UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

(Mark  One)
(X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended June 30, 1999

                                        OR

( )  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,        I.R.S. Employer
 File Number           Address, and Telephone Number          Identification No.

   1-11377                      CINERGY CORP.                    31-1385023
                         (A Delaware Corporation)
                          139 East Fourth Street
                          Cincinnati, Ohio 45202
                               (513) 287-2644

   1-1232           THE CINCINNATI GAS & ELECTRIC COMPANY        31-0240030
                          (An Ohio Corporation)
                         139 East Fourth Street
                         Cincinnati, Ohio 45202
                             (513) 287-2644

   1-3543                   PSI ENERGY, INC.                     35-0594457
                         An Indiana Corporation)
                          1000 East Main Street
                        Plainfield, Indiana 46168
                              (317) 839-9611

   2-7793          THE UNION LIGHT, HEAT AND POWER COMPANY       31-0473080
                          (A Kentucky Corporation)
                           139 East Fourth Street
                           Cincinnati, Ohio 45202
                               (513) 287-2644

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

This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas
& Electric  Company,  PSI  Energy,  Inc.,  and The Union  Light,  Heat and Power
Company.  Information  contained herein relating to any individual registrant is
filed  by  such  registrant  on  its  own  behalf.   Each  registrant  makes  no
representation as to information relating to the other registrants.

The Union  Light,  Heat and Power  Company  meets  the  conditions  set forth in
General  Instruction  H(1)(a) and (b) of Form 10-Q and is  therefore  filing its
company specific information with the reduced disclosure format.

As of July 31, 1999, shares of Common Stock outstanding for each registrant were
as listed:

                       Company                                   _     Shares _
---------------------------------------------------------           ------------
Cinergy Corp., par value $.01 per share                              158,886,167
The Cincinnati Gas & Electric Company, par value $8.50
  per share                                                           89,663,086
PSI Energy, Inc., without par value, stated value $.01
  per share                                                           53,913,701
The Union Light, Heat and Power Company, par value $15.00
  per share                                                              585,333




<PAGE>



                                TABLE OF CONTENTS


 Item                                                               Page
Number                                                             Number

       Glossary of Terms . . . . . . . . . . . . . . . . . . .        3

                         PART I.  FINANCIAL INFORMATION

  1    Financial Statements
       Cinergy Corp.
         Consolidated Balance Sheets . . . . . . . . . . . . .        7
         Consolidated Statements of Income (Loss). . . . . . .        9
         Consolidated Statements of Changes in Common
           Stock Equity. . . . . . . . . . . . . . . . . . . .       10
         Consolidated Statements of Cash Flows . . . . . . . .       12
         Results of Operations . . . . . . . . . . . . . . . .       13
       The Cincinnati Gas & Electric Company
         Consolidated Balance Sheets . . . . . . . . . . . . .       21
         Consolidated Statements of Income and Comprehensive
           Income. . . . . . . . . . . . . . . . . . . . . . .       23
         Consolidated Statements of Cash Flows . . . . . . . .       24
         Results of Operations . . . . . . . . . . . . . . . .       25
       PSI Energy, Inc.
          Consolidated Balance Sheets. . .  . . . . . . . . .        31
          Consolidated Statements of Income (Loss) and
            Comprehensive Income (Loss). . . . . . . . . . . .       33
          Consolidated Statements of Cash Flows. . . . . . . .       34
         Results of Operations . . . . . . . . . . . . . . . .       35
       The Union Light, Heat and Power Company
         Balance Sheets. . . . . . . . . . . . . . . . . . . .       40
         Statements of Income (Loss) . . . . . . . . . . . . .       42
         Statements of Cash Flows. . . . . . . . . . . . . . .       43
         Results of Operations . . . . . . . . . . . . . . . .       44
       Notes to Financial Statements . . . . . . . . . . . . .       47
  2    Management's Discussion and Analysis of Financial
         Condition and Results of Operations . . . . . . . . .       56
  3    Quantitative and Qualitative Disclosures About
         Market Risk . . . . . . . . . . . . . . . . . . . . .       64

                           PART II. OTHER INFORMATION

  1    Legal Proceedings . . . . . . . . . . . . . . . . . . .       65
  6    Exhibits and Reports on Form 8-K. . . . . . . . . . . .       65
       Signatures. . . . . . . . . . . . . . . . . . . . . . .       66





<PAGE>




                                GLOSSARY OF TERMS

The following  abbreviations  or acronyms used in the text of this combined Form
10-Q are defined below:

    TERM                                   DEFINITION
--------------    ------------------------------------------------------

1998 Form         Combined 1998 Annual Report on Form 10-K filed separately by
  10-K              Cinergy, CG&E, PSI, and ULH&P

Avon Energy       Avon Energy Partners Holdings, an Unlimited Liability
                    Company and its wholly-owned subsidiary Avon Energy
                    Partners PLC, a Limited Liability Company

Beckjord          CG&E's W.C. Beckjord Generating Station (steam electric
                    generating plant)

CAAA              Clean Air Act Amendments of 1990

Cayuga            PSI's Cayuga Generating Station (steam electric generating
                    plant)

CC&T              Cinergy Capital & Trading, Inc. (a subsidiary of
                    Investments)

CERCLA            Comprehensive Environmental Response, Compensation and
                    Liability Act

CG&E              The Cincinnati Gas & Electric Company (a subsidiary of
                    Cinergy)

CIBU              Cinergy Investments Business Unit

Cinergy or        Cinergy Corp.
  Company

CM&T              Cinergy Marketing & Trading, LLC (a subsidiary of CC&T),
                    formerly Producers Energy Marketing, LLC (ProEnergy),
                    which is engaged in the marketing of natural gas

Committed Lines   A line of credit providing short-term loans on a
                    committed basis

Court of Appeals  U.S. Circuit Court of Appeals for the District of Columbia

Destec            Destec Energy, Inc.

DOE               United States Department of Energy

Dynegy            Dynegy Inc.

ECBU              Energy Commodities Business Unit

EDBU              Energy Delivery Business Unit

EITF Issue 98-10  Emerging Issues Task Force Issue No. 98-10, Accounting for
                    Contracts Involved in Energy Trading and Risk Management
                    Activities

EPA               United States Environmental Protection Agency

EPS               Earnings per share

FASB              Financial Accounting Standards Board

FERC              Federal Energy Regulatory Commission




<PAGE>




GLOSSARY OF TERMS (Continued)

    TERM                                   DEFINITION
--------------    ------------------------------------------------------


Gibson            PSI's Gibson Generating Station (steam electric generating
                    plant)

Global Resources  Cinergy Global Resources, Inc. (a subsidiary of Cinergy)

GPU               GPU Inc.

House             U.S. House of Representatives

IBU               International Business Unit

ICR               Mercury Information Collection Request

IDEM              Indiana Department of Environmental Management

IGC               Indiana Gas Company, Inc., formerly Indiana Gas and Water
                    Company, Inc.

Investments       Cinergy Investments, Inc. (a subsidiary of Cinergy)

IT                Information Technology

IURC              Indiana Utility Regulatory Commission

JUMPS(sm)         Junior Maturing Principal Securities

KWh               Kilowatt-hour

mcf               Thousand cubic feet

MGP               Manufactured gas plant

Midlands          Midlands Electricity plc, a United Kingdom regional electric
                    company (a wholly-owned subsidiary of Avon Energy)

Midwest ISO       Midwest Independent System Operator

MW                Megawatts

N/A               Not applicable

NERC              North American Electric Reliability Council

NIPSCO            Northern Indiana Public Service Company

NOx               Nitrogen oxide

NSR               New Source Review

PSI               PSI Energy, Inc. (a subsidiary of Cinergy)

PUCO              Public Utilities Commission of Ohio

PUHCA             Public Utility Holding Company Act of 1935

SEC               United States Securities and Exchange Commission

Senate            U.S. Senate



<PAGE>



GLOSSARY OF TERMS (Continued)

    TERM                                   DEFINITION
--------------    ------------------------------------------------------
September 1996    An IURC order issued in September 1996 on PSI's retail
  Order             rate proceeding

SIP               State Implementation Plan

SO2               Sulfur dioxide

Statement 131     Statement of Financial Accounting Standards No. 131,
                    Disclosures About Segments of an Enterprise and Related
                    Information

Statement 133     Statement of Financial Accounting Standards No. 133,
                    Accounting for Derivative Instruments and Hedging
                    Activities

Statement 137     Statement of Financial Accounting Standards No. 137,
                    Accounting for Derivative Instruments and Hedging
                    Activities - Deferral of the Effective Date of FASB
                    Statement 133

UCC               The Indiana Office of the Utility Consumer Counselor

ULH&P             The Union Light, Heat and Power Company (a wholly-owned
                    subsidiary of CG&E)

Uncommitted       A line of credit providing short-term loans on an
  Lines             uncommitted basis

US                United States

WVPA              Wabash Valley Power Association, Inc.

Zimmer            CG&E's William H. Zimmer Generating Station (steam
                    electric generating plant)







<PAGE>






                                  CINERGY CORP.
                            AND SUBSIDIARY COMPANIES






<PAGE>



                                  CINERGY CORP.
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

ASSETS
<S>                                                  <C>           <C>
                                                       June 30     December 31
                                                         1999         1998
                                                     (unaudited)
                                                       (dollars in thousands)
Current Assets

  Cash and temporary cash investments                $    77,059   $   100,154
  Restricted deposits                                      1,340         3,587
  Accounts receivable less accumulated provision
    for doubtful accounts of $31,321 at June
    30, 1999, and $25,622 at December 31, 1998           400,493       580,305
  Materials, supplies, and fuel - at average cost        197,423       202,747
  Energy risk management assets                          185,592       283,924
  Prepayments and other                                   88,551        74,913
                                                     -----------   -----------
                                                         950,458     1,245,630

Utility Plant - Original Cost
  In service
    Electric                                           9,295,375     9,222,261
    Gas                                                  803,473       786,188
    Common                                               198,067       186,364
                                                     -----------   -----------
                                                      10,296,915    10,194,813
  Accumulated depreciation                             4,167,497     4,040,247
                                                     -----------   -----------
                                                       6,129,418     6,154,566
  Construction work in progress                          240,810       189,883
                                                     -----------   -----------
    Total utility plant                                6,370,228     6,344,449

Other Assets
  Regulatory assets                                      911,754       970,767
  Investments in unconsolidated subsidiaries             616,347       574,401
  Energy risk management assets                           52,825        73,662
  Other                                                  491,237       478,472
                                                     -----------   -----------
                                                       2,072,163     2,097,302

                                                     $ 9,392,849   $ 9,687,381


<FN>
The  accompanying  notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
</TABLE>

<PAGE>



                                  CINERGY CORP.
<TABLE>
<CAPTION>

LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                   <C>           <C>
                                                       June 30    December 31
                                                         1999         1998
                                                      (unaudited)
                                                        (dollars in thousands)

Current Liabilities
  Accounts payable                                    $  516,458    $  668,860
  Accrued taxes                                          207,873       228,347
  Accrued interest                                        47,017        51,679
  Notes payable and other short-term obligations         837,184       903,700
  Long-term debt due within one year                      25,959       136,000
  Energy risk management liabilities                     264,639       398,538
  Other                                                   77,945        93,376
                                                      ----------    ----------
                                                       1,977,075     2,480,500

Non-Current Liabilities
  Long-term debt                                       2,782,798     2,604,467
  Deferred income taxes                                1,105,478     1,091,075
  Unamortized investment tax credits                     152,004       156,757
  Accrued pension and other postretirement
    benefit costs                                        333,703       315,147
  Energy risk management liabilities                     101,924       107,194
  Other                                                  264,825       298,370
                                                      ----------    ----------
                                                       4,740,732     4,573,010

