) Includes a $437 million pretax gain in connection with the disposal of
     WCI's interest in Hasbro in 1998.

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                 -------------------------------------------------
                                                  1999      1998       1997       1996      1995
SELECTED BALANCE SHEET INFORMATION               -------   -------   ---------   -------   -------
                                                                    (MILLIONS)
<S>                                              <C>       <C>       <C>         <C>       <C>
Total assets...................................  $11,481   $10,348    $10,490    $11,399   $11,795
Shareholder's equity...........................    8,737     7,701      8,521      9,541     9,888
</TABLE>

                                      F-81





<PAGE>

                              TWE GENERAL PARTNERS
            SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS OF WCI
                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                                   (MILLIONS)

<TABLE>
<CAPTION>
                                                                  ADDITIONS
                                                  BALANCE AT      CHARGED TO                       BALANCE
                                                  BEGINNING       COSTS AND                         AT END
                  DESCRIPTION                     OF PERIOD        EXPENSES       DEDUCTIONS      OF PERIOD
                  -----------                     ----------      ----------      ----------      ----------
<S>                                               <C>             <C>             <C>             <C>
1999:
Reserves deducted from accounts receivable:
    Allowance for doubtful accounts.............     $ 79            $  5           $ (16)(a)        $ 68
    Reserves for sales returns and allowances...      199             691            (668)(b)         222
                                                     ----            ----           -----            ----
        Total...................................     $278            $696           $(684)           $290
                                                     ----            ----           -----            ----
                                                     ----            ----           -----            ----

1998:
Reserves deducted from accounts receivable:
    Allowance for doubtful accounts.............     $ 77            $ 54           $ (52)(a)        $ 79
    Reserves for sales returns and allowances...      187             330            (318)(b)         199
                                                     ----            ----           -----            ----
        Total...................................     $264            $384           $(370)           $278
                                                     ----            ----           -----            ----
                                                     ----            ----           -----            ----

1997:
Reserves deducted from accounts receivable:
    Allowance for doubtful accounts.............     $ 84            $ 63           $ (70)(a)        $ 77
    Reserves for sales returns and allowances...      278             234            (325)(b)         187
                                                     ----            ----           -----            ----
        Total...................................     $362            $297           $(395)           $264
                                                     ----            ----           -----            ----
                                                     ----            ----           -----            ----
</TABLE>

---------

 (a) Represents uncollectible receivables charged against the reserve.

 (b) Represents returns or allowances applied against the reserve.

                                      F-82





<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                                        SEQUENTIAL
     EXHIBIT                                                                                               PAGE
     NUMBER                                    DESCRIPTION                                                NUMBER
     ------                                    -----------                                                ------
<S>                    <C>                                                                                <C>
3.1                    Agreement of Limited Partnership, dated as of October 29, 1991, as amended by       *
                       the Letter Agreement, dated February 11, 1992, and the Letter Agreement dated
                       June 23, 1992, among Time Warner Companies, Inc. ('TWCI') and certain of its
                       subsidiaries, ITOCHU Corporation ('Itochu') and Toshiba Corporation
                       ('Toshiba') (which is incorporated herein by reference to Exhibit (A) to Time
                       Warner's Current Report on Form 8-K dated October 29, 1991 and Exhibits 10(b)
                       and 10(c) to Time Warner's Current Report on Form 8-K dated July 14, 1992
                       (File No. 1-8637) ('TWCI's July 1992 Form 8-K')).

3.2                    Amendment Agreement, dated as of September 14, 1993, among ITOCHU Corporation,      *
                       Toshiba Corporation, TWCI, U S WEST, Inc. ('US West') and certain of their
                       respective subsidiaries amending the TWE Partnership Agreement, as amended
                       (which is incorporated herein by reference to Exhibit 3.2 to TWE's Annual
                       Report on Form 10-K for the year ended December 31, 1993 ('TWE's 1993
                       Form 10-K')).

3.3(i) and (ii)        Certificate of Incorporation and By-Laws of American Television and                 *
                       Communications Corporation ('ATC'), as amended (which are incorporated herein
                       by reference to Exhibits 3.3(i) and (ii) to TWE's 1993 Form 10-K).

