----

----

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, DC  20549**

**FORM 10-Q**

| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------------|

**For the Quarterly period ended June 30, 2001**

**OR**

| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

**For the Transition period from          to         .**

| Commission  | Registrant; State of Incorporation; | IRS Employer       |
|-------------|-------------------------------------|--------------------|
| File Number | Address; and Telephone Number       | Identification No. |
| 1-8946      | **CILCORP  Inc.**                   | 37-1169387         |
|        | (An Illinois Corporation)           |               |
|        | **300 Liberty Street**              |               |
|        | **Peoria, Illinois  61602**    |               |
|        | **(309) 677-5230**                  |               |

 

|   1-2732 | **CENTRAL  ILLINOIS LIGHT COMPANY** | 37-0211050  |
|---------------|-------------------------------------|------------------|
|          | (An Illinois Corporation)           |             |
|          | **300 Liberty Street**              |             |
|          | **Peoria, Illinois  61602**    |             |
|          | **(309) 677-5230**                  |             |

Indicate by check mark whether the Registrants (1) have filed allreports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theRegistrants were required to file such reports), and (2) have been subject tosuch filing requirements for the past 90 days.   Yes   ý   No  o

Indicate the number of shares outstanding of each of the issuer'sclasses of common stock, as of the latest practicable date:
| CILCORP Inc.                    | Common stock, no par  value  shares outstanding and privately held by The AES Corporation at   June 30, 2001 | 1,000      |
|---------------------------------|--------------------------------------------------------------------------------------------------------------|------------|
|                            |                                                                                                         |       |
|                            |                                                                                                         |       |
| CENTRAL ILLINOIS LIGHT  COMPANY | Common stock, no par  value, shares outstanding and privately held by CILCORP Inc. at June 30, 2001          | 13,563,871 |

----

----

**CILCORPINC.AND CENTRAL ILLINOIS LIGHT COMPANYFORM 10-Q FOR THE QUARTER ENDED June 30, 2001INDEX**

| PART I.    | FINANCIAL INFORMATION                                                                                                                   |                                  |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------|
| Item 1:    | Financial Statements                                                                                                                    |                                  |
|       | CILCORP INC.                                                                                                                            |                                  |
|       |                                                                                                                                    | Consolidated Balance Sheets           |   |
|       |                                                                                                                                    | Consolidated Statements of Operations |   |
|       |                                                                                                                                    | Consolidated Statements of Cash Flows |   |
|       | CENTRAL ILLINOIS LIGHT COMPANY                                                                                                          |                                  |
|       |                                                                                                                                    | Consolidated Balance Sheets           |   |
|       |                                                                                                                                    | Consolidated Statements of Income     |   |
|       |                                                                                                                                    | Consolidated Statements of Cash Flows |   |
|       | Statements of Segments of Business                                                                                                      |                                  |
|       | Notes to Consolidated Financial Statements                                                                                              |                                  |
|       | CILCORP Inc. and Central Illinois Light Company                                                                                         |                                  |
| Item 2:    | Management's Discussion and Analysis of Financial  Condition and Results of Operations CILCORP Inc. and Central Illinois Light  Company |                        |
| PART II.   | OTHER INFORMATION                                                                                                                       |                                  |
| Item 1:    | Legal Proceedings                                                                                                                       |                                  |
| Item 5:    | Other Information                                                                                                                       |                                  |
| Item 6:    | Exhibits and Reports on Form 8-K                                                                                                        |                                  |
| Signatures |                                                                                                                                    |                                  |

**PART I.  FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

**CILCORP INC. AND SUBSIDIARIESConsolidated Balance Sheets(In thousands)(Unaudited)**

|                                                              | June 30,                             |    | December 31, |    |
|-------------------------------------------------------------------|--------------------------------------|---------|--------------|---------|
|                                                              | 2001                                 |    | 2000         |    |
| ASSETS                                                            |                                 |    |         |    |
| Current assets:                                                   |                                 |    |         |    |
| Cash and temporary cash investments                               | $                                    | 11,046  |         | $       | 11,743 |   |
| Receivables, less reserves of $1,151 and $1,343                   | 88,753                               |    | 91,050       |    |
| Accrued unbilled revenue                                          | 27,017                               |    | 70,444       |    |
| Fuel, at average cost                                             | 16,166                               |    | 13,995       |    |
| Materials and supplies, at average cost                           | 18,567                               |    | 16,295       |    |
| Gas in underground storage, at average cost                       | 20,439                               |    | 28,413       |    |
| FAC/PGA underrecoveries                                           | 870                                  |    | 20,838       |    |
| Prepayments and other                                             | 9,029                                |    | 5,563        |    |
|                                                              |                                      |    |              |    |
|                                                              | Total current assets                 | 191,887 |         | 258,341 |   |
|                                                              |                                      |    |              |    |
| Investments and other property:                                   |                                 |    |         |    |
| Investment in leveraged leases                                    | 136,261                              |    | 140,936      |    |
| Other investments                                                 | 20,150                               |    | 21,056       |    |
|                                                              |                                      |    |              |    |
|                                                              | Total investments and other property | 156,411 |         | 161,992 |   |
|                                                              |                                      |    |              |    |
| Property, plant and equipment:                                    |                                 |    |         |    |
| Utility plant, at original cost                                   |                                 |    |         |    |
|                                                              | Electric                             | 703,065 |         | 695,220 |   |
|                                                              | Gas                                  | 221,063 |         | 218,710 |   |
|                                                              |                                      |    |              |    |
|                                                              | 924,128                              |    | 913,930      |    |
| Less - accumulated provision for depreciation                     | 97,273                               |    | 66,128       |    |
|                                                              |                                      |    |              |    |
|                                                              | 826,855                              |    | 847,802      |    |
| Construction work in progress                                     | 40,137                               |    | 29,213       |    |
| Other, net of depreciation                                        | 79                                   |    | 144          |    |
|                                                              |                                      |    |              |    |
|                                                              | Total property, plant and equipment  | 867,071 |         | 877,159 |   |
|                                                              |                                      |    |              |    |
| Other assets:                                                     |                                 |    |         |    |
| Goodwill, net of accumulated amortization of $26,087  and $18,422 | 586,877                              |    | 594,544      |    |
| Other                                                             | 68,495                               |    | 56,240       |    |
|                                                              |                                      |    |              |    |
| Total other assets                                                | 655,372                              |    | 650,784      |    |
|                                                              |                                      |    |              |    |
|                                                              | Total assets                         | $       | 1,870,741    |    | $ | 1,948,276 |   |
|                                                              |                                      |    |              |    |

See Notes to ConsolidatedFinancial Statements.

**CILCORPINC. AND SUBSIDIARIESConsolidated Balance Sheets(In thousands)(Unaudited)**

|                                                                                  | June 30,                                     |    | December 31, |    |
|---------------------------------------------------------------------------------------|----------------------------------------------|---------|--------------|---------|
|                                                                                  | 2001                                         |    | 2000         |    |
| LIABILITIES AND STOCKHOLDER'S EQUITY                                                  |                                         |    |         |    |
|                                                                                  |                                         |    |         |    |
| Current liabilities:                                                                  |                                         |    |         |    |
| Current portion of long-term debt                                                     | $                                            | 18,900  |         | $       | 17,500 |   |
| Notes payable                                                                         | 111,434                                      |    | 115,300      |    |
| Accounts payable                                                                      | 66,001                                       |    | 113,571      |    |
| Accrued taxes                                                                         | 19,476                                       |    | 20,170       |    |
| Accrued interest                                                                      | 17,386                                       |    | 18,495       |    |
| FAC/PGA overrecoveries                                                                | 1,841                                        |    | 7            |    |
| Other                                                                                 | 17,064                                       |    | 6,287        |    |
|                                                                                  |                                              |    |              |    |
|                                                                                  | Total current liabilities                    | 252,102 |         | 291,330 |   |
|                                                                                  |                                              |    |              |    |
| Long-term debt                                                                        | 719,106                                      |    | 720,482      |    |
|                                                                                  |                                              |    |              |    |
| Deferred credits and other liabilities:                                               |                                         |    |         |    |
| Deferred income taxes                                                                 | 188,386                                      |    | 198,577      |    |
| Regulatory liability of regulated subsidiary                                          | 43,147                                       |    | 42,752       |    |
| Deferred investment tax credits                                                       | 15,356                                       |    | 16,159       |    |
| Freeman contract liability                                                            | 83,524                                       |    | 90,574       |    |
| Other                                                                                 | 79,231                                       |    | 77,559       |    |
|                                                                                  |                                              |    |              |    |
|                                                                                  | Total deferred credits and other liabilities | 409,644 |         | 425,621 |   |
|                                                                                  |                                              |    |              |    |
| Preferred stock of subsidiary without mandatory  redemption                           | 19,120                                       |    | 19,120       |    |
| Preferred stock of subsidiary with mandatory  redemption                              | 22,000                                       |    | 22,000       |    |
|                                                                                  |                                              |    |              |    |
|                                                                                  | Total preferred stock of subsidiary          | 41,120  |         | 41,120  |   |
|                                                                                  |                                              |    |              |    |
| Stockholder's equity:                                                                 |                                         |    |         |    |
| Common stock, no par value; authorized 10,000 shares  – outstanding 1,000 shares | –                                       |    | –       |    |
| Additional paid-in capital                                                            | 468,833                                      |    | 468,833      |    |
| Retained earnings (deficit)                                                           | (12,745                                      | )       | 1,340        |    |
| Accumulated other comprehensive income (loss)                                         | (7,319                                       | )       | (450         | )       |
|                                                                                  |                                              |    |              |    |
|                                                                                  | Total stockholder's equity                   | 448,769 |         | 469,723 |   |
|                                                                                  |                                              |    |              |    |
|                                                                                  | Total liabilities and stockholder's equity   | $       | 1,870,741    |    | $ | 1,948,276 |   |
|                                                                                  |                                              |    |              |    |

See Notes to ConsolidatedFinancial Statements.