    Total liabilities                                  6,717,807     7,053,510

Cumulative Preferred Stock of Subsidiaries
  Not subject to mandatory redemption                     92,606        92,640

Common Stock Equity
  Common stock - $.01 par value;  authorized
    shares - 600,000,000;  outstanding shares -
    158,886,167 at June 30, 1999, and
    158,664,532 at December 31, 1998                       1,589         1,587
  Paid-in capital                                      1,602,608     1,595,237
  Retained earnings                                      988,598       945,214
  Accumulated other comprehensive loss                   (10,359)         (807)
                                                      ----------    ----------
    Total common stock equity                          2,582,436     2,541,231

                                                      $9,392,849    $9,687,381
</TABLE>




<PAGE>

<TABLE>
<CAPTION>

                                  CINERGY CORP.
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                                   (unaudited)
<S>                                       <C>           <C>              <C>           <C>
                                                Quarter Ended                  Year to Date
                                                   June 30                       June 30
                                              1999          1998             1999         1998
                                                    (in thousands, except per share amounts)

Operating Revenues
  Electric                                $  942,093     $1,021,922      $1,910,625    $2,180,646
  Gas                                        328,667        142,247         749,975       327,093
  Other                                        4,639          3,540          17,078         8,431
                                          ----------     ----------      ----------    ----------
                                           1,275,399      1,167,709       2,677,678     2,516,170

Operating Expenses
  Fuel and purchased and exchanged power     451,066        595,467         884,235     1,247,871
  Gas purchased                              293,513        112,757         627,915       220,343
  Other operation and maintenance            236,432        307,384         480,980       520,077
  Depreciation and amortization               88,201         80,751         174,678       160,686
  Taxes other than income taxes               69,077         68,644         138,611       138,779
                                          ----------     ----------      ----------    ----------
                                           1,138,289      1,165,003       2,306,419     2,287,756

Operating Income                             137,110          2,706         371,259       228,414

Equity in Earnings of Unconsolidated
  Subsidiaries                                13,022          9,717          57,704        21,571

Other Income and (Expenses) - Net                192             80         (11,694)      (11,735)

Interest                                      60,781         60,755         121,553       120,560
                                          ----------     ----------      ----------    ----------

Income (Loss) Before Taxes                    89,543        (48,252)        295,716       117,690

Income Taxes                                  29,120        (23,685)        106,684        33,764

Preferred Dividend Requirements
  of Subsidiaries                              1,365          1,366           2,729         3,788
                                          ----------     ----------      ----------    ----------

Net Income (Loss)                         $   59,058     $  (25,933)     $  186,303    $   80,138

Earnings Per Common Share
  Basic                                        $0.37         $(0.16)          $1.17         $0.51
  Assuming dilution                            $0.37         $(0.16)          $1.17         $0.51

Dividends Declared Per Common Share            $0.45         $ 0.45           $0.90         $0.90

Average Common Shares Outstanding
  Basic                                      158,877        158,018         158,812       157,892
  Common stock options                           418            689             415           738
  Contingently issuable common stock              26            113              19           118
                                             -------        -------         -------       -------
  Assuming dilution                          159,321        158,820         159,246       158,748

<FN>
The  accompanying  notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                                  CINERGY CORP.
            CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
                             (dollars in thousands)
                                   (unaudited)

<S>                                  <C>          <C>             <C>             <C>               <C>                 <C>
                                                                                   Accumulated
                                                                                      Other             Total              Total
                                     Common         Paid-in        Retained       Comprehensive     Comprehensive       Common Stock
                                     Stock          Capital        Earnings           Loss          Income (Loss)          Equity
Quarter Ended June 30, 1999

Balance at April 1, 1999             $1,588       $1,598,884      $1,001,034        $ (9,273)                            $2,592,233
Comprehensive income
  Net income                                                          59,058                           $ 59,058              59,058
  Other comprehensive income,
      net of tax
    Foreign currency translation
      adjustment                                                                                         (1,581)             (1,581)
    Unrealized gain on grantor
      trust                                                                                                 495                 495
                                                                                                       --------
    Other comprehensive income
      (loss) total                                                                    (1,086)            (1,086)
                                                                                                       --------
Comprehensive income (loss) total                                                                      $ 57,972
                                                                                                       ========
Issuance of 106,267 shares of
  common stock - net                      1            2,299                                                                  2,300
Treasury shares reissued                               1,425                                                                  1,425
Dividends on common stock (see
  page 9 for per share amounts)                                      (71,492)                                               (71,492)
Other                                                                     (2)                                                    (2)
                                     ------       ----------      ----------        --------                             ----------

Balance at June 30, 1999             $1,589       $1,602,608      $  988,598        $(10,359)                            $2,582,436

Quarter Ended June 30, 1998

Balance at April 1, 1998             $1,578       $1,574,080      $1,002,495        $ (3,279)                            $2,574,874
Comprehensive income
  Net income (loss)                                                  (25,933)                          $(25,933)            (25,933)
  Other comprehensive income,
      net of tax
    Foreign currency translation
      adjustment                                                                                            (51)                (51)
                                                                                                       --------
    Other comprehensive income
      (loss) total                                                                       (51)               (51)
                                                                                                       --------
Comprehensive income (loss) total                                                                      $(25,984)
                                                                                                       ========
Issuance of 771,258 shares of
  common stock - net                      7           26,504                                                                 26,511
Treasury shares purchased                (1)          (3,502)                                                                (3,503)
Treasury shares reissued                  1            2,329                                                                  2,330
Dividends on common stock (see
  page 9 for per share amounts)                                      (71,006)                                               (71,006)
Other                                                     24                                                                     24
                                     ------       ----------      ----------        --------                             ----------

Balance at June 30, 1998             $1,585       $1,599,435      $  905,556        $ (3,330)                            $2,503,246


<FN>
The  accompanying  notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                  CINERGY CORP.
      CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED)
                             (dollars in thousands)
                                   (unaudited)


<S>                                <C>         <C>              <C>             <C>                <C>                 <C>
                                                                                 Accumulated
                                                                                    Other              Total              Total
                                    Common       Paid-in        Retained        Comprehensive      Comprehensive       Common Stock
                                    Stock        Capital        Earnings            Loss               Income             Equity
Six Months Ended June 30, 1999

Balance January 1, 1999            $1,587      $1,595,237       $ 945,214         $   (807)                             $2,541,231
Comprehensive income
  Net income                                                      186,303                            $186,303              186,303
  Other comprehensive income,
      net of tax
    Foreign currency translation
      adjustment                                                                                      (10,032)             (10,032)
    Unrealized gain on grantor
      trust                                                                                               480                  480
                                                                                                     --------
    Other comprehensive income
      (loss) total                                                                  (9,552)            (9,552)
                                                                                                     --------
Comprehensive income total                                                                           $176,751
                                                                                                     ========
Issuance of 221,635 shares of
  common stock - net                    2           4,277                                                                    4,279
Treasury shares purchased                            (233)                                                                    (233)
Treasury shares reissued                            3,327                                                                    3,327
Dividends on common stock (see
  page 9 for per share amounts)                                  (142,914)                                                (142,914)
Other                                                                  (5)                                                      (5)
                                   ------      ----------       ---------         --------                              ----------

Balance June 30, 1999              $1,589      $1,602,608       $ 988,598         $(10,359)                             $2,582,436

Six Months Ended June 30, 1998

Balance January 1, 1998            $1,577      $1,573,064       $ 967,420         $ (2,861)                             $2,539,200
Comprehensive income
  Net income                                                       80,138                            $ 80,138               80,138
  Other comprehensive income,
      net of tax
    Foreign currency translation
      adjustment                                                                                         (418)                (418)
    Minimum pension liability
      adjustment                                                                                          (51)                 (51)
                                                                                                     --------
    Other comprehensive income
      (loss) total                                                                    (469)              (469)
                                                                                                     --------
Comprehensive income total                                                                           $ 79,669
                                                                                                     ========
Issuance of 790,620 shares of
  common stock - net                    8          26,793                                                                   26,801
Treasury shares purchased              (2)         (4,932)                                                                  (4,934)
Treasury shares reissued                2           4,478                                                                    4,480
Dividends on common stock (see
  page 9 for per share amounts)                                  (142,000)                                                (142,000)
Other                                                  32              (2)                                                      30
                                   ------      ----------       ---------         --------                              ----------

Balance June 30, 1998              $1,585      $1,599,435       $ 905,556         $ (3,330)                             $2,503,246


<FN>
The  accompanying  notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                                  CINERGY CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

<S>                                                     <C>           <C>
                                                             Year to Date
                                                                June 30
                                                           1999         1998
                                                             (in thousands)

Operating Activities
  Net income                                            $ 186,303     $  80,138
  Items providing (using) cash currently:
    Depreciation and amortization                         174,678       160,686
    WVPA settlement                                          -           80,000
    Deferred income taxes and investment
      tax credits - net                                    20,900       (61,871)
    Equity in earnings of unconsolidated
      subsidiaries                                        (45,687)      (21,571)
    Allowance for equity funds used during
      construction                                         (1,279)         (132)
    Regulatory assets - net                                14,925        18,208
    Changes in current assets and current
      liabilities
        Restricted deposits                                 2,247           812
        Accounts and notes receivable,
          net of reserves on receivables sold             179,251        (1,456)
        Materials, supplies, and fuel                       5,324        (4,667)
        Accounts payable                                 (152,402)       40,353
        Accrued taxes and interest                        (25,136)      (11,038)
        Energy risk management - net                      (20,000)       67,000
    Other items - net                                     (25,319)       23,519
                                                        ---------     ---------
          Net cash provided by operating
            activities                                    313,805       369,981

Financing Activities
  Issuance of common stock                                  4,279           290
  Issuance of long-term debt                              522,097       321,921
  Retirement of preferred stock of subsidiaries               (29)      (85,269)
  Redemption of long-term debt                           (455,657)     (220,409)
  Change in short-term debt                               (66,516)          972
  Dividends on common stock                              (142,914)     (141,599)
                                                        ---------     ---------
          Net cash used in financing activities          (138,740)     (124,094)

Investing Activities
  Construction expenditures (less allowance
    for equity funds used during construction)           (174,705)     (144,524)
  Acquisition of businesses (net of cash acquired)           -          (46,141)
  Investments in unconsolidated subsidiaries              (23,455)      (21,598)
                                                        ---------     ---------
          Net cash used in investing activities          (198,160)     (212,263)

Net increase (decrease) in cash and temporary
  cash investments                                        (23,095)       33,624

Cash and temporary cash investments at beginning
  of period                                               100,154        53,310
                                                        ---------     ---------

Cash and temporary cash investments at end of period    $  77,059     $  86,934

<FN>
The  accompanying  notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
</TABLE>



<PAGE>



                                  CINERGY CORP.

Below is  information  concerning  the  consolidated  results of operations  for
Cinergy for the  quarter and six months  ended June 30,  1999.  For  information
concerning the results of operations for each of the other  registrants  for the
quarter and six months ended June 30, 1999, see the discussion under the heading
"Results of Operations" following the financial statements of each registrant.


            RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999

Operating Revenues

Electric Operating Revenues

The  components  of electric  operating  revenues  and the related KWh sales are
shown below:




                                                 Quarter Ended
                                                    June 30
                                      Revenue                 KWh Sales
                                  -----------------------------------------
                                  1999       1998          1999       1998
                                  ----       ----          ----       -----
                                            ($ and KWh in millions)

Retail                            $623     $  608         11,521     11,207
Sales for resale                   285        403         10,652     16,373
Other                               34         11            185       -
                                  ----     ------         ------     -------
Total                             $942     $1,022         22,358     27,580



Electric  operating  revenues  decreased  $80 million (8%) for the quarter ended
June 30,  1999,  when  compared to the same period for 1998.  This  decrease was
primarily  due  to  decreased   volumes  on  non-firm  power  sales  for  resale
transactions  related to energy  marketing  and  trading  operations  and milder
weather.  Partially  offsetting the decline was an increase in the average price
per KWh for non-firm  power  customers,  higher  retail and firm power KWh sales
resulting  from  growth in the  average  number of  residential  and  commercial
customers, and increased international operations.




Gas Operating Revenues


The  components  of gas  operating  revenues and the related mcf sales are shown
below:





                                              Quarter Ended
                                                 June 30
                                      Revenue               Mcf Sales
                                  --------------------------------------

                                  1999       1998       1999        1998
                                  ----       ----       ----        -----
                                           ($ and mcf in millions)
Sales for resale                  $266       $ 84        123          42
Retail                              52         49          6           6
Transportation                      11          9          9          14
                                  ----       ----        ---         ---
Total                             $329       $142        138          62


Gas operating  revenues  increased  $187 million in the second  quarter of 1999,
when  compared to the same period last year,  primarily due to the gas operating
revenues of CM&T,  which was acquired in June 1998.  Retail  revenues  increased
primarily  due  to  an  increase  in  sales  by  the  non-regulated  businesses.
Transportation  revenues increased as more residential and commercial  customers
continued to purchase gas directly from suppliers, using transportation services
provided by CG&E. This increase in transportation  revenues was partially offset
by a decrease in mcf  transportation  volumes resulting from the loss of a large
industrial transportation customer during late 1998.


Other Revenues


Other  revenues  increased $1 million (31%) for the quarter ended June 30, 1999,
over the same  period  of 1998.  This  increase  was  primarily  the  result  of
increased  sales and new  initiatives  by  certain  of  Cinergy's  non-regulated
entities.


Operating Expenses

Fuel and Purchased and Exchanged Power

The components of fuel and purchased and exchanged power are shown below:


                                              Quarter Ended
                                                 June 30

                                            1999        1998
                                              (in millions)

Fuel                                        $186        $155
Purchased and exchanged power                265         440
                                            ----        ----
Total                                       $451        $595


Electric  fuel costs  increased $31 million (20%) for the quarter ended June 30,
1999, as compared to the same period last year.

An analysis of these fuel costs is shown below:


                                              Quarter Ended
                                                 June 30
                                              (in millions)

Fuel expense - June 30, 1998                     $155
 Increase (Decrease) due to change in:

  Price of fuel                                    (2)
  Deferred fuel cost                               16
  KWh generation                                   11
  Other                                             6
                                                 ----

Fuel expense - June 30, 1999                     $186

Purchased  and  exchanged  power  expense  decreased  $175 million (40%) for the
quarter ended June 30, 1999, as compared to the same period last year, primarily
reflecting  decreased  purchases  of  non-firm  power for  resale to others as a
result of a decline in sales for resale  volumes  in the  energy  marketing  and
trading  operations.  Additionally,  during the quarter  ended June 30,  1999, a
favorable  adjustment  of $18  million  after tax was  recorded as a result of a
re-evaluation of transactions  included in the trading  portfolio as of December
31, 1998, at the time of adoption of EITF Issue 98-10.  Also contributing to the
decline was the  provision of $61 million of reserves  for the energy  marketing
and trading business recorded during the second quarter of 1998.

Gas Purchased

Gas purchased for the quarter ended June 30, 1999, increased $181 million,  when
compared  to the same  period  last  year,  primarily  due to the gas  purchased
expenses of CM&T,  which was acquired in June 1998.  Partially  offsetting  this
increase was a lower average cost per mcf of gas purchased.


Other Operation and Maintenance

The components of other operation and maintenance expenses are shown below:

                                         Quarter Ended
                                            June 30

                                        1999     1998
                                         (in millions)

Other operation                         $172     $252
Maintenance                               64       55
                                        ----     ----
Total                                   $236     $307



Other operation  expenses decreased $80 million (32%) for the quarter ended June
30, 1999,  as compared to the same period last year.  This decrease is primarily
due to the one-time charge of $80 million  recorded during the second quarter of
1998,  reflecting the  implementation of a 1989 settlement of a dispute with the
WVPA.  Also,  during the second  quarter of 1998,  a provision of $4 million for
potential bad debts related to certain energy marketing and trading accounts was
recorded. This decrease was partially offset by the increased growth in expenses
associated   with  existing  and  new   initiatives   by  certain  of  Cinergy's
consolidated non-regulated businesses.

Maintenance  expenses  increased $9 million (16%) for the quarter ended June 30,
1999,  as  compared  to the same  period  of 1998.  This  increase  is due to an
increase in maintenance  activities  associated  with planned outages at certain
production facilities and other repairs performed at certain facilities.



Depreciation and Amortization

The components of depreciation and amortization expenses are shown below:



                                        Quarter Ended
                                           June 30

                                        1999     1998
                                        (in millions)

Depreciation                            $81       $74
Amortization of phase-in deferrals        6         6
Amortization of post-in-service
  deferred operating expenses             1         1
                                        ---       ---
Total                                   $88       $81

Depreciation  expense  increased $7 million (9%) for the quarter  ended June 30,
1999,  as compared to the same period last year,  primarily  due to additions to
depreciable plant.

Equity in Earnings of Unconsolidated Subsidiaries

The  $3  million  (34%)  increase  in  equity  in  earnings  of   unconsolidated
subsidiaries for the quarter ended June 30, 1999, as compared to the same period
of 1998, is primarily attributable to an increase in the earnings of Avon Energy
resulting from increased  profits related to Midlands' supply business and lower
costs of purchased  electricity.  On July 15, 1999,  Cinergy and GPU completed a
transaction  whereby  GPU  acquired  Cinergy's  50%  ownership  interest in Avon
Energy, the parent company of Midlands.  (See Note 12 of the "Notes to Financial
Statements" in "Part I. Financial Information.")





          RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999

Operating Revenues

Electric Operating Revenues

The  components  of electric  operating  revenues  and the related KWh sales are
shown below:

                                               Six Months Ended
                                                   June 30
                                       Revenue                KWh Sales

                                  1999         1998       1999         1998
                                           ($ and KWh in millions)

Retail                           $1,300       $1,242     23,796       22,885
Sales for resale                    551          918     21,346       38,106
Other                                60           21        358         -
                                 ------       ------     ------       ------
Total                            $1,911       $2,181     45,500       60,991



Electric  operating  revenues  decreased  $270 million  (12%) for the six months
ended June 30,  1999,  from the  comparable  period of 1998.  This  decrease was
primarily  due  to  decreased   volumes  on  non-firm  power  sales  for  resale
transactions  related to energy  marketing  and  trading  operations.  Partially
offsetting  the decline was an increase in the average  price per KWh for retail
customers and non-firm power  customers,  higher retail and firm power KWh sales
resulting  from  growth in the  average  number of  residential  and  commercial
customers,  a  return  to  more  normal  weather,  and  increased  international
operations for the six months ended June 30, 1999, as compared to 1998.



Gas Operating Revenues

The  components  of gas  operating  revenues and the related mcf sales are shown
below:


                                               Six Months Ended
                                                   June 30
                                       Revenue                Mcf Sales

                                  1999         1998       1999         1998
                                           ($ and mcf in millions)

Sales for resale                  $509         $ 84       265           42
Retail                             210          223        32           32
Transportation                      31           20        22           30
                                  ----         ----       ---          ---
Total                             $750         $327       319          104


Gas operating  revenues increased $423 million for the six months ended June 30,
1999, when compared to the same period last year. This increase is primarily due
to the gas  operating  revenues  of  CM&T,  which  was  acquired  in June  1998.
Transportation revenues increased as customers continued the trend of purchasing
gas directly from suppliers,  using  transportation  services  provided by CG&E.
These  increases  were  partially  offset by a decline in retail  sales due to a
lower cost per mcf purchased that was passed on to the customer, and a reduction
in the average number of retail, commercial, and industrial customers.



Other Revenues

Other  revenues for the six months  ended June 30,  1999,  increased $9 million,
over the same  period  of 1998.  This  increase  was  primarily  the  result  of
increased  sales and new  initiatives  by  certain  of  Cinergy's  non-regulated
entities.

Operating Expenses

Fuel and Purchased and Exchanged Power

The components of fuel and purchased and exchanged power are shown below:

                                        Six Months Ended
                                             June 30

                                        1999         1998
                                          (in millions)

Fuel                                   $384        $  336
Purchased and exchanged power           500           912
                                       ----        ------
Total                                  $884        $1,248


Electric  fuel costs  increased  $48  million  (14%) for the first six months of
1999, as compared to the same period last year.

An analysis of these fuel costs is shown below:

                                             Six Months Ended
                                                 June 30
                                               (in millions)

Fuel expense - June 30, 1998                       $336
 Increase (Decrease) due to change in:
  Price of fuel                                      (4)
  Deferred fuel cost                                 21
  KWh generation                                     20
  Other                                              11
                                                   ----

Fuel expense - June 30, 1999                       $384


Purchased and exchanged  power expense  decreased $412 million (45%) for the six
months  ended  June 30,  1999,  when  compared  to the same  period  last  year,
primarily  reflecting decreased purchases of non-firm power for resale to others
as a result of a decline in sales for resale volumes in the energy marketing and
trading  operations.  Additionally,  during the quarter  ended June 30,  1999, a
favorable  adjustment  of $18  million  after tax was  recorded as a result of a
re-evaluation of transactions  included in the trading  portfolio as of December
31, 1998, at the time of adoption of EITF Issue 98-10.  Also contributing to the
decline was the  provision of $63 million of reserves  for the energy  marketing
and trading business recorded during the six months ended June 30, 1998.

Gas Purchased

Gas  purchased  for the six months ended June 30, 1999,  increased  $408 million
when compared to the same period last year,  primarily due to the acquisition of
CM&T in June 1998, and its related gas purchased  expense.  Slightly  offsetting
this increase is a lower average cost per mcf of gas paid by CG&E.




Other Operation and Maintenance

The components of other operation and maintenance expenses are shown below:

                                        Six Months Ended
                                             June 30

                                        1999         1998
                                          (in millions)

Other operation                         $366         $425
Maintenance                              115           95
                                        ----         ----
Total                                   $481         $520




Other  operation  expenses  decreased $59 million (14%) for the six months ended
June 30,  1999,  as  compared to the same  period  last year.  This  decrease is
primarily due to the one-time  charge of $80 million  recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA.  This  decrease was partially  offset by the increased  growth in
expenses  associated  with existing and new  initiatives by certain of Cinergy's
consolidated non-regulated businesses.

Maintenance  expenses  increased $20 million (21%) for the six months ended June
30, 1999,  as compared to the same period last year.  This increase is due to an
increase in maintenance  activities  associated  with planned outages at certain
production facilities and other repairs performed at certain facilities.

Depreciation and Amortization




The components of depreciation and amortization expenses are shown below:

                                       Six Months Ended
                                            June 30

                                       1999         1998
                                         (in millions)

Depreciation                           $160         $148
Amortization of phase-in deferrals       13           11
Amortization of post-in-service
  deferred operating expenses             2            2
                                       ----         ----
Total                                  $175         $161


Depreciation  expense  increased  $12 million (8%) for the six months ended June
30, 1999,  as compared to the same period last year,  primarily due to additions
to  depreciable  plant.  Amortization  of phase-in  deferrals  reflects the PUCO
ordered phase-in plan for Zimmer.