3.3(iii)               Certificate of Ownership and Merger of American Digital Communications, Inc.        *
                       into ATC as filed with the Secretary of State of the State of Delaware on
                       May 31, 1996 (which is incorporated herein by reference to Exhibit 3.3(iii)
                       to TWE's Annual Report on Form 10-K for the year ended December 31, 1996
                       ('TWE's 1996 Form 10-K')).

3.3(iv)                Certificate of Ownership and Merger of Carolina Network Corporation into ATC        *
                       as filed with the Secretary of State of the State of Delaware on May 31, 1996
                       (which is incorporated herein by reference to Exhibit 3.3(iv) to TWE's 1996
                       Form 10-K).

3.3(v)                 Certificate of Ownership and Merger of ATC Holdings II, Inc. into ATC as filed      *
                       with the Secretary of State of the State of Delaware on June 28, 1996 (which
                       is incorporated herein by reference to Exhibit 3.3(v) to TWE's 1996 Form
                       10-K).

3.3(vi)                Certificate of Ownership and Merger of ARP 113, Inc. into ATC as filed with         *
                       the Secretary of State of the State of Delaware on August 29, 1997 (which is
                       incorporated by reference to Exhibit 3.3(vi) to TWE's Annual Report on Form
                       10-K for the year ended December 31, 1997 ('TWE's 1997 Form 10-K')).

3.3(vii)               Certificate of Ownership and Merger of Philadelphia Community Antenna               *
                       Television Company into ATC as filed with the Secretary of State of the State
                       of Delaware on August 29, 1997 (which is incorporated herein by reference to
                       Exhibit 3.3(vii) to TWE's 1997 Form 10-K).

3.3(viii)              Certificate of Ownership and Merger of Public Cable Company into ATC as filed       *
                       with the Secretary of State of the State of Delaware on August 29, 1997 (which
                       is incorporated herein by reference to Exhibit 3.3(viii) to TWE's 1997 Form
                       10-K).

3.3(ix)                Certificate of Ownership and Merger of ATC-PPV, Inc. into ATC as filed with         *
                       the Secretary of State of the State of Delaware on October 7, 1998 (which is
                       incorporated herein by reference to Exhibit 3.3(ix) to TWE's Annual Report
                       on Form 10-K for the year ended December 31, 1998).

3.4(i) and (ii)        Restated Certificate of Incorporation, as amended, and By-Laws of Warner            *
                       Communications Inc. ('WCI') (which are incorporated herein by reference to
                       Exhibits 3.9(i) and (ii) to TWE's 1993 Form 10-K).


</TABLE>

                                       i





<PAGE>

<TABLE>
<CAPTION>
                                                                                       SEQUENTIAL
     EXHIBIT                                                                              PAGE
     NUMBER                                    DESCRIPTION                               NUMBER
     ------                                    -----------                               ------
<S>                    <C>                                                               <C>
3.4(iii)               Certificate of Ownership and Merger of Time Warner                *
                       Interactive Inc. into WCI as filed with the Secretary of
                       State of the State of Delaware on July 3, 1996 (which is
                       incorporated herein by reference to Exhibit 3.6(iii) to
                       TWE's 1996 Form 10-K).

3.4(iv)                Agreement of Merger of Time Warner Operations Inc. and WCI        *
                       as filed with the Secretary of State of the State of
                       Delaware on September 29, 1997 (which is incorporated herein
                       by reference to Exhibit 3.4(iv) to TWE's 1997 Form 10-K).

3.4(v)                 Certificate of Ownership and Merger of Warner Cable               *
                       Communications Inc. into WCI as filed with the Secretary of
                       State of the State of Delaware on December 29, 1997 (which
                       is incorporated herein by reference to Exhibit 3.4(iii) to
                       TWE's 1997 Form 10-K).

3.4(vi)                Certificate of Ownership and Merger of TWI Ventures Ltd.
                       into WCI as filed with the Secretary of State of the State
                       of Delaware on December 9, 1999.

4.1                    Indenture, dated as of April 30, 1992, as amended by the          *
                       First Supplemental Indenture, dated as of June 30, 1992,
                       among TWE, Time Warner, certain of its subsidiaries party
                       thereto and The Bank of New York ('BONY'), as Trustee (which
                       is incorporated herein by reference to Exhibits 10(g) and
                       10(h) to TWCI's July 1992 Form 8-K).