**CILCORP INC. AND SUBSIDIARIESConsolidated Statements ofOperations(In thousands)(Unaudited)**
|                                         | Three Months  Ended         |    | Six Months Ended |    |
|----------------------------------------------|-----------------------------|---------|------------------|---------|
|                                         | June 30,                    |    | June 30,         |    |
|                                         | 2001                        |    | 2000             |    | 2001 |   | 2000 |   |
| Revenue:                                     |                        |    |             |    |   |   |   |   |
| CILCO Electric                               | $                           | 92,299  |             | $       | 94,920 |   | $ | 181,299 |   | $ | 181,246 |   |
| CILCO Gas                                    | 41,746                      |    | 32,810           |    | 200,695 |   | 102,954 |   |
| CILCO Other                                  | 26,330                      |    | 10,469           |    | 39,284 |   | 18,853 |   |
| Other businesses                             | 9,525                       |    | 5,434            |    | 25,485 |   | 11,703 |   |
|                                         |                             |    |                  |    |  |   |  |   |
|                                         | Total                       | 169,900 |             | 143,633 |   | 446,763 |   | 314,756 |   |
|                                         |                             |    |                  |    |  |   |  |   |
| Operating expenses:                          |                        |    |             |    |   |   |   |   |
| Fuel for generation and purchased power      | 55,207                      |    | 49,419           |    | 102,450 |   | 88,672 |   |
| Gas purchased for resale                     | 33,411                      |    | 20,499           |    | 174,099 |   | 63,562 |   |
| Other operations and maintenance             | 34,074                      |    | 29,305           |    | 64,129 |   | 56,605 |   |
| Depreciation and amortization                | 21,820                      |    | 21,281           |    | 42,910 |   | 42,302 |   |
| Taxes, other than income taxes               | 8,811                       |    | 8,598            |    | 21,705 |   | 20,578 |   |
|                                         |                             |    |                  |    |  |   |  |   |
|                                         | Total                       | 153,323 |             | 129,102 |   | 405,293 |   | 271,719 |   |
|                                         |                             |    |                  |    |  |   |  |   |
| Fixed charges and other:                     |                        |    |             |    |   |   |   |   |
| Interest expense                             | 17,757                      |    | 17,243           |    | 35,666 |   | 34,586 |   |
| Preferred stock dividends of subsidiary      | 539                         |    | 1,058            |    | 1,079 |   | 1,898 |   |
| Allowance for funds used during construction | (26                         | )       | (99              | )       | (44 | ) | (202 | ) |
| Other                                        | 404                         |    | 246              |    | 618 |   | 521 |   |
|                                         |                             |    |                  |    |  |   |  |   |
|                                         | Total                       | 18,674  |             | 18,448  |   | 37,319 |   | 36,803 |   |
|                                         |                             |    |                  |    |  |   |  |   |
| Income (loss) before income taxes            | (2,097                      | )       | (3,917           | )       | 4,151 |   | 6,234 |   |
| Income taxes                                 | 213                         |    | (988             | )       | 3,236 |   | 3,454 |   |
|                                         |                             |    |                  |    |  |   |  |   |
|                                         | Net income (loss)           | (2,310  | )                | (2,929  | ) | 915 |   | 2,780 |   |
| Other comprehensive income (loss)            | (6,620                      | )       | —           |    | (6,869 | ) | — |   |
|                                         |                             |    |                  |    |  |   |  |   |
|                                         | Comprehensive income (loss) | $       | (8,930           | )       | $ | (2,929 | ) | $ | (5,954 | ) | $ | 2,780 |   |
|                                         |                             |    |                  |    |  |   |  |   |

See Notes to ConsolidatedFinancial Statements.

**CILCORP INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows(In thousands)(Unaudited)**

|                                                                               | Six Months Ended                                                                          |
|------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|
|                                                                               | June 30,                                                                                  |
|                                                                               | 2001                                                                                      |   | 2000 |   |
| Cash flows from operating activities:                                              |                                                                                      |   |   |   |
| Net income before preferred dividends of subsidiary                                | $                                                                                         | 1,994 |   | $ | 4,678 |   |
|                                                                               |                                                                                           |   |  |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |                                                                                      |   |   |   |
|                                                                               | Non-cash lease income and investment income                                               | (2,262 | ) | (4,598 | ) |
|                                                                               | Cash receipts in excess of debt service on leases                                         | 6,225 |   | 8,315 |   |
|                                                                               | Depreciation and amortization                                                             | 42,910 |   | 42,302 |   |
|                                                                               | Deferred income taxes, investment tax credit and  regulatory liability of subsidiary, net | (13,349 | ) | (7,873 | ) |
| Changes in operating assets and liabilities:                                       |                                                                                      |   |   |   |
|                                                                               | Decrease in accounts receivable and accrued unbilled  revenue                             | 42,662 |   | 6,606 |   |
|                                                                               | Decrease in inventories                                                                   | 3,531 |   | 6,493 |   |
|                                                                               | Increase (decrease) in accounts payable                                                   | (44,519 | ) | 11,356 |   |
|                                                                               | Decrease in accrued taxes                                                                 | (761 | ) | (10,913 | ) |
|                                                                               | (Increase) decrease in other assets                                                       | 2,428 |   | (11,732 | ) |
|                                                                               | Increase (decrease) in other liabilities                                                  | 11,517 |   | (4,314 | ) |
|                                                                               |                                                                                           |   |  |   |
|                                                                               | Total adjustments                                                                         | 48,382 |   | 35,642 |   |
|                                                                               |                                                                                           |   |  |   |
|                                                                               | Net cash provided by operating activities from  continuing operations                     | 50,376 |   | 40,320 |   |
|                                                                               |                                                                                           |   |  |   |
|                                                                               | Net cash provided (used) by operating activities of  discontinued operations              | 81 |   | (134 | ) |
|                                                                               |                                                                                           |   |  |   |
|                                                                               | Cash flow from operations                                                                 | 50,457 |   | 40,186 |   |
|                                                                               |                                                                                           |   |  |   |
| Cash flows from investing activities:                                              |                                                                                      |   |   |   |
| Additions to plant                                                                 | (24,532                                                                                   | ) | (23,831 | ) |
| Other                                                                              | (6,677                                                                                    | ) | (1,025 | ) |
|                                                                               |                                                                                           |   |  |   |
|                                                                               | Net cash used in investing activities                                                     | (31,209 | ) | (24,856 | ) |
|                                                                               |                                                                                           |   |  |   |
| Cash flow from financing activities:                                               |                                                                                      |   |   |   |
| Net increase (decrease) in short-term debt                                         | (3,866                                                                                    | ) | 7,800 |   |
| Net decrease in long-term debt                                                     | —                                                                                    |   | (22,000 | ) |
| Common dividends paid                                                              | (15,000                                                                                   | ) | (6,200 | ) |
| Subsidiary preferred dividends paid                                                | (1,079                                                                                    | ) | (1,898 | ) |
|                                                                               |                                                                                           |   |  |   |
|                                                                               | Net cash used in financing activities                                                     | (19,945 | ) | (22,298 | ) |
|                                                                               |                                                                                           |   |  |   |
| Net decrease in cash and temporary cash investments                                | (697                                                                                      | ) | (6,968 | ) |
| Cash and temporary cash investments at beginning of  year:                         | 11,743                                                                                    |   | 11,220 |   |
|                                                                               |                                                                                           |   |  |   |
| Cash and temporary cash investments at June 30                                     | $                                                                                         | 11,046 |   | $ | 4,252 |   |
|                                                                               |                                                                                           |   |  |   |
| Supplemental disclosures of cash flow information:                                 |                                                                                      |   |   |   |
| Cash paid during the period for:                                                   |                                                                                      |   |   |   |
|                                                                               | Interest                                                                                  | $ | 37,043 |   | $ | 37,149 |   |
|                                                                               | Income taxes                                                                              | $ | 9,411 |   | $ | 15,950 |   |

See Notes to ConsolidatedFinancial Statements.

**CENTRALILLINOIS LIGHT COMPANYConsolidated Balance Sheets****(In thousands)(Unaudited)**

|                                                                                                       | June 30,                                         |      | December 31, |    |
|------------------------------------------------------------------------------------------------------------|--------------------------------------------------|-----------|--------------|---------|
|                                                                                                       | 2001                                             |      | 2000         |    |
| ASSETS                                                                                                     |                                             |      |         |    |
| Utility plant, at original cost:                                                                           |                                             |      |         |    |
|                                                                                                       | Electric                                         | $         | 1,312,960    |    | $ | 1,305,115 |   |
|                                                                                                       | Gas                                              | 444,429   |         | 442,076 |   |
|                                                                                                       |                                                  |      |              |    |
|                                                                                                       | 1,757,389                                        |      | 1,747,191    |    |
|                                                                                                       | Less—accumulated provision for depreciation | 956,526   |         | 926,091 |   |
|                                                                                                       |                                                  |      |              |    |
|                                                                                                       | 800,863                                          |      | 821,100      |    |
| Construction work in progress                                                                              | 40,137                                           |      | 29,213       |    |
|                                                                                                       |                                                  |      |              |    |
|                                                                                                       | Total utility plant                              | 841,000   |         | 850,313 |   |
|                                                                                                       |                                                  |      |              |    |
| Other property and investments:                                                                            |                                             |      |         |    |
| Cash surrender value of company-owned life insurance  (net of related policy loans of $63,483 and $59,292) | 3,098                                            |      | 3,497        |    |
| Other                                                                                                      | 1,130                                            |      | 1,161        |    |
|                                                                                                       |                                                  |      |              |    |
|                                                                                                       | Total other property and investments             | 4,228     |         | 4,658   |   |
|                                                                                                       |                                                  |      |              |    |
| Current assets:                                                                                            |                                             |      |         |    |
| Cash and temporary cash investments                                                                        | 5,616                                            |      | 8,777        |    |
| Receivables, less reserves of $1,151 and $1,343                                                            | 76,835                                           |      | 60,148       |    |
| Accrued unbilled revenue                                                                                   | 24,857                                           |      | 64,339       |    |
| Fuel, at average cost                                                                                      | 16,166                                           |      | 13,995       |    |
| Materials and supplies, at average cost                                                                    | 15,822                                           |      | 15,807       |    |
| Gas in underground storage, at average cost                                                                | 20,439                                           |      | 28,413       |    |
| Prepaid taxes                                                                                              | 6,171                                            |      | 5,588        |    |
| FAC/PGA underrecoveries                                                                                    | 870                                              |      | 20,838       |    |
| Other                                                                                                      | 8,987                                            |      | 5,556        |    |
|                                                                                                       |                                                  |      |              |    |
|                                                                                                       | Total current assets                             | 175,763   |         | 223,461 |   |
|                                                                                                       |                                                  |      |              |    |
| Deferred debits:                                                                                           |                                             |      |         |    |
| Unamortized loss on reacquired debt                                                                        | 2,570                                            |      | 2,691        |    |
| Unamortized debt expense                                                                                   | 1,366                                            |      | 1,427        |    |
| Prepaid pension cost                                                                                       | 229                                              |      | 229          |    |
| Other                                                                                                      | 39,844                                           |      | 24,661       |    |
|                                                                                                       |                                                  |      |              |    |
|                                                                                                       | Total deferred debits                            | 44,009    |         | 29,008  |   |
|                                                                                                       |                                                  |      |              |    |
| Total assets                                                                                               | $                                                | 1,065,000 |         | $       | 1,107,440 |   |
|                                                                                                       |                                                  |      |              |    |
|                                                                                                            |                                                  |           |              |         |  |  |  |  |

See Notes to ConsolidatedFinancial Statements.