Equity in Earnings of Unconsolidated Subsidiaries

For the six months ended June 30, 1999, the equity in earnings of unconsolidated
subsidiaries increased $36 million, as compared to the same period of last year.
This increase is primarily  attributable  to an increase in the earnings of Avon
Energy resulting from increased profits related to Midlands' supply business and
lower  costs  of  purchased  electricity.  On July  15,  1999,  Cinergy  and GPU
completed a transaction whereby GPU acquired Cinergy's 50% ownership interest in
Avon  Energy,  the  parent  company of  Midlands.  (See Note 12 of the "Notes to
Financial Statements" in "Part I. Financial Information.")




Preferred Dividend Requirements of Subsidiaries

The decrease in preferred  dividend  requirements  of subsidiaries of $1 million
(28%) for the six months ended June 30, 1999,  as compared to the same period of
1998, is primarily attributable to PSI's redemption of all outstanding shares of
its 7.44% Series Cumulative Preferred Stock on March 1, 1998.



<PAGE>
                              THE CINCINNATI GAS &
                                ELECTRIC COMPANY
                            AND SUBSIDIARY COMPANIES



<PAGE>
<TABLE>
<CAPTION>

                      THE CINCINNATI GAS & ELECTRIC COMPANY
                           CONSOLIDATED BALANCE SHEETS


ASSETS
<S>                                                 <C>            <C>
                                                       June 30     December 31
                                                         1999         1998
                                                     (unaudited)
                                                       (dollars in thousands)


Current Assets
  Cash and temporary cash investments               $   20,670     $   26,989
  Restricted deposits                                    1,173          1,173
  Notes receivable from affiliated companies            43,869         84,358
  Accounts receivable less accumulated provision
    for doubtful accounts of $18,406 at June 30,
    1999, and $17,607 at December 31, 1998             122,353        205,060
  Accounts receivable from affiliated companies          2,801         22,635
  Materials, supplies, and fuel - at average cost      105,004        115,294
  Energy risk management assets                         92,796        141,962
  Prepayments and other                                 48,384         40,158
                                                    ----------     ----------
                                                       437,050        637,629

Utility Plant - Original Cost
  In service
    Electric                                         4,838,075      4,806,958
    Gas                                                803,473        786,188
    Common                                             198,067        186,364
                                                    ----------     ----------
                                                     5,839,615      5,779,510
  Accumulated depreciation                           2,224,800      2,147,298
                                                    ----------     ----------
                                                     3,614,815      3,632,212
  Construction work in progress                        140,878        119,993
                                                    ----------     ----------
      Total utility plant                            3,755,693      3,752,205

Other Assets
  Regulatory assets                                    605,342        627,035
  Energy risk management assets                         26,412         36,831
  Other                                                100,354        100,061
                                                    ----------     ----------
                                                       732,108        763,927

                                                    $4,924,851     $5,153,761

<FN>
The  accompanying  notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>



<PAGE>
<TABLE>
<CAPTION>

                      THE CINCINNATI GAS & ELECTRIC COMPANY



LIABILITIES AND SHAREHOLDER'S EQUITY
<S>                                                 <C>             <C>
                                                      June 30      December 31
                                                        1999          1998
                                                    (unaudited)
                                                       (dollars in thousands)


Current Liabilities
  Accounts payable                                  $  212,082      $  282,743
  Accounts payable to affiliated companies              19,230          13,166
  Accrued taxes                                        123,430         151,455
  Accrued interest                                      20,286          20,571
  Long-term debt due within one year                    20,000         130,000
  Notes payable and other short-term obligations       265,924         189,283
  Notes payable to affiliated companies                  9,815          17,020
  Energy risk management liabilities                   132,319         199,269
  Other                                                 23,354          26,422
                                                    ----------      ----------
                                                       826,440       1,029,929

Non-Current Liabilities
  Long-term debt                                     1,220,001       1,219,778
  Deferred income taxes                                772,327         771,145
  Unamortized investment tax credits                   107,718         110,801
  Accrued pension and other postretirement
    benefit costs                                      151,897         146,361
  Energy risk management liabilities                    50,962          53,597
  Other                                                132,541         134,990
                                                    ----------      ----------
                                                     2,435,446       2,436,672

    Total liabilities                                3,261,886       3,466,601

Cumulative Preferred Stock
  Not subject to mandatory redemption                   20,687          20,717

Common Stock Equity
  Common stock - $8.50 par value;
    authorized shares - 120,000,000;  outstanding
    shares - 89,663,086 at June 30, 1999, and
    December 31, 1998                                  762,136         762,136
  Paid-in capital                                      553,931         553,926
  Retained earnings                                    327,335         351,505
  Accumulated other comprehensive loss                  (1,124)         (1,124)
                                                    ----------      ----------
    Total common stock equity                        1,642,278       1,666,443

                                                    $4,924,851      $5,153,761

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                      THE CINCINNATI GAS & ELECTRIC COMPANY
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                   (unaudited)

<S>                           <C>          <C>         <C>           <C>
                                  Quarter Ended              Year To Date
                                     June 30                    June 30


                                1999         1998         1999          1998
                                               (in thousands)

Operating Revenues
  Electric                    $477,037     $539,642    $  958,623    $1,132,947
  Gas                           53,548       50,470       217,345       223,932
                              --------     --------    ----------    ----------
                               530,585      590,112     1,175,968     1,356,879

Operating Expenses
  Fuel and purchased and
    exchanged power            216,255      318,440       415,126       643,611
  Gas purchased                 20,428       21,657        99,306       118,245
  Other operation and
    maintenance                100,221      105,167       208,377       206,572
  Depreciation and
    amortization                50,726       47,950       101,296        95,610
  Taxes other than income
    taxes                       54,869       53,712       108,983       108,395
                              --------     --------    ----------    -----------
                               442,499      546,926       933,088     1,172,433

Operating Income                88,086       43,186       242,880       184,446

Other Income and (Expenses)
  - Net                            637         (365)         (624)       (2,859)

Interest                        24,571       25,173        48,978        51,962
                              --------     --------    ----------    -----------

Income Before Taxes             64,152       17,648       193,278       129,625

Income Taxes                    25,230        4,962        74,119        45,747
                              --------     --------    ----------    -----------

Net Income                    $ 38,922     $ 12,686    $  119,159    $   83,878

Preferred Dividend
  Requirement                      214          215           428           430
                              --------     --------    ----------    ----------

Net Income Applicable
  to Common Stock             $ 38,708     $ 12,471    $  118,731    $   83,448

Other Comprehensive Income
  (Loss), Net Of Tax              -            -             -             (155)
                              --------     --------    ----------    ----------
Comprehensive Income          $ 38,708     $ 12,471    $  118,731    $   83,293

<FN>
The  accompanying  notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                     THE CINCINNATI GAS & ELECTRIC COMPANY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)
<S>                                         <C>          <C>
                                                  Year to Date
                                                     June 30
                                               1999           1998
                                                  (in thousands)

Operating Activities
  Net income                                $ 119,159    $  83,878
  Items providing (using) cash currently:
    Depreciation and amortization             101,296       95,610
    Deferred income taxes and investment
      tax credits - net                         2,660      (14,433)
    Allowance for equity funds used during
      construction                             (1,284)        (107)
    Regulatory assets - net                     6,276        1,162
    Changes in current assets and current
      liabilities
        Accounts and notes receivable,
          net of reserves on receivables
          sold                                142,297      (22,325)
        Materials, supplies, and fuel          10,290       15,173
        Accounts payable                      (64,597)      20,257
        Accrued taxes and interest            (28,310)      10,775
        Energy risk management - net          (10,000)      59,000
    Other items - net                         (12,447)      (4,146)
                                            ---------    ----------
          Net cash provided by operating
            activities                        265,340      244,844

Financing Activities
  Issuance of long-term debt                     -         223,020
  Retirement of preferred stock                   (26)         (39)
  Redemption of long-term debt               (110,000)    (220,409)
  Change in short-term debt                    69,436      (75,891)
  Dividends on preferred stock                   (428)        (430)
  Dividends on common stock                  (142,900)     (85,200)
                                            ---------    ---------
          Net cash used in financing
            activities                       (183,918)    (158,949)

Investing Activities
  Construction expenditures
  (less allowance for equity funds
  used during construction)                   (87,741)     (75,571)
                                            ---------    ---------
          Net cash used in investing
            activities                        (87,741)     (75,571)

Net increase (decrease) in cash and
  temporary cash investments                   (6,319)      10,324

Cash and temporary cash investments at
  beginning of period                          26,989        2,349
                                            ---------    ---------

Cash and temporary cash investments at
  end of period                             $  20,670    $  12,673

<FN>
The  accompanying  notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>

<PAGE>

                      THE CINCINNATI GAS & ELECTRIC COMPANY
            RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999

Operating Revenues

Electric Operating Revenues

The  components  of electric  operating  revenues  and the related KWh sales are
shown below:


                                                 Quarter Ended
                                                   June 30
                                       Revenue           ____KWh Sales_   _
                                    1999      1998       1999       1998
                                             ($ and KWh in millions)

Retail                              $345      $342        5,629       5,496
Sales for resale                     126       194        4,754       7,824
Other                                  6         4         -           -
                                    ----      ----       ------      -------
Total                               $477      $540       10,383      13,320

Electric  operating  revenues  decreased $63 million (12%) for the quarter ended
June 30,  1999,  when  compared to the same period for 1998.  This  decrease was
primarily  due  to  decreased   volumes  on  non-firm  power  sales  for  resale
transactions  related to  Cinergy's  energy  marketing  and trading  operations.
Partially  offsetting  the decline was higher  retail KWh sales  resulting  from
growth in the average number of residential and commercial customers.

Gas Operating Revenues

The  components  of gas  operating  revenues and the related mcf sales are shown
below:


                                                  Quarter Ended
                                                     June 30
                                        Revenue          ___ Mcf Sales

                                    1999        1998      1999        1998
                                    ----        ----      ----        ----
                                            ($ and mcf in millions)
Retail                               $43         $41         6           6
Transportation                        11           9         9          14
                                     ---         ---       ---         ---
Total                                $54         $50        15          20

Gas operating  revenues increased $4 million (8%) in the second quarter of 1999,
when compared to the same period last year. Transportation revenues increased as
more  residential  and commercial  customers  continued to purchase gas directly
from suppliers, using transportation services provided by CG&E.





Operating Expenses

Fuel and Purchased and Exchanged Power

The components of fuel and purchased and exchanged power are shown below:


                                             Quarter Ended
                                                June 30

                                           1999        1998
                                             (in millions)

Fuel                                       $ 76        $ 78
Purchased and exchanged power               140         240
                                           ----        ----
Total                                      $216        $318

Electric  fuel costs  decreased $2 million  (3%) for the quarter  ended June 30,
1999, as compared to the same period last year.


