<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, 2000
                        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:
 EXHIBITS 99.1 AND 99.2 TO AOL TIME WARNER INC.'S CURRENT REPORT ON FORM 8-K/A
                DATED JANUARY 11, 2001 (FILED FEBRUARY 9, 2001)

________________________________________________________________________________





<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:

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

TWE is 25.51% owned by the AT&T Limited Partner(2) and 74.49%-owned by the AOL
Time Warner General and Limited Partners.(3)

TWE owns 100% of Time Warner Cable, Networks--HBO and The WB, 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.(4)

-----------
(1) AOL Time Warner directly or indirectly owns 100% of the capital stock of
each of the AOL Time Warner General and Limited Partners.

(2) Interest held by AT&T Corp.'s subsidiary, Media One TWE Holdings, Inc.

(3) Pro rata priority capital and residual equity interests. In addition, the
AOL Time Warner General Partners own 100% of the priority capital interests that
are junior to the pro rata priority capital interests. See Note 10 to TWE's
consolidated financial statements included in AOL Time Warner's Current Report
on Form 8-K/A dated Janaury 11, 2001 (filed February 9, 2001).

(4) 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
three fundamental areas of business:

     Cable, consisting principally of interests in cable television systems;

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

     Networks, consisting principally of interests in pay cable television
     programming and broadcast television networks.

    In 2001, TWE's digital media properties have been allocated to the business
segments responsible for managing these operations going forward. Prior to 2001,
TWE's digital media properties were treated as a separate business segment.

    The Time Warner Cable division of TWE also manages substantially all of the
cable television systems owned by AOL Time Warner Inc., a Delaware corporation
('AOL 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 Inc. ('Time
Warner') prior to such time. Currently, AOL 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 MediaOne TWE Holdings, Inc. ('MediaOne'), a
subsidiary of AT&T Corp. ('AT&T'). AOL Time Warner and AT&T have been engaged in
discussions regarding AT&T's interest in TWE. In addition, AT&T has delivered to
AOL Time Warner and TWE notice of its exercise of certain rights under the TWE
partnership agreement that could result in a public sale or the purchase by TWE
of some or all of AT&T's interest in TWE. See 'Description of Certain Provisions
of the TWE Partnership Agreement -- Registration Rights' at page I-15 herein.

    Two AOL Time Warner subsidiaries are the general partners of TWE (the 'AOLTW
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.

    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, 2000, TWE-A/N owned cable television systems (or interests) serving
approximately 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.

THE AOLTW 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 AOL Time Warner) and American Television and Communications
Corporation ('ATC,' a subsidiary of AOL 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 AOLTW Gerneral Partners.

                                      I-1





<PAGE>
    The principal assets of the AOLTW 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 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
99.90% interest in Time Warner Entertainment Japan Inc., a corporation organized
under the laws of Japan ('TWE Japan'); certain securities of Turner Broadcasting
System, Inc. ('TBS') which in the aggregate represent an equity interest of
approximately 10.6% in TBS; a 37% aggregate interest in Time Warner Telecom
Inc.; 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.

AOL-TIME WARNER MERGER

    AOL Time Warner was formed in connection with the merger of America Online,
Inc. ('America Online') and Time Warner, which was consummated on January 11,
2001 (the 'Merger' or the 'AOL-Time Warner merger'). As a result of the Merger,
America Online and Time Warner each became wholly owned subsidiaries of AOL Time
Warner.

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 page F-11 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.

                                     CABLE

    TWE's Cable business consists principally of interests in cable television
systems managed by Time Warner Cable, a division of TWE. Of the approximately
12.8 million subscribers served by Time Warner Cable at December 31, 2000,
approximately 1.8 million are in systems owned by TWI Cable Inc. ('TWI Cable'),
a wholly owned subsidiary of AOL Time Warner, and approximately 11 million are
in systems owned or managed by TWE. TWE's cable systems include approximately
6.7 million subscribers in the joint venture between TWE and Advance/Newhouse
known as TWE-A/N; 1.1 million of these TWE-A/N subscribers are part of the Texas
Cable Partners 50-50 joint venture with AT&T. 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.

                               SYSTEMS OPERATIONS

    Time Warner Cable is one of the largest operators of cable television
systems in the United States with more than 90% of its customers served by
clustered cable systems with 100,000 subscribers or more. As of December 31,
2000, Time Warner Cable had 35 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.

    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. By year-end 2000, Time Warner
Cable had completed the upgrade of approximately 92% of its cable plant.
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 advanced services,

                                      I-2





<PAGE>
including digital and high-definition television ('HDTV') programming,
high-speed Internet service, video-on-demand, telephony and other services.
See 'New Cable Services' below.

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 by 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 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, A&E and
ESPN, and premium cable services like HBO, 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 a specific agreement, the cost of providing
any cable programming service may continue to rise. Time Warner Cable sometimes
has the right to cancel contracts and generally has the right not to renew them.
In addition, Time Warner Cable may not always be able to renew contracts when it
wishes to do so. 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
subscription fees based on the level of service selected, which fees in some
cases include equipment charges. Subscription revenues account for most of Time
Warner Cable's revenues. 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. Subscribers may discontinue purchasing services at any time.
Pay-per-view programming offers movies and special events, such as boxing, for a
separate charge.

    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. Eighteen of Time Warner Cable's 39 field divisions participate in a
local cable advertising interconnect.

                                      I-3





<PAGE>
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 are underway to launch news channels in Houston, San Antonio,
Charlotte, Raleigh, Syracuse and Albany. These channels have developed into
successful vehicles for local advertising.

                               NEW CABLE SERVICES

DIGITAL CABLE SERVICES

  Digital Tier Service

    During 2000, Time Warner Cable continued its aggressive roll-out of digital
cable service in its cable systems. As of December 31, 2000, Time Warner Cable
had more than 1.7 million digital service subscribers. As of March 1, 2001, 38
of Time Warner Cable's 39 field divisions are offering digital cable and the one
remaining division is expected to commence offering digital service in 2001. A
digital format allows a signal to be compressed so that it occupies 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 the potential for more than
100 networks, 40 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 control options.

  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 ABC, CBS, NBC and Fox networks, and also by nearly all public
television stations, in Time Warner Cable's operating areas. Time Warner Cable
is seeking similar arrangements with other broadcasters. Time Warner Cable is
also carrying the HDTV versions of HBO and Showtime 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 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, Texas; Tampa Bay, Florida; and Hawaii systems, and provided a movies
on demand service on a trial basis to customers in those systems during 2000.
Additional testing is continuing in 2001. Time Warner Cable is negotiating with
a number of studios to obtain video-on-demand distribution rights for movies to
support commercial launches. Depending on the results of the foregoing,
video-on-demand services are expected to be launched in a number of additional
locations in 2001.

INTERNET SERVICES

  Road Runner

    To date, Time Warner Cable has offered the Road Runner high-speed Internet
service as its sole cable modem service providing high-speed Internet services
to customers. Customers connect their personal computers to Time Warner Cable's
two-way hybrid fiber optic/coaxial cable system which, together with the Road
Runner backbone network, enables customers to access the Internet and Road
Runner's content at speeds much greater than traditional telephone modems.

                                      I-4





<PAGE>
    The Road Runner service, as of March 1, 2001, has been launched by Time
Warner Cable in 36 of its 39 field divisions. In January 2001, Time Warner
Cable's Road Runner customer base exceeded 1,000,000 customers, a significant
milestone for the service. Time Warner Cable intends to continue aggressively
rolling out the Road Runner service throughout its divisions during 2001.

    Starting in 1998, Road Runner was provided by a joint venture (the 'RR JV')
of TWE, TWE-A/N, TWI Cable, MediaOne, and subsidiaries of Microsoft Corp.
('Microsoft') and Compaq Computer Corp. ('Compaq'). The agreements between the
RR JV and Time Warner Cable restricted Time Warner Cable's ability to distribute
the services of other Internet service providers ('ISPs') over Time Warner
Cable's cable systems. In connection with AT&T's acquisition of MediaOne, the
Department of Justice ordered the divestiture of MediaOne's interest in the RR
JV. As a result, in December 2000, AT&T and Time Warner announced that the Road
Runner service would be restructured and that the RR JV will terminate. This
restructuring, under which TWE, TWE-A/N and TWI Cable will obtain sole ownership
and control of certain RR JV assets, is expected to be completed during the
second quarter of 2001. Microsoft's and Compaq's interests in the RR JV were
acquired by the RR JV in February 2001.

  Multiple ISP Services

    In connection with the announcement of the AOL-Time Warner merger, Time
Warner and America Online entered into a Memorandum of Understanding in February
2000. Time Warner committed that it would enter into agreements with multiple
ISPs to offer its customers a choice of ISP services, including services not
owned by AOL Time Warner. During 2000, Time Warner Cable began the technical and
operational work necessary to develop a cable platform capable of providing the
services of multiple ISPs and, during the summer, began working with a number of
ISPs and vendors on a trial of its multiple ISP service platform in Columbus,
Ohio.

    Time Warner Cable's first definitive agreement with an unaffiliated ISP,
EarthLink, was entered into in November 2000 and Time Warner Cable expects to
commence launching the EarthLink service in its divisions in the second half of
2001. Discussions with other ISPs regarding distribution terms have also
commenced. America Online and Time Warner Cable have also entered into a
definitive agreement to provide the AOL service over Time Warner Cable's
broadband cable system, and Time Warner Cable expects to commence launching the
AOL service in the same timeframe as the launch of the EarthLink service. Time
Warner Cable's provision of the AOL service and its obligation to make multiple
ISP service available to its customers are subject to compliance with the terms
of the FTC Consent Decree and the FCC Order entered in connection with the
regulatory clearance of the AOL-Time Warner merger. (See 'Regulation and
Legislation' below, for a description of these terms).

                                  COMPETITION

    Cable television systems face strong competition for viewers and
subscriptions from a wide variety of news, information and entertainment
providers. These include multichannel video providers like DTH, MMDS, SMATV
systems (which are described immediately below) 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 (Direct-to-home). DTH services offer pre-packaged programming services
that can be received by relatively small and inexpensive receiving dishes. In
many metropolitan areas, DTH services now also include local broadcast signals.

    MMDS/Wireless Cable (Multichannel microwave distribution services). Wireless
cable operators, including digital wireless operators, use microwave technology
to distribute video programming.

    SMATV (Satellite-master antenna television). Additional competition comes
from private cable television systems servicing condominiums, apartment
complexes and certain other multiple unit residential developments, often on an
exclusive basis, with local broadcast signals and many of the same
satellite-delivered program services offered by franchised cable television
systems.

                                      I-5





<PAGE>
    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 Warner Cable
franchise areas, including municipally-owned systems.

    Telephone Companies. Under the 1996 Telecommunications Act, telephone
companies are now free to enter the retail video distribution business within
their local exchange service areas, 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.

    'On-Line' Competition. Time Warner Cable's systems face competition in its
cable modem services 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 modem services as well.

                              FILMED ENTERTAINMENT

    TWE's Filmed Entertainment businesses produce and distribute theatrical
motion pictures, television shows, animation and other programming, distribute
home video product, license rights to TWE's programs and characters 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, and also distributes completed
films produced and financed by others. 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.

    Warner Bros. Pictures' strategy focuses on 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 planned series of Harry Potter
motion pictures. Warner Bros. Pictures also is pursuing a strategy 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 2000, Warner Bros. Pictures released a
total of 22 motion pictures for theatrical exhibition (including the re-release
of The Exorcist), of which 7 were wholly financed by Warner Bros. Pictures and
15 were produced by or with others. 2000 releases from Warner Bros. Pictures
(both wholly financed and co-produced) included A Perfect Storm, Miss
Congeniality and Space Cowboys. A total of 33 motion pictures are currently
slated to be released during 2001 (including the re-release of Superman), of
which 5 are wholly financed by Warner Bros. Pictures, and 28 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 the production,
overhead and development costs of motion pictures; (ii) a joint venture with
Village Roadshow Pictures to co-finance the production of motion pictures;
(iii) an exclusive worldwide distribution arrangement with Alcon Entertainment;
and (iv) an arrangement with Gaylord Entertainment ('Gaylord') to co-finance the
production of motion pictures with medium to high budgets, and with Gaylord's
wholly-owned subsidiary, Pandora Investments SARL, to co-finance the production
of lower budget pictures.

    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

                                      I-6





<PAGE>
services for all Morgan Creek pictures and certain foreign distribution services
for selected pictures. Warner Bros. Pictures has entered into a distribution
arrangement with Franchise Entertainment LLC ('Franchise') under which it will
obtain domestic distribution rights in certain motion pictures produced by
Franchise.

HOME VIDEO

    Warner Home Video ('WHV') distributes for home video use pre-recorded
videocassettes and DVDs containing the filmed entertainment product produced or
distributed by TWE's Warner Bros. Pictures, WarnerVision Entertainment and Home
Box Office divisions. WHV also distributes other companies' product for which it
has acquired the rights.

    WHV sells and/or licenses its product in the United States and in major
international territories to retailers and/or 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 nine titles on videocassette for home rental
in 2000 whose sales and licensed units exceeding one million units each,
including: The Green Mile, The Whole Nine Yards, and Three Kings. Additionally,
WHV released eleven titles on videocassette in the North American sell-through
market that generated sales of more than one million units each, including The
Perfect Storm, How the Grinch Stole Christmas (animated) and Pokemon -- The
Movie.

    During 2000, DVDs further increased their presence in the North American and
international markets. Since inception of the format, WHV has released over 850
titles on DVD, led by The Matrix with worldwide sales in excess of seven million
units.

TELEVISION

    Warner Bros. is one of the world's leading suppliers of television
programming, distributing programming in more than 175 countries and in more
than 40 languages. 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 media. The distribution library owned or managed by Warner
Bros. currently has approximately 6,500 feature films, 32,000 television titles,
and 13,500 animated titles (including 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 for the syndication
markets. Returning network primetime series from WBTV include, among others, ER,
Friends, The Drew Carey Show, Whose Line Is It Anyway? and the Emmy-award
winning series, The West Wing. Telepictures has successfully launched, among
others, The Rosie O'Donnell Show.

    Warner Bros. Animation 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.', Turner Broadcasting System's and DC Comics' libraries, including Looney
Tunes and the Hanna-Barbera libraries.

BACKLOG

    Backlog represents the future revenue not yet recorded from cash contracts
for the licensing of theatrical and television programming for pay cable,
network, basic cable and syndicated television exhibition. Backlog for all of
TWE's filmed entertainment companies amounted to $2.913 billion at December
 31, 2000, compared to $3.033 billion at December 31, 1999 (including amounts
relating to the licensing of film product to TWE's cable television networks of
$381 million and $365 million as of December 31, 2000 and December 31, 1999,

                                      I-7





<PAGE>
respectively, and to AOL Time Warner's cable television networks of $634 million
and $599 million as of December 31, 2000 and 1999, respectively). The backlog
excludes advertising barter contracts.

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.

    In January 2001, TWE announced that it intends to sell or close its domestic
Warner Bros. Studio Store operations. International operations, consisting of 53
stores operated by franchisees and licensees in 13 countries and territories as
of December 31, 2000, will continue, although it is anticipated that the number
of franchised international stores will decrease substantially in 2001.