4.2                    Second Supplemental Indenture, dated as of December 9, 1992,      *
                       among TWE, Time Warner, certain of its subsidiaries party
                       thereto and BONY, as Trustee (which is incorporated herein
                       by reference to Exhibit 4.2 to Amendment No. 1 to the
                       Registration Statement on Form S-4 (Reg. No. 33-67688) of
                       TWE filed with the Securities and Exchange Commission on
                       October 25, 1993 (the '1993 TWE S-4')).

4.3                    Third Supplemental Indenture, dated as of October 12, 1993,       *
                       among TWE, Time Warner, certain of its subsidiaries party
                       thereto and BONY, as Trustee (which is incorporated herein
                       by reference to Exhibit 4.3 to the 1993 TWE S-4).

4.4                    Fourth Supplemental Indenture, dated as of March 29, 1994,        *
                       among TWE, Time Warner, certain of its subsidiaries party
                       thereto and BONY, as Trustee (which is incorporated herein
                       by reference to Exhibit 4.4 to TWE's 1993 Form 10-K).

4.5                    Fifth Supplemental Indenture, dated as of December 28, 1994,      *
                       among TWE, Time Warner, certain of its subsidiaries party
                       thereto and BONY, as Trustee (which is incorporated herein
                       by reference to Exhibit 4.5 to TWE's Annual Report on Form
                       10-K for the year ended December 31, 1994).

4.6                    Sixth Supplemental Indenture, dated as of September 29,           *
                       1997, among TWE, TWCI, certain of TWCI's subsidiaries that
                       are parties thereto and BONY, as Trustee (which is
                       incorporated herein by reference to Exhibit 4.7 to Time
                       Warner Inc.'s Annual Report on Form 10-K for the year ended
                       December 31, 1997 (File No. 1-12259) ('TWI's 1997 Form
                       10-K')).

4.7                    Seventh Supplemental Indenture dated as of December 29,           *
                       1997, among TWE, TWCI, certain of TWCI's subsidiaries that
                       are parties thereto and BONY, as Trustee (which is
                       incorporated herein by reference to Exhibit 4.8 to TWI's
                       1997 Form 10-K).

</TABLE>

                                       ii





<PAGE>

<TABLE>
<CAPTION>
                                                                                           SEQUENTIAL
     EXHIBIT                                                                                  PAGE
     NUMBER                                    DESCRIPTION                                   NUMBER
     ------                                    -----------                                   ------
<S>                    <C>                                                                   <C>
10.1                   Credit Agreement dated as of November 10, 1997 among TWI,             *
                       TWCI, TWE, Turner Broadcasting System, Inc., Time Warner
                       Entertainment-Advance/Newhouse Partnership (the 'TWE-A/N
                       Partnership') and TWI Cable Inc., as Credit Parties, Chase
                       Manhattan, as Administrative Agent, Bank of America National
                       Trust and Savings Association, BONY and Morgan Guaranty
                       Trust Company of New York, as Documentation and Syndication
                       Agents and Chase Securities Inc., as Arranger (which is
                       incorporated herein by reference to Exhibit 10.26 of TWI's
                       1997 Form 10-K).

10.2                   Admission Agreement, dated as of May 16, 1993, between TWE            *
                       and U S West (which is incorporated herein by reference to
                       Exhibit 10(a) to TWE's Current Report on Form 8-K dated
                       May 16, 1993).

10.3                   Restructuring Agreement, dated as of August 31, 1995, among           *
                       TWCI, ITOCHU and ITOCHU Entertainment Inc. (which is
                       incorporated herein by reference to Exhibit 2(a) to TWCI's
                       Current Report on Form 8-K dated August 31, 1995 (File No.
                       1-8637) ('TWCI's August 1995 Form 8-K')).

10.4                   Restructuring Agreement, dated as of August 31, 1995,                 *
                       between TWCI and Toshiba (including Form of Registration
                       Rights Agreement, between TWCI and Toshiba) (which is
                       incorporated herein by reference to Exhibit 2(b) to TWCI's
                       August 1995 Form 8-K).