**CENTRALILLINOIS LIGHT COMPANYConsolidated Balance Sheets(In thousands)(Unaudited)**

|                                          | June 30,                                                                                      |      | December 31, |    |
|-----------------------------------------------|-----------------------------------------------------------------------------------------------|-----------|--------------|---------|
|                                          | 2001                                                                                          |      | 2000         |    |
| CAPITALIZATION AND LIABILITIES                |                                                                                          |      |         |    |
|                                          |                                                                                          |      |         |    |
| Capitalization:                               |                                                                                          |      |         |    |
| Common stockholder's equity:                  |                                                                                          |      |         |    |
|                                          | Common stock, no par value; authorized 20,000,000  shares; outstanding 13,563,871 shares | $         | 185,661      |    | $ | 185,661 |   |
| Additional paid-in capital                    | 27,000                                                                                        |      | 27,000       |    |
| Retained earnings                             | 129,190                                                                                       |      | 140,364      |    |
| Accumulated other comprehensive income (loss) | (7,844                                                                                        | )         | (975         | )       |
|                                          |                                                                                               |      |              |    |
|                                          | Total common stockholder's equity                                                             | 334,007   |         | 352,050 |   |
| Preferred stock without mandatory redemption  | 19,120                                                                                        |      | 19,120       |    |
| Preferred stock with mandatory redemption     | 22,000                                                                                        |      | 22,000       |    |
| Long-term debt                                | 244,107                                                                                       |      | 245,482      |    |
|                                          |                                                                                               |      |              |    |
|                                          | Total capitalization                                                                          | 619,234   |         | 638,652 |   |
|                                          |                                                                                               |      |              |    |
| Current liabilities:                          |                                                                                          |      |         |    |
| Current maturities of long-term debt          | 1,400                                                                                         |      | —       |    |
| Notes payable                                 | 80,434                                                                                        |      | 67,300       |    |
| Accounts payable                              | 55,686                                                                                        |      | 96,315       |    |
| Accrued taxes                                 | 24,351                                                                                        |      | 25,512       |    |
| Accrued interest                              | 7,985                                                                                         |      | 8,889        |    |
| FAC/PGA overrecoveries                        | 1,841                                                                                         |      | 7            |    |
| Other                                         | 16,992                                                                                        |      | 6,214        |    |
|                                          |                                                                                               |      |              |    |
|                                          | Total current liabilities                                                                     | 188,689   |         | 204,237 |   |
|                                          |                                                                                               |      |              |    |
| Deferred credits and other liabilities        |                                                                                          |      |         |    |
| Deferred income taxes                         | 114,004                                                                                       |      | 123,611      |    |
| Regulatory liability                          | 43,146                                                                                        |      | 42,752       |    |
| Deferred investment tax credit                | 15,356                                                                                        |      | 16,159       |    |
| Capital lease obligation                      | 315                                                                                           |      | 616          |    |
| Other                                         | 84,256                                                                                        |      | 81,413       |    |
|                                          |                                                                                               |      |              |    |
|                                          | Total deferred credits and other liabilities                                                  | 257,077   |         | 264,551 |   |
|                                          |                                                                                               |      |              |    |
| Total capitalization and liabilities          | $                                                                                             | 1,065,000 |         | $       | 1,107,440 |   |
|                                          |                                                                                               |      |              |    |
|                                               |                                                                                               |           |              |         |  |  |  |  |

See Notes to ConsolidatedFinancial Statements.

**CENTRALILLINOIS LIGHT COMPANYConsolidated Statements of Income****(In thousands)(Unaudited)**

|                               | Three Months  Ended                 |    | Six Months Ended |    |
|------------------------------------|-------------------------------------|---------|------------------|---------|
|                               | June 30,                            |    | June 30,         |    |
|                               | 2001                                |    | 2000             |    | 2001 |   | 2000 |   |
| Operating revenue:                 |                                |    |             |    |   |   |   |   |
| Electric                           | $                                   | 92,299  |             | $       | 94,920 |   | $ | 181,299 |   | $ | 181,246 |   |
| Gas                                | 41,746                              |    | 32,810           |    | 200,695 |   | 102,954 |   |
|                               |                                     |    |                  |    |  |   |  |   |
| Total operating revenues           | 134,045                             |    | 127,730          |    | 381,994 |   | 284,200 |   |
|                               |                                     |    |                  |    |  |   |  |   |
| Operating expenses:                |                                |    |             |    |   |   |   |   |
| Cost of fuel                       | 24,704                              |    | 23,148           |    | 53,964 |   | 52,147 |   |
| Cost of gas                        | 25,816                              |    | 17,474           |    | 152,496 |   | 58,406 |   |
| Purchased power                    | 9,547                               |    | 15,000           |    | 19,659 |   | 17,899 |   |
| Other operations and maintenance   | 33,439                              |    | 27,393           |    | 62,474 |   | 53,256 |   |
| Depreciation and amortization      | 17,244                              |    | 17,668           |    | 34,469 |   | 35,077 |   |
| Income taxes                       | 3,288                               |    | 4,658            |    | 9,944 |   | 13,240 |   |
| Other taxes                        | 8,791                               |    | 8,589            |    | 21,659 |   | 20,456 |   |
|                               |                                     |    |                  |    |  |   |  |   |
|                               | Total operating expenses            | 122,829 |             | 113,930 |   | 354,665 |   | 250,481 |   |
|                               |                                     |    |                  |    |  |   |  |   |
| Operating income                   | 11,216                              |    | 13,800           |    | 27,329 |   | 33,719 |   |
|                               |                                     |    |                  |    |  |   |  |   |
| Other income and deductions:       |                                |    |             |    |   |   |   |   |
| Company-owned life insurance, net  | (316                                | )       | (246             | )       | (618 | ) | (521 | ) |
| Other, net                         | 2,833                               |    | (541             | )       | 5,285 |   | 67 |   |
|                               |                                     |    |                  |    |  |   |  |   |
|                               | Total other income and (deductions) | 2,517   |             | (787    | ) | 4,667 |   | (454 | ) |
|                               |                                     |    |                  |    |  |   |  |   |
| Income before interest expense     | 13,733                              |    | 13,013           |    | 31,996 |   | 33,265 |   |
|                               |                                     |    |                  |    |  |   |  |   |
| Interest expenses:                 |                                |    |             |    |   |   |   |   |
| Interest on long-term debt         | 4,329                               |    | 4,329            |    | 8,657 |   | 8,860 |   |
| Cost of borrowed funds capitalized | (26                                 | )       | (99              | )       | (44 | ) | (202 | ) |
| Other                              | 1,856                               |    | 1,018            |    | 3,478 |   | 1,999 |   |
|                               |                                     |    |                  |    |  |   |  |   |
| Total interest expense             | 6,159                               |    | 5,248            |    | 12,091 |   | 10,657 |   |
|                               |                                     |    |                  |    |  |   |  |   |
| Net income                         | 7,574                               |    | 7,765            |    | 19,905 |   | 22,608 |   |
|                               |                                     |    |                  |    |  |   |  |   |
| Dividends on preferred stock       | 539                                 |    | 1,058            |    | 1,079 |   | 1,898 |   |
|                               |                                     |    |                  |    |  |   |  |   |
| Income available for common stock  | 7,035                               |    | 6,707            |    | 18,826 |   | 20,710 |   |
| Other comprehensive income (loss)  | (6,620                              | )       | —           |    | (6,869 | ) | — |   |
|                               |                                     |    |                  |    |  |   |  |   |
| Comprehensive income               | $                                   | 415     |             | $       | 6,707 |   | $ | 11,957 |   | $ | 20,710 |   |
|                               |                                     |    |                  |    |  |   |  |   |

See Notes to ConsolidatedFinancial Statements.

**CENTRALILLINOIS LIGHT COMPANYConsolidated Statements of Cash Flows****(In thousands)(Unaudited)**

|                                                                           | Six Months Ended                                                            |
|--------------------------------------------------------------------------------|-----------------------------------------------------------------------------|
|                                                                           | June 30,                                                                    |
|                                                                           | 2001                                                                        |   | 2000 |   |
| Cash flows from operating activities:                                          |                                                                        |   |   |   |
| Net income before preferred dividends                                          | $                                                                           | 19,905 |   | $ | 22,608 |   |
|                                                                           |                                                                        |   |   |   |
| Adjustments to reconcile net income to cash provided  by operating activities: |                                                                        |   |   |   |
|                                                                           |                                                                        |   |   |   |
|                                                                           | Depreciation and amortization                                               | 34,469 |   | 35,077 |   |
|                                                                           | Deferred income taxes, investment tax credit and  regulatory liability, net | (10,015 | ) | (6,013 | ) |
| Changes in operating assets and liabilities:                                   |                                                                        |   |   |   |
|                                                                           | Increase in accounts receivable                                             | (16,687 | ) | (3,173 | ) |
|                                                                           | Decrease in fuel, materials and supplies, and gas in  underground storage   | 5,787 |   | 6,672 |   |
|                                                                           | Decrease in unbilled revenue                                                | 39,483 |   | 10,001 |   |
|                                                                           | Increase (decrease) in accounts payable                                     | (40,629 | ) | 4,999 |   |
| Decrease in accrued taxes and interest                                         | (2,064                                                                      | ) | (13,755 | ) |
| Capital lease payments                                                         | 323                                                                         |   | 323 |   |
| Decrease in other current assets                                               | 15,954                                                                      |   | 2,130 |   |
| Increase in other current liabilities                                          | 12,612                                                                      |   | 157 |   |
| Increase in other non-current assets                                           | (14,174                                                                     | ) | (6,083 | ) |
| Increase (decrease) in other non-current liabilities                           | 2,725                                                                       |   | (1,746 | ) |
|                                                                           |                                                                             |   |  |   |
|                                                                           | Net cash provided by operating activities                                   | 47,689 |   | 51,197 |   |
|                                                                           |                                                                             |   |  |   |
| Cash flows from investing activities:                                          |                                                                        |   |   |   |
| Capital expenditures                                                           | (24,532                                                                     | ) | (23,831 | ) |
| Other                                                                          | (8,050                                                                      | ) | (2,664 | ) |
|                                                                           |                                                                             |   |  |   |
|                                                                           | Net cash used in investing activities                                       | (32,582 | ) | (26,495 | ) |
|                                                                           |                                                                             |   |  |   |
| Cash flow from financing activities:                                           |                                                                        |   |   |   |
| Common dividends paid                                                          | (30,000                                                                     | ) | (16,000 | ) |
| Preferred dividends paid                                                       | (1,079                                                                      | ) | (1,897 | ) |
| Payments on capital lease obligation                                           | (323                                                                        | ) | (323 | ) |
| Increase in short-term borrowing                                               | 13,134                                                                      |   | 9,800 |   |
| Long-term debt retired                                                         | —                                                                      |   | (30,000 | ) |
| Long-term debt issued                                                          | —                                                                      |   | 8,000 |   |
|                                                                           |                                                                             |   |  |   |
|                                                                           | Net cash used in financing activities                                       | (18,268 | ) | (30,420 | ) |
|                                                                           |                                                                             |   |  |   |
| Net decrease in cash and temporary cash investments                            | (3,161                                                                      | ) | (5,718 | ) |
|                                                                           |                                                                        |   |   |   |
| Cash and temporary cash investments at beginning of  year                      | 8,777                                                                       |   | 8,548 |   |
|                                                                           |                                                                             |   |  |   |
| Cash and temporary cash investments at June 30                            | $                                                                           | 5,616 |   | $ | 2,830 |   |
|                                                                           |                                                                             |   |  |   |
| Supplemental disclosures of cash flow information:                             |                                                                        |   |   |   |
|                                                                           |                                                                        |   |   |   |
| Cash paid during the period for:                                               |                                                                        |   |   |   |
|                                                                           |                                                                        |   |   |   |
|                                                                           | Interest (net of cost of borrowed funds capitalized)                        | $ |  13,249 |   | $ |  13,881 |   |
|                                                                           |                                                                        |   |   |   |
|                                                                           | Income taxes                                                                | $ |  17,508 |   | $ |  30,391 |   |
|                                                                           |                                                                        |   |   |   |

See Notes to ConsolidatedFinancial Statements.