                                  COMPETITION

    The production and distribution of theatrical motion pictures, television
and animation product and videocassettes/videodiscs/DVDs are highly competitive
businesses, as each vies with the other, as well as with other forms of
entertainment and leisuretime activities, including video games, the Internet
and other computer-related activities for viewers' attention. 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. Warner Bros. competes in its character
merchandising and other licensing and retail activities with other licensors and
retailers of character, brand and celebrity names. Many of the major film and
television producers, including TWE's filmed entertainment divisions, have been
accelerating their production schedules in preparation for possible strikes by
actors and writers in connection with the re-negotiation of the Screen Actors
Guild and Writers Guild of America collective bargaining agreements which expire
on June 30 and May 1 of 2001, respectively. If such strikes occur and continue
for a sustained period, businesses related to the production, distribution and
exploitation of filmed entertainment products, including TWE's filmed
entertainment businesses, may be adversely affected.

                                    NETWORKS

    TWE's 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'),
and The WB Television Network ('The WB'), a broadcast television network. The WB
is operated as a limited partnership in which WB Communications (a division of
TWE) holds a majority interest in the network and is the network's managing
general partner.

                                HOME BOX OFFICE

    HBO is the nation's most widely distributed pay television service, which
together with its sister service, Cinemax, had approximately 36.9 million
subscriptions, as of December 31, 2000. Both HBO and Cinemax are made available
in a multichannel format. Together with various joint ventures, Home Box Office
also distributes HBO-branded services in Latin America, Asia and Eastern Europe.

    The Home Box Office Services distribute their programming via cable and
other distribution technologies, including satellite distribution, and generally
enter into separate multi-year agreements, known as affiliation

                                      I-8





<PAGE>
agreements, with distributors that have agreed to carry them. Being
commercial-free, the Home Box Office Services generate their revenue from the
monthly fees paid by affiliates, which are generally charged on a per subscriber
basis.

    A majority of the programming on HBO and 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.

    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, as well as dramatic and comedy specials
and series, such as The Sopranos, and Sex and the City, concerts, family
programming and documentaries.

    Home Box Office produces Everybody Loves Raymond, now in its fifth season on
CBS. Divisions of Home Box Office also produce programming for HBO and for other
networks. HBO 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.

                           THE WB TELEVISION NETWORK

    The WB now airs 13 hours of prime time series programming six nights per
week. The network's line-up includes veteran drama series 7th Heaven, Dawson's
Creek, Buffy the Vampire Slayer, Felicity, Roswell, Angel and Charmed, as well
as the new critically acclaimed series Gilmore Girls. Kids' WB! airs 19 hours of
programming per week with strip programming airing weekday mornings and
afternoons, along with a weekend line-up of original programming that includes
the Pokemon series.

    As of March 1, 2001, 83 primary and four secondary affiliates provide
coverage for The WB in the top 100 markets. Additional coverage of approximately
6.6 million homes in 101 markets is provided by The WB 100+ Station Group, a
venture between The WB and local broadcasters under which WB programming is
disseminated over the facilities of local cable operators in markets 101-212.

    Advertising revenue on The WB is comprised of consumer advertising, which is
sold exclusively on a national basis, with local affiliates of The WB selling
local advertising. Advertising contracts generally have terms of one year or
less. Advertising revenue is generated from a wide variety of categories,
including financial and business services, food and beverages, automotive,
entertainment and office supplies and equipment. Advertising revenue is a
function of the size and demographics of the audience delivered, the 'CPM,'
which is the cost per thousand viewers delivered, and the number of units of
time sold. Units sold and CPM's are influenced by the quantitative and
qualitative characteristics of The WB's audience as well as overall advertiser
demand in the marketplace.

    Tribune Broadcasting owns a 22.25% interest in The WB. Key employees of The
WB hold an 11% interest in the network and the balance is owned by a division of
TWE.

                            OTHER 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 68 million homes at December 31, 2000.

    TWE also holds a 50% interest in Court TV, which was available in
approximately 53 million homes at December 31, 2000. Court TV is an
advertiser-supported basic cable television service whose programming includes
coverage of live and taped courtroom trials during the day and an expanded
schedule focused on crime and criminal justice genre television series in prime
time.

                                      I-9





<PAGE>
                                  COMPETITION

    Each of the Networks competes with other television programming services for
distribution on the limited number of channels available on cable and other
television systems. All of the Networks compete for viewers' attention and
audience share 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 Networks 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. The WB competes for advertising with
numerous direct competitors and other media.

                           REGULATION AND LEGISLATION

    TWE's cable television system, cable and broadcast television network and
original programming businesses are subject, in part, to regulation by the
Federal Communications Commission ('FCC'), and the cable television system
business is also subject to regulation by some state governments and
substantially all local governments in which TWE has cable systems. In addition,
in connection with regulatory clearance of the AOL-Time Warner merger, AOL Time
Warner and its subsidiaries, including TWE's cable system and Internet
businesses, are subject to compliance with the terms of the Consent Decree (the
'Consent Decree') issued by the Federal Trade Commission ('FTC'), the Order to
Hold Separate issued by the FTC and the Memorandum Opinion and Order ('Order')
issued by the FCC. TWE is also subject to an FTC consent decree (the 'Turner
Consent Decree') as a result of the FTC's approval of Time Warner's acquisition
of Turner Broadcasting System, Inc. in 1996.

    The following is a summary of the terms of these orders as well as current
significant federal, state and local laws and regulations affecting the growth
and operation of these businesses. 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.

                               FTC CONSENT DECREE

    On December 14, 2000, the FTC issued a Consent Decree that imposes certain
requirements that Time Warner Cable must follow in providing its subscribers
with a choice of multiple Internet Service Providers ('ISPs') as part of its
cable modem service. The Consent Decree terminates after five years.

    The Consent Decree provides that, in each of Time Warner Cable's 20 largest
divisions, Time Warner Cable cannot make available an 'affiliated broadband ISP'
(e.g., America Online), other than Road Runner, until Earthlink (an unaffiliated
ISP) is made available by Time Warner Cable in that division. Once an affiliated
ISP, such as America Online, is made available in one of these Time Warner Cable
divisions, that division must enter into two additional agreements with
unaffiliated ISPs within 90 days. These agreements must be approved by the FTC.

    In the remaining Time Warner Cable divisions, there is no requirement that
Earthlink be made available before Time Warner Cable can begin providing service
from an affiliated broadband ISP. However, once an affiliated broadband ISP is
offered, Time Warner Cable must enter into agreements within 90 days with three
additional unaffiliated broadband ISPs to serve those divisions. These
agreements must be approved by the FTC. Earthlink's agreement with Time Warner
Cable has been approved by the FTC.

    The Consent Decree prohibits Time Warner Cable from discriminating against
unaffiliated ISPs on the basis of affiliation in negotiations with unaffiliated
cable broadband ISPs. However, Time Warner Cable may decline either to negotiate
or to enter into agreements with ISPs based on cable broadband capacity
constraints, cable broadband technical considerations or other cable broadband
business considerations. The Consent Decree prohibits Time Warner Cable from
interfering, on the basis of affiliation, with any content passed along
bandwidth used by a non-affiliated ISP pursuant to its ISP agreement with Time
Warner Cable, or from discriminating on the basis of affiliation in the
transmission of content that Time Warner Cable has contracted to

                                      I-10





<PAGE>
deliver to its subscribers. Furthermore, the Consent Decree prohibits Time
Warner Cable from interfering with any interactive television signals, triggers
or content that Time Warner Cable has agreed to carry.

    The Consent Decree requires America Online to continue to offer and promote
digital subscriber line service in areas served by Time Warner Cable on terms
similar to the terms offered in areas not served by Time Warner Cable. America
Online is also prohibited from entering into agreements with cable MSOs that
restrict the ability of that MSO to enter into agreements with other ISPs or
interactive television providers.

                           FTC ORDER TO HOLD SEPARATE

    On December 14, 2000, the FTC issued an Order to Hold Separate (the 'HSO')
that requires AOL Time Warner to hold separate and apart the businesses of
America Online and Road Runner and prohibits the use of America Online in any
way to advantage Road Runner and vice-versa. Joint marketing or advertising
activities, cross-links or references to each other's services, the offering of
similar formats or designs, and the hiring of each other's employees are
specifically prohibited. The HSO terminates cable division-by-division as each
Time Warner Cable division satisfies the conditions of the Consent Decree
related to multiple ISPs described above.

                        FCC MEMORANDUM OPINION AND ORDER

    On January 11, 2001, the FCC issued an Order imposing certain requirements
over a five-year period regarding Time Warner Cable's provision of multiple
ISPs. Specifically, the Order requires Time Warner Cable to provide ISP
customers with a list of available ISPs upon request, to allow ISPs to determine
the content on their first screen, and to allow ISPs to have direct billing
arrangements with the subscribers they obtain. The Order prohibits Time Warner
Cable from requiring customers to go through an affiliated ISP (e.g., America
Online) to reach an unaffiliated ISP, from requiring ISPs to include particular
content, and from discriminating on the basis of affiliation with regard to
technical system performance (e.g., caching, quality of service mechanisms).

    The FCC's Order also imposes conditions regarding possible future
enhancements to America Online's instant messaging service. The Order prohibits
America Online from offering 'advanced' instant messaging services (which are
defined as streaming video applications that are not upgrades to America
Online's current instant messaging products) that utilize a names and presence
database ('NPD') over Time Warner Cable broadband facilities unless America
Online satisfies one of three conditions: (i) America Online implements an
industry-wide standard for server-to-server interoperability; (ii) America
Online contracts with at least one unaffiliated provider of NPD based instant
messaging services before offering 'advanced' instant messaging and, within 180
days thereafter, enters into two additional such contracts; or (iii) America
Online demonstrates that these conditions no longer serve the public interest
due to materially changed circumstances, e.g., if America Online shows that it
has not been a dominant provider of NPD services for at least four consecutive
months.

    In addition, the FCC's Order prohibits AOL Time Warner from entering into
any agreement with AT&T that gives any ISP affiliated with AOL Time Warner
exclusive carriage rights on any AT&T cable system for broadband ISP services or
that affects AT&T's ability to offer rates or other carriage terms to ISPs that
are not affiliated with AOL Time Warner. The Order also requires AOL Time Warner
to notify the FCC of any increase in its ownership interest in General Motors
and/or Hughes Electronics within 30 days of such increase.

                           TURNER FTC CONSENT DECREE

    TWE is also subject to the terms of a consent decree (the 'Turner Consent
Decree') entered in connection with the FTC's approval of the acquisition of
Turner Broadcasting System, Inc. ('TBS') by Time Warner in 1996. Certain
requirements imposed by the Turner Consent Decree, such as carriage commitments
for Time Warner Cable for the rollout of at least one independent national news
video programming service, have been fully satisfied by TWE. Various other
conditions remain in effect, including certain restrictions which prohibit TWE
from offering programming upon terms that (1) condition the making available of,
or the carriage terms for, the HBO service upon whether a multichannel video
programming distributor carries a video programming

                                      I-11





<PAGE>
service affiliated with TBS; and (2) condition the making available of, or the
carriage terms for, CNN, WTBS and TNT upon whether a multichannel video
programming distributor carries any video programming service affiliated with
TWE. The Turner Consent Decree also imposes certain restrictions on the terms by
which a TBS video programming service may be offered to an unaffiliated
programming distributor that competes in areas served by Time Warner Cable.

    Other conditions of the Turner Consent Decree prohibit Time Warner Cable
from requiring, as a condition of carriage, that any national video programming
vendor provide a financial interest in its programming service or that such
programming vendor provide exclusive rights against any other multichannel
programming distributor. In addition, Time Warner Cable may not discriminate on
the basis of affiliation in the selection, terms or conditions of carriage for
national video programming vendors. The Turner Consent Decree expires in 2006.

                            CABLE SYSTEM REGULATION

    FEDERAL LAWS. The Communications Act of 1934, as amended (the 'Act')
regulates the business of operating cable television systems, including, with
respect to: (i) cable systems rates for basic service, equipment and
installation (cable rates for nonbasic service tiers have not been regulated
since March 31, 1999); (ii) access to cable channels for public, educational and
governmental programming and for leased access; (iii) horizontal and vertical
ownership of cable systems; (iv) consumer protection and customer service
requirements; (v) franchise renewals; (vi) television broadcast signal carriage
requirements and retransmission consent; (vii) technical standards;
(viii) certain restrictions regarding ownership of cable television systems and
(ix) privacy of customer information.

   Rate Regulation. The FCC's rate regulations assess the reasonableness of
   existing basic service rates, although cable operators can, in some cases,
   justify rates above the applicable benchmarks. The regulations also address
   future basic service rate increases. Local franchising authorities are
   generally 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. If a cable operator can establish that it is subject
   to 'effective competition' from other multi-channel video providers (e.g.,
   DBS) in a community, rate regulation ceases.

   Signal Carriage and Retransmission Consent. The 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 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 generally given mandatory carriage rights. 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 for the current
   three year election cycle, which ends December 31, 2002, with the majority of
   broadcasters, but certain broadcasters have only agreed to short-term
   arrangements to permit continued negotiations. If Time Warner Cable and a
   particular broadcaster cannot agree on retransmission consent terms, the
   broadcaster could require Time Warner Cable to cease carriage of the
   broadcaster's signal, possibly for an indefinite period.

   Ownership. Local exchange telephone companies ('LECs') generally may not
   acquire more than a 10% equity interest in an existing cable system operating
   within the LEC's service area, although they may operate cable television
   systems in those areas. LECs and others also may 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 TWE operates cable
   systems, including New York City, Milwaukee, Kansas City and a number of
   cities in Texas. Current FCC rules also restrict cable/television station
   cross-ownership in a given location. Time Warner Cable is currently a party
   to a federal court litigation challenging the validity of this requirement.
   Under the Act, cable operators are also generally prohibited from having
   common ownership, control or interest in MMDS facilities or SMATV systems

                                      I-12





<PAGE>
   with overlapping service areas, except in limited circumstances. There is
   also an ongoing rulemaking before the FCC to determine whether cable
   operators should be restricted from owning or operating a competing direct
   broadcast satellite service ('DBS').

   Horizontal and Vertical Ownership Limits. Pursuant to the Act, the FCC had
   adopted limits on the number of cable subscribers an operator may reach
   through systems in which it holds an attributable interest. The FCC's rule
   imposes a limit of 30% of all cable, DBS and other multi-channel video
   provider subscribers nationwide. Pursuant to the Act, the FCC also adopted
   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. Those rules have now been invalidated by the Court of Appeals for
   the District of Columbia and remanded to the FCC for further consideration.

    In addition to the Act, cable television systems are also 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 (and municipalities are entitled to operate
competing systems), 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 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.

    RENEWAL OF FRANCHISES. 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 protections available
under the Act require the municipality to 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
renewal of franchises in the future. The Act contains renewal procedures and
criteria designed to protect incumbent franchisees against arbitrary denials of
renewal.

                               NETWORK REGULATION

    Under the Act and its implementing regulations, vertically integrated cable
programmers like the Home Box Office Services, are generally prohibited from
offering different prices, terms, or conditions to competing unaffiliated
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. Certain
other federal laws also contain provisions relating to violent and sexually
explicit programming, including relating to the voluntary promulgation of
ratings by the industry and requiring manufacturers to build television sets
with the capability of blocking certain coded programming (the so-called
'V-chip').

                                      I-13





<PAGE>
                    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 a subsidiary of AT&T, MediaOne and wholly owned
subsidiaries of AOL Time Warner and the general partnership interests in TWE are
held by the Class B Partners consisting of wholly owned subsidiaries of AOL Time
Warner (the 'AOLTW General Partners').

    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 by subsidiaries of
AOL Time Warner (the 'AOLTW Representatives') and representatives appointed by
AT&T (the 'AT&T Representatives').

    The AOLTW Representatives control all Board decisions except for certain
limited, significant matters affecting TWE as a whole, which matters also
require the approval of the AT&T Representatives.