An analysis of these fuel costs is shown below:

                                                  Quarter Ended
                                                     June 30
                                                  (in millions)

Fuel expense - June 30, 1998                          $78
 Increase (Decrease) due to change in:
  Deferred fuel cost                                   (5)
  KWh generation                                        3
                                                      ---
Fuel expense - June 30, 1999                          $76



Purchased  and  exchanged  power  expense  decreased  $100 million (42%) for the
quarter  ended June 30,  1999,  as compared  to the same period last year.  This
decline primarily reflects  decreased  purchases of non-firm power for resale to
others as a result of a decline in sales for resale volumes in Cinergy's  energy
marketing and trading  operations.  Additionally,  during the quarter ended June
30,  1999,  a favorable  adjustment  of $9 million  after tax was  recorded as a
result of a re-evaluation of transactions  included in the trading  portfolio as
of  December  31,  1998,  at the time of  adoption  of EITF  Issue  98-10.  Also
contributing to the decline was the provision of $56 million of reserves for the
energy  marketing and trading  business  recorded  during the second  quarter of
1998.


Gas Purchased

Gas purchased  for the quarter  ended June 30, 1999,  decreased $1 million (6%),
when  compared to the same period last year,  primarily due to a decrease in the
volume of gas purchased.

Other Operation and Maintenance

The components of other operation and maintenance expenses are shown below:



                                          Quarter Ended
                                             June 30

                                         1999      1998
                                         (in millions)

Other operation                          $ 70      $ 77
Maintenance                                30        28
                                         ----      ----
Total                                    $100      $105


Other  operation  expenses  decreased $7 million (9%) for the quarter ended June
30, 1999,  as compared to the same period of 1998.  The decline is due primarily
to  activities  occurring  in 1998 related to Year 2000  expenditures  and other
transmission  and underground  line expenses which did not occur in 1999.  Also,
during the second  quarter of 1998, a provision of $2 million for  potential bad
debts related to certain energy marketing and trading accounts was recorded.

Maintenance  expenses  increased $2 million (7%) for the quarter  ended June 30,
1999,  as compared to the same period of 1998,  primarily  due to an increase in
maintenance  activities  associated with planned  outages at certain  production
facilities and overhead line maintenance.




Depreciation and Amortization

The components of depreciation and amortization expenses are shown below:


                                          Quarter Ended
                                             June 30
                                          1999     1998
                                          (in millions)

Depreciation                              $43      $41
Amortization of phase-in deferrals          7        6
Amortization of post-in-service
  deferred operating expenses               1        1
                                          ---      ---
Total                                     $51      $48

Depreciation  expense  increased $2 million (5%) for the quarter  ended June 30,
1999,  as compared to the same period of 1998,  primarily  due to  additions  to
depreciable plant.


Other Income and (Expenses) - Net

The change in other  income and  (expenses)  - net of $1 million for the quarter
ended June 30,  1999,  as  compared  to the same  period of 1998,  is  primarily
attributable to an increase in miscellaneous non-utility revenues.

          RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999

Operating Revenues

Electric Operating Revenues

The  components  of electric  operating  revenues  and the related KWh sales are
shown below:

                                               Six Months Ended
                                                   June 30
                                       Revenue                 KWh Sales
                                 -------------------     --------------------

                                  1999         1998       1999         1998
                                 ------       ------     ------       -------
                                           ($ and KWh in millions)

Retail                            $703        $  678     11,511       10,934
Sales for resale                   247           448      9,672       18,617
Other                                9             7        N/A          N/A
                                  ----        ------     ------       ------
Total                             $959        $1,133     21,183       29,551


Electric  operating  revenues  decreased  $174 million  (15%) for the six months
ended June 30,  1999,  from the  comparable  period of 1998.  This  decrease was
primarily due to decreased volumes on sales for resale  transactions.  There was
also a  decrease  in the  average  price  per KWh  paid  for  the  corresponding
purchases of purchased and  exchanged  power  described  below.  Offsetting  the
decrease were higher  retail KWh sales due to the return to more normal  weather
and growth in the average number of residential and commercial customers.



Gas Operating Revenues

The  components  of gas  operating  revenues and the related mcf sales are shown
below:


                                               Six Months Ended
                                                   June 30
                                       Revenue                Mcf Sales
                                 -------------------     --------------------

                                 1999           1998     1999           1998
                                 ----           ----     ----           -----
                                            ($ and mcf in millions)

Retail                           $186           $204      32             32
Transportation                     31             20      23             30
                                 ----           ----      --             --
Total                            $217           $224      55             62


Gas operating  revenues  decreased $7 million (3%) for the six months ended June
30, 1999,  when  compared to the same period last year. A lower average cost per
mcf of gas purchased,  which was passed on to end users,  was the primary reason
for  this  decrease.   Transportation  revenues  increased  as  residential  and
commercial  customers  continued to purchase gas directly from suppliers,  using
transportation  services  provided  by CG&E.  This  increase  in  transportation
revenues  was  partially  offset by a  decrease  in mcf  transportation  volumes
resulting from the loss of a large industrial customer during late 1998.


Operating Expenses

Fuel and Purchased and Exchanged Power

The components of fuel and purchased and exchanged power are shown below:


                                        Six Months Ended
                                            June 30

                                       1999          1998
                                          (in millions)

Fuel                                   $162          $166
Purchased and exchanged power           253           478
                                       ----          ----
Total                                  $415          $644


Electric fuel costs  decreased $4 million (2%) for the six months ended June 30,
1999, as compared to the same period last year.




An analysis of these fuel costs is shown below:

                                               Six Months Ended
                                                   June 30
                                                 (in millions)

Fuel expense - June 30, 1998                        $166
Increase (Decrease) due to change in:
  Price of fuel                                        1
  Deferred fuel cost                                 (12)
  KWh generation                                       7
                                                    ----
Fuel expense - June 30, 1999                        $162


Purchased and exchanged  power expense  decreased $225 million (47%) for the six
months  ended  June 30,  1999,  when  compared  to the same  period  last  year,
primarily  reflecting  decreased  purchases  of  power  for  resale  to  others.
Additionally,  during the quarter ended June 30, 1999, a favorable adjustment of
$9 million after tax was recorded as a result of a re-evaluation of transactions
included  in the  trading  portfolio  as of December  31,  1998,  at the time of
adoption of EITF Issue 98-10. Also contributing to the decline was the provision
of $57  million  of  reserves  for the energy  marketing  and  trading  business
recorded during the six months ended June 30, 1998.



Gas Purchased

Gas  purchased  for the six months  ended June 30, 1999,  decreased  $19 million
(16%) when  compared  to the same  period  last  year,  primarily  reflecting  a
decrease in the average cost per mcf of gas purchased.

Depreciation and Amortization


The components of depreciation and amortization expenses are shown below:

                                        Six Months Ended
                                             June 30

                                        1999         1998
                                          (in millions)

Depreciation                            $ 86          $83
Amortization of phase-in deferrals        13           11
Amortization of post-in-service
  deferred operating expenses              2            2
                                        ----          ---
Total                                   $101          $96


Amortization of phase-in  deferrals  reflects the PUCO ordered phase-in plan for
Zimmer.



Other Income and (Expenses) - Net

The change in other income and (expenses) - net of $2 million for the six months
ended June 30, 1999,  as compared to the same period of 1998,  is largely due to
an increase in miscellaneous non-utility revenues.

Interest

The  decrease in interest  expense of $3 million  (6%) for the six months  ended
June 30, 1999, as compared to the same period last year, was due to decreases in
both  interest on long-term  debt and other  interest  expense.  The decrease in
interest  expense  on  long-term  debt  was  primarily  due to the  maturity  of
approximately  $110 million of long-term  debt in February 1999. The decrease in
other interest is due to a reduction in average short-term  borrowings and lower
short-term interest rates.



<PAGE>





                                PSI ENERGY, INC.
                             AND SUBSIDIARY COMPANY



<PAGE>

<TABLE>
<CAPTION>


                                PSI ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS



ASSETS
<S>                                                   <C>          <C>
                                                        June 30    December 31
                                                         1999          1998
                                                      (unaudited)
                                                        (dollars in thousands)


Current Assets
  Cash and temporary cash investments                 $   19,242   $   18,788
  Restricted deposits                                        167        2,414
  Notes receivable from affiliated companies              10,124       17,097
  Accounts receivable less accumulated provision
    for doubtful accounts of $12,847 at June 30,
    1999, and $7,893 at December 31, 1998                134,303      225,449
  Accounts receivable from affiliated companies              326          384
  Materials, supplies, and fuel - at average cost         90,283       80,445
  Energy risk management assets                           92,796      141,962
  Prepayments and other                                   34,068       31,461
                                                      ----------   ----------
    Total current assets                                 381,409      518,000

Electric Utility Plant - Original Cost
  In service                                           4,457,300    4,415,303
  Accumulated depreciation                             1,942,697    1,892,949
                                                      ----------   ----------
                                                       2,514,603    2,522,354
  Construction work in progress                           99,932       69,891
                                                      ----------   ----------
    Total electric utility plant                       2,614,535    2,592,245

Other Assets
  Regulatory assets                                      306,412      343,731
  Energy risk management assets                           26,413       36,831
  Other                                                   94,241       93,012
                                                      ----------   ----------
    Total other assets                                   427,066      473,574

                                                      $3,423,010   $3,583,819

<FN>
The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.
</FN>
</TABLE>



<PAGE>

<TABLE>
<CAPTION>


                                PSI ENERGY, INC.


LIABILITIES AND SHAREHOLDER'S EQUITY
<S>                                                   <C>          <C>
                                                        June 30    December 31
                                                         1999          1998
                                                      (unaudited)
                                                        (dollars in thousands)

Current Liabilities
  Accounts payable                                    $  158,472   $  217,959
  Accounts payable to affiliated companies                14,934       30,145
  Accrued taxes                                           82,104       58,901
  Accrued interest                                        20,642       28,335
  Notes payable and other short-term obligations         157,600      173,162
  Notes payable to affiliated companies                   43,867      102,946
  Long-term debt due within one year                       5,959        6,000
  Energy risk management liabilities                     132,320      199,269
  Other                                                    2,127        2,227
                                                      ----------   ----------
                                                         618,025      818,944

Non-Current Liabilities
  Long-term debt                                       1,013,473    1,025,659
  Deferred income taxes                                  369,787      364,049
  Unamortized investment tax credits                      44,286       45,956
  Accrued pension and other postretirement
    benefit costs                                        120,526      112,387
  Energy risk management liabilities                      50,962       53,597
  Other                                                   94,782      115,656
                                                      ----------   ----------
                                                       1,693,816    1,717,304

    Total liabilities                                  2,311,841    2,536,248

Cumulative Preferred Stock
  Not subject to mandatory redemption                     71,919       71,923

Common Stock Equity
  Common stock - without par value;  $0.01
    stated  value;  authorized  shares -
    60,000,000; outstanding shares -
    53,913,701 at June 30, 1999,
    and December 31, 1998                                 539             539
  Paid-in capital                                     410,740         410,739
  Retained earnings                                   627,986         564,865
  Accumulated other comprehensive loss                    (15)           (495)
                                                   ----------     -----------
    Total common stock equity                       1,039,250         975,648

                                                   $3,423,010      $3,583,819
</TABLE>


<PAGE>


<TABLE>
<CAPTION>

                                PSI ENERGY, INC.
    CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
                                   (unaudited)
<S>                                 <C>         <C>         <C>       <C>

                                         Quarter Ended         Year To Date
                                            June 30               June 30
                                       1999        1998       1999       1998
                                                    (in thousands)

Operating Revenues
  Electric                          $463,486    $511,530    $945,951  $1,103,655

Operating Expenses
  Fuel and purchased and exchanged
    power                            237,157     305,092     472,084     657,838
  Other operation and maintenance    117,240     188,695     230,480     290,380
  Depreciation and amortization       34,121      32,470      67,864      64,745
  Taxes other than income taxes       14,269      14,507      28,757      29,474
                                    --------    --------    --------  ----------
                                     402,787     540,764     799,185   1,042,437