**Statements of Segments of Business****CILCORP Inc. and SubsidiariesThree Months Ended June 30, 2001**

|                             |           |   |      |   |        |   |             |   |    |    |
|----------------------------------|----------------|--------|-----------|--------|-------------|--------|------------------|--------|---------|---------|
|                             | CILCO Electric |   | CILCO Gas |   | CILCO Other |   | Other Businesses |   | Total   |    |
|                             | (In thousands) |
|                             |           |   |      |   |        |   |             |   |    |    |
| Revenues                         | $              | 92,299 |      | $      | 41,746      |   | $                | 26,210 |    | $       | 9,460 |   | $ | 169,715 |   |
| Interest income                  | —         |   | —    |   | 120         |   | 65               |   | 185     |    |
|                             |                |   |           |   |             |   |                  |   |         |    |
|                             | Total          | 92,299 |      | 41,746 |        | 26,330 |             | 9,525  |    | 169,900 |   |
|                             |                |   |           |   |             |   |                  |   |         |    |
| Operating expenses               | 65,837         |   | 36,460    |   | 22,511      |   | 6,695            |   | 131,503 |    |
| Depreciation and amortization    | 11,768         |   | 5,476     |   | —      |   | 4,576            |   | 21,820  |    |
|                             |                |   |           |   |             |   |                  |   |         |    |
|                             | Total          | 77,605 |      | 41,936 |        | 22,511 |             | 11,271 |    | 153,323 |   |
|                             |                |   |           |   |             |   |                  |   |         |    |
| Interest expense                 | 4,441          |   | 1,744     |   | —      |   | 11,660           |   | 17,845  |    |
| Preferred stock dividends        | —         |   | —    |   | 539         |   | —           |   | 539     |    |
| Fixed charges and other expenses | (26            | )      | —    |   | 316         |   | —           |   | 290     |    |
|                             |                |   |           |   |             |   |                  |   |         |    |
|                             | Total          | 4,415  |      | 1,744  |        | 855    |             | 11,660 |    | 18,674  |   |
|                             |                |   |           |   |             |   |                  |   |         |    |
| Income before income taxes       | 10,279         |   | (1,934    | )      | 2,964       |   | (13,406          | )      | (2,097  | )       |
| Income taxes                     | 4,058          |   | (770      | )      | 986         |   | (4,061           | )      | 213     |    |
|                             |                |   |           |   |             |   |                  |   |         |    |
| Segment net income               | $              | 6,221  |      | $      | (1,164      | )      | $                | 1,978  |    | $       | (9,345 |  ) | $ | (2,310 | ) |
|                             |                |   |           |   |             |   |                  |   |         |    |

See Notes to ConsolidatedFinancial Statements.

**Statementsof Segments of BusinessCILCORP Inc. and SubsidiariesThree Months Ended June 30, 2000**

|                             |           |   |      |   |        |   |             |   |    |    |
|----------------------------------|----------------|--------|-----------|--------|-------------|--------|------------------|--------|---------|---------|
|                             | CILCO Electric |   | CILCO Gas |   | CILCO Other |   | Other Businesses |   | Total   |    |
|                             | (In thousands) |
| Revenues                         | $              | 94,920 |      | $      | 32,810      |   | $                | 10,443 |    | $       | 5,395 |   | $ | 143,568 |   |
| Interest income                  | —         |   | —    |   | 26          |   | 39               |   | 65      |    |
|                             |                |   |           |   |             |   |                  |   |         |    |
|                             | Total          | 94,920 |      | 32,810 |        | 10,469 |             | 5,434  |    | 143,633 |   |
|                             |                |   |           |   |             |   |                  |   |         |    |
| Operating expenses               | 64,832         |   | 26,772    |   | 12,021      |   | 4,196            |   | 107,821 |    |
| Depreciation and amortization    | 12,372         |   | 5,296     |   | —      |   | 3,613            |   | 21,281  |    |
|                             |                |   |           |   |             |   |                  |   |         |    |
|                             | Total          | 77,204 |      | 32,068 |        | 12,021 |             | 7,809  |    | 129,102 |   |
|                             |                |   |           |   |             |   |                  |   |         |    |
| Interest expense                 | 3,818          |   | 1,529     |   | —      |   | 11,896           |   | 17,243  |    |
| Preferred stock dividends        | —         |   | —    |   | 1,058       |   | —           |   | 1,058   |    |
| Fixed charges and other expenses | (99            | )      | —    |   | 246         |   | —           |   | 147     |    |
|                             |                |   |           |   |             |   |                  |   |         |    |
|                             | Total          | 3,719  |      | 1,529  |        | 1,304  |             | 11,896 |    | 18,448  |   |
|                             |                |   |           |   |             |   |                  |   |         |    |
| Income before income taxes       | 13,997         |   | (787      | )      | (2,856      | )      | (14,271          | )      | (3,917  | )       |
| Income taxes                     | 4,961          |   | (303      | )      | (1,011      | )      | (4,635           | )      | (988    | )       |
|                             |                |   |           |   |             |   |                  |   |         |    |
| Segment net income               | $              | 9,036  |      | $      | (484        | )      | $                | (1,845 | )       | $       | (9,636 | ) | $ | (2,929 | ) |
|                             |                |   |           |   |             |   |                  |   |         |    |

**Statementsof Segments of BusinessCILCORP Inc. and SubsidiariesSix Months Ended June 30, 2001**

|                             |           |    |      |    |        |   |             |   |    |    |
|----------------------------------|----------------|---------|-----------|---------|-------------|--------|------------------|--------|---------|---------|
|                             | CILCO Electric |    | CILCO Gas |    | CILCO Other |   | Other Businesses |   | Total   |    |
|                             | (In thousands) |
|                             |           |
| Revenues                         | $              | 181,299 |      | $       | 200,695     |   | $                | 39,004 |    | $       | 25,330 |   | $ | 446,328 |   |   |
| Interest income                  | —         |    | —    |    | 280         |   | 155              |   | 435     |    |   |
|                             |                |    |           |    |             |   |                  |   |         |    |   |
|                             | Total          | 181,299 |      | 200,695 |        | 39,284 |             | 25,485 |    | 446,763 |   |   |
|                             |                |    |           |    |             |   |                  |   |         |    |   |
| Operating expenses               | 134,336        |    | 175,916   |    | 32,289      |   | 19,842           |   | 362,383 |    |   |
| Depreciation and amortization    | 23,524         |    | 10,945    |    | —      |   | 8,441            |   | 42,910  |    |   |
|                             |                |    |           |    |             |   |                  |   |         |    |   |
|                             | Total          | 157,860 |      | 186,861 |        | 32,289 |             | 28,283 |    | 405,293 |   |   |
|                             |                |    |           |    |             |   |                  |   |         |    |   |
| Interest expense                 | 8,664          |    | 3,471     |    | —      |   | 23,531           |   | 35,666  |    |   |
| Preferred stock dividends        | —         |    | —    |    | 1,079       |   | —           |   | 1,079   |    |   |
| Fixed charges and other expenses | (44            | )       | —    |    | 618         |   | —           |   | 574     |    |   |
|                             |                |    |           |    |             |   |                  |   |         |    |   |
|                             | Total          | 8,620   |      | 3,471   |        | 1,697  |             | 23,531 |    | 37,319  |   |   |
|                             |                |    |           |    |             |   |                  |   |         |    |   |
| Income before income taxes       | 14,819         |    | 10,363    |    | 5,298       |   | (26,329          | )      | 4,151   |    |   |
| Income taxes                     | 5,819          |    | 4,125     |    | 1,710       |   | (8,418           | )      | 3,236   |    |   |
|                             |                |    |           |    |             |   |                  |   |         |    |   |
| Segment net income               | $              | 9,000   |      | $       | 6,238       |   | $                | 3,588  |    | $       | (17,911 | ) | $ | 915 |   |   |
|                             |                |    |           |    |             |   |                  |   |         |    |   |
|                                  |                |         |           |         |             |        |                  |        |         |         |  |  |  |  |  |  |  |  |  |  |  |

See Notes to ConsolidatedFinancial Statements.

**Statementsof Segments of BusinessCILCORP Inc. and SubsidiariesSix Months Ended June 30, 2000**

|                             |           |    |      |    |        |   |             |   |    |    |
|----------------------------------|----------------|---------|-----------|---------|-------------|--------|------------------|--------|---------|---------|
|                             | CILCO Electric |    | CILCO Gas |    | CILCO Other |   | Other Businesses |   | Total   |    |
|                             | (In thousands) |
| Revenues                         | $              | 181,246 |      | $       | 102,954     |   | $                | 18,784 |    | $       | 11,610 |   | $ | 314,594 |   |
| Interest income                  | —         |    | —    |    | 69          |   | 93               |   | 162     |    |
|                             |                |    |           |    |             |   |                  |   |         |    |
|                             | Total          | 181,246 |      | 102,954 |        | 18,853 |             | 11,703 |    | 314,756 |   |
|                             |                |    |           |    |             |   |                  |   |         |    |
| Operating expenses               | 122,631        |    | 79,533    |    | 20,151      |   | 7,102            |   | 229,417 |    |
| Depreciation and amortization    | 24,573         |    | 10,504    |    | —      |   | 7,225            |   | 42,302  |    |
|                             |                |    |           |    |             |   |                  |   |         |    |
|                             | Total          | 147,204 |      | 90,037  |        | 20,151 |             | 14,327 |    | 271,719 |   |
|                             |                |    |           |    |             |   |                  |   |         |    |
| Interest expense                 | 7,753          |    | 3,106     |    | —      |   | 23,727           |   | 34,586  |    |
| Preferred stock dividends        | —         |    | —    |    | 1,898       |   | —           |   | 1,898   |    |
| Fixed charges and other expenses | (202           | )       | —    |    | 521         |   | —           |   | 319     |    |
|                             |                |    |           |    |             |   |                  |   |         |    |
|                             | Total          | 7,551   |      | 3,106   |        | 2,419  |             | 23,727 |    | 36,803  |   |
|                             |                |    |           |    |             |   |                  |   |         |    |
| Income before income taxes       | 26,491         |    | 9,811     |    | (3,717      | )      | (26,351          | )      | 6,234   |    |
| Income taxes                     | 9,321          |    | 3,919     |    | (1,365      | )      | (8,421           | )      | 3,454   |    |
|                             |                |    |           |    |             |   |                  |   |         |    |
| Segment net income               | $              | 17,170  |      | $       | 5,892       |   | $                | (2,352 | )       | $       | (17,930 | ) | $ | 2,780 |   |
|                             |                |    |           |    |             |   |                  |   |         |    |

**CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANYNOTES TO CONSOLIDATED FINANCIALSTATEMENTS(Unaudited)**

**NOTE 1.  Introduction**

The consolidated financial statements include the accounts of CILCORPInc. (CILCORP or the Holding Company), Central Illinois Light Company (CILCO),QST Enterprises Inc. (QST) and its subsidiaries, QST Energy Inc. (QST Energy),and CILCORP Infraservices Inc. (CILCORP Infraservices), and CILCORP's othersubsidiaries (collectively, the Company), after elimination of significantintercompany transactions.  Theconsolidated financial statements of CILCO include the accounts of CILCO andits subsidiaries, CILCO Exploration and Development Company and CILCO EnergyCorporation.  CILCORP owns 100% of thecommon stock of its first-tier subsidiaries. In the fourth quarter of 1998, the operations of QST and itssubsidiaries (excluding ESE Land Corporation and CILCORP Infraservices Inc. -see Management's Discussion and Analysis) were discontinued and, therefore, arebeing reported as discontinued operations in the financial statements.  Prior year amounts have been reclassified ona basis consistent with the 2001 presentation.