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

CERTAIN COVENANTS

    COVENANT NOT TO COMPETE. AT&T ceased to be bound by the covenant not to
compete as of August 2000. For so long as any other partner (or affiliate of any
partner) owns in excess of 5% of TWE and in the case of any AOLTW 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 television systems, pay cable programming networks
and filmed entertainment, subject to certain exceptions (which include TBS and
its businesses). The covenant not to compete also does not prohibit (i) 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 (ii) any party from engaging in the telephone
or information services business.

    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.

                                      I-14





<PAGE>
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 (appointed
jointly by an investment banking firm chosen by TWE and an investment banking
firm chosen by the Class A Partners) 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 to be registered could be sold in a public offering (the 'Appraised
Value'). Upon determination of the Appraised Value, TWE may elect whether or not
to register such interests. 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 elects not to
register such interests, the Class A Partners shall have the right to put the
interests to be registered to TWE at their Appraised Value and TWE will be
required to pay the fees and expenses of the underwriters. Upon exercise of
either TWE's purchase option or the Class A Partners put option, TWE may also
elect to purchase the entire partnership interests of the Class A Partners
requesting registration at a relevant price determined by the investment bank
referred to above, subject to certain adjustments.

    On February 28, 2001, AT&T delivered to TWE its request that TWE
reconstitute itself as a corporation and register AT&T's partnership interests
for public sale. AT&T has agreed to suspend the process described in the
preceding paragraph until at least March 15, 2001 and, through the date of this
report, no further implementation of this process has subsequently occurred
while the parties have continued their ongoing discussions regarding AT&T's
interest in TWE.

    In addition to the foregoing, AT&T will have the right to exercise an
additional demand registration right beginning 18 months following the date on
which TWE reconstitutes itself as a corporation and registers and effects the
sale of securities pursuant to a previously exercised demand registration right.

    At the request of any AOLTW General Partner, TWE will effect a public
offering of the partnership interests of the AOLTW General Partners or
reconstitute TWE as a corporation and register the shares held by the AOLTW
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 RIGHTS OF THE CLASS A PARTNERS

    CHANGE IN CONTROL PUT. Upon the occurrence of a change in control of AOL
Time Warner, at the request of AT&T, TWE will be required to elect either to
liquidate TWE within a two-year period or to purchase the interest of AT&T at
fair market value (without any minority discount) as determined by investment
bankers. A 'change in control' of AOL 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 AOL Time Warner elected during such three-year period
    shall have been so elected against the recommendation of the management of
    AOL Time Warner or the Board of Directors shall be deemed to have been
    elected against the recommendation of such Board of Directors of AOL 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

                                      I-15





<PAGE>
    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 AOL Time Warner that represent in excess of 50% of the voting
    power of all outstanding voting securities of AOL 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 AOL Time Warner within 30 days after the date of such
    acquisition or public announcement.

    The consummation of the AOL-Time Warner merger did 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 AOL 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 AT&T and the right to receive the partnership
interests in payment therefor.

    With respect to any of the put rights of AT&T, 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
AOL Time Warner, by AOL Time Warner). The amount of any Marketable Securities
comprising the applicable put price shall be determined based on the market
price of such securities during the seven months following the closing of such
put transaction.

RESTRICTIONS ON TRANSFER BY AOLTW GENERAL PARTNERS

    AOLTW GENERAL PARTNERS. Any AOLTW General Partner is permitted to dispose of
any partnership interest (and any AOLTW General Partner and any parent of any
AOLTW General Partner may issue or sell equity) at any time so long as,
immediately after giving effect thereto, (i) AOL Time Warner would own, directly
or indirectly, not 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 AOL Time Warner, and
(iii) a subsidiary of AOL Time Warner would be a managing general partner of
TWE.

    No other dispositions are permitted, except that AOL 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 AOL 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
page F-10 under the caption 'Foreign Currency Risk Management' herein. See also
Note 1, 'Organization and Summary of Significant Accounting Policies -- Foreign
Currency Translation' and Note 13, 'Derivative Financial Instruments -- Foreign
Currency Risk Management' to TWE's consolidated financial statements set forth
at pages F-7 and F-26, respectively, of Exhibit 99.1 to AOL Time Warner's
Current Report on Form 8-K/A dated January 11, 2001 (filed February 9, 2001),
which is incorporated herein by reference. For the revenues of international
operations, see Note 14 'Segment Information' to TWE's consolidated financial
statements set forth at page F-27 of Exhibit 99.1 to AOL Time Warner's Current
Report on Form 8-K/A dated January 11, 2001 (filed February 9, 2001), which is
incorporated herein by reference.

                                      I-16





<PAGE>
                                   EMPLOYEES

    At December 31, 2000, TWE employed a total of approximately 32,000 persons.

               BUSINESSES OF THE AOL TIME WARNER GENERAL PARTNERS

    WCI conducts substantially all of AOL 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 the fall of 2000, Time Warner announced that it had
terminated its previously-announced agreement to combine WMG's global music
operations with that of Britain's EMI Group plc.

                                 RECORDED MUSIC

    In the United States, AOL Time Warner'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 over 70 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 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, metal, hip
hop and dance music with a focus on new artists.

DOMESTIC

    WMG's major 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, latin, folk,
blues, gospel and Christian music. Among the artists that resulted in
significant U.S. sales for WMG during 2000 were: Yolanda Adams, Barenaked
Ladies, Green Day, Don Henley, Faith Hill, Kid Rock, Linkin Park, Madonna,
matchbox twenty, Tim McGraw, Red Hot Chili Peppers and Third Eye Blind.

    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, DVDs and audio cassettes and creates packaging for
them. WEA Corp. and ADA, WMG's distribution arms, market and 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 amazon.com and CDnow.

    In January 2000, WMG entered into a consent order with the Federal Trade
Commission with respect to the FTC's investigation of WMG's practices related to
minimum advertised prices. Among other things, WMG has

                                      I-17





<PAGE>
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.

    In addition to newly released records, each of WMG's labels markets and
sells albums from its extensive catalogs 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 joint ventures such as Maverick, 143 and
Strictly Rhythm. Through a 50/50 joint venture, WMG and Sony Music Entertainment
Inc. operate The Columbia House Company, a direct marketer of CDs, audio and
videocassettes in North America.

    WMG has actively pursued new media opportunities in the physical and digital
arenas. It has been a driving force in establishing the DVD Audio format,
launched in fall 2000, which improves on the CD by providing higher fidelity and
six-channel surround sound. WMG has also made its recordings available for
commercial digital downloading and by licensing its repertoire to Webcasters,
such as Launch, MTV and ARTISTdirect, and digital 'locker' services, such as
Musicbank and MP3.com. WMG's record labels' online sites collectively experience
the second-largest traffic volume among all the major music companies.

INTERNATIONAL

    The Warner Music International ('WMI') division of WMG operates through
various subsidiaries and affiliates and their non-affiliated licensees in over
70 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
2000 were generated by the following artists: All Saints, Cher, Eric Clapton,
Enya, Yuki Koyanagi, Luis Miguel, Laura Pausini, Alejandro Sanz and Helene
Segara.

    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
and DVDs 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.

                                MUSIC PUBLISHING

    WMG's music publishing companies, Warner/Chappell, 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 Madonna, Eric Clapton, Jewel, George and Ira Gershwin,
Radiohead 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, one of the world's
largest publishers of printed music, which includes CPP/Belwin, acquired in
1995. Warner Bros. Publications markets publications throughout the world
containing the works of such artists as Shania Twain, The Grateful Dead and Led
Zeppelin and containing works from the Chrysalis, Zomba and Universal music
publishing catalogs.

    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-18





<PAGE>
                                  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 also by Web sites and
technologies that allow consumers to download quality sound reproductions from
the Internet without authorization from WMG. In response, the recorded music
industry has engaged in a coordinated effort to develop secure technologies for
digital music delivery. Competition in the music publishing business is also
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

TIME WARNER TELECOM

    Time Warner Telecom Inc. ('Time Warner Telecom') is a leading fiber
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 and completed an initial
public offering of 20% of its equity securities in May 1999. The AOLTW General
Partners' aggregate equity interest in Time Warner Telecom as of January 31,
2001 was approximately 37%.

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 TBS by acquiring
the remaining approximately 80% interest in TBS not already owned by Time
Warner. The AOLTW 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; and news networks, including
CNN, Headline News, CNN International (CNNI), CNN en Espanol, CNNfn and
CNN/Sports Illustrated. TBS also has interests in sports franchises and motion
picture operations.

TWE JAPAN

    WCI currently owns 99.90% of TWE Japan as a result of a reorganization which
was completed in the first quarter of 2001. In the reorganization, WCI acquired
all of the interest in TWE Japan previously held by a subsidiary of AT&T and TWE
Japan acquired the interests held by Toshiba and ITOCHU. 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.

                                      I-19





<PAGE>
ITEM 2. PROPERTIES

NETWORKS -- HBO, FILMED ENTERTAINMENT AND CABLE

    The following table sets forth certain information as of December 31, 2000
with respect to the principal properties (over 250,000 square feet in area)
owned or leased by TWE's 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, NY              Business offices                 350,000 sq. ft.    Leased by TWE.
  1100 and 1114           (HBO)                            and 244,000 sq.    Leases expire in 2018.
  Ave. of the                                              ft.
  Americas

Burbank, CA               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, MD             Warehouse (Filmed                387,200 sq. ft.    Owned by TWE.
  White Marsh             Entertainment)

Valencia, CA              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 AOL TIME WARNER GENERAL PARTNERS

    The following table sets forth certain information as of December 31, 2000
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
AOL Time Warner General Partner, does not own or lease any properties material
to its business.

<TABLE>
<CAPTION>
                                                                        APPROXIMATE
                                                                        SQUARE FEET           TYPE OF OWNERSHIP
             LOCATION                         PRINCIPAL USE             FLOOR SPACE        EXPIRATION DATE OF LEASE
             --------                         -------------             -----------        ------------------------
<S>                                 <C>                                 <C>           <C>
Olyphant, PA                        Manufacturing, warehouses,           1,012,000    Owned and occupied by a subsidiary
  East Lackawanna Ave.              distribution and office space                     of WCI.
                                    (Music)

Aurora, IL                          Offices/warehouse (Music)              602,000    Owned and occupied by a subsidiary
  948 Meridian Lake                                                                   of WCI.

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, IN                     Manufacturing and office space         269,000    Leased by a subsidiary of WCI.
  4025 3rd Pkwy.                    (Music)                                           Lease expires in 2011.
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

    TWE is a party to various litigation matters, investigations and
proceedings, including:

    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

                                      I-20





<PAGE>


alia, defendants, which include TWE, 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 was appealed to the Georgia Court of Appeals, which
affirmed the trial court's judgment. TWE filed a motion for reconsideration with
the Court of Appeals, which was denied. Defendants filed a petition for
certiorari with the Supreme Court of Georgia seeking review of the decision of
the Court of Appeals, which was denied on January 18, 2001. A petition for
reconsideration of that decision was also denied, and TWE filed for a stay of
the punitive damages with the U.S. Supreme Court. The Supreme Court granted
this stay on March 1, 2001.

    Since 1995, several purported class action lawsuits brought by direct
purchasers of compact discs (CDs) were filed against WEA Corp., among other
defendants, alleging that several CD distribution companies affiliated with the
five major record companies violated federal antitrust laws by engaging in a
conspiracy to fix prices. These lawsuits have been consolidated in the U.S.
District Court for the Central District of California. The Court has denied
class status in this matter in a decision dated June 15, 2000. On October 23,
2000, defendants filed a motion for summary judgment, which is pending.

    A related lawsuit, Ottinger & Silvey et al. v. EMI Music Distribution, Inc.
et al., was brought in the Circuit Court of Cocke County, Tennessee in 1998 on
behalf of persons in sixteen states and the District of Columbia who allegedly
indirectly purchased CDs from the same group of record distribution companies.
Plaintiff alleges that defendants are engaged in a conspiracy to fix CD prices,
in violation of the antitrust, unfair trade practices, and consumer protection
statutes. Cases similar to Ottinger were filed subsequently in seven additional
states. In May 1998, defendants filed a motion to dismiss the Ottinger
complaint, which has been denied. Motions to dismiss in the lawsuits in the
seven additional states have been filed and are pending.

    A number of lawsuits were brought in 2000 against WEA Corp., along with the
other major record companies, in various state and federal courts by purported
classes of direct and/or indirect purchasers of CDs, including consumers,
alleging that defendants engaged in vertical and/or horizontal conspiracies to
engage in price fixing in violation of state and federal law. Among these
lawsuits is a federal action commenced by the Attorneys General of 42 states and
3 territories. These lawsuits focus on the companies' minimum advertising
pricing ('MAP') programs. The federal lawsuits, as well as the state lawsuits
that were removed to federal court, were consolidated in the U.S. District Court
for the District of Maine. The remaining state court cases are pending in their
respective jurisdictions.

    As to each of the music antitrust matters described above, TWE believes the
claims have no merit and intends to defend against them vigorously. TWE is
unable to predict the outcome of the claims, nor can TWE reasonably estimate a
range of possible loss given the current status of the matters.

    On January 25, 2001, the European Commission ('EC') directed a questionnaire
to TWE, along with the other major record companies, as part of an investigation
of the vertical relationship between record companies and retailers in certain
European Union member states. The focus of the investigation is on the record
companies' policies regarding supply, price, discounting and cooperative
advertising. TWE is cooperating with the investigation, but is unable to predict
its outcome.

    On February 8, 2001, the United Kingdom Office of Fair Trading announced
that it had initiated an investigation of several record companies in that
country, including Warner Music UK Limited, regarding record companies' policies
in regard to parallel imports of CDs into the United Kingdom. Warner Music UK
Limited is cooperating with the investigation, but is unable to predict its
outcome.

    The Bartholdi Cable Company (formerly known as Liberty Cable Company)
brought an action against TWE and Time Warner in U.S. District Court for the
Eastern District of New York in 1996 alleging various federal antitrust, Lanham
Act and state law claims. The parties reached a settlement in February 2001,
prior to trial, under terms governed by a confidentiality agreement.


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

    Not applicable.

                                      I-21





<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 AOLTW General Partners set
forth at page F-35 of Exhibit 99.1 and page F-27 of Exhibit 99.2, respectively,
to AOL Time Warner's Current Report on Form 8-K/A dated January 11, 2001 (filed
February 9, 2001), is incorporated herein by reference.

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

    The information under the caption 'Management's Discussion and Analysis' for
TWE set forth at pages F-1 through F-11 and for the AOLTW General Partners
set forth at pages F-12 through F-17 herein, is incorporated herein by
reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The information under the caption 'Foreign Currency Risk Management' for TWE
set forth at page F-10 and for the AOLTW General Partners set forth at pages
F-16 and F-17 is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The consolidated financial statements of TWE and the report of independent
auditors thereon set forth at pages F-1 through F-33 and F-34, respectively, of
Exhibit 99.1 to AOL Time Warner's Current Report on Form 8-K/A dated
January 11, 2001 (filed February 9, 2001), are incorporated herein by reference.
The consolidated financial statements of the AOLTW General Partners and the
report of independent auditors thereon set forth at pages F-1 through F-25 and
F-26, respectively, of Exhibit 99.2 to AOL Time Warner's Current Report on
Form 8-K/A dated January 11, 2001 (filed February 9, 2001), are incorporated
herein by reference.