Operating Income (Loss)               60,699     (29,234)    146,766      61,218

Other Income and (Expenses) - Net        375         213         698       1,931

Interest                              20,496      22,898      41,860      45,796
                                    --------    --------    --------  ----------

Income (Loss) Before Taxes            40,578     (51,919)    105,604      17,353

Income Taxes                          14,998     (20,901)     40,183       5,043
                                    --------    --------    --------  ----------

Net Income (Loss)                   $ 25,580    $(31,018)   $ 65,421  $   12,310

Preferred Dividend Requirement         1,151       1,150       2,301       3,358
                                     -------    --------    --------  ----------

Net Income (Loss) Applicable to
  Common Stock                      $ 24,429    $(32,168)   $ 63,120  $    8,952

Other Comprehensive Income,
  Net Of Tax                             495        -            480         944
                                    --------    --------    --------  ----------

Comprehensive Income (Loss)         $ 24,924    $(32,168)   $ 63,600  $    9,896


<FN>

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.
</FN>
</TABLE>





<PAGE>


<TABLE>
<CAPTION>

                                PSI ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                                  Year to Date
<S>                                                   <C>           <C>
                                                              June 30
                                                         1999         1998
                                                            (in thousands)

Operating Activities
  Net income                                          $  65,421     $ 12,310
  Items providing (using) cash currently:
    Depreciation and amortization                        67,864       64,745
    WVPA settlement                                        -          80,000
    Deferred income taxes and investment tax
      credits - net                                       6,578      (32,596)
    Allowance for equity funds used during
      construction                                            5          (25)
    Regulatory assets - net                               8,649       17,046
    Changes in current assets and current
      liabilities
        Restricted deposits                               2,247          812
        Accounts and notes receivable, net of
          reserves on receivables sold                   98,478      (19,676)
        Materials, supplies, and fuel                    (9,838)     (19,377)
        Accounts payable                                (74,698)      51,742
        Accrued taxes and interest                       15,510      (24,303)
        Energy risk management - net                    (10,000)       8,000
    Other items - net                                     3,600       (1,142)
                                                      ---------     --------
          Net cash provided by operating
            activities                                  173,816      137,536

Financing Activities
  Issuance of long-term debt                            323,593       98,901
  Retirement of preferred stock                              (3)     (85,230)
  Redemption of long-term debt                         (336,213)        -
  Change in short-term debt                             (74,641)     (11,616)
  Dividends on preferred stock                           (2,301)      (3,887)
  Dividends on common stock                                -         (56,800)
                                                      ---------     --------
          Net cash used in financing
            activities                                  (89,565)     (58,632)

Investing Activities
  Construction expenditures (less allowance
    for equity funds used during construction)          (83,797)     (60,329)
                                                      ---------     --------
          Net cash used in investing activities         (83,797)     (60,329)

Net increase in cash and temporary cash
  investments                                               454       18,575

Cash and temporary cash investments at
  beginning of period                                    18,788       18,169
                                                      ---------     --------

Cash and temporary cash investments at
  end of period                                       $  19,242     $ 36,744

<FN>
The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.
</FN>
</TABLE>



<PAGE>



                                PSI ENERGY, INC.
            RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999

Operating Revenues

The components of operating revenues and the related KWh sales are shown below:

                                                 Quarter Ended
                                                    June 30
                                         Revenue              KWh Sales

                                     1999        1998       1999         1998
                                             ($ and KWh in millions)

Retail                               $278       $267       5,892        5,711
Sales for resale                      174        237       6,606        9,624
Other                                  11          8        -            -
                                     ----       ----      ------       ------
Total                                $463       $512      12,498       15,335


Operating  revenues  decreased  $49 million (10%) for the quarter ended June 30,
1999, when compared to the same period for 1998. This decrease was primarily due
to decreased volumes on non-firm power sales for resale transactions  related to
Cinergy's  energy  marketing and trading  operations.  Partially  offsetting the
decline was an increase in the average  price per KWh for retail  customers  and
higher  retail and firm power KWh sales  resulting  from  growth in the  average
number of residential and commercial customers.


Operating Expenses

Fuel and Purchased and Exchanged Power

The components of fuel and purchased and exchanged power are shown below:

                                                 Quarter Ended
                                                    June 30
                                                1999      1998
                                                (in millions)

Fuel                                            $104      $ 78
Purchased and exchanged power                    133       227
                                                ----      ----
Total                                           $237      $305


Fuel  costs  increased  $26  million  (33%) for the second  quarter of 1999,  as
compared to the same period last year.


An analysis of fuel costs is shown below:

                                                   Quarter Ended
                                                      June 30
                                                   (in millions)

Fuel expense - June 30, 1998                           $ 78
Increase (Decrease) due to change in:
  Price of fuel                                          (2)
  Deferred fuel cost                                     20
  KWh generation                                          8
                                                       ----

Fuel expense - June 30, 1999                           $104

Purchased  and  exchanged  power  expense  decreased  $94 million  (41%) for the
quarter  ended June 30,  1999,  as compared  to the same period last year.  This
decline primarily reflects  decreased  purchases of non-firm power for resale to
others as a result of a decline in sales for resale volumes in Cinergy's  energy
marketing and trading  operations.  Additionally,  during the quarter ended June
30,  1999,  a favorable  adjustment  of $9 million  after tax was  recorded as a
result of a re-evaluation of transactions  included in the trading  portfolio as
of  December  31,  1998,  at the time of  adoption  of EITF  Issue  98-10.  Also
contributing  to the decline was the provision of $5 million of reserves for the
energy  marketing and trading  business  recorded  during the second  quarter of
1998.

Other Operation and Maintenance

The components of other operation and maintenance expenses are shown below:

                                              Quarter Ended
                                                 June 30
                                              1999     1998
                                              (in millions)

Other operation                               $ 82     $161
Maintenance                                     35       28
                                              ----     ----
Total                                         $117     $189


Other operation  expenses decreased $79 million (49%) for the quarter ended June
30, 1999, as compared to the same period of 1998. This decrease is primarily due
to the one-time charge of $80 million recorded during the second quarter of 1998
reflecting the implementation of a 1989 settlement of a dispute with the WVPA.

Maintenance  expense  increased $7 million  (25%) for the quarter ended June 30,
1999,  as  compared  to the same  period  of 1998.  This  increase  is due to an
increase in maintenance  activities  associated  with planned outages at certain
production facilities.



Depreciation and Amortization

Depreciation and amortization  expense increased $2 million (5%) for the quarter
ended June 30, 1999,  as compared to the same period of 1998,  primarily  due to
additions to depreciable plant.

Interest

The $2 million (10%) decrease in interest expense for the quarter ended June 30,
1999,  as compared to the same period of 1998, is primarily due to a decrease in
other  interest  expense  resulting  from  a  reduction  in  average  short-term
borrowings and lower short-term interest rates.


          RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999

Operating Revenues

The components of operating revenues and the related KWh sales are shown below:

                                              Six Months Ended
                                                   June 30
                                       Revenue                KWh Sales
                                  1999         1998       1999         1998
                                          ($ and KWh in millions)

Retail                            $596        $  564     12,285       11,951
Sales for resale                   331           523     12,888       21,809
Other                               19            17        N/A          N/A
                                  ----        ------     ------       ------
Total                             $946        $1,104     25,173       33,760





Total operating  revenues  decreased $158 million (14%) for the six months ended
June 30, 1999,  when  compared to the same period last year.  This  decrease was
primarily  due  to  decreased   volumes  on  non-firm  power  sales  for  resale
transactions  related to  Cinergy's  energy  marketing  and trading  operations.
Partially  offsetting  this decrease were increased  volumes on retail sales and
firm sales and a higher  average  price per KWh  received on retail and non-firm
sales for resale  transactions.  Also  contributing  to the increase were higher
retail KWh sales resulting from an increase in retail and industrial customers.


Operating Expenses

Fuel and Purchased and Exchanged Power

The components of fuel and purchased and exchanged power are shown below:

                                        Six Months Ended
                                             June 30
                                       1999           1998
                                          (in millions)

Fuel                                   $211           $170
Purchased and exchanged power           261            488
                                       ----           ----
Total                                  $472           $658


Fuel costs  increased  $41 million (24%) for the six months ended June 30, 1999,
when compared to the same period last year.


An analysis of fuel costs is shown below:

                                                     Six Months Ended
                                                         June 30
                                                       (in millions)


Fuel expense - June 30, 1998                               $170
 Increase (Decrease) due to change in:

  Price of fuel                                              (6)
  Deferred fuel cost                                         33
  KWh generation                                             14
                                                           ----

Fuel expense - June 30, 1999                               $211


Purchased and exchanged  power expense  decreased $227 million (47%) for the six
months  ended  June 30,  1999,  when  compared  to the same  period  last  year,
primarily reflecting decreased purchases of non-firm power for resale to others.
Additionally,  during the quarter ended June 30, 1999, a favorable adjustment of
$9 million after tax was recorded as a result of a re-evaluation of transactions
included  in the  trading  portfolio  as of December  31,  1998,  at the time of
adoption of EITF Issue 98-10. Also contributing to the decline was the provision
of $6 million of reserves for the energy marketing and trading business recorded
during the six months ended June 30, 1998.


Other Operation and Maintenance

The components of other operation and maintenance expenses are shown below:

                                        Six Months Ended
                                            June 30
                                        1999         1998
                                          (in millions)

Other operation                         $170         $243
Maintenance                               60           47
                                        ----         ----
Total                                   $230         $290


Other  operation  expenses  decreased $73 million (30%) for the six months ended
June 30,  1999,  as  compared to the same  period  last year.  This  decrease is
primarily due to the one-time  charge of $80 million  recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA.

Maintenance  expenses  increased $13 million (28%) for the six months ended June
30, 1999, as compared to the same period of 1998. The increase was primarily due
to an increase in  production  maintenance  activities  associated  with planned
outages at certain production facilities.


Depreciation and Amortization

Depreciation  and  amortization  expense  increased  $3 million (5%) for the six
months  ended June 30, 1999,  as compared to the same period of 1998,  primarily
due to additions to depreciable plant.

Other Income and (Expenses) - Net

The change in other income and (expenses) - net of $1 million for the six months
ended June 30, 1999, as compared to the same period of 1998, is due primarily to
a decrease in interest income and a decrease in the level of expenses associated
with the sales of accounts receivable.

Interest

The  decrease in interest  expense of $4 million  (9%) for the six months  ended
June 30, 1999, as compared to the same period last year,  was primarily due to a
decrease  in other  interest  expense  resulting  from a  reduction  in  average
short-term borrowings and lower short-term interest rates.

Preferred Dividend Requirement

The decrease in preferred  dividend  requirement of $1 million (31%) for the six
months ended June 30, 1999, as compared to the same period of 1998, is primarily
attributable to PSI's  redemption of all outstanding  shares of its 7.44% Series
Cumulative Preferred Stock on March 1, 1998.