AES completed the acquisition of 100% of CILCORP's outstanding stock onOctober 18, 1999.  The merger wasaccounted for using the purchase method of accounting.  Under this method, the purchase price wasallocated to the fair market value of the assets acquired and the liabilitiesassumed.  The excess of the purchaseprice over the fair value of the net assets acquired of approximately $573million was recorded as goodwill at CILCORP and is being amortized over 40years.  This initial allocation of thepurchase price at October 18, 1999, was based on preliminary estimates made bythe Company.  During 2000, adjustmentswere made to the purchase price allocation as additional information becameavailable to finalize the allocation previously based upon preliminaryestimates.  The primary effect of theseadjustments was to increase goodwill by approximately $40 million, to increaseutility plant by $28.4 million (offset by deferred taxes of $11.3 million), andto record a liability of approximately $110 million for an out-of-marketlong-term coal contract (offset by deferred taxes of approximately $44 millionand net customer contract intangibles of approximately $17 million).  Changes to the Company's estimates afterOctober 2000, if any, will be recorded in results of operations.

The accompanying unaudited consolidated financial statements have beenprepared according to the rules and regulations of the Securities and ExchangeCommission (SEC).  Although CILCORPbelieves the disclosures are adequate to make the information presented notmisleading, these consolidated financial statements should be read along withthe Company's 2000 Annual Report on Form 10-K.

In the Company's opinion, the consolidated financial statementsfurnished reflect all normal and recurring adjustments necessary for a fairpresentation of the results of operations for the periods presented.  Operating results for interim periods arenot necessarily indicative of operating results to be expected for the year orof the Company's future financial condition.

**NOTE 2.  Contingencies**

In February 1999, QST Energy notified two of its California commercialcustomers that they were in default of their contracts with QST Energy as aresult of not paying QST Energy for energy delivered.  QST Energy filed two suits in the U.S. District Court, CentralDistrict of Illinois, seeking payment. In March 1999, the customers filed a suit in California Superior Court,Alameda County, California, alleging that QST Energy was in breach of the contract.  This suit was subsequently removed to U.S.District Court, Northern District of California.  The two suits filed by QST Energy in the U.S. District Court,Central District of Illinois, were consolidated with the suit in the U.S.District Court, Northern District of California.  In December 2000, the two customers filed counterclaims againstQST Energy.  On July 19, 2001, QSTEnergy and the two customers signed a settlement agreement and mutual releasewhich resolved all of the pending lawsuits. A cash settlement of $6 million was paid to QST Energy and appliedagainst the accounts receivable balance at QST Energy, which was $13 million atJune 30, 2001.  CILCORP had reserved$4.5 million as a preacquisition contingency related to this litigation.  Consequently, the net write-off during thethird quarter will be approximately $2.5 million.

As a result of abnormally warm weather during July 1999, CILCO incurred$33 million of generation and purchased power costs which are subject torecovery from electric retail customers through the Fuel Adjustment Clause  (FAC). Of this amount, $10 million was recovered in July 1999 and$23 million remained unrecovered at the end of July 1999.  CILCO's FAC allowed it to pass on tocustomers the cost of unrecovered fuel and purchased power costs in the nextcalculated month's FAC factor.  In thisinstance, on September 1, 1999, the ICC approved a request by CILCO tocharge certain customers over a    12-month period (without interest), beginning in September 1999.  In addition, CILCO requested and receivedICC permission to allow the larger industrial and commercial customers theoption to pay their respective shares of the July underrecovery, which werebilled in September, over a period of up to 12 months (without interest) aftermaking appropriate arrangements with CILCO. Also, under the FAC, the underrecovered costs of fuel and purchasedpower for a particular month are both treated as adjustments to cost of fuelexpense.  Recovery of the fuel andpurchased power costs from all customer classes was completed during 2000.

In early 2000, the ICC began its annual review of the previous year'sFAC collections.  An ICC HearingExaminer conducted hearings throughout 2000. Testimony was filed by CILCO, the ICC staff and parties who hadintervened in the proceeding and was followed by cross-examination ofwitnesses.  ICC staff and intervenorshad recommended during these hearings that up to $22.4 million be refunded toCILCO's customers.  On November 6, 2000,the ICC Hearing Examiner issued a Proposed Order recommending that $3.4 millionbe refunded to CILCO's customers.

At its meeting on December 20, 2000, the ICC issued an order thatmodified the Hearing Examiner's Proposed Order.  The December 20 ICC pronouncement ordered CILCO to refund $20.9million to customers in addition to the $3.4 million proposed by the HearingExaminer.  These refunds would have beenmade by adjusting the February 2001 FAC recovery factor and continuing theadjustment in subsequent months until the entire amount was refunded tocustomers.  CILCO strongly disagreeswith the ICC order and believes, among other things, that it conflicts withfederal law.  The Federal EnergyRegulatory Commission (FERC) previously reached a different conclusion with respectto the issues giving rise to the $20.9 million refund.  The ICC's order fails to recognize thepreemptive jurisdiction of FERC.  TheICC's order to refund $20.9 million also results in a duplication of a portionof the Hearing Examiner's previously recommended $3.4 million refund.  CILCO petitioned the ICC for a rehearing anda stay of the refund order.  The ICCgranted CILCO's request for a rehearing and stayed the refund order.

The ICCissued an order on the rehearing on July 5, 2001.  This order requires CILCO to refund a total of $21.9million.  On July 24, 2001, CILCO fileda motion with the ICC to stay this order, to allow time for CILCO to completeand file a settlement resolving this and other issues relating to prior andfuture fuel costs.  On July 31, 2001,the ICC granted CILCO’s request to stay the July 5 order through August 24,2001.  On August 3, 2001, CILCOpetitioned the ICC for a rehearing of the July 5 order to preserve its legalalternatives.  CILCO also filed asettlement agreement resolving issues related to the 1999 and 2000 FACfilings.  As part of the settlement,CILCO agrees to refund $17.8 million related to the 1999 FAC and $2.6 millionrelated to the 2000 FAC.  These refundswill be paid over a six month period plus accrued interest on the unpaidbalance.  As a condition of thesettlement agreement, CILCO also agrees to file a petition to eliminate the FACwithin 21 days of an order approving the settlement.  Elimination of the FAC is a prerequisite to utility restructuring,as provided for in the Electric Service Customer Choice and Rate Relief Law of1997 (Customer Choice Law).  Eliminationof the FAC will expose the Company to market risk with respect to the cost offuel and purchased power required to serve native load customers.

The refund required under either the July 5 order or the settlement, ifapproved, would have a material effect upon the Company.  While the Company cannot predict theultimate outcome of these matters, management does not at this time consider itprobable that the ICC will approve the settlement, and will thus not refund the$17.8 million related to the 1999 FAC. The Company has reserved the right to, and will, take any legal actionnecessary to challenge the July 5 order if the settlement is not approved.  Accordingly, no reserve for the refunds hasbeen recorded in the Company’s financial statements, other than a $4 millionpre-acquisition contingency recorded in 2000.

**NOTE 3.  Accounting for Price Risk Management Activities**

CILCORP utilizes commodity futures contracts, options and swaps in thenormal course of its non-regulated natural gas and electric business activitiesto reduce market or price risk.  Gainsand losses arising from derivative financial instrument transactions, relatedto non-regulated activities, which hedge the impact of fluctuations in energyprices are recognized in income concurrent with the related purchases and salesof the commodity.  If a derivativefinancial instrument contract is terminated because it is probable that atransaction or forecasted transaction will not occur, any gain or loss as ofsuch date is immediately recognized. CILCORP is subject to commodity price risk for deregulated sales to theextent that energy is sold under firm price commitments.  Due to market conditions, at times CILCORPmay have unmatched commitments to purchase and sell energy on a price andquantity basis.  Physical and derivativefinancial instruments give rise to market risk, which represents the potentialloss that can be caused by a change in the market value of a particularcommitment.  Market risks are monitoredto ensure compliance with the Company's risk management policies, includinglimits to the Company's total net exposure at any time.

The Companyadopted Statement of Financial Accounting Standards No. 133, "Accountingfor Derivative Instruments and Hedging Activities" (SFAS 133) on January1, 2001, and recorded the effects of implementation in Other ComprehensiveIncome (OCI) as a change in accounting principle.  The amount recorded as OCI reflects the mark-to-market value offixed price derivative financial instruments representing hedges of natural gascommitments through December 2001. These derivatives are related to non-regulated activities and are beingaccounted for as fully-effective cash-flow hedges.  The balance in OCI, as of January 1, 2001, related to theimplementation of SFAS 133, was an after-tax gain of $1,667,800.

Gains/losses on non-regulated activities are reflected in operatingresults as commitments are fulfilled and the related derivative financialinstruments are settled.  The net lossreflected in operating results from derivative financial instruments fornon-regulated activities for the quarter ended June 30, 2001, was $479,800for natural gas (included in Gas Purchased for Resale).  There were no outstanding derivativefinancial instruments for electricity during the quarter ended June 30,2001.  The previously recorded gain/lossassociated with these settled derivative financial instruments was removed fromOCI.  The open derivative positions arethen marked-to-market through OCI.  Thenet effect of these adjustments was to record an after-tax loss in OCI in theamount of $4,704,100 for the quarter ended June 30, 2001.  The after-tax balance in OCI associated withthese open derivative positions at June 30, 2001, was $4,953,200.  This portion of OCI reflects hedges ofnatural gas sales of 5,720,000 mmBtu or 5.7 Bcf for commitments through March2003.