    Quarterly Financial Information set forth at page F-36 of Exhibit 99.1 to
AOL Time Warner's Current Report on Form 8-K/A dated January 11, 2001 (filed
February 9, 2001), 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 AOLTW 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 and Parsons became members of the Board of
Representatives of TWE on June 30, 1992 and February 1, 1995, respectively.
Messrs. Barach and Prip became members of the Board of Representatives of TWE on
August 30, 2000 and Messrs. Case, Novack and Pittman became members of the Board
of Representatives of TWE as of January 12, 2001. 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 AOLTW General Partner on February 1, 1995. Mr. Pittman became a
director of ATC as of January 12, 2001 and of WCI as of February 2, 2001.

    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>
                                     DIRECTOR AND/OR                     PRINCIPAL OCCUPATIONS OR
NAME                                REPRESENTATIVE OF      AGE     POSITIONS DURING THE PAST FIVE YEARS
----                                -----------------      ---     ------------------------------------
<S>                              <C>                       <C>   <C>
Stephen M. Case...............            TWE              42    Chairman of the Board of TWE and AOL Time
                                                                 Warner since the consummation of the Merger.
                                                                 A co-founder of America Online, Mr. Case had
                                                                 been Chairman of the Board of America Online
                                                                 from October 1995 and CEO of America Online
                                                                 from April 1993, having served in other
                                                                 executive positions at America Online since
                                                                 1985. Mr. Case is also a director of AOL Time
                                                                 Warner.

Gerald M. Levin................      TWE, WCI and ATC      61    Chief Executive Officer of TWE since the
                                                                 consummation of the Merger and of AOL Time
                                                                 Warner since its incorporation in February
                                                                 2000; prior to the Merger, he was Chairman of
                                                                 the Board and Chief Executive Officer of TWE
                                                                 and Time Warner from January 1993. He is also
                                                                 a director of AOL Time Warner and the New York
                                                                 Stock Exchange, Inc.

Kenneth J. Novack..............            TWE             59    Vice Chairman of TWE and AOL Time Warner since
                                                                 the consummation of the Merger; prior to that,
                                                                 he served as Vice Chairman of America Online
                                                                 from May 1998. Mr. Novack has been Of Counsel
                                                                 to the Boston-based law firm of Mintz, Levin,
                                                                 Cohn, Ferris, Glovsky and Popeo, PC, since his
                                                                 retirement as a member of that firm in
                                                                 August 1998. Mr. Novack joined Mintz Levin in
                                                                 1966 and served on its executive committee
                                                                 from 1970 until his retirement. Mr. Novack is
                                                                 also a director of AOL Time Warner.
</TABLE>

                                                  (table continued on next page)

                                     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>
Richard D. Parsons.............      TWE, WCI and ATC      52    Co-Chief Operating Officer of TWE and
                                                                 AOL Time Warner since the consummation
                                                                 of the Merger; prior to that, he was
                                                                 President of TWE and Time Warner from
                                                                 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 AOL Time
                                                                 Warner, Citigroup Inc. and Estee Lauder
                                                                 Companies, Inc.
Robert W. Pittman..............      TWE, WCI and ATC      47    Co-Chief Operating Officer of TWE and
                                                                 AOL Time Warner since the consummation
                                                                 of the Merger; prior to that, Mr.
                                                                 Pittman served as President and Chief
                                                                 Operating Officer of America Online from
                                                                 February 1998. He was President and
                                                                 Chief Executive Officer of AOL Networks
                                                                 form November 1996 until February 1998.
                                                                 Prior to that, he held the positions of
                                                                 Managing Partner and Chief Executive
                                                                 Officer of Century 21 Real Estate Corp.
                                                                 from October 1995 to October 1996 and
                                                                 President and Chief Executive Officer of
                                                                 the Time Warner Enterprises division of
                                                                 TWE and Chairman and Chief Executive
                                                                 Officer of Six Flags Entertainment
                                                                 Corporation prior to that. Mr. Pittman
                                                                 is also a director of AOL Time Warner,
                                                                 America Online Latin America, Inc. and
                                                                 Cendant Corporation.
David Barach...................            TWE             46    Treasury Director of AT&T for more than
                                                                 the last five years.
William Prip...................            TWE             33    Treasury Manager of AT&T since August
                                                                 1998. Prior to that, Mr. Prip was a
                                                                 student.
</TABLE>

EXECUTIVE OFFICERS

    Set forth below is the name and age of the executive officers of TWE and
each of the AOLTW 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 and
Parsons became executive officers of the AOLTW General Partners on
September 25, 1992 or, if later, on the date they became executive officers of
TWE. The remaining executive officers of TWE became executive officers of ATC as
of Janaury 12, 2001 and of WCI as of February 2, 2001.

<TABLE>
<CAPTION>
                                                     PRINCIPAL OCCUPATION OR
NAME                                  AGE      POSITIONS DURING THE PAST FIVE YEARS
----                                  ---      ------------------------------------
<S>                                    <C>   <C>
Stephen M. Case......................  42    See ' -- Representatives and Directors.'
Gerald M. Levin......................  61    See ' -- Representatives and Directors.'
Kenneth J. Novack....................  59    See ' -- Representatives and Directors.'
Richard D. Parsons...................  52    See ' -- Representatives and Directors.'
Robert W. Pittman....................  47    See ' -- Representatives and Directors.'
</TABLE>

                                                  (table continued on next page)

                                     III-2





<PAGE>
(table continued from previous page)

<TABLE>
<CAPTION>
                                                         PRINCIPAL OCCUPATION OR
NAME                                   AGE        POSITIONS DURING THE PAST FIVE YEARS
----                                   ---        ------------------------------------
<S>                                    <C>   <C>
Paul T. Cappuccio....................  39    Executive Vice President, General Counsel and
                                             Secretary of TWE and AOL Time Warner since the
                                             consummation of the Merger; prior to that, he
                                             served as Senior Vice President and General
                                             Counsel of America Online from August 1999.
                                             Before joining America Online, from 1993 to
                                             1999, Mr. Cappuccio was a partner at the
                                             Washington, D.C. office of the law firm of
                                             Kirkland & Ellis.
David M. Colburn.....................  41    Executive Vice President of TWE and AOL Time
                                             Warner and President of Business Development
                                             for Subscription Services and Advertising and
                                             Commerce Businesses since the consummation of
                                             the Merger; prior to that, he was President of
                                             Business Affairs for America Online from
                                             January 2000, and Senior Vice President,
                                             Business Affairs, from March 1997, having
                                             joined America Online in August 1995.
J. Michael Kelly.....................  44    Executive Vice President and Chief Financial
                                             Officer of TWE and AOL Time Warner since the
                                             consummation of the Merger; prior to that, he
                                             was Senior Vice President and Chief Financial
                                             Officer of America Online from July 1998. Prior
                                             to joining America Online, he was Executive
                                             Vice President -- Finance and Planning and
                                             Chief Financial Officer of GTE Corporation, a
                                             telecommunications company (now part of
                                             Verizon). Mr. Kelly was appointed GTE's Senior
                                             Vice President -- Finance in 1994, receiving
                                             the responsibility for Corporate Planning and
                                             Development during 1997.
Kenneth B. Lerer.....................  49    Executive Vice President of TWE and AOL Time
                                             Warner, responsible for corporate
                                             communications and investor relations, since
                                             the consummation of the Merger; prior to that,
                                             he was Senior Vice President of America Online
                                             from October 1999. Previously, Mr. Lerer was a
                                             founder and served as President of Robinson
                                             Lerer & Montgomery, a corporate communications
                                             and consulting firm.
William J. Raduchel..................  54    Executive Vice President and Chief Technology
                                             Officer of TWE and AOL Time Warner since the
                                             consummation of the Merger; prior to that, he
                                             was Senior Vice President and Chief Technology
                                             Officer of America Online from September 1999.
                                             Previously, he served as Chief Strategy Officer
                                             and a member of the Executive Committee of Sun
                                             Microsystems, Inc., a provider of Internet
                                             hardware, software and services, from January
                                             1998 to September 1999, having previously held
                                             a variety of management positions with Sun
                                             Microsystems from 1988.
Mayo S. Stuntz, Jr...................  51    Executive Vice President of TWE and AOL Time
                                             Warner since the consummation of the Merger,
                                             with responsibility for coordinating
                                             cross-divisional initiatives; prior to that, he
                                             had been Chief Operating Officer of America
                                             Online's Interactive Services Group from
                                             March 1999 and President of CompuServe
                                             Interactive Services from February 1998,
                                             having joined America Online in August 1997. He
                                             had previously been Chief Operating Officer and
                                             Executive Vice President of Century 21 Real
                                             Estate Corp. from October 1995 to June 1997.
</TABLE>

                                                  (table continued on next page)

                                     III-3





<PAGE>
(table continued from previous page)

<TABLE>
<CAPTION>
                                                         PRINCIPAL OCCUPATION OR
NAME                                   AGE        POSITIONS DURING THE PAST FIVE YEARS
----                                   ---        ------------------------------------
<S>                                    <C>   <C>
George Vradenburg III................  58    Executive Vice President, Global and Strategic
                                             Policy of TWE and AOL Time Warner since the
                                             consummation of the Merger; prior to that, he
                                             had been Senior Vice President for Global and
                                             Strategic Policy of America Online from
                                             December 1998. Mr. Vradenburg served as Senior
                                             Vice President, General Counsel and Secretary
                                             of America Online from March 1997 to December
                                             1998. He was a Senior Partner with the law firm
                                             of Latham & Watkins and co-chair of its
                                             Entertainment & Media Practice Group from 1995
                                             to 1997.
</TABLE>

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

    Not Applicable.

ITEM 11. EXECUTIVE COMPENSATION

    In 2000, the executive officers of TWE and the AOLTW General Partners were
compensated by Time Warner for services provided to Time Warner pursuant to
employment agreements with Time Warner and received no additional compensation
from TWE or any of the AOLTW General Partners. Time Warner provided the services
of such executive officers to TWE and was reimbursed for such services pursuant
to arrangements set forth in the TWE Partnership Agreement. In 2001, the
executive officers of TWE are being compensated by AOL Time Warner. See Item 13
'Certain Relationships and Related Transactions -- Corporate Services.' Members
of the Board of Representatives of TWE and directors of the AOLTW 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, 2000 (the 'named executive officers') for services
rendered to Time Warner during each of the last three fiscal years in their
capacities as executive officers. All information related to common stock has
been adjusted to reflect the exchange ratio of 1.5 shares of common stock of AOL
Time Warner ('AOL Time Warner Common Stock') per share of Time Warner common
stock in the Merger and AOL Time Warner's assumption of Time Warner's
stock-based benefit plans in connection with the Merger.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                               LONG-TERM
                                                           ANNUAL COMPENSATION              COMPENSATION(7)
                                                ------------------------------------------ ------------------
                                                                                OTHER          SECURITIES
                                                                               ANNUAL          UNDERLYING       ALL OTHER
NAME AND PRINCIPAL POSITION IN 2000      YEAR     SALARY        BONUS      COMPENSATION(6)  OPTIONS AWARDED  COMPENSATION(8)
-----------------------------------      ----     ------        -----      ---------------  ---------------  ---------------
<S>                                      <C>    <C>          <C>           <C>             <C>               <C>
Gerald M. Levin .......................  2000   $1,000,000   $10,000,000      $226,620           750,000       $  571,277
 Chairman of the Board and               1999    1,000,000     9,000,000       218,477           656,251          590,167
 Chief Executive Officer(1)              1998    1,000,000     7,800,000       186,861         2,100,000          597,885
Richard D. Parsons ....................  2000   $  750,000   $ 6,000,000      $146,535           525,000       $  476,935
 President(2)                            1999      750,000     4,750,000       170,695           375,000          498,245
                                         1998      600,000     3,300,000       122,907           450,000          398,650
Richard J. Bressler ...................  2000   $  700,000   $ 2,500,000      $139,726           300,000       $  418,772
 Executive Vice President(3)             1999      600,000     2,000,000        78,573           150,000          371,532
                                         1998      450,000     1,500,000        60,141           150,000          310,428
Joseph A. Ripp ........................  2000   $  450,000   $ 1,600,000      $112,916           900,000       $  244,250
 Executive Vice President and            1999      207,692       900,000         --               90,000          118,736
 Chief Financial Officer(4)
Christopher P. Bogart .................  2000   $  400,000   $ 1,600,000      $ 72,095           150,000       $3,687,392(5)
 Executive Vice President, General
 Counsel and Secretary(5)
</TABLE>

                                                        (footnotes on next page)

                                     III-4





<PAGE>
(footnotes from previous page)

(1) Mr. Levin became Chief Executive Officer of AOL Time Warner in February
    2000. He served as Chairman of the Board and Chief Executive Officer of Time
    Warner from 1993 until the consummation of the Merger.

(2) Mr. Parsons became Co-Chief Operating Officer of AOL Time Warner upon the
    consummation of the Merger. Prior to that, he served as President of Time
    Warner.

(3) Mr. Bressler served as Executive Vice President of Time Warner and Chairman
    and Chief Executive Officer of its Time Warner Digital Media division from
    July 1999 until the consummation of the Merger, having served as Executive
    Vice President and Chief Financial Officer of Time Warner from January 1998
    and as Senior Vice President prior to that.

(4) Mr. Ripp became Executive Vice President and Chief Financial Officer of
    America Online in January 2001 following the consummation of the Merger and
    is no longer an executive officer of AOL Time Warner or TWE. Prior to that,
    Mr. Ripp served as Executive Vice President and Chief Financial Officer of
    Time Warner from July 1999 having served as Executive Vice President, Chief
    Financial Officer and Treasurer of a wholly owned subsidiary of Time Warner
    prior to that, as a result, compensation received prior to July 1999 is
    excluded.

(5) Mr. Bogart became President and Chief Executive Officer of Time Warner Cable
    Ventures following consummation of the Merger and is no longer an executive
    officer of AOL Time Warner or TWE. Prior to that, Mr. Bogart served as
    Executive Vice President, General Counsel and Secretary of Time Warner from
    January 2000 until the consummation of the Merger. Prior to 2000, he did not
    serve as an executive officer of Time Warner and, thus, compensation
    received prior to 2000 is excluded. In connection with his ceasing to serve
    as an executive officer of Time Warner as a result of the Merger, Mr. Bogart
    was paid $3,468,142 relating principally to bonus payments pursuant to the
    terms of his employment agreement with Time Warner. See 'Employment
    Arrangements.'

(6) 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 2000 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, $113,081 to Mr.
    Bressler and $35,000 to each of Messrs. Ripp and Bogart,
    transportation-related benefits (including an automobile allowance) of
    $116,699 to Mr. Levin and $50,815 to Mr. Parsons and automobile allowances
    of $24,000 to each of Messrs. Bressler, Ripp and Bogart. Mr. Ripp also
    received $37,500 for relocation expenses.

(7) 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, 2000, no named executive officer
    held any such shares.

(8) The amounts shown in this column for 2000 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. These credits were terminated in January 2001.
    See 'Non-Current Compensation Accounts.'

       (b) Pursuant to the AOL Time Warner Savings Plan (the 'Savings Plan'), a
    defined contribution plan available generally to employees of AOL Time
    Warner, for the 2000 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 an AOL
    Time Warner Common Stock fund. In addition, pursuant to a profit-sharing
    component of the Savings Plan, AOL Time Warner may make annual contributions
    for the benefit of eligible employees of up to 12% of total eligible
    compensation; for 2000, AOL Time Warner will contribute 10%, including
    $17,000 for the account of each executive named above. AOL Time Warner has
    announced that it does not intend to make profit-sharing contributions in
    future years.

       (c) AOL 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, 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 2000, 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 some of the
    named executive officers and paid the following amounts allocated to the
    term portion of the split-dollar coverage for 2000: Mr. Levin, $20,302; Mr.
    Parsons, $4,459; and Mr. Bressler, $2,392. The actuarial equivalent of the
    value of the premiums paid by Time Warner for 2000 based on certain
    assumptions regarding interest rates and periods of coverage are: Mr. Levin,
    $52,027; Mr. Parsons, $82,685; and Mr. Bressler, $49,522. It is anticipated
    that AOL 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.'