<PAGE>











                     THE UNION LIGHT, HEAT AND POWER COMPANY



<PAGE>


<TABLE>
<CAPTION>

                     THE UNION LIGHT, HEAT AND POWER COMPANY
                                 BALANCE SHEETS

ASSETS
<S>                                                  <C>           <C>
                                                       June 30   December 31
                                                         1999       1998
                                                     (unaudited)
                                                     (dollars in thousands)

Current Assets
  Cash and temporary cash investments                 $  4,027     $  3,244
  Accounts receivable less accumulated provision
    for doubtful accounts of $1,309 at
    June 30, 1999, and $1,248 at December
    31, 1998                                             5,866       14,125
  Accounts receivable from affiliated companies             82          666
  Materials, supplies, and fuel - at average cost        6,155        8,269
  Prepayments and other                                     42          308
                                                      --------     --------
    Total current assets                                16,172       26,612

Utility Plant - Original Cost
  In service
    Electric                                           238,600      232,222
    Gas                                                168,421      164,040
    Common                                              20,450       18,908
                                                      --------     --------
                                                       427,471      415,170
  Accumulated depreciation                             148,906      143,386
                                                      --------     --------
                                                       278,565      271,784
  Construction work in progress                         10,339       11,444
                                                      --------     --------
      Total utility plant                              288,904      283,228

Other Assets
  Regulatory assets                                     10,808       10,978
  Other                                                  4,873        3,767
                                                      --------     --------
                                                        15,681       14,745

                                                      $320,757     $324,585

<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
</TABLE>



<PAGE>

<TABLE>
<CAPTION>

                     THE UNION LIGHT, HEAT AND POWER COMPANY

LIABILITIES AND SHAREHOLDER'S EQUITY
<S>                                                   <C>          <C>
                                                       June 30   December 31
                                                         1999       1998
                                                     (unaudited)
                                                     (dollars in thousands)

Current Liabilities
  Accounts payable                                    $  5,344     $  5,903
  Accounts payable to affiliated companies              18,523       14,986
  Accrued taxes                                          3,699        3,216
  Accrued interest                                       1,440        1,959
  Long-term debt due within one year                    20,000       20,000
  Notes payable to affiliated companies                 20,470       31,817
  Other                                                  4,023        4,247
                                                      --------     --------
                                                        73,499       82,128

Non-Current Liabilities
  Long-term debt                                        54,590       54,553
  Deferred income taxes                                 24,347       26,134
  Unamortized investment tax credits                     4,098        4,238
  Accrued pension and other postretirement
    benefit costs                                       12,077       11,678
  Amounts due to customers - income taxes                9,547        8,959
  Other                                                 10,795        8,077
                                                      --------     --------
                                                       115,454      113,639

    Total liabilities                                  188,953      195,767

Common Stock Equity
  Common stock - $15.00 par value;  authorized
    shares - 1,000,000;  outstanding shares -
    585,333 at June 30, 1999, and December 31, 1998      8,780        8,780
  Paid-in capital                                       19,525       19,525
  Retained earnings                                    103,499      100,513
                                                      --------     --------
    Total common stock equity                          131,804      128,818

                                                      $320,257     $324,585

</TABLE>


<TABLE>
<CAPTION>


                     THE UNION LIGHT, HEAT AND POWER COMPANY
                           STATEMENTS OF INCOME (LOSS)
                                   (unaudited)
<S>                                   <C>       <C>       <C>        <C>
                                         Quarter Ended       Year To Date
                                            June 30            June 30
                                       1999      1998       1999       1998
                                                  (in thousands)

Operating Revenues
  Electric                            $48,581   $41,536   $ 97,740   $ 88,535
  Gas                                   9,084     8,626     42,084     37,106
                                      -------   -------   --------   --------
                                       57,665    50,162    139,824    125,641

Operating Expenses
  Electricity purchased from parent
    company for resale                 36,842    34,421     73,590     68,511
  Gas purchased                         3,561     4,167     20,883     20,520
  Other operation and maintenance       8,685     8,902     18,875     18,332
  Depreciation                          3,506     3,209      7,077      6,441
  Taxes other than income taxes         1,027     1,029      2,110      2,034
                                      -------   -------   --------   --------
                                       53,621    51,728    122,535    115,838

Operating Income (Loss)                 4,044    (1,566)    17,289      9,803

Other Income and (Expenses) - Net        (299)     (380)      (689)      (876)

Interest                                1,432       969      2,995      2,084
                                      -------   -------   --------   --------

Income (Loss) Before Taxes              2,313    (2,915)    13,605      6,843

Income Taxes                              894    (1,267)     5,643      2,722
                                      -------   --------  --------   --------

Net Income (Loss)                     $ 1,419   $(1,648)  $  7,962   $  4,121

<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
</TABLE>



<PAGE>



<TABLE>
<CAPTION>

                    THE UNION LIGHT, HEAT AND POWER COMPANY
                           STATEMENTS OF CASH FLOWS
                                   (unaudited)


<S>                                              <C>          <C>
                                                      Year to Date
                                                         June 30
                                                    1999         1998
                                                     (in thousands)

Operating Activities
  Net income                                     $  7,962     $  4,121
  Items providing (using) cash currently:
    Depreciation                                    7,077        6,441
    Deferred income taxes and investment tax
      credits - net                                (1,339)       1,192
    Allowance for equity funds used during
      construction                                    (48)         (10)
    Regulatory assets                                  69          (13)
    Changes in current assets and current
      liabilities
        Accounts and notes receivable, net of
          reserves on receivables sold              7,801        4,671
        Materials, supplies, and fuel               2,114         (402)
        Accounts payable                            2,978       (5,147)
        Accrued taxes and interest                    (36)      (6,041)
    Other items - net                               3,244        1,481
                                                 --------     --------
          Net cash provided by operating
            activities                             29,822        6,293

Financing Activities
  Issuance of long-term debt                         -          20,127
  Redemption of long-term debt                       -         (10,118)
  Change in short-term debt                       (11,347)       3,836
  Dividends on common stock                        (4,975)      (4,975)
                                                 --------     --------
    Net cash used in financing
      activities                                  (16,322)      (8,870)

Investing Activities
  Construction expenditures (less allowance
    for equity funds used during construction)    (12,717)     (14,824)
                                                 --------     --------
          Net cash used in investing
            activities                            (12,717)     (14,824)

Net increase (decrease) in cash and temporary
  cash investments                                    783          339

Cash and temporary cash investments at
  beginning of period                               3,244          546
                                                 --------     --------

Cash and temporary cash investments at
  end of period                                  $  4,027     $    885

<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
</TABLE>




<PAGE>



                     THE UNION LIGHT, HEAT AND POWER COMPANY
            RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999

Operating Revenues

Electric Operating Revenues

Electric  operating  revenues  increased $7 million  (17%) for the quarter ended
June 30, 1999, as compared to the same period last year. This increase primarily
reflects  higher retail KWh sales resulting from growth in the average number of
residential and commercial customers and an increase in unbilled revenues.

Gas Operating Revenues

The  components  of gas  operating  revenues and the related mcf sales are shown
below:


                                                Quarter Ended
                                                   June 30
                                       Revenue                 Mcf Sales
                                  1999         1998        1999_        1998_
                                          ($ and mcf in thousands)


Retail                           $8,024       $7,756       1,099        1,188
Transportation                    1,060          870         976          850
                                 ------       ------       -----        -----
Total                            $9,084       $8,626       2,075        2,038


Gas operating revenues increased $.5 million (5%) in the second quarter of 1999,
when compared to the same period last year,  primarily due to an increase in the
price per mcf which was  partially  offset by a  decrease  in the volume of mcfs
sold.




Operating Expenses

Electricity Purchased from Parent Company for Resale

Electricity  purchased  increased $2 million (7%) for the quarter ended June 30,
1999, as compared to the same period last year.  This increase  reflects  higher
volume purchased from CG&E.

Gas Purchased

Gas purchased for the quarter ended June 30, 1999,  decreased $.6 million (15%),
when  compared to the same period last year,  primarily due to a decrease in the
volumes of gas purchased.

Depreciation

Depreciation  increased $.3 million (9%) for the quarter ended June 30, 1999, as
compared to the same period last year, due to additions to depreciable plant.

Other Income and (Expenses) - Net

The change in other income and  (expenses) - net of $80 thousand for the quarter
ended June 30, 1999, as compared to the same period of 1998, is primarily due to
a  decrease  in the level of  expenses  associated  with the  sales of  accounts
receivable.

Interest

The increase in interest expense of $.5 million (48%) for the quarter ended June
30, 1999, as compared to the same period last year, was primarily due to the net
issuance of  approximately  $30 million of  long-term  debt during the period of
April through December 1998.

          RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999

Operating Revenues

Electric Operating Revenues

Electric  operating revenues increased $9 million (10%) for the six months ended
June 30, 1999,  from the  comparable  period of 1998.  This  increase  primarily
reflects  higher retail KWh sales resulting from growth in the average number of
residential and commercial customers and an increase in unbilled revenues.

Gas Operating Revenues

The  components  of gas  operating  revenues and the related mcf sales are shown
below:


                                              Six Months Ended
                                                  June 30
                                       Revenue                Mcf Sales
                                  1999         1998       1999        1998
                                         ($ and mcf in thousands)

Retail                          $39,579      $35,022      6,318       5,679
Transportation                    2,505        2,084      2,054       1,956
                                -------      -------      -----       -----
Total                           $42,084      $37,106      8,372       7,635


Gas operating  revenues increased $5 million (13%) for the six months ended June
30,  1999,  when  compared to the same  period of last year.  An increase in mcf
volumes sold and used per customer primarily attributed to the revenue increase.


Operating Expenses

Electricity Purchased from Parent Company for Resale

Electricity  purchased  increased  $5 million (7%) for the six months ended June
30,  1999,  as compared to the same period  last year.  This  increase  reflects
higher volumes purchased from CG&E.

Gas Purchased

Gas  purchased  for the six months  ended June 30, 1999,  increased  $.4 million
(2%),  when  compared  to the same  period in 1998.  This  increase  reflects an
increase in the volumes and average cost per mcf of gas purchased.

Depreciation

Depreciation increased $.6 million (10%) for the six months ended June 30, 1999,
as compared to the same period last year, due to additions to depreciable plant.

Other Income and (Expenses) - Net

The  change in other  income and  (expenses)  - net of $.2  million  for the six
months  ended June 30,  1999,  as compared  to the same  period of 1998,  is due
primarily  to a decrease in the level of expenses  associated  with the sales of
accounts receivable.

Interest

The increase in interest  expense of $.9 million  (44%) for the six months ended
June 30, 1999,  as compared to the same period last year,  was due to changes in
interest  on  long-term  debt and  allowance  for  borrowed  funds  used  during
construction.  The increase in interest on long-term  debt was due  primarily to
the net  issuance  of  approximately  $30 million of  long-term  debt during the
period from April through December 1998.



                          NOTES TO FINANCIAL STATEMENTS

Cinergy, CG&E, PSI, and ULH&P
1.   These Financial  Statements  reflect all adjustments (which include normal,
     recurring  adjustments)  necessary in the opinion of the  registrants for a
     fair  presentation of the interim results.  These statements should be read
     in conjunction with the Financial Statements and the notes thereto included
     in the combined 1998 Form 10-K of the registrants.

     Certain amounts in the 1998 Financial  Statements have been reclassified to
     conform to the 1999 presentation.

Cinergy
2.   On April 16, 1999, Cinergy issued and sold $200 million principal amount of
     its 6.125% Debentures due 2004. Proceeds from the sale were used to repay a
     portion of short-term indebtedness and for general corporate purposes.

Cinergy and CG&E
3.   On July 14, 1999, CG&E redeemed early an $11.5 million  principal amount of
     its 7.20% First Mortgage Bonds,  due October 1, 2023, at a redemption price
     of 97.75%.

     On July 27, 1999, CG&E redeemed early a $23 million principal amount of its
     7.20% First Mortgage Bonds,  due October 1, 2023, at a redemption  price of
     96.75%.