In May 2001, the Company implemented a winter 2001-2002 hedgingstrategy related to regulated gas activities. This strategy utilizes collars (a combination of a put option and a calloption) and futures to help protect customers who are charged the Company'sPurchased Gas Adjustment (PGA) from large price fluctuations.  The Company enters into these collars basedon pre-defined criteria and only when entering into the collar produces apremium credit.  This premium credit is beingdeferred until the month of delivery. This strategy does not result in any income impacts since allgains/losses and premium credits will be passed along to the customer in themonth of delivery.  The Company isaccounting for these hedges as cash-flow hedges and is recognizing the mark-to-marketvalue in OCI, consistent with SFAS 133. In the month of delivery, any related mark-to-market value will beremoved from OCI and charged/credited to the customer.  For the quarter ended June 30, 2001, an after-taxmark-to-market loss of $1,915,400 was recorded in OCI.  This portion of OCI reflects hedges ofnatural gas sales of 7,170,000 mmBtu or 7.2 Bcf for commitments through March2002.

The FASB met in June 2001 and determined that certain electricitycapacity contracts meet the "normal purchases and normal sales"exception as set forth in SFAS 138.  TheCompany was not previously accounting for such contracts as derivatives,therefore this clarification reinforces the Company's current accountingpractices with regard to capacity contracts.

**NOTE 4.  OtherComprehensive Income**

Rollforward of Accumulated Other Comprehensive Income—CILCORP Inc.

|                                                              | Pension        |   | SFAS 133 |   | Total  |   |
|-------------------------------------------------------------------|----------------|--------|----------|--------|--------|--------|
|                                                              |                |   |          |   |        |   |
|                                                              | (In thousands) |
|                                                              |           |
| Accumulated other comprehensive loss—March 31, 2001  balance | $              | (450   | )        | $      | (249   | )      | $ | (699 | ) |
|                                                              |           |   |     |   |   |   |
| Other comprehensive loss—SFAS 133                            | —         |   | (6,620   | )      | (6,620 | )      |
|                                                              |                |   |          |   |        |   |
| Accumulated other comprehensive loss—June 30, 2001  balance  | $              | (450   | )        | $      | (6,869 | )      | $ | (7,319 | ) |
|                                                              |                |   |          |   |        |   |
|                                                                   |                |        |          |        |        |        |  |  |  |  |  |  |  |

Rollforward of Accumulated Other Comprehensive Income—Central IllinoisLight Company

|                                                              | Pension        |   | SFAS 133 |   | Total  |   |
|-------------------------------------------------------------------|----------------|--------|----------|--------|--------|--------|
|                                                              |                |   |          |   |        |   |
|                                                              | (In thousands) |
| Accumulated other comprehensive loss—March 31, 2001  balance | $              | (975   | )        | $      | (249   | )      | $ | (1,224 | ) |
|                                                              |           |   |     |   |   |   |
| Other comprehensive loss—SFAS 133                            | —         |   | (6,620   | )      | (6,620 | )      |
|                                                              |                |   |          |   |        |   |
| Accumulated other comprehensive loss—June 30, 2001  balance  | $              | (975   | )        | $      | (6,869 | )      | $ | (7,844 | ) |
|                                                              |                |   |          |   |        |   |
|                                                              |           |   |     |   |   |   |
|                                                                   |                |        |          |        |        |        |  |  |  |  |  |  |  |  |

**NOTE5.  Impact of Accounting Standards**

In June 2001, the FASB issued Statement of Financial AccountingStandards No. 141, "Business Combinations" (SFAS 141) and Statementof Financial Accounting Standards No. 142, "Goodwill and Other IntangibleAssets" (SFAS 142).

SFAS 141 requires that all business combinations be accounted for usingthe purchase method and applies to all business combinations initiated afterJune 30, 2001.  Certain transitionprovisions apply to business combinations for which the acquisition date wasbefore July 1, 2001, that were accounted for using the purchase method.  The Company has not determined the impact,if any, that this statement will have on its consolidated financial position orresults of operations.

SFAS 142 requires that goodwill and intangible assets that haveindefinite useful lives be tested at least annually for impairment rather thanbe amortized.  The provisions of SFAS142 are required to be applied starting with fiscal years beginning afterDecember 15, 2001.  The Company isevaluating the impact of the adoption of this standard and has not yetdetermined the effect of adoption on its consolidated financial position orresults of operations.
**Item2.  Management's Discussion and Analysisof Financial Condition and Results of Operations**

CILCORP Inc. (CILCORP) is a wholly-owned subsidiary of The AESCorporation (AES).  The financialcondition and operating results of CILCORP Inc. and its subsidiaries (theCompany) primarily reflect the operations of subsidiary Central Illinois LightCompany (CILCO).  On November 23, 1998,the Company announced that AES had offered to buy 100% of the Company'soutstanding common stock for $65 per share, subject to CILCORP shareholderapproval and various regulatory approvals. AES completed the acquisition of the Company on October 18, 1999.

In July 2000, AES announced plans to acquire IPALCO Enterprises, Inc.(IPALCO), a utility holding company headquartered in Indianapolis,Indiana.  Following this announcement,AES indicated that as part of the SEC approval process for the IPALCOtransaction, AES expected to restructure its ownership interests in CILCORPwithin a specified period of time in order to continue as an exempt holdingcompany under the Public Utility Holding Company Act of 1935 (PUHCA).  On March 23, 2001, AES received an orderfrom the SEC which allowed AES' continued exemption from PUHCA.  The exemption order required AES to divestits ownership interests in CILCO's regulated utility assets within two years ofthe closing (March 27, 2001) of AES' acquisition of IPALCO.

Financial results reflect application of the purchase method ofaccounting to the merger.  Under thismethod, the purchase price is allocated to the fair market value of the assetsacquired and the liabilities assumed. Any excess of the purchase price over the fair value of the net assetsacquired is allocated to goodwill.  As aresult, CILCORP has recorded purchase accounting fair value adjustments toplant in service, pension and other post-retirement liabilities, anout-of-market long-term coal contract, and other balance sheet items.  After reflecting these adjustments, theCompany also recorded goodwill.  SeeNote 1 to the Consolidated Financial Statements for further discussion relatedto purchase accounting.  The adjustmentsare reflected in CILCORP's financial statements.

Due to uncertainties related to electric deregulation across thecountry, the illiquidity of certain energy markets, and the Company's acquisitionby AES, the Company intends to focus on the opportunities in the Illinoisenergy market resulting from the deregulation of electricity under the ElectricService Customer Choice and Rate Relief Law of 1997 (see Competition).  This law enables CILCO, the Company'sregulated public utility that generates and distributes electricity andpurchases, transports and distributes natural gas, to serve Illinois customersoutside its traditional Central Illinois service territory.  As a result of these events, the Companyreported the results of QST and its subsidiaries (excluding CILCORPInfraservices Inc. and residual interests in ESE Land Corporation) asdiscontinued operations (see Results of Operations – QST EnterprisesDiscontinued Operations).

The Other Businesses segment includes the operations of the HoldingCompany itself (Holding Company), its investment subsidiary, CILCORP InvestmentManagement Inc. (CIM), CILCORP Ventures Inc. (CVI), and CILCORP InfraservicesInc., which provides utility infrastructure operation and maintenance services.

**Forward-Looking Information**

Forward-looking information is included in Management's Discussion andAnalysis of Financial Condition and Results of Operations (MD&A).  Certain material contingencies are alsodescribed in Note 2 to the Consolidated Financial Statements.

Some important factors could cause actual results or outcomes to differmaterially from those expressed or implied in MD&A.  The business and profitability of CILCORPand its subsidiaries are influenced by economic and geographic factors,including ongoing changes in environmental laws and weather conditions; theextent and pace of development of competition for retail and wholesale energycustomers; changes in technology; changes in company-wide operation and plantavailability compared to historical performance and changes in historicaloperating cost structure, including changes in various costs and expenses;pricing and transportation of commodities; market supply and demand for energyand energy derivative financial instruments; inflation; capital marketconditions; and environmental protection and compliance costs.  Prevailing governmental policies, statutorychanges, and regulatory actions with respect to rates, tariffs, industrystructure and recovery of various costs incurred by CILCO in the course of itsbusiness and increasing wholesale and retail competition in the electric andgas business affect its earnings.  Allsuch factors are difficult to predict, contain uncertainties that maymaterially affect actual results and, to a significant degree, are beyond thecontrol of CILCORP and its subsidiaries. CILCORP and its subsidiaries undertake no obligation to publicly updateor revise any forward-looking statements, whether as a result of changes in actualresults, assumptions or other factors.

**CapitalResources & Liquidity**

The Company believes that internal and external sources of capitalwhich are or are expected to be available to the Holding Company and itssubsidiaries will be adequate to fund its capital expenditures, pay itsfinancial obligations, meet working capital needs and retire or refinance debtas it matures.

CILCORP

CILCORP is currently authorized by its Board of Directors to borrow upto $60 million on a short-term basis. On June 30, 2001, CILCORP had committed bank lines of credit of $50million, of which $31 million was used.

In October 1999, CILCORP issued $225 million of 8.7% senior notes (due2009) and $250 million of 9.375% senior notes (due 2029).  Along with equity funds provided by AES, theproceeds of the notes were used by AES to acquire all outstanding shares ofCILCORP common stock for approximately $886 million, to pay transaction costsrelated to the acquisition, and to retire short-term debt.

CILCORP had $17.5 million of medium-term notes outstanding at June30, 2001.  With the issuance of thesenior notes in October 1999, CILCORP can no longer issue debt under itsmedium-term note program.

CILCO

Capital expenditures totaled $24.5 million for the six months endedJune 30, 2001.  Capital expenditures areanticipated to be approximately $25.6 million  for the remainder of 2001 and are currently estimated to be $112million in 2002.  The projected increasein 2002 is primarily due to installation of NOx reduction equipment.

In the first quarter of 2001, CILCO obtained two short-term bank loanstotaling $25 million to finance the purchase of natural gas.  The additional working capital was necessaryas a result of the significant increase in natural gas prices relative to thetiming of the recovery of the costs through the Purchased Gas Adjustment(PGA).  The bank loans matured in thesecond quarter of 2001.  In the thirdquarter of 2001, CILCO obtained an additional $15 million short-term bankloan.  CILCO expects to issue commercialpaper periodically during 2001, and is currently authorized by its Board ofDirectors to issue up to $150 million of short–term debt.  At June 30, 2001, committed bank lines ofcredit totaled $100 million, all of which were unused except in support ofcommercial paper issuance.  CILCO had$80.4 million of commercial paper outstanding at June 30, 2001.  During 2001, CILCO expects to continue tosupport commercial paper issuance with its bank lines of credit.  CILCO plans to finance its 2001 and 2002 capitalexpenditures primarily with funds provided by operations.  CILCORP's parent, AES, may also provideequity capital to support CILCO's capital expenditures or other financingrequirements.  Future funds provided byoperations may be affected by the deregulation of the electric and natural gasutility industries (see Competition). CILCORP is also evaluating other financing alternatives to supplement orreplace current short-term financing as well as to provide for long-termfinancing of 2002 capital expenditures.

CIM

At June 30, 2001, CIM had outstanding debt of $15.8 million, borrowedfrom CILCORP.

CVI

At June 30, 2001, CVI had outstanding debt of $5.1 million, borrowedfrom CILCORP.