                                     III-5





<PAGE>
STOCK OPTION GRANTS DURING 2000

    The following table sets forth certain information with respect to employee
options to purchase shares of AOL Time Warner Common Stock ('options') awarded
during 2000 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 2000. The number of shares covered by the options
and the exercise prices have been adjusted to reflect the exchange ratio of
common stock of Time Warner for AOL Time Warner Common Stock upon consummation
of the Merger.

                          STOCK OPTION GRANTS IN 2000

<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 2000(2)    ($/SH)       DATE       VALUE(3)
----                                        -------     ----------    ------       ----       --------
<S>                                        <C>          <C>          <C>        <C>          <C>
Gerald M. Levin..........................   375,000         .4%       $57.79      3/14/10    $ 8,190,000
                                            187,500         .2         72.24      3/14/10      3,249,375
                                            187,500         .2         86.69      3/14/10      2,608,125
Richard D. Parsons.......................   262,500         .3%       $57.79      3/14/10    $ 5,733,000
                                            131,250         .1         72.24      3/14/10      2,274,563
                                            131,250         .1         86.69      3/14/10      1,825,688
Richard J. Bressler......................   300,000         .3%       $57.79      3/14/10    $ 6,552,000
Joseph A. Ripp...........................   150,000         .2%       $57.79      3/14/10    $ 3,276,000
                                            750,000         .8         41.89     11/28/10     11,872,500
Christopher P. Bogart....................   150,000         .2%       $57.79      3/14/10    $ 3,276,000
</TABLE>

---------

(1) Options for executive officers have been 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 AOL 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 AOL 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, 2000,
    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. Payment of the exercise
    price of an option may be made in cash or, in whole or in part, in full
    shares of AOL 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 AOL Time Warner Common Stock.

(2) Indicates the percentage of all options granted to employees of Time Warner
    and America Online during 2000.

(3) 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 46.3% based on the historical volatility of America
    Online common stock adjusted for the anticipated impact of the Merger; an
    expected term to exercise of three years; a risk-free rate of return based
    on the average three-year Treasury bill rate for 2000 of 6.22%; and a
    dividend yield of 0%. The actual value of the options, if any, realized by
    an officer will depend on the extent to which the market value of AOL 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.

OPTION EXERCISES AND VALUES IN 2000

    The following table sets forth as to each of the named executive officers
information on option exercises during 2000 and the status of his options on
December 31, 2000: (i) the number of shares of AOL Time Warner Common Stock
underlying options exercised during 2000; (ii) the aggregate dollar value
realized upon exercise of such options; (iii) the total number of shares of AOL
Time Warner Common Stock underlying exercisable and nonexercisable stock options
held on December 31, 2000; and (iv) the aggregate dollar value of in-the-money
exercisable and nonexercisable stock options on December 31, 2000. The number of
shares covered and the option exercise prices have been adjusted to reflect the
exchange ratio of common stock of Time Warner for AOL Time Warner Common Stock
upon consummation of the Merger and AOL Time Warner's assumption upon
consummation of the Merger of the option plans and agreements under which the
options were awarded.

                                     III-6





<PAGE>
                     AGGREGATE OPTION EXERCISES DURING 2000
                                      AND
                       OPTION VALUES ON DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                                          DOLLAR VALUE OF
                        NUMBER OF                         NUMBER OF SHARES                  UNEXERCISED
                          SHARES        DOLLAR         UNDERLYING UNEXERCISED              IN-THE-MONEY
                        UNDERLYING      VALUE          OPTIONS ON 12/31/00(3)         OPTIONS ON 12/31/00*(3)
                         OPTIONS       REALIZED     ----------------------------   -----------------------------
NAME                    EXERCISED    ON EXERCISE    EXERCISABLE   NONEXERCISABLE   EXERCISABLE    NONEXERCISABLE
----                    ---------    -----------    -----------   --------------   -----------    --------------
<S>                     <C>          <C>            <C>           <C>              <C>            <C>
Gerald M. Levin(1)....  3,000,000    $152,590,000    8,816,251        750,000      $144,796,050    $         0
Richard D. Parsons....     --             --         3,075,000        525,000      $ 46,996,875    $         0
Richard J.
  Bressler(2).........     --             --         1,338,324        300,000      $ 24,459,891    $         0
Joseph A. Ripp........     30,000    $  1,352,873      391,500        900,000      $  5,505,345    $         0
Christopher P.
  Bogart..............     --             --           150,000        150,000      $    646,800    $         0
</TABLE>

---------

 *  Calculated using the closing price of $34.80 per share of America Online
    common stock on December 31, 2000 minus the option exercise price.

(1) The options exercised by Mr. Levin would have expired in 2000. After making
    charitable contributions and paying the exercise price and related taxes
    using AOL Time Warner Common Stock, Mr. Levin retained the remaining 996,931
    shares of AOL Time Warner Common Stock issued upon exercise of these
    options.

(2) Includes 294,000 exercisable options that Mr. Bressler has transferred to a
    family-owned limited partnership. At December 31, 2000, these options had a
    value of $6,202,019.

(3) All options awarded prior to 2000 held by the named executive officers
    became immediately exercisable in full upon the approval by Time Warner's
    Board of Directors of the 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 AOL 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 2000 (see 'Stock Option Grants in 2000') and
1,500,000 of Mr. Levin's options awarded in 1993, half of which have an exercise
price 25% above the fair market value of AOL 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. The stock option agreements permit optionees to defer receipt
of the shares of AOL 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 AOL 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, AOL Time Warner has
agreed to pay the optionee dividend equivalents during the deferral period, to
the extent dividends are paid on AOL Time Warner Common Stock.

    The options held by the named executive officers remain exercisable for
three years or the remaining term of their employment agreements in the event
their employment is terminated without cause or as a result of AOL 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 generally ten years, although
960,000 options held by Mr. Levin have a term of 15 years from the date of their
award in 1989.

EMPLOYMENT ARRANGEMENTS

    During 2000, Time Warner was a party to employment agreements with the five
named executive officers and certain directors or representatives of the AOLTW
General Partners and TWE. These agreements have been filed with the SEC as
exhibits to AOL Time Warner's or Time Warner's periodic filings. In addition,
each such person participates in AOL Time Warner's employee benefit plans
available to its employees generally. Messrs. Bressler, Ripp and Bogart are no
longer executive officers of AOL Time Warner or TWE. The Agreements with Messrs.
Levin and Parsons have been assumed by AOL Time Warner.

    Among other things, the agreements with Messrs. Levin and Parsons provide
for: a fixed term of employment in a specified executive post; annual salary; an
annual bonus in the discretion of the Compensation

                                     III-7





<PAGE>
Committee of the AOL Time Warner Board of Directors; and life insurance benefits
to be provided by split dollar policies, for the life of the executive and
pursuant to which AOL Time Warner recovers an amount equal to the net
after-tax cost to AOL 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 AOL 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 AOL Time
Warner stock option and other compensation and benefit plans.

    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 accrued through such date of
termination.

    These agreements typically provide that in the event of AOL 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 or (b) to remain an employee of AOL 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. These executives are
not required to mitigate damages after such a termination, other than as
necessary to prevent AOL 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').

    If an executive becomes disabled during the term of his employment
agreement, the executive typically will receive full salary for six months and
75% thereof through the end of the employment term. Any such payments will be
reduced by amounts received from Worker's Compensation, Social Security and
disability insurance policies maintained by AOL 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 to the last
day of the month in which the death occurs.

    The expiration dates of these agreements and the amounts of the individual
life insurance coverage for the lifetime of such persons are: Mr.
Levin -- December 31, 2003 and $6 million; and Mr. Parsons -- January 31, 2005
and $5 million. Mr. Levin's agreement allows him, effective no earlier than
June 30, 2002 and with not less than six months' prior notice to AOL Time
Warner, to give up his executive positions and become an advisor to AOL Time
Warner for the remainder of the agreement term. In that case, his advisory
compensation would be equal to his annual salary. Mr. Parsons' agreement allows
him, effective on or after January 1, 2002 and with not less that six months'
prior notice to AOL Time Warner, to give up his executive positions and become
an advisor to AOL Time Warner for the remainder of the agreement term. In that
case, his advisory compensation would be equal to $500,000 per year. Messrs.
Bressler, Ripp and Bogart have ceased to be executive officers of Time Warner or
AOL Time Warner. The employment agreements of Messrs. Bressler and Bogart
provided for payments of a minimum salary and annual bonuses for a term of
employment through December 31, 2004 and, for Mr. Bogart, an advisory
period through January 2, 2009. Mr. Bressler's agreement also provided for
$4 million of split-dollar life insurance coverage for his lifetime,
contributions to a non-current compensation account equal to 50% of annual
salary, which would be invested and paid out as described below under
'Non-Current Compensation Accounts,' and either the award by AOL Time Warner of
annual grants of stock options for the remainder of his term of employment or
the value of such options in cash. AOL Time Warner remains obligated to pay
Messrs. Bressler and Bogart substantially in accordance with the terms of their
respective agreements. A portion of these payments for Mr. Bogart was paid in
2000 and is included under 'All Other Compensation' in the Summary Compensation
Table above. Mr. Ripp is a party to an advisory agreement with Time Warner
pursuant to which he receives an annual salary of $50,000 and retains
entitlements to certain Time Warner benefits through November 30, 2006.

NON-CURRENT COMPENSATION ACCOUNTS

    Pursuant to their employment agreements, Time Warner deposited non-current
compensation contributions for each named executive officer in 2000 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 AOL

                                     III-8





<PAGE>
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 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
AOL 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 AOL 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 the Deferred
Compensation Plan instead of the grantor trust accounts. This Plan, which has
been assumed by AOL Time Warner, 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 2000 and the portion, if any, of the 2000 annual
bonus elected to be deferred by any such officer are included in the amounts
shown in the Summary Compensation Table above. Effective January 4, 2001, AOL
Time Warner terminated the contributions to non-current compensation accounts on
behalf of its executive officers. Existing accounts will continue to be invested
and paid out in accordance with their terms.

TIME WARNER PENSION PLAN -- AOLTW

    The Time Warner Employees' Pension Plan (the 'Old Pension Plan'), which
provides benefits to eligible employees, including officers, of AOL Time Warner
and certain of its subsidiaries, was amended effective as of January 1, 2000, as
described below, and was renamed and assumed by AOL Time Warner in connection
with the Merger (the 'Amended Pension Plan' and, together with the Old Pension
Plan, the 'Pension Plans'). In addition, new employees of AOL Time Warner hired
on or after January 1, 2001, or employees transferring on or after that date
from a division of AOL Time Warner without a pension plan, will not be eligible
to participate in 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.

    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.


                                     III-9





<PAGE>
    Annual pension benefits under the Old Pension Plan are reduced by a Social
Security offset determined by a formula that takes into account benefit 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 adopted the Time Warner Excess Benefit Pension
Plan (the 'Excess Plan'), which provided for payments by AOL Time Warner of
certain amounts which employees of AOL Time Warner would have received under the
Pension Plans if eligible compensation were limited to $250,000 in 1994
(increased 5% per year thereafter) 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 through 2000. The benefit payable under the Excess Plan was
frozen for employees of AOL Time Warner, as described below, effective
December 31, 2000. No employee will receive less than the total accrued benefit
under the Pension Plans and the Excess Plan as of December 31, 2000. However,
going forward, the total benefit will not increase until such time as the
qualified portion under the Pension Plans exceeds the total benefit accrued as
of December 31, 2000 under the Pension Plans and the Excess Plan.

    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 AOL 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 BENEFIT 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, Ripp and Bogart 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 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 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, 2001, would be based on
average compensation of $729,248 for Mr. Levin; $304,600 for Mr. Parsons;
$304,600 for Mr. Bressler; $304,600 for Mr. Ripp; and $320,232 for Mr. Bogart,
with 28.8, 6.2, 12.2, 15.8 and 3.0 years of credited benefit service,
respectively. In addition, pursuant to his employment agreement, Mr. Parsons
will be entitled to receive supplemental payments from AOL Time Warner that
will achieve a total retirement benefit equal to what he would have received
if he had five additional years of benefit service under the Amended Pension
Plan. The estimated annual pension payable to Mr. Levin under the Old Pension
Plan and the Excess

                                     III-10





<PAGE>
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, 2001, the pro rata priority
capital and residual equity interests of each AOLTW General Partner and each
Limited Partner in TWE. Subsidiaries of AOL Time Warner and the AOLTW 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
AOLTW General Partner is a direct or indirect wholly owned subsidiary of AOL
Time Warner. MediaOne TWE Holdings, Inc. is a wholly owned subsidiary of AT&T
Corp.

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

LIMITED PARTNERS
----------------
MediaOne TWE Holdings, 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 TWE Holdings, Inc., Inc.: 188 Inverness Drive
West, Englewood, Colorado 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 AOL Time Warner
having more than 5% of the voting power of any class of AOL Time Warner's voting
securities and, unless otherwise indicated, is based on information provided to
AOL Time Warner as of January 31, 2001 by the beneficial owner. Subsidiaries of
AOL Time Warner collectively own 74.49% of the pro rata priority capital and
residual equity partnership interests in TWE.

<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>
AOL TIME WARNER COMMON STOCK
Janus Capital Corporation(3) ...............................  260,719,334        6.1%        6.0%
  100 Fillmore Street
  Denver, CO 80206
AOL TIME WARNER SERIES LMCN-V STOCK
Liberty Media Corporation(4) ...............................  171,185,826      100.0%       *
  9197 South Peoria Street
  Englewood, CO 80112
</TABLE>

---------

 *  Less than 1%.

(1) Under certain circumstances, each share of AOL Time Warner Series LMCN-V
    Common Stock is convertible into one share of AOL 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, 2000, adjusted to reflect the
    exchange ratios of common stock of Time Warner and America Online for AOL
    Time Warner Common Stock in the Merger. Janus Capital Corporation, an
    investment adviser, has filed with the Securities and Exchange Commission
    ('SEC') Amendment No. 3, dated February 15, 2001, to its statement on
    Schedule 13G with respect to Time Warner 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
                                              (footnotes continued on next page)

                                     III-11





<PAGE>
(footnotes continued from previous page)
    12.2% of Janus Capital Corporation and (c) the shares of AOL Time Warner
    Common Stock reported as beneficially owned include 6,795,595 shares of AOL
    Time Warner Common Stock reported as issuable upon conversion of convertible
    securities (these shares have been excluded from the calculation of voting
    power). In addition, Janus Capital Corporation has filed with the SEC a
    Form 13F Holdings Report indicating holdings of common stock of America
    Online as of December 31, 2000; these shares are included in the total.

(4) Consists of shares beneficially owned by Liberty Media Corporation, through
    its direct and indirect subsidiaries. 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 AOL Time Warner Series LMCN-V Common Stock.