10.5                   Option Agreement, dated as of September 15, 1993, between             *
                       TWE and US West (which is incorporated herein by reference
                       to Exhibit 10.9 to TWE's 1993 Form 10-K).

10.6                   Contribution Agreement, dated as of September 9, 1994, among          *
                       TWE, Advance Publications, Inc., ('Advance Publications'),
                       Newhouse Broadcasting Corporation ('Newhouse Broadcasting'),
                       Advance/Newhouse Partnership ('Advance/Newhouse') and
                       TWE-A/N Partnership (which is incorporated herein by
                       reference to Exhibit 10(a) to TWE's Current Report on Form
                       8-K dated September 9, 1994 ('TWE's September 1994 Form
                       8-K')).

10.7                   Partnership Agreement, dated as of September 9, 1994,                 *
                       between TWE and Advance/Newhouse (which is incorporated
                       herein by reference to Exhibit 10(b) to TWE's September 1994
                       Form 8-K).

10.8                   Letter Agreement, dated April 1, 1995, among TWE,                     *
                       Advance/Newhouse, Advance Publications and Newhouse
                       Broadcasting (which is incorporated herein by reference to
                       Exhibit 10(c) to TWE's Current Report on Form 8-K dated
                       April 1, 1995).

10.9                   Amended and Restated Transaction Agreement, dated as of               *
                       October 27, 1997 among Advance Publications, Newhouse
                       Broadcasting, Advance/Newhouse, TW Holding Co. and TWE-A/N
                       Partnership (which is incorporated herein by reference to
                       Exhibit 99(c) to Time Warner's Current Report on Form 8-K
                       dated October 27, 1997).

10.10                  Transaction Agreement No. 2 dated as of June 23, 1998 among           *
                       Advance Publications, Newhouse, Advance/Newhouse, TWE,
                       Paragon Communications ('Paragon') and TWE-AN Partnership
                       (which is incorporated herein by reference to Exhibit 10.38 to
                       Time Warner's Annual Report on Form 10-K for the year ended
                       December 31, 1998 (File No. 1-12259) ("TWI's 1998 Form 10-K")).

10.11                  Transaction Agreement No. 3 dated as of September 15, 1998            *
                       among Advance Publications, Newhouse, Advance/Newhouse, TWE,
                       Paragon and TWE-AN Partnership (which is incorporated herein
                       by reference to Exhibit 10.39 to TWI's 1998 Form 10-K)

10.12                  First Amendment to the Partnership Agreement of TWE-AN                *
                       Partnership dated as of February 12, 1998 among TWE,
                       Advance/Newhouse and TW Holding Co. (which is incorporated herein
                       by reference to Exhibit 10.40 to TWI's 1998 Form 10-K).

10.13                  Second Amendment to the Partnership Agreement of TWE-AN               *
                       Partnership dated as of December 31, 1998 among TWE,
                       Advance/Newhouse and Paragon (which is incorporated herein by
                       reference to Exhibit 10.41 to TWI's 1998 Form 10-K).

</TABLE>

                                      iii




<PAGE>

<TABLE>
<CAPTION>
                                                                                                    SEQUENTIAL
     EXHIBIT                                                                                           PAGE
     NUMBER                                    DESCRIPTION                                            NUMBER
     ------                                    -----------                                            ------
<S>                    <C>                                                                             <C>
10.14                  Third Amendment to the Partnership Agreement of TWE-AN Partnership dated        *
                       as of March 1, 1999 among TWE, Advance/Newhouse and Paragon (which is
                       incorporated herein by reference to Exhibit 10.42 to TWI's 1998 Form 10-K).

12.1                   Ratio of Earnings to Fixed Charges of TWE.

12.2                   Ratio of Earnings to Fixed Charges of WCI.

21                     Subsidiaries of TWE and the Time Warner General Partners.

23                     Consent of Ernst & Young LLP, Independent Auditors.

27                     Financial Data Schedule

</TABLE>

---------

* Incorporated by reference.

  The Registrants hereby agree to furnish to the Securities and Exchange
  Commission at its request copies of long-term debt instruments defining the
  rights of holders of the Registrants' outstanding long-term debt that are not
  required to be filed herewith.

                                       iv