**Competition**

CILCO, as a regulated public utility, has an obligation to provideservice to retail customers within its defined service territory; thus, CILCOhas not generally been in competition with other public utilities for retailelectric or gas customers in these areas. However, the passage of the Electric Service Customer Choice and RateRelief Law of 1997 (Customer Choice Law) began a transition process to a fullycompetitive market for electricity in Illinois.  In addition, electricity and natural gas compete with other formsof energy available to customers.  Forexample, within the City of Springfield, CILCO's natural gas business competeswith the City's municipal electric system to provide customer energy needs.

Primarily as a result of the Customer Choice Law, the electric industryin Illinois will change significantly during the coming years at both thewholesale and retail levels.  As ofDecember 31, 2000, all non-residential customers have the ability tochoose their electric supplier. Residential electric customers will be able to choose their electricsupplier on May 1, 2002.

If acustomer chooses to leave its present electricity supplier, that utility willcollect a fee for delivering power and may assess an additional transitioncharge on the customer.  This collectionmethodology must be filed with and approved by the Illinois Commerce Commission(ICC) and is designed to help utilities recover a portion of the costs of pastinvestments made under a regulated system. The transition charge will usually reduce a customer's economicincentive to switch suppliers. Transition charges may be collected through 2006 (2008 upon the ICC'sfinding that a utility's financial condition is impaired and the utility meetsother requirements specified in the Customer Choice Law).

On March 9, 2000, CILCO filed with the ICC revised tariff sheetseliminating the collection of the customer transition charge effective March17, 2000.  At a March 15, 2000, hearing,the ICC approved CILCO's revised tariffs, thereby eliminating the collection ofany customer transition charge.  CILCOcannot re-establish the collection of a transition charge until it files andthe ICC approves revised tariff sheets that reinstate a transition charge.

The Customer Choice Law also requires electric base rate reductionsthat vary by utility.  CILCO reduced itsresidential base rates by 2% in August 1998 and by 2% in October 2000 and mustreduce base rates by an additional 1% in October 2002.  Also, CILCO's return on common equity will,in general, be capped (the Equity Cap) at an index (a 12-month average yieldfor 30 year U.S. Treasury bonds plus 8% for calendar years 1998 and 1999 and a12 month-average yield for U.S. Treasury bonds plus 9% for calendar years 2000through 2004) plus 1.5 percentage points. If CILCO's two-year average return on common equity exceeds the two–yearaverage of the Equity Cap, fifty percent of the earnings in excess of theaverage Equity Cap must be refunded to customers in the following year.

On June 30, 1999, Senate Bill 24 (a clarification and technicalcorrection of the Customer Choice Law) was signed into law.  This law allows certain utilities, includingCILCO, to increase the Equity Cap by an additional 2% over the Equity Capprovided under the Customer Choice Law, for the period 2000 through 2004.  The increase in the Equity Cap is allowed inexchange for these utilities offering choice of electricity suppliers toselected manufacturing customers on June 1, 2000, and to the remainingmanufacturing customers on October 1, 2000, earlier than previouslyallowed under the Customer Choice Law. Utilities selecting this option must also waive the right to seek atwo-year extension on the collection of transition charges.  On April 13, 2000, CILCO filed revisedtariff sheets with the ICC to make these selected customers eligible for choiceon June 1, 2000, in order to increase the equity cap by 2%, as outlined inSenate Bill 24.

With the enactment of the Customer Choice Law, electric generation inIllinois will become deregulated and competitive.  As a result, the accounting principles applicable torate-regulated enterprises will no longer apply to the electric generationportion of CILCO's business.  Also, thecost of any assets for which recovery is impaired by the transition to a competitivemarketplace must be written off.  CILCOdoes not believe its electric generating asset values to be impaired.  Its ability to keep total production costscompetitive in a deregulated market will determine whether and to what extentthe value of these assets may be impaired in the future.

Withelectric choice beginning on October 1, 1999, for its industrial customersand some of its commercial customers, and with all other non-residentialcustomers being able to choose their electric supplier on December 31,2000, CILCO has entered into multi–year contracts with targeted customersrepresenting approximately 45% of total 2000 electric kWh sales to non–residentialcustomers.  These contracts, most ofwhich expire from 2001 to 2002, were designed to capture a significant portionof the margin that the customers paid to CILCO in the most recent twelvemonths.  CILCO is either negotiating newcontracts with those customers or returning them to tariffs as the contractsexpire in 2001.

The ultimate market price for electricity, the cost for a utility toproduce or buy electricity, and the number of customers that may be gained orlost due to customer choice of supplier in Illinois cannot be predicted.  As a result, management cannot predict theultimate impact that the Customer Choice Law will have on CILCORP's financialposition or results of operation, but the effect could be significant.  However, CILCO is currently a low-costprovider of electricity, and management will continue to position CILCO forcompetition by controlling costs, maintaining good customer relations, anddeveloping flexibility to meet individual customer requirements.  As of June 30, 2001, all eligible electriccustomers continue to purchase their electricity supply from CILCO, other thanthose who self-generate.  As of June 30,2001, CILCO has contracts totaling approximately 2.5 million megawatt hours ofnew retail load outside of its service territory.  CILCO will supply these new customers by primarily purchasingelectricity from other suppliers.  CILCOhas made the necessary firm supply and transmission arrangements to meetcustomer requirements.

**MarketRisk Sensitive Instruments**

CILCORP is exposed to non-trading risks through its daily businessactivities.  These non-tradingactivities may include the market or commodity price risk related to CILCO'sretail tariff activity and CILCORP's non-regulated commodity marketingactivities.

The majority of CILCORP's energy sales during the first six months of2001 were to CILCO retail customers in Illinois under tariffs regulated by theICC.  Although the Illinois retailelectric market is becoming deregulated (see Item 2. Management's Discussionand Analysis of Financial Condition and Results of Operations - Competition),prudently incurred costs of fuel used to generate electricity and purchasedpower costs may be recovered from retail customers that purchase energy throughregulated tariffs under the Fuel Adjustment Clause (FAC).  Thus, there has been very limited commodityprice risk associated with CILCO's traditional regulated sales.  However, as more customers in Illinoispurchase energy on a competitive basis pursuant to the current Illinoisderegulation timetable, CILCO's exposure to commodity price risk will increase.  Also, CILCO's exposure to commodity pricerisk will increase if the FAC is eliminated.

The market risk inherent in the activities of CILCORP is the potentialloss arising from adverse changes in natural gas and electric commodity pricesrelative to the physical and financial positions that the Company maintains.  The prices of natural gas and electricity aresubject to fluctuations resulting from changes in supply and demand.  At June 30, 2001, CILCORP engaged innon-regulated electric retail and natural gas sales in Illinois, includingwholesale power purchases and sales to utilize its electric generatingcapability.  These non-regulatedactivities had net open market price risk positions of approximately 1,397,000MWh of electricity and 5,720,000 Mcf of natural gas.  A market price sensitivity of 10% applied to these positions isnot material to the Company.  SeeNote 3 for a discussion of CILCORP's use of financial derivatives forhedging purposes.  Due to the highcorrelation between the changes in the value of the financial instrumentpositions held by CILCORP and the change in price of the underlying commodity,the net effect on CILCORP's net income resulting from the change in value ofthese financial instruments is not expected to be material.

**Results of Operations**

**CILCO Electric Operations**

The following table summarizes the components of CILCO electricoperating income for the three months and six months ended June 30, 2001and 2000.
 Three Months  Ended  June 30, Six Months Ended  June 30,  2001 2000 2001 2000  (In thousands) (Unaudited) Components of Electric Operating Income                   Revenue:          Electric retail$87,361 $88,557 $172,896 $170,584   Sales for resale4,938 6,363 8,403 10,662         Total revenue92,299 94,920 181,299 181,246        Cost of sales:          Cost of fuel24,704 23,148 53,964 52,147   Purchased power9,547 15,000 19,659 17,899   Revenue taxes4,337 4,377 9,547 9,162         Total cost of sales38,588 42,525 83,170 79,208        Gross margin53,711 52,395 98,129 102,038        Operating expenses          Other operations and maintenance24,906 20,349 46,328 38,844   Depreciation and amortization11,768 12,372 23,524 24,573   Other taxes2,343 1,958 4,838 4,579         Total operating expenses39,017 34,679 74,690 67,996        Total14,694 17,716 23,439 34,042        Fixed charges and other          Interest on long-term debt3,091 3,091 6,181 6,326   Cost of borrowed funds capitalized(26)(99)(44)(202)  Other interest1,350 727 2,483 1,427         Total4,415 3,719 8,620 7,551        Income before income taxes10,279 13,997 14,819 26,491   Income taxes4,058 4,961 5,819 9,321        Electric income$6,221 $9,036 $9,000 $17,170       
Electricgross margin increased 3% for the quarter and decreased 4% for the six monthsended June 30, 2001, compared to the same periods in 2000.  The increase in gross margin for the quarterwas due to a reduction in non-energy purchased power costs which are not passedthrough the Fuel Adjustment Clause (FAC). The decrease in electric gross margin for the six months ended was dueprimarily to decreased wholesale power sales and increased purchased powercosts.  On December 20, 2000, as part ofthe 1999 FAC reconciliation hearings, the Illinois Commerce Commission (ICC)ordered changes in CILCO’s calculation of allowable fuel costs applicable tosales subject to the FAC.  These changesrevised the allocation of generated and purchased power between regulated andnon-regulated sales.  As a result ofthis order, the regulated sales margin decreased and the non-regulated salesmargin increased for January through March 2001.  On March 9, 2001, the ICC issued an emergency rule in response tothe margin shifts.  The emergency rulerestored the previous calculation method for off-system non-regulated sales inan attempt to fairly allocate costs between regulated and non-regulatedsales.  On July 25, 2001, the ICCentered a final order, amending the emergency rule, which changed the methodfor allocating fuel costs to non-regulated sales.

Industrial sales increased 5% for the quarter and remained constant forthe six months ended June 30, 2001, compared to the same periods in 2000.  Residential sales decreased 4% for thequarter and increased 5% for the six months ended June 30, 2001, compared tothe same periods in 2000.  Commercialsales increased 1% for the quarter and 3% for the six months ended June 30,2001, compared to the same periods in 2000. Retail kilowatt hour (kWh) sales increased 1% for the quarter and 2% forthe six months ended June 30, 2001, compared to the same periods in 2000.  Cooling degree days were 11% higher for Mayand June 2001, compared to the same period in 2000.

Sales for resale decreased 22% for the quarter and 21% for the six monthsended June 30, 2001, compared to the same periods in 2000.  Sales for resale vary based on the energyrequirements of native load customers, neighboring utilities and powermarketers, CILCO’s available capacity for bulk power sales and the price of poweravailable for sale.  CILCO’s activity inthe sales for resale and purchased power markets is expected to increase as aresult of retail deregulation in the Illinois market.

The overall level of business activity in CILCO’s service territory andweather conditions are expected to continue to be the primary factors affectingelectric sales in the near term. CILCO’s electric sales will also be affected in the long term byderegulation and increased competition in the electric utility industry.