SECURITY OWNERSHIP OF MANAGEMENT

    The following table sets forth as of January 31, 2001 for each current
representative of TWE and each current member of the board of directors of one
or more of the AOLTW General Partners, the five most highly compensated
executive officers of TWE and the AOLTW General Partners in 2000 and for all
current representatives, directors and executive officers of TWE and the AOLTW
General Partners as a group, information concerning the beneficial ownership of
AOL 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(8)....................................         121      200,001     *
Richard J. Bressler(8)......................................     103,982    1,312,601     *
Stephen M. Case(3)..........................................  10,829,473   19,973,700     *
Gerald M. Levin(4)(8).......................................   2,654,536    9,066,254     *
Kenneth J. Novack(5)........................................       4,196    5,093,969     *
Richard D. Parsons(6)(8)....................................      38,020    3,250,003     *
Robert W. Pittman(7)........................................      14,601    6,572,255     *
Joseph A. Ripp(8)...........................................      19,671      441,501     *
David Barach................................................      --           --         *
William Prip................................................      --           --         *
All current representatives, directors and executive
  officers (14 persons) as a group(2)-(8)...................  14,157,707   51,167,458     1.5%
</TABLE>
---------
* Represents beneficial ownership of less than one percent of issued and
  outstanding stock on January 31, 2001.

(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 AOL Time Warner Common Stock which may be
    held by the AOLTW General Partners or other AOL 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 January 31, 2001, the
    only equity securities of AOL Time Warner beneficially owned by the named
    persons or group were shares of AOL Time Warner Common Stock and options to
    purchase AOL Time Warner Common Stock.

(2) Reflects shares of AOL Time Warner Common Stock subject to options to
    purchase AOL Time Warner Common Stock which, on January 31, 2001, 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.' 294,000
    of the stock options shown for Mr. Bressler and 2,297,255 of the stock
    options shown for Mr. Pittman have been transferred to limited partnerships
    owned by their respective families.

(3) Includes 243,752 shares of AOL Time Warner Common Stock held by Mr. Case's
    wife and 1,323,080 shares of AOL Time Warner Common Stock held by the
    Stephen M. Case Foundation. Mr. Case and his wife are the sole directors of
    this Foundation but do not exercise day-to-day investment authority. Mr.
    Case disclaims beneficial ownership of shares held by his wife and the
    Stephen M. Case Foundation.

(4) Includes 45,000 shares of AOL Time Warner Common Stock held by Mr. Levin's
    wife and 327,000 shares of AOL Time Warner Common Stock held by The Barbara
    J. and Gerald M. Levin Family Foundation of which Mr. Levin and his wife are
    the co-trustees. Mr. Levin disclaims beneficial ownership of shares held by
    his wife and The Barbara J. and Gerald M. Levin Family Foundation.

(5) Includes 750 shares of AOL Time Warner Common Stock held by an irrevocable
    trust for the benefit of Mr. Novack's children, one of whom is a minor, and
    525 shares of AOL Time Warner Common Stock held by the Novack Family
    Foundation of which Mr. Novack and his wife are two of seven trustees. Mr.
    Novack disclaims beneficial ownership of shares held by the trust and the
    Novack Family Foundation.

(6) Includes 200 shares of AOL Time Warner Common Stock held by Mr. Parsons'
    wife and 2,000 shares of AOL Time Warner Common Stock held by The Parsons
    Family Foundation, Inc. of which Mr. Parsons is one of six directors. Mr.
    Parsons disclaims beneficial ownership of shares held by his wife and The
    Parsons Family Foundation, Inc.

(7) Includes 1,920 shares of AOL Time Warner Common Stock held by the Pittman
    Family Foundation of which Mr. Pittman is the sole trustee. Mr. Pittman
    disclaims beneficial ownership of the shares held by the Pittman Family
    Foundation.

(8) Includes an aggregate of (a) approximately 41,439 shares of AOL Time Warner
    Common Stock held by a trust under an employee stock plan of AOL Time Warner
    and its subsidiaries for the benefit of current representatives, directors
    and executive officers (including 33,261 shares for Mr. Levin and 525 shares
    for Mr. Parsons), (b) 304,102 shares of AOL Time Warner Common Stock
    beneficially owned by certain relatives of such persons and (c) 3,097,255
    stock options that have been transferred to entities for the benefit of
    relatives of such persons. Also includes for Messrs. Bogart, Bressler and
    Ripp, respectively, approximately 121 shares, 13,637 shares and 19,071
    shares of AOL Time Warner Common Stock held by the trust under the Savings
    Plan.
                                     III-12





<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CORPORATE SERVICES

    AOL 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 $74 million, $73 million
and $72 million in 2000, 1999 and 1998, respectively.

OPTION REIMBURSEMENT

    Upon the exercise of options to purchase securities of AOL Time Warner by
any officer or other employee of TWE or of any 'strategic venture' of TWE,
including, without limitation, TWE Japan, or of AOL Time Warner or any of its
subsidiaries who in such capacity performs substantially all of his or her
duties on behalf of TWE or any such 'strategic venture,' TWE or such 'strategic
venture' must reimburse AOL 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, 2000, TWE had accrued $681 million 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 $35 million for each one dollar increase (decrease) in the
closing price of AOL Time Warner Common Stock. See Notes 10 and 11 to the TWE
consolidated financial statements, which are presented as Exhibit 99.1 to AOL
Time Warner's Current Report on Form 8-K/A dated January 11, 2001 (filed
February 9, 2001), which is incorporated herein by reference.

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 16 to TWE's consolidated
financial statements included at pages F-30 and F-31 of Exhibit 99.1 to AOL Time
Warner's Current Report on Form 8-K/A dated January 11, 2001 (filed February 9,
2001), which is incorporated herein by reference and Note 14 to the AOLTW
General Partner's consolidated financial statements included at page F-24 of
Exhibit 99.2 to AOL Time Warner's Current Report on Form 8-K/A dated
January 11, 2001 (filed February 9, 2001), which is incorporated herein by
reference.

    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
AOLTW General Partner's consolidated financial statements at page F-18 of
Exhibit 99.2 to AOL Time Warner's Current Report on Form 8-K/A dated
January 11, 2001 (filed February 9, 2001), which is incorporated herein by
reference.

                                     III-13





<PAGE>
                                    PART IV

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

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

    The consolidated financial statements and schedules set forth in
Exhibits 99.1 and 99.2 of AOL Time Warner's Current Report on Form 8-K/A dated
January 11, 2001 (filed February 9, 2001), 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, 2000.

                                      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 APRIL 2, 2001.

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

                           By: /s/ J. MICHAEL KELLY
                               ___________________________________________
                               NAME: J. MICHAEL KELLY
                              TITLE:  EXECUTIVE VICE PRESIDENT AND CHIEF
                               FINANCIAL OFFICER

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

                           By: /s/ J. MICHAEL KELLY
                               ___________________________________________
                               NAME: J. MICHAEL KELLY
                              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 APRIL 2, 2001.

<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/ J. MICHAEL KELLY               Executive Vice President and Chief Financial
--------------------------------------------     Officer of each Registrant (Principal
             (J. MICHAEL KELLY)                  Financial Officer)

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

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

           /s/ ROBERT W. PITTMAN               Director of ATC and WCI
--------------------------------------------
             (ROBERT W. PITTMAN)
</TABLE>

                                      V-1





<PAGE>

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

DESCRIPTION OF BUSINESS

    For the year ended December 31, 2000 Time Warner Entertainment Company,
L.P. ('TWE' or the 'Company') classified 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 managed 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.

    Effective 2001, the Digital Media properties have been allocated to the
business segments responsible for managing these operations going forward.

USE OF EBITA

    During 2000, TWE evaluated operating performance based on several factors,
including its primary financial measure of business segment 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.

AMERICA ONLINE -- TIME WARNER MERGER

    On January 11, 2001, America Online, Inc. ('America Online') and Time Warner
consummated the previously announced agreement to merge (the 'Merger') to form
AOL Time Warner Inc. ('AOL Time Warner'). As a result of the Merger, America
Online and Time Warner became wholly owned subsidiaries of AOL Time Warner. The
former shareholders of America Online have an approximate 55% interest in AOL
Time Warner and the former shareholders of Time Warner have an approximate 45%
interest in AOL Time Warner, expressed on a fully diluted basis. The Merger will
be accounted for by AOL Time Warner as an acquisition of Time Warner under the
purchase method of accounting for business combinations during the first quarter
of 2001. Under the purchase method of accounting, the estimated cost of
approximately $147 billion to acquire Time Warner, including transaction costs,
will be allocated to its underlying net assets, including the net assets of TWE
to the extent acquired, in proportion to their respective fair values. Any
excess of the purchase price over the estimated fair values of the net assets
acquired will be recorded as goodwill.

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 2000, the items included (i) a net pretax gain of $65 million,
principally relating to additional proceeds received in connection with the 1999
sale of an interest in CanalSatellite, a satellite television platform servicing
France and Monaco, (ii) a $50 million pretax charge related to the Six Flags
Entertainment Corporation ('Six

                                      F-1





<PAGE>

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

Flags') litigation, (iii) a pretax gain of $10 million relating to the partial
recognition of a deferred gain on the 1998 sale of Six Flags, (iv) a pretax
charge of approximately $35 million relating to a restructuring of the Road
Runner joint venture, formed with a subsidiary of AT&T Corp. ('MediaOne') to
operate Time Warner Cable's and MediaOne's high-speed online businesses and (v)
a noncash charge of $524 million reflecting the cumulative effect of an
accounting change in connection with the adoption of a new film accounting
standard.

    For 1999, the items included (i) net pretax gains of $2.119 billion relating
to the sale or exchange of various cable television systems and investments,
(ii) pretax gains of $40 million relating to the partial recognition of a
deferred gain on the 1998 sale of Six Flags, (iii) an approximate $215 million
net pretax gain recognized in connection with the early termination and
settlement of a long-term, home video distribution agreement, (iv) an
approximate $97 million pretax gain recognized in connection with the sale of an
interest in CanalSatellite and (v) a noncash pretax charge of approximately $106
million relating to Warner Bros.'s retail stores.

    For 1998, the items included (i) net pretax gains of approximately $90
million relating to the sale or exchange of various cable television systems and
investments, (ii) pretax gains of $30 million relating to the partial
recognition of a deferred gain on the 1998 sale of Six Flags and (iii) a pretax
charge of approximately $210 million principally to reduce TWE's carrying value
of its investment in Primestar, Inc. ('Primestar').

    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 significant nonrecurring items. 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.

REVENUE CLASSIFICATION CHANGES

    In the fourth quarter of 2000, TWE adopted Securities and Exchange
Commission Staff Accounting Bulletin No. 101, 'Revenue Recognition in Financial
Statements' ('SAB 101'). SAB 101 clarifies certain existing accounting
principles for the timing of recognition and the classification of revenues in
financial statements. Because TWE's existing revenue recognition policies are
consistent with the provisions of SAB 101, the new rules did not have a
significant effect on TWE's consolidated financial statements.

                                      F-2





<PAGE>

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

                             RESULTS OF OPERATIONS

2000 VS. 1999

    EBITA and operating income are as follows:

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                    -------------------------------------
                                                         EBITA         OPERATING INCOME
                                                    ---------------   -------------------
                                                     2000     1999      2000       1999
                                                     ----     ----      ----       ----
                                                                 (MILLIONS)
<S>                                                 <C>      <C>      <C>        <C>
Filmed Entertainment -- Warner Bros.(a)...........  $  592   $  787    $  470     $  665
Broadcasting -- The WB Network....................     (62)     (92)      (67)       (96)
Cable Networks -- HBO.............................     596      527       596        527
Cable(b)..........................................   1,624    3,517     1,186      3,139
Digital Media.....................................     (59)      (8)      (59)        (8)
                                                    ------   ------    ------     ------
    Total.........................................  $2,691   $4,731    $2,126     $4,227
                                                    ------   ------    ------     ------
                                                    ------   ------    ------     ------
</TABLE>

---------

 (a) Includes net pretax gains of approximately $65 million recognized in 2000
     and $97 million recognized in 1999, principally relating to the sale of an
     interest in CanalSatellite, a pretax charge of $24 million recognized in
     2000 in connection with the Six Flags litigation, pretax gains of $10
     million recognized in 2000 and $40 million recognized in 1999 related to
     the partial recognition of a deferred gain in connection with the 1998 sale
     of Six Flags, a pretax gain of approximately $215 million recognized in
     1999 relating to the early termination and settlement of a long-term, home
     video distribution agreement and a noncash pretax charge of $106 million
     recognized in 1999 relating to Warner Bros.'s retail stores.

 (b) Includes net pretax gains relating to the sale or exchange of certain cable
     television systems and investments of $2.119 billion recognized in 1999.

CONSOLIDATED RESULTS

    TWE had revenues of $13.982 billion, income of $753 million before the
cumulative effect of an accounting change and net income of $229 million for the
year ended December 31, 2000, compared to revenues of $13.164 billion and net
income of $2.759 billion for the year ended December 31, 1999.

    As previously described, the comparability of TWE's operating results for
2000 and 1999 has been affected by certain significant, nonrecurring items
recognized in each period. These items aggregated approximately $10 million of
net pretax losses in 2000, compared to approximately $2.365 billion of net
pretax income in 1999. In addition, net income in 2000 was reduced by a charge
of $524 million relating to the cumulative effect of an accounting change.

    TWE had net income of $229 million in 2000, compared to $2.759 billion in
1999. However, excluding the significant effect of the nonrecurring items
referred to above, net income increased by $195 million to $763 million in 2000
from $394 million in 1999. As discussed more fully below, this increase
principally resulted from an overall increase in TWE's business segment
operating income, offset in part by higher losses from certain investments
accounted for under the equity method and higher interest expense principally
due to higher market interest rates on variable-rate debt.

    As a U.S. partnership, TWE is not subject to U.S. federal and state income
taxation. Income and withholding taxes of $157 million and $150 million for the
years ended December 31, 2000 and 1999, respectively, have been provided for the
operations of TWE's domestic and foreign subsidiary corporations.

BUSINESS SEGMENT RESULTS

    Filmed Entertainment -- Warner Bros. Revenues decreased to $6.604 billion in
2000, compared to $6.628 billion in 1999. EBITA, including the effect on
operating trends of one-time items recognized in each period, decreased to $592
million in 2000 from $787 million in 1999. Operating income, including the
effects of one-time items, similarly decreased to $470 million in 2000 from
$665 million in 1999. Revenues decreased

                                      F-3





<PAGE>

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

primarily due to lower revenues from domestic syndicated television exhibition
relating to the 1999 initial off-network availability of the popular television
series The Drew Carey Show, lower revenues from worldwide theatrical exhibition,
principally relating to 1999's highly successful release of The Matrix and lower
revenues from consumer product operations. This decrease was principally offset
by higher revenues from the distribution of theatrical product due to higher
worldwide DVD sales and improved revenues from the distribution of television
product through basic cable, broadcast network and international syndicated
television exhibition.

    The operating results in both periods were affected by certain one-time
items which include net pretax gains of $65 million recognized in 2000 and $97
million recognized in 1999, principally relating to the sale of an interest in
CanalSatellite, a pretax charge of $24 million recognized in 2000 relating to
the Six Flags litigation, pretax gains of $10 million recognized in 2000 and $40
million recognized in 1999 relating to the partial recognition of a deferred
gain on the 1998 sale of Six Flags, a $215 million net pretax gain recognized in
1999 in connection with the early termination and settlement of a long-term,
home video distribution agreement and a noncash pretax charge of $106 million
recognized in 1999 relating to Warner Bros.'s retail stores. Excluding the
impact of these items, EBITA and operating income were flat principally as a
result of the declines in revenue offset by lower film and television costs. In
early 2001, in connection with the Merger, Warner Bros. announced its plans to
divest its retail store operations.

    Broadcasting -- The WB Network. Revenues increased to $453 million in 2000,
compared to $384 million in 1999. EBITA improved to a loss of $62 million in
2000 from a loss of $92 million in 1999. Operating losses decreased to $67
million in 2000 from $96 million in 1999. Revenues increased principally as a
result of one additional night of 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 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
EBITA and operating loss improvements were principally due to the revenue gains,
which more than offset higher programming costs associated with the expanded
programming schedule.

    Cable Networks -- HBO. Revenues increased to $2.270 billion in 2000,
compared to $2.169 billion in 1999. EBITA and operating income increased to $596
million in 2000 from $527 million in 1999. Revenues benefited primarily from an
increase in subscriptions to 36.9 million at the end of 2000, compared to 35.7
million at the end of 1999. The increase in EBITA and operating income was
principally due to the revenue gains, increased cost savings and higher income
from Comedy Central, a 50%-owned equity investee.

    Cable. Revenues increased to $5.159 billion in 2000, compared to $4.496
billion in 1999. EBITA, including the effect on operating trends of one-time
items recognized in each period, decreased to $1.624 billion in 2000 from $3.517
billion in 1999. Operating income similarly decreased to $1.186 billion in 2000
from $3.139 billion in 1999 due to the one-time items. Revenues increased due to
growth in basic cable subscribers, increases in basic cable rates, increases in
advertising revenues and increases from the deployment of digital cable and
high-speed online services. The operating results of the Cable segment were
affected by net pretax gains of approximately $2.119 billion in 1999 relating to
the sale or exchange of various cable television systems and investments.
Excluding the effect of these items, EBITA and operating income increased
principally as a result of the revenue gains and pension-related cost savings,
offset in part by higher programming costs and higher depreciation related to
capital spending.

    As of December 31, 2000 and 1999, there were 12.8 million and 12.6 million
subscribers, respectively, under the management of TWE's Cable division.

    Digital Media. The Digital Media segment had $59 million of operating losses
on $5 million of revenues in 2000, compared to $8 million of operating losses on
$1 million of revenues in 1999.

    Interest Expense, Net. Interest expense, net, increased to $656 million of
expense in 2000, compared to $561 million of expense in 1999 as a result of
higher market interest rates on variable-rate debt and $26 million of additional
interest expense recorded in 2000 in connection with the Six Flags litigation.

                                      F-4





<PAGE>

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

    Other Income (Expense), Net. Other income (expense), net, increased to $278
million of expense in 2000, compared to $257 million of expense in 1999,
primarily due to higher losses from certain investments accounted for under the
equity method.

    Minority Interest. Minority interest expense decreased to $208 million in
2000, compared to $427 million in 1999. The decrease in minority interest
expense was principally 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 1999 gains, minority interest expense decreased
principally due to a higher allocation of losses in 2000 to a minority partner
in The WB Network.

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) Includes pretax gains of $40 million recognized in 1999 and $30 million
     recognized in 1998 related to the partial recognition of a deferred gain in
     connection with the 1998 sale of Six Flags, a pretax gain of $215 million
     recognized in 1999 relating to the early termination and settlement of a
     long-term, home video distribution agreement, a $97 million pretax gain
     recognized in 1999 relating to the sale of an interest in CanalSatellite
     and a noncash charge of $106 million recognized in 1999 relating to Warner
     Bros.'s retail stores.

 (b) Includes net pretax gains relating to the sale or exchange of certain cable
     television systems and investments of $2.119 billion recognized in 1999 and
     $90 million recognized 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
$2.365 billion of net pretax income in 1999, compared to $90 million of net
pretax losses in 1998.

    TWE had net income of $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 $139 million to $569 million in
1999 from $430 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.

                                      F-5





<PAGE>

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

BUSINESS SEGMENT RESULTS

    Filmed Entertainment -- Warner Bros. Revenues increased to $6.628 billion in
1999, compared to $6.051 billion in 1998. EBITA, including the effect on
operating trends of one-time items recognized in each period, increased to $787
million in 1999 from $498 million in 1998. Operating income similarly 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 pretax gains of $40 million relating
to the partial recognition of a deferred gain on the 1998 sale of Six Flags, an
approximate $215 million 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.' retail stores. The operating results for 1998 include pretax
gains of $30 million relating to the partial recognition of a deferred gain on
the 1998 sale of Six Flags. Excluding the impact of these 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 was expected
to be executed largely over a three-year period and involved 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. In
early 2001, in connection with the Merger, Warner Bros. announced its plans to
divest its retail store operations.

    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, including the effect on operating trends of one-time
items recognized in each period, increased to $3.517 billion in 1999 from $1.369
billion in 1998. Operating income similarly 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

                                      F-6





<PAGE>

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

1998 related to the sale or exchange of various cable television systems and
investments. The 1998 Cable Transactions 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 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, (ii) the transfer of Time Warner Cable's direct
broadcast satellite operations to Primestar effective as of April 1, 1998,
(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, (iv) the reorganization of Time Warner's, TWE's and
TWE-A/N's business telephony operations, effective as of July 1, 1998 and
(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. 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. Excluding the
effect of these items, 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. Digital Media had $8 million of
operating losses on $1 million of revenues during 1999.

    Interest Expense, Net. Interest expense, net, decreased to $561 million of
expense in 1999, compared to $566 million of expense in 1998, principally due to
interest savings associated with the Company's 1998 debt reduction efforts.

    Other Income (Expense), Net. Other income (expense), net, decreased to $257
million of expense in 1999, compared to $379 million of expense 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 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.

FINANCIAL CONDITION AND LIQUIDITY
DECEMBER 31, 2000

2000 FINANCIAL CONDITION

    At December 31, 2000, TWE had $7.1 billion of debt, $306 million of cash and
equivalents (net debt of $6.8 billion) and $6.9 billion of partners' capital.
This compares to $6.7 billion of debt, $517 million of cash and equivalents (net
debt of $6.2 billion) and $7.1 billion of partners' capital at December 31,
1999.

SENIOR CAPITAL DISTRIBUTIONS

    In July 1999, TWE paid a $627 million distribution to two wholly owned
subsidiaries of Time Warner that are the general partners of TWE. The payment
was 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

                                      F-7





<PAGE>

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

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 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 2000, TWE's cash provided by operations amounted to $2.576 billion
and reflected $2.691 billion of business segment EBITA, $917 million of noncash
depreciation expense and $209 million of net proceeds received under TWE's asset
securitization program, less $536 million of interest payments, $107 million of
income taxes, $74 million of corporate expenses and $524 million related to an
increase in working capital requirements, other balance sheet accounts and
noncash items. Cash provided by operations of $2.713 billion in 1999 reflected
$4.731 billion of business segment EBITA and $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 asset securitization program and $41
million related to an increase in working capital requirements, other balance
sheet accounts and noncash items.

    Cash used by investing activities was $2.138 billion in 2000, compared to
$605 million in 1999. The increase principally resulted from a decrease in cash
proceeds from the sale of investments, higher capital expenditures and the
absence in 2000 of the 1999 collection of TWE's $400 million loan to Time
Warner. Capital expenditures increased to $1.926 billion in 2000, compared to
$1.475 billion in 1999, reflecting higher spending on variable capital to
facilitate a more aggressive roll-out of Time Warner Cable's popular digital
cable and high-speed online services.

    Cash used by financing activities was $649 million in 2000, compared to
$1.678 billion in 1999. The use of cash in 2000 principally resulted from the
payment of $1.0 billion of capital distributions to Time Warner, offset in part
by $451 million of proceeds from additional borrowings. The use of cash in 1999
principally resulted from the redemption of preferred stock of a subsidiary 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.

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

CABLE CAPITAL SPENDING

    Time Warner Cable has been engaged in a plan to upgrade the technological
capability and reliability of its cable television systems and develop new
services, which it believes will position the business for sustained, long-term
growth. Capital spending by TWE's Cable division amounted to $1.793 billion in
2000, compared to $1.319 billion in 1999. Capital spending by TWE's Cable
division for 2001 is expected to remain at comparable levels, reflecting
spending on variable capital to facilitate the continued roll-out of Time Warner
Cable's popular digital cable and high-speed online services. 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,
2000, Time Warner Cable fulfilled its $4 billion commitment and has extended
certain upgrades beyond 2000 for those systems acquired during the period of the
agreement.

                                      F-8





<PAGE>

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

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.

  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.'s 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 such time they are acquired in a business combination
accounted for by the purchase method of accounting. Accordingly, such intangible
assets have significant off-balance sheet asset value that is not fully
reflected in TWE's consolidated balance sheet. However, because the America
Online-Time Warner merger will be accounted for under the purchase method of
accounting, the fair value of TWE's intangible assets, as determined as of the
date the Merger was consummated, will be recorded in connection with the
allocation of AOL Time Warner's cost to acquire Time Warner.

    For example, 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 and DVD, and potentially, the
introduction of video-on-demand, have historically generated significant revenue
opportunities through the repackaging and sale of such copyrighted products in
the new technological format.

  Warner Bros. Backlog

    Warner Bros.'s backlog represents 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. Warner Bros.'s backlog amounted to $2.913 billion at December 31,
2000, compared to $3.033 billion at December 31, 1999 (including amounts
relating to the licensing of film product to TWE's cable television networks of
$381 million and to Time Warner's cable television networks of $634 million at
December 31, 2000 and $365 million to TWE's cable television networks and $599
million to Time Warner's cable television networks at December 31, 1999).

    Because backlog generally relates to contracts for the licensing of
theatrical and television product which have already been produced, the
recognition of revenue for such completed product is principally only dependent
upon the commencement of the availability period for telecast under the terms of
the related licensing agreement. Cash licensing fees are collected periodically
over the term of the related licensing agreements or on an accelerated basis
using a $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, 2000, including cash received
under the securitization facility and other advanced payments, approximately
$735 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.

                                      F-9





<PAGE>

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

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, 2000, 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 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, 2000, Time Warner had contracts for the sale of $648 million and
the purchase of $582 million of foreign currencies at fixed rates. Of Time
Warner's $66 million net sale contract position, $198 million of the foreign
exchange sale contracts and $154 million of the foreign exchange purchase
contracts related to TWE's foreign currency exposure, compared to contracts for
the sale of $393 million and the purchase of $108 million of foreign currencies
at fixed rates at December 31, 1999.

    Based on Time Warner's outstanding foreign exchange contracts related to
TWE's exposure at December 31, 2000, each 5% devaluation of the U.S. dollar as
compared to the level of foreign exchange rates for currencies under contract at
December 31, 2000 would result in approximately $2 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, 2000 would result in $2 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.

                                      F-10





<PAGE>

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

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

    The Securities and Exchange Commission (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 'anticipates,'
'estimates,' '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 or
beliefs about future events. As with any projection or forecast, they are
inherently susceptible to uncertainty and 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 and 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. Other factors
could also cause actual results to differ from those contained in the
forward-looking statements, including 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,'
     open access or common carrier requirements); government regulation of other
     services, such as broadband cable modem service; increased difficulty in
     obtaining franchise renewals; the failure of new equipment (such as digital
     set-top boxes) or services (such as digital cable, high-speed online
     services, telephony over cable or video on demand) to appeal to enough
     consumers or to be available at reasonable prices, to function as expected
     and to be delivered in a timely fashion; fluctuations in spending levels by
     businesses and consumers; and greater than expected increases in
     programming or other costs.

     For TWE's networks businesses, greater than expected programming or
     production costs; a strike by television actors and writers; 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; the development of new technologies that alter the
     role of programming networks and services; and greater than expected
     fragmentation of consumer viewership due to an increased number of
     programming services or the increased popularity of alternatives to
     television.

     For TWE's film and television production businesses, their ability to
     continue to attract and select desirable talent and scripts at manageable
     costs; a strike by screen actors and writers; general increases in
     production costs; 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 the Internet.

    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, economic
slowdowns, consequences of the euro conversion and changes in TWE's plans,
strategies and intentions.

                                      F-11






<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' 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' 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, Time Warner Companies, Inc.
("TW Companies"), Turner Broadcasting System, Inc. and Time Warner Telecom
Inc., and its revolving credit agreement with TW Companies.

USE OF EBITA

    During 2000 WCI evaluated 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.

AMERICA ONLINE -- TIME WARNER MERGER

    On January 11, 2001, America Online, Inc. ('America Online') and Time Warner
Inc. ('Time Warner') consummated the previously announced agreement to merge
(the 'Merger') to form AOL Time Warner. The Merger was structured as a
stock-for-stock exchange. As a result of the Merger, America Online and Time
Warner became wholly owned subsidiaries of AOL Time Warner. The former
shareholders of America Online have an approximate 55% interest in AOL Time
Warner and the former shareholders of Time Warner have an approximate 45%
interest in AOL Time Warner, expressed on a fully diluted basis. The Merger will
be accounted for by AOL Time Warner as an acquisition of Time Warner under the
purchase method of accounting for business combinations during the first quarter
of 2001. Under the purchase method of accounting, the estimated cost of
approximately $147 billion to acquire Time Warner, including transaction costs,
will be allocated to its underlying net assets, including the net assets of the
General Partners, in proportion to their respective fair values. Any excess of
the purchase price over the estimated fair values of the net assets acquired
will be recorded as goodwill.

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
50-50 joint ventures, to be referred to collectively as Warner

                                      F-12





<PAGE>

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

EMI Music. On October 5, 2000, Time Warner and EMI terminated the merger
agreement and withdrew their application seeking approval of the transaction
from the European Union Commission.

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 MediaOne TWE Holdings, Inc.
('MediaOne'), a subsidiary of AT&T Corp.

TRANSACTIONS AFFECTING COMPARABILITY OF RESULTS OF OPERATIONS

    A significant portion of the General Partners' operating results is derived
from their investment in TWE. During each period, the comparability of TWE's
operating results, and each General Partners investment therein, has been
affected by certain significant transactions and nonrecurring items in each
period.

    For 2000, the items included (i) a net pretax gain of $65 million,
principally relating to additional proceeds received in connection with the 1999
sale of an interest in CanalSatellite, a satellite television platform servicing
France and Monaco, (ii) a $50 million pretax charge related to the Six Flags
Entertainment Corporation ('Six Flags') litigation, (iii) a pretax gain of $10
million relating to the partial recognition of a deferred gain on the 1998 sale
of Six Flags, (iv) a pretax charge of approximately $35 million relating to the
restructuring of the Road Runner joint venture, formed with MediaOne to operate
Time Warner Cable's and MediaOne's high-speed online businesses and (v) a
noncash charge of $524 million reflecting the cumulative effect of an accounting
change in connection with the adoption of a new film accounting standard.

    For 1999, the items included (i) net pretax gains of $2.119 billion relating
to the sale or exchange of various cable television systems and investments,
(ii) pretax gains of $40 million relating to the partial recognition of a
deferred gain on the 1998 sale of Six Flags, (iii) an approximate $215 million
net pretax gain recognized in connection with the early termination and
settlement of a long-term, home video distribution agreement, (iv) an
approximate $97 million pretax gain recognized in connection with the sale of an
interest in CanalSatellite and (v) a noncash pretax charge of approximately $106
million relating to Warner Bros.'s retail stores.

    For 1998, the items included (i) net pretax gains of approximately $90
million relating to the sale or exchange of various cable television systems and
investments, (ii) pretax gains of $30 million relating to the partial
recognition of a deferred gain on the 1998 sale of Six Flags and (iii) a pretax
charge of approximately $210 million principally to reduce TWE's carrying value
of its investment in Primestar, Inc. ('Primestar').

    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 significant nonrecurring items. 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.

CLASSIFICATION CHANGES

    In the fourth quarter of 2000, WCI adopted Securities and Exchange
Commission Staff Accounting Bulletin No. 101, 'Revenue Recognition in Financial
Statements' ('SAB 101'). SAB 101 clarifies certain existing accounting
principles for the recognition and classification of revenues in financial
statements. While

                                      F-13





<PAGE>

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

WCI's existing revenue recognition policies are consistent with the provisions
of SAB 101, the new rules result in changes as to how revenues and costs are
classified in WCI's Music operations. As a result of applying the provisions of
SAB 101, WCI's revenues and costs were increased by an equal amount of $135
million in 2000, $99 million in 1999 and $87 million in 1998, in the
accompanying consolidated statement of operations. Other aspects of SAB 101 did
not have a significant effect on WCI's or ATC's consolidated financial
statements.