The cost of fuel increased 7% for the quarter and 3% for the six monthsended June 30, 2001, compared to the same periods in 2000.  Purchased power decreased 36% and increased10% for the quarter and six months ended June 30, 2001, respectively, comparedto the same periods in 2000.

Electric operation and maintenance expense increased 22% for thequarter and 19% for the six months ended June 30, 2001, compared to the sameperiods in 2000.  The increase wasmainly due to a lower return on pension assets in 2000, and to increased costsfor power plant operations, uncollectible accounts and tree trimming.

Income taxes expense decreased for the quarter and six months endedJune 30, 2001, due to decreases in pre-tax operating income.

Fixed charges and other expenses increased 19% for the quarter and 14%for the six months ended June 30, 2001, compared to the same periods in 2000,primarily due to higher interest expense.

**CILCO Gas Operations**

The following table summarizes the components of CILCO gas operatingincome for the three months and six months ended June 30, 2001 and 2000.
 Three Months  Ended     Six Months Ended  June 30, June 30,  2001 2000 2001 2000  (In thousands)  (Unaudited) Components of Gas Operating Income                 Revenue:         Sale of gas$40,491 $31,667 $197,964 $100,440  Transportation services1,255 1,143 2,731 2,514       Total revenue41,746 32,810 200,695 102,954      Cost of sales:         Cost of gas25,816 17,474 152,496 58,406  Revenue taxes1,594 1,629 6,139 5,260       Total cost of sales27,410 19,103 158,635 63,666      Gross margin14,336 13,707 42,060 39,288      Operating expenses         Other operations and maintenance8,533 7,044 16,146 14,412  Depreciation and amortization5,476 5,296 10,945 10,504  Other taxes517 625 1,135 1,455       Total operating expenses14,526 12,965 28,226 26,371      Total(190)742 13,834 12,917      Fixed charges and other         Interest on long-term debt1,238 1,238 2,476 2,534  Other interest expense506 291 995 572       Total1,744 1,529 3,471 3,106      Income (loss) before income taxes(1,934)(787)10,363 9,811  Income taxes(770)(303)4,125 3,919      Gas income (loss)$(1,164)$(484)$6,238 $5,892      
Gas grossmargin increased 5% for the quarter and 7% for the six months ended June 30,2001, compared to the same periods in 2000. Residential sales volumes remained constant for the quarter andincreased 8% for the six months ended June 30, 2001.  Commercial sales volumes decreased 6% for the quarter andincreased 1% for the six months ended June 30, 2001.  Heating degree days were 22% lower for the quarter and 14% higherfor the six months ended June 30, 2001, compared to the same periods in2000.  Industrial sales volumesincreased 3.0% for the quarter and 25% for the six months ended June 30, 2001,due to increased retail system use sales to transportation customers.

The overall level of business activity in CILCO’s service territory andweather conditions are expected to continue to be the primary factors affectinggas sales in the near term.  CILCO’s gassales may also be affected by further deregulation at the retail level in thenatural gas industry.

Revenue from gas transportation services increased 10% and 9% for thequarter and six months ended June 30, 2001, respectively, while gastransportation sales volumes decreased 14% for the quarter and 10% for the sixmonths ended June 30, 2001, compared to the same periods in 2000.  Decreases in lower margin industrial gastransportation sales were offset by increases in higher margin commercial gastransportation sales.

The cost of gas increased 48% for the quarter and 161% for the sixmonths ended June 30, 2001, compared to the same periods in 2000, due toincreased gas sales and higher natural gas prices during the quarter and sixmonths ended June 30, 2001.  Thesehigher natural gas prices were passed through to customers via the PGA.

Gas operation and maintenance expense increased 21% and 12%,respectively, for the quarter and six months ended June 30, 2001, compared tothe same periods in 2000.  The increaseswere primarily due to an increased uncollectible accounts expense, lower returnon pension assets and increased gas distribution maintenance costs partiallyoffset by decreased telecommunication expense and public liability claims.

Fixed charges and other expenses increased 14% and 12% for the quarterand six months ended June 30, 2001, compared to the same periods in 2000,mainly due to higher interest expense.

**CILCO Other Operations**

The following table summarizes CILCO’s other income and deductions forthe three months and six months ended June 30, 2001 and 2000.
 Three Months  Ended Six Months Ended  June 30, June 30,  2001 2000 2001 2000  (In thousands)  (Unaudited) Components of CILCO Other                 Revenue$26,210 $10,443 $39,004 $18,784 Expense(22,419)(11,681)(31,903)(19,489)     Gross margin (deficit)3,791 (1,238)7,101 (705)     Other income and deductions:        Interest income120 26 280 69 Operating expenses(92)(339)(386)(660)Other taxes— (1)— (2)Preferred stock dividends(539)(1,058)(1,079)(1,898)Other(316)(246)(618)(521)     Total other income and deductions(827)(1,618)(1,803)(3,012)         Income (loss) before income taxes2,964 (2,856)5,298 (3,717) Income taxes (benefit)986 (1,011)1,710 (1,365)      Other income (loss)$1,978 $(1,845)$3,588 $(2,352)     
Gross margin increased for the quarter and six months ended June 30,2001, compared to the same periods in 2000, primarily due to increased non-regulatedelectricity sales in Illinois outside of CILCO’s service territory and ICCmandated changes in the manner in which generated and purchased power costs areallocated between regulated and non-regulated sales (see Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations – CILCO ElectricOperations).   These sales ofelectricity were to customers eligible to choose their energy supplier underthe Customer Choice Law.

Preferred stock dividends decreased for the quarter and six monthsended June 30, 2001, compared to the same periods in 2000, due to theredemption of $25 million of auction rate preferred stock in July 2000.

**Other Businesses Operations**

The following table summarizes Other Businesses revenue and expensesfor the three months and six months ended June 30, 2001 and 2000.  Other Businesses results include incomeearned and expenses incurred at the Holding Company, CIM, CVI, and CILCORPInfraservices Inc.
 Three Months  Ended Six Months Ended  June 30, June 30,  2001 2000 2001 2000  (In thousands)  (Unaudited) Components of Other Businesses        Net Loss                 Revenue:        Leveraged lease revenue$1,343 $1,435 $2,739 $4,750 Interest income65 39 155 93 Gas marketing revenue7,458 3,084 21,439 5,393 Other revenue659 876 1,152 1,467       Total revenue9,525 5,434 25,485 11,703      Expenses:         Gas purchased for resale7,595 3,025 21,603 5,156  Fuel for generation and purchased power(1,334)— (2,668)—  Operating expenses414 1,163 861 1,826  Depreciation and amortization4,576 3,613 8,441 7,225  Interest expense11,660 11,896 23,531 23,727  Other taxes20 8 46 120       Total expenses22,931 19,705 51,814 38,054      Loss before income taxes(13,406)(14,271)(26,329)(26,351)      Income tax benefit(4,061)(4,635)(8,418)(8,421)     Other Businesses net loss$(9,345)$(9,636)$(17,911)$(17,930)     
Leveraged lease revenues decreased 42% for the six months ended June30, 2001, primarily due to the termination of the Company’s dragline lease inthe first quarter of 2001.

Gas marketing revenues and gas purchased for resale at CVI subsidiary,CILCORP Energy Services Inc., increased significantly due to increased gasmarketing sales and higher natural gas prices.

Interest expense remained relatively constant for the six months endedJune 30, 2001.  Depreciation andamortization increased following the finalization of purchase price allocationsin the fourth quarter of 2000.

Fuel forgeneration and purchased power was impacted in 2001 by $2.7 million inamortization related to the purchase accounting adjustment for theout-of-market Freeman coal contract.

The income tax benefit remained relatively constant in the six monthsended June 30, 2001, compared to the corresponding period in 2000.

**QST Enterprises DiscontinuedOperations**

QST Enterprises and QST Energy ceased operations during the fourthquarter of 1998, except for fulfillment of contractual commitments for 1999 andbeyond.  Accordingly, the results of QSTEnterprises are reported as discontinued operations.  An initial loss provision was recorded for the discontinuedenergy operations in 1998.  Subsequentpurchase accounting adjustments included additional discontinued operationsloss accruals for QST Enterprises.

QST Enterprises’ financial results were applied against thediscontinued operations provision, resulting in no net income or loss for thesix months ended June 30, 2001, and 2000.

In February 1999, QST Energy notified two of its California commercialcustomers that they were in default of their contracts with QST Energy as aresult of not paying QST Energy for energy delivered.  QST Energy filed two suits in the U.S. District Court, CentralDistrict of Illinois, seeking payment. In March 1999, the customers filed a suit in California Superior Court,Alameda County, California, alleging that QST Energy was in breach of thecontract.  This suit was subsequentlyremoved to U.S. District Court, Northern District of California.  The two suits filed by QST Energy in theU.S. District Court, Central District of Illinois, were consolidated with thesuit in the U.S. District Court, Northern District of California.  In December 2000, the two customers filedcounterclaims against QST Energy.  OnJuly 19, 2001, QST Energy and the two customers signed a settlement agreementand mutual release which resolved all of the pending lawsuits.  A cash settlement of $6 million was paid toQST Energy and applied against the accounts receivable balance at QST Energy,which was $13 million at June 30, 2001. CILCORP had reserved $4.5 million as a preacquisition contingencyrelated to this litigation. Consequently, the net write-off during the third quarter will be approximately$2.5 million.

**PART II.  OTHER INFORMATION**

**Item1.  Legal Proceedings**

Reference is made to “Fuel Supply – Coal” and “Electric Fuel andPurchased Gas Adjustment Clauses” of Item 1. Business,  “EnvironmentalMatters” of Item 7. Management’s Discussion and Analysis of Financial Conditionand Results of Operations and to “Note 7 – Commitments and Contingencies” ofItem 8.  Financial Statements andSupplementary Data in the Company’s 2000 Annual Report on Form 10-K and to“Note 2 – Contingencies” and “QST Enterprises DiscontinuedOperations”, herein, for certain pending legal proceedings and/or proceedingsknown to be contemplated by governmental authorities.

The Company and its subsidiaries are subject to certain claims andlawsuits in connection with work performed in the ordinary course of theirbusinesses.  Except as otherwisereferred to above, in the opinion of management, all such claims currentlypending either will not result in a material adverse effect on the financialposition and results of operations of the Company or are adequately covered by:  (i) insurance; (ii) contractual or statutoryindemnification; and/or (iii) reserves for potential losses.

**Item5.  Other Information**

             None

**Item 6.  Exhibits and Reports on Form 8-K.**

(a)           Exhibits

             None

(b)        Reports on Form 8-K

          None

**SIGNATURES**

Pursuant to the requirements of the Securities Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
 CILCORP Inc. (Registrant)  Date  August 8, 2001  /s/ R. J. Sprowls Vice President  Date  August 8, 2001  /s/ T. S. Romanowski Chief Financial Officer And Treasurer     CENTRAL ILLINOIS LIGHT COMPANY (Registrant)  Date  August 8, 2001  /s/ R. J. Sprowls President  Date  August 8, 2001  /s/ T. S. Romanowski Chief Financial Officer And Treasurer