    In addition, WCI's operating results for 1999 and 1998 reflect a change in
the way management evaluates its investment in the Columbia House Company
Partnerships ('Columbia House'), an equity investee. Effective on January 1,
2000, management reclassified WCI's share of the operating results of Columbia
House from business segment operating income to interest and other, net, in the
accompanying consolidated statement of operations. This reclassification
resulted primarily from the planned restructuring of Columbia House's
traditional direct-marketing business and an increasing dependency on the sale
of video product.

RESULTS OF OPERATIONS

2000 VS. 1999

    WCI had revenues of $4.148 billion, income of $246 million before a
cumulative effect of an accounting change and net income of $44 million in 2000,
compared to revenues of $3.933 billion and net income of $1.207 billion in 1999.
EBITA decreased to $443 million from $449 million. Operating income increased to
$202 million from $195 million. Revenues increased primarily due to higher
international recorded music sales and higher revenues from DVD manufacturing
operations, offset in part by lower domestic recorded music sales. Revenues
benefited principally from higher compact disc sales of a broad range of popular
releases, including the latest releases from Madonna, the Red Hot Chili Peppers,
The Corrs, Eric Clapton with B.B. King, and matchbox twenty. EBITA was
relatively flat and operating income increased due to the revenue gains, offset
in part by higher marketing and artist royalty costs and higher losses from
certain investments accounted for under the equity method of accounting.

    WCI's equity in the pretax income of TWE was $539 million in 2000, compared
to $1.724 billion in 1999. TWE's pretax income decreased in 2000 as compared to
1999 because of the effect of certain significant nonrecurring items recognized
in each period, as previously discussed. These nonrecurring items consisted of
approximately $10 million in net pretax losses in 2000, compared to
approximately $2.365 billion in net pretax income in 1999. In addition, net
income in 2000 was reduced by a charge of $524 million relating to the
cumulative effect of an accounting change. 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 losses from certain investments accounted for under the equity method of
accounting and higher interest expense principally due to higher market
interest rates on variable-rate debt.

    Interest expense was $10 million in 2000 and $14 million in 1999. There was
other expense, net, of $195 million in 2000, compared to other income, net, of
$141 million in 1999, principally because of an approximate $115 million noncash
pretax charge in 2000 to reduce the carrying value of WCI's investment in
Columbia House, higher losses from certain investments accounted for under the
equity method of accounting, merger-related costs relating to Time Warner's
recently terminated merger agreement with EMI and the absence in 2000 of an
approximate $53 million pretax gain in 1999 in connection with the initial
public offering of a 20% interest in Time Warner Telecom Inc. (the 'Time Warner
Telecom IPO'), a provider of local and regional optical broadband networks and
services to business customers.

    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-14





<PAGE>

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

1999 VS. 1998

    WCI had revenues of $3.933 billion and net income of $1.207 billion in 1999,
compared to revenues of $4.112 billion and net income of $218 million in 1998.
EBITA decreased to $449 million from $464 million. Operating income decreased to
$195 million from $203 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, offset in part by increased cost savings, lower artist royalty costs
and higher income from DVD manufacturing operations.

    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 previously discussed. These
nonrecurring items consisted of approximately $2.365 billion in net pretax gains
in 1999, compared to $90 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 expense increased to $14 million in 1999 from $13 million in 1998.
There was other income, net, of $141 million in 1999, compared to other income,
net, of $41 million in 1998, principally because of the recognition of an
approximate $53 million pretax gain in 1999 in connection with the Time Warner
Telecom IPO 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.

FINANCIAL CONDITION AND LIQUIDITY
DECEMBER 31, 2000

2000 FINANCIAL CONDITION

    WCI had $8.8 billion of equity at December 31, 2000, compared to $8.7
billion of equity at December 31, 1999. Cash and equivalents decreased to $36
million at December 31, 2000, compared to $107 million at December 31, 1999. 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, 2000 and December 31, 1999
consisted of equity capital of $2.1 billion. Although ATC has no independent
operations, it is expected that additional tax-related and other distributions
from TWE, as well as availability under ATC's revolving credit agreement with TW
Companies, will continue to be sufficient to satisfy ATC's obligations with
respect to its tax sharing agreement with TW Companies for the foreseeable
future.

CASH FLOWS

    In 2000, WCI's cash provided by operations of $449 million reflected $443
million of EBITA, $83 million of noncash depreciation expense and $594 million
of distributions from TWE, less $11 million of interest payments, $73 million of
income taxes, net of income tax refunds received ($107 million of which was paid
to Time Warner under a tax sharing agreement), $20 million of proceeds repaid
under WCI's asset securitization program and $567 million related to an increase
in other working capital requirements, balance sheet accounts and noncash items.
In 1999, WCI's cash provided by operations amounted to $69 million and reflected
$449

                                      F-15





<PAGE>

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

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 $219 million related to an
increase in other working capital requirements, balance sheet accounts and
noncash items.

    Cash used by investing activities was $215 million in 2000, compared to $80
million in 1999, principally as a result of the absence in 2000 of proceeds
received from the distribution of TWE Senior Capital in 1999.

    Cash used by financing activities was $305 million in 2000, compared to $42
million in 1999, principally as a result of an increase 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 2000,
the General Partners received an aggregate $1.003 billion of distributions from
TWE, consisting of $765 million of tax-related distributions and $238 million of
stock option related 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 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. Of such aggregate distributions, WCI received $594 million in
2000 and $711 million in 1999, and ATC received $409 million in 2000 and $489
million in 1999.

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, 2000, 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

                                      F-16





<PAGE>

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

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, 2000, Time Warner had contracts for the sale of $648
million and the purchase of $582 million of foreign currencies at fixed rates.
Of Time Warner's $66 million net sale contract position, $628 million of foreign
exchange sale contracts and $687 million of foreign exchange purchase contracts
related to WCI's foreign currency exposure, compared to contracts for the sale
of $442 million and the purchase of $217 million of foreign currencies at
December 31, 1999.

    Based on Time Warner's foreign exchange contracts outstanding related to
WCI's exposure at December 31, 2000, each 5% devaluation of the U.S. dollar as
compared to the level of foreign exchange rates for currencies under contract at
December 31, 2000 would result in approximately $3 million of net unrealized
gains on foreign exchange contracts. Conversely, a 5% appreciation of the U.S.
dollar would result in approximately $3 million of net unrealized losses.
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.

                                      F-17





<PAGE>
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                 SEQUENTIAL
     EXHIBIT                                                                        PAGE
     NUMBER                                DESCRIPTION                             NUMBER
     ------                                -----------                             ------
<C>                <S>                                                           <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') (the 'TWE Partnership
                   Agreement, as amended') (which is incorporated herein by
                   reference to Exhibit (A) to TWCI's Current Report on
                   Form 8-K dated October 29, 1991 (File No. 1-8637) and
                   Exhibits 10(b) and 10(c) to TWCI'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, Toshiba, TWCI, US 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 the Time Warner
                   Entertainment Company, L.P. ('TWE') Annual Report on
                   Form 10-K for the year ended December 31, 1993 (the 'TWE
                   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 the TWE 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 (the 'TWE 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 the TWE 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 the TWE 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 herein by
                   reference to Exhibit 3.3(vi) to TWE's Annual Report on
                   Form 10-K for the year ended December 31, 1997 (the 'TWE
                   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 the TWE 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 the TWE 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 the TWE 1993 Form 10-K).
</TABLE>





<PAGE>

<TABLE>
<CAPTION>
                                                                                 SEQUENTIAL
     EXHIBIT                                                                        PAGE
     NUMBER                                DESCRIPTION                             NUMBER
     ------                                -----------                             ------
<C>                <S>                                                           <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 the
                   TWE 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 the TWE 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
                   the TWE 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 (which is incorporated
                   herein by reference to Exhibit 3.4(vi) to TWE's Annual
                   Report on Form 10-K for the year ended December 31, 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, TWCI, certain of TWCI's subsidiaries that are
                   parties 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, TWCI, certain of TWCI's subsidiaries that are
                   parties thereto and BONY, as Trustee (which is incorporated
                   herein by reference to Exhibit 4.2 to Amendment No. 1 to
                   TWE's Registration Statement on Form S-4 (Registration
                   No. 33-67688) filed with the Commission on October 25, 1993
                   (the 'TWE 1993 Form S-4')).
     4.3           Third Supplemental Indenture, dated as of October 12, 1993,       *
                   among TWE, TWCI, certain of TWCI's subsidiaries that are
                   parties thereto and BONY, as Trustee (which is incorporated
                   herein by reference to Exhibit 4.3 to the 1993 TWE
                   Form S-4).
     4.4           Fourth Supplemental Indenture, dated as of March 29, 1994,        *
                   among TWE, TWCI, certain of TWCI's subsidiaries that are
                   parties thereto and BONY, as Trustee (which is incorporated
                   herein by reference to Exhibit 4.4 to the TWE 1993
                   Form 10-K).
     4.5           Fifth Supplemental Indenture, dated as of December 28, 1994,      *
                   among TWE, TWCI, certain of TWCI's subsidiaries that are
                   parties thereto and BONY, as Trustee (which is incorporated
                   herein by reference to Exhibit 4.5 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 ('Time Warner') Annual Report on Form 10-K for
                   the year ended December 31, 1997 (File No. 1-12259) (the
                   'Time Warner 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 the Time
                   Warner 1997 Form 10-K).
</TABLE>





<PAGE>

<TABLE>
<CAPTION>
                                                                                 SEQUENTIAL
     EXHIBIT                                                                        PAGE
     NUMBER                                DESCRIPTION                             NUMBER
     ------                                -----------                             ------
<C>                <S>                                                           <C>
    10.1           Credit Agreement dated as of November 10, 1997 among Time         *
                   Warner, TWCI, TWE, Turner Broadcasting System, Inc.,
                   ('TBS'), Time Warner Entertainment-Advance/Newhouse
                   Partnership (the 'TWE-A/N Partnership') and TWI Cable Inc.
                   ('TWI Cable'), as Credit Parties, The Chase Manhattan Bank
                   ('Chase Manhattan'), as Administrative Agent, Bank of
                   America National Trust and Savings Association ('Bank of
                   America'), BONY and Morgan Guaranty Trust Company of New
                   York ('Morgan'), as Documentation and Syndication Agents and
                   Chase Securities Inc. ('Chase Securities'), as Arranger
                   (which is incorporated herein by reference to Exhibit 10.26
                   to the Time Warner 1997 Form 10-K).
    10.2           Amendment No. 1 dated as of June 30, 2000 to the Credit           *
                   Agreement dated as of November 10, 1997 among Time Warner,
                   TWCI, TWE, TBS, TWE-A/N Partnership and TWI Cable, as Credit
                   Parties, Chase Manhattan, as Administrative Agent, Bank of
                   America, BONY and Morgan as Documentation and Syndication
                   Agents and Chase Securities, as Manager (which is
                   incorporated herein by reference to Exhibit 10.1 to Time
                   Warner's quarterly report on Form 10-Q for the quarter ended
                   June 30, 2000 (File No. 1-12259)).
    10.3           Admission Agreement, dated as of May 16, 1993, between TWE        *
                   and US West (which is incorporated herein by reference to
                   Exhibit 10(a) to TWE's Current Report on Form 8-K dated
                   May 16, 1993).
    10.4           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')).
    10.5           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).
    10.6           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).
    10.7           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).
    10.8           Amended and Restated Partnership Agreement of TWE-A/N             *
                   Partnership entered into as of February 1, 2001 by and
                   between TWE, Advance/Newhouse and Paragon Communications
                   ('Paragon') (which is incorporated herein by reference to
                   Exhibit 10.46 to AOL Time Warner Inc.'s Annual Report on
                   Form 10-K for the year ended December 31, 2000 (File
                   No. 1-15062) (the 'AOLTW 2000 Form 10-K')).
    10.9           First Amendment to the Amended and Restated Partnership           *
                   Agreement of TWE-A/N Partnership dated as of March 1, 2001
                   among TWE, Advance/Newhouse and Paragon (which is
                   incorporated herein by reference to Exhibit 10.47 to the
                   AOLTW 2000 Form 10-K).
    10.10          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).
</TABLE>





<PAGE>

<TABLE>
<CAPTION>
                                                                                 SEQUENTIAL
     EXHIBIT                                                                        PAGE
     NUMBER                                DESCRIPTION                             NUMBER
     ------                                -----------                             ------
<C>                <S>                                                           <C>
    10.11          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 (File No. 1-12259)).
    10.12          Transaction Agreement No. 2 dated as of June 23, 1998 among       *
                   Advance Publications, Newhouse Broadcasting,
                   Advance/Newhouse, TWE, Paragon and TWE-AN Partnership (which
                   is incorporated herein by reference to Exhibit 10.38 to Time
                   Warner's Annual Report on 1998 Form 10-K (File No. 1-12259)
                   (the 'Time Warner 1998 Form 10-K')).
    10.13          Transaction Agreement No. 3 dated as of September 15, 1998        *
                   among Advance Publications, Newhouse Broadcasting,
                   Advance/Newhouse, TWE, Paragon and TWE-AN Partnership (which
                   is incorporated herein by reference to Exhibit 10.39 to the
                   Time Warner 1998 Form 10-K).
    10.14          Amended and Restated Transaction Agreement No. 4 dated as of      *
                   February 1, 2001 among Advance Publications, Newhouse
                   Broadcasting, Advance/ Newhouse, TWE, Paragon and TWE-AN
                   Partnership (which is incorporated herein by reference to
                   Exhibit 10.52 to the AOLTW 2000 Form 10-K).
    10.15          Agreement Containing Consent Orders, including the Decision       *
                   and Order, between the Registrant and the Federal Trade
                   Commission signed December 13, 2000 (incorporated herein by
                   reference to Exhibit 99.2 to the AOL Time Warner Current
                   Report on Form 8-K dated January 11, 2001 (File
                   No. 1-15062) (the 'AOLTW January 2001 Form 8-K')).
    10.16          Order to Hold Separate issued by the Federal Trade                *
                   Commission dated December 14, 2000 (incorporated herein by
                   reference to Exhibit 99.3 to the AOLTW January 2001
                   Form 8-K).
    10.17          Public Notice issued by the Federal Communications                *
                   Commission dated January 11, 2001 (incorporated herein by
                   reference to Exhibit 99.4 to the AOLTW January 2001 Form 8-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 AOL Time Warner General
                   Partners.
    23.1           Consent of Ernst & Young LLP, Independent Auditors.
    99.1           Financial statements of TWE as of December 31, 2000 and 1999      *
                   and for each of the years ended December 31, 2000, 1999
                   and 1998, including the report thereon of Ernst & Young LLP,
                   Independent Auditors (which is incorporated herein by
                   reference to Exhibit 99.1 to the AOL Time Warner Current
                   Report on Form 8-K/A dated January 11, 2001, filed on
                   February 9, 2001 (File No. 1-15062) (the "AOLTW January
                   2001 Form 8-K/A")).
    99.2           Financial statements of TWE General Partners as of December 31,   *
                   2000 and 1999 and for each of the years ended December 31, 2000,
                   1999 and 1998, including the report thereon of Ernst & Young LLP,
                   Independent Auditors (which is incorporated herein by reference
                   to Exhibit 99.2 to the AOLTW January 2001 Form 8-K/A).
</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.