Cinergy and PSI
4.   On April 30, 1999, PSI issued:  $124.7 million  principal  amount of its 8%
     First Mortgage Bonds, Series BBB, due July 15, 2009, in exchange for $125.7
     million principal amount of certain  outstanding Secured Medium-term Notes,
     Series A; $60.1 million principal amount of its 8.85% First Mortgage Bonds,
     Series CCC, due January 15, 2022, in exchange for $60.5  million  principal
     amount of certain  outstanding Secured Medium-term Notes, Series A; and $38
     million principal amount of its 8.31% First Mortgage Bonds, Series DDD, due
     September 1, 2032, in exchange for $38 million  principal amount of certain
     outstanding Secured Medium-term Notes, Series B.

     Also on April 30,  1999,  PSI issued $97  million  principal  amount of its
     6.52%  Senior  Notes due 2009 in exchange  for a like  principal  amount of
     outstanding 7.25% JUMPS(sm) due 2028.

     The Secured Medium-term Notes and JUMPS(sm) received by PSI in the exchange
     transactions described above have been cancelled.

5.   On May 3, 1999, PSI redeemed and retired $7 million principal amount of its
     8.85% First  Mortgage  Bonds,  Series  CCC,  due  January  15,  2022,  at a
     redemption price of 123.804%.

6.   On August 4, 1999, PSI redeemed early a $13 million principal amount of its
     7.125%  First  Mortgage  Bonds,  Series AAA,  due  February  1, 2024,  at a
     redemption price of 94.875%.

     On August 12, 1999, PSI redeemed early a $7 million principal amount of its
     7.125%  First  Mortgage  Bonds,  Series AAA,  due  February  1, 2024,  at a
     redemption price of 95%.

Cinergy, CG&E, and PSI
7.   Cinergy's  energy  marketing and trading  operations,  conducted  primarily
     through its ECBU,  markets and trades  electricity,  natural gas, and other
     energy-related  products.The power marketing and trading operation has both
     physical  and trading  activities.  Generation  not required to meet native
     load  requirements  is available to be sold to third parties,  either under
     long-term contracts, such as full requirements transactions or firm forward
     sales  contracts,  or in  short-term  and spot  market  transactions.  When
     transactions  are entered into, each  transaction is designated as either a
     physical or trading transaction In order for a transaction to be designated
     as  physical,  there must be intent and ability to  physically  deliver the
     power from company-owned  generation.  Physical  transactions are accounted
     for on a settlement  basis. All other  transactions are considered  trading
     transactions  and are  accounted  for  using the  mark-to-market  method of
     accounting.  The inclusion of transactions in both the trading and physical
     portfolios  is  periodically  evaluated,  and under  certain  circumstances
     transaction   may   be   reclassified   between   portfolios.   Under   the
     mark-to-market  method  of  accounting,   these  trading  transactions  are
     reflected at fair value as "Energy risk management assets" and "Energy risk
     management  liabilities."  Changes in fair value,  resulting in  unrealized
     gains and  losses,  are  reflected  in "Fuel and  purchased  and  exchanged
     power."  Revenues and costs for all  transactions are recorded gross in the
     Consolidate  Statements  of Income as contracts  are settled.  Revenues are
     recognized  in  "Operating  Revenues - Electric"  and costs are recorded in
     "Fuel and purchased and exchanged  power."

     Although  physical  transactions are entered with the intent and ability to
     settle the contract with company-owned  generation, it is likely, that from
     time to time, due to numerous  factors such as generating  station outages,
     native load  requirements,  and weather  power used to settle the  physical
     transactions will be required to be purchased on the open market. Depending
     on the factors giving rise to these open market purchases, the cost of such
     purchases  could be in excess of the  associated  revenues.  Losses such as
     this will be recognized as the power is  delivered.  In addition,  physical
     contracts  are subject to  permanent  impairment  tests.  At June 30, 1999,
     management has concluded that there is no impairment.

     Prior to December  31,1998,  the  transactions  now included in the trading
     portfolio were  accounted for and valued at the aggregate  lower of cost or
     market.  Under this method,  only the net value of the entire portfolio was
     recorded as a liability  in the  Consolidated  Balance  Sheets.

     During the  quarter  ended June 30,  1999,  a favorable  adjustment  of $18
     million  after  tax  was  recorded  as  a  result  of  a  re-evaluation  of
     transactions  included in the trading  portfolio as of December 31, 1998 at
     the time of adoption of EITF Issue 98-10.

     Contracts  in the  trading  portfolio  are valued at  end-of-period  market
     prices,  utilizing  factors  such as closing  exchange  prices,  broker and
     over-the-counter  quotations,  and model pricing.  Model pricing  considers
     time value and volatility  factors  underlying any options and  contractual
     commitments. Management expects that some of these obligations, even though
     considered as trading  contracts,  will  ultimately be settled from time to
     time by using  company-owned  generation.  The cost of this  generation  is
     typically  below the market prices at which the trading  portfolio has been
     valued.

     Because of the volatility  currently  experienced in the power markets, and
     the factors  discussed  above  pertaining  to both the physical and trading
     activities,  volatility in future earnings losses) from period to period in
     the ECBU is likely (see Note 16).

     Cinergy's ECBU also  physically  markets natural gas and trades natural gas
     and other  energy-related  products.  All of these operations are accounted
     for n the  mark-to-market  method f  accounting.  evenues  and  costs  from
     physical  marketing are recorded  gross in the  Consolidated  Statements of
     Income as  contracts  are  settled  due to the  exchanging  of title to the
     natural gas throughout the earnings process. All non-physical  transactions
     are  recorded net in the  Consolidated  Statements  of Income.  Energy risk
     management  assets and  liabilities  and gross  margins from these  trading
     activities currently are not significant.


Cinergy, CG&E, and PSI
8.   Cinergy and its subsidiaries use derivativ  financial  instruments to hedge
     exposures to foreign  currency  exchange  rates,  lower funding costs,  and
     manage  exposures to fluctuations in interest  rates.  Instruments  used as
     hedges must be  designated  as a hedge at the inception of the contract and
     must be effective at reducing the risk  associated  with the exposure being
     hedged.   Accordingly,   changes  in  market  values  of  designated  hedge
     instruments must be highly  correlated with changes in market values of the
     underlying  hedged items at inception of the hedge and over the life of the
     hedge  contract.

     Cinergy and its subsidiaries utilize foreign exchange forward contracts and
     currency  swaps  to  hedge  certain  of  its  net  investments  in  foreign
     operations.  Accordingly,  any  translation  gains or losses related to the
     foreign  exchange  forward  contracts  or  the  principal  exchange  on the
     currency swap are recorded in "Accumulated other comprehensive loss," which
     is a separate  component  of common  stock  equity.  Aggregate  translation
     losses related to these instruments are reflected in "Current Liabilitie in
     the  Consolidated  Balance  Sheets.  In  connection  with  the  sale of its
     interest  in Avon  Energy  (see Note 12),  Cinergy  terminated  the hedging
     contracts  related to its investment in July 1999.  After closing out these
     contracts,  the  remaining  foreign  exchange  hedging  contracts  are  not
     significant.

     Interest  rate  swaps  are   accounted   for  under  the  accrual   method.
     Accordingly,  gains and losses based on any interest  differential  between
     fixed-rate and  floating-rate  interes  amounts,  calculated on agreed upon
     notional principal amounts, ar recognized in the Consolidated Statements of
     Income as a component of interest  expense as realized over the life of the
     agreement.

     Additionally,  during the second quarter of 1999,  the Company  settled the
     forward  exchange  contracts  related  to  its  investments  in  the  Czech
     Republic.  The settlement costs were not material.

Cinergy, CG&E, PSI, and ULH&P
9.   As discussed in the 1998 Form 10-K, prior to the 1950s, gas was produced at
     MGP sites  through a process that  involved the heating of coal and/or oil.
     The gas produced  from this process was sold for  residential,  commercial,
     and industrial uses.

Cinergy and PSI

     Coal tar residues, related hydrocarbons, and various metals associated with
     MGP sites  have been  found at former MGP sites in  Indiana,  including  at
     least 21 MGP sites  which PSI or its  predecessors  previously  owned.  PSI
     acquired four of the sites from NIPSCO in 1931 and at the same time it sold
     NIPSCO the sites located in Goshen and Warsaw,  Indiana.  In 1945, PSI sold
     19 of these sites  (including  the four it acquired from NIPSCO) to Indiana
     Gas and Water  Company,  Inc.  (now IGC).  One of the 19 sites,  located in
     Rochester, Indiana, was later sold by IGC to NIPSCO.

     IGC and NIPSCO  both made  claims  against  PSI,  contending  that PSI is a
     Potentially  Responsible  Party under the CERCLA with respect to the 21 MGP
     sites, and therefore legally responsible for the costs of investigating and
     remediating  these  sites.  Moreover,  in August  1997,  NIPSCO  filed suit
     against PSI in federal court, claiming,  pursuant to CERCLA,  recovery from
     PSI of NIPSCO's past and future costs of investigating  and remediating MGP
     related contamination at the Goshen MGP site.

     In November 1998,  NIPSCO,  IGC, and PSI entered into a Site  Participation
     and Cost  Sharing  Agreement  by which they  settled  allocation  of CERCLA
     liability for past and future costs,  among the three  companies,  at seven
     MGP sites in Indiana. Pursuant to this agreement,  NIPSCO's lawsuit against
     PSI was  dismissed.  The parties  have  assigned  one of the  parties  lead
     responsibility   for  managing   further   investigation   and  remediation
     activities at each of the sites.  Similar  agreements  were reached between
     IGC and PSI which  allocate  CERCLA  liability  at 14 MGP sites  with which
     NIPSCO had no involvement. These agreements conclude all CERCLA and similar
     claims between the three companies  relative to MGP sites.  Pursuant to the
     agreements and  applicable  laws, the parties are continuing to investigate
     and remediate the sites as appropriate.  Investigation  and cleanup of some
     of the sites is subject to oversight by the IDEM.

     PSI has placed its insurance carriers on notice of IGC's, NIPSCO's, and the
     IDEM's  claims  related  to MGP  sites.  In April  1998,  PSI filed suit in
     Hendricks  County  Circuit  Court against its general  liability  insurance
     carriers  seeking,  among other  matters,  a declaratory  judgment that its
     insurance  carriers are  obligated to defend MGP claims  against PSI or pay
     PSI's costs of defense and to indemnify PSI for its costs of investigating,
     preventing,  mitigating,  and  remediating  damage to  property  and paying
     claims  associated  with MGP  sites.  The case was  moved to the  Hendricks
     Superior  Court 1 on a motion for change of judge.  The Hendricks  Superior
     Court 1 has set the case for trial  beginning  on September  11, 2000,  and
     ordered the parties to meet certain  deadlines  for  discovery  proceedings
     based  upon this  trial  date.  PSI  cannot  predict  the  outcome  of this
     litigation.

     Based upon the work  performed to date, PSI has accrued costs for the sites
     related  to  investigation,   remediation,   and  groundwater   monitoring.
     Estimated costs of certain remedial  activities are accrued when such costs
     are reasonably  estimable.  PSI does not believe it can provide an estimate
     of the reasonably  possible total  remediation  costs for any site prior to
     completion   of  a   remedial   investigation/feasibility   study  and  the
     development  of some  sense of the  timing  for the  implementation  of the
     potential  remedial  alternatives,  to the extent such  remediation  may be
     required.  Accordingly,  the total costs that may be incurred in connection
     with the remediation of all sites, to the extent  remediation is necessary,
     cannot be determined at this time. These future costs at the 21 Indiana MGP
     sites,  based on  information  currently  available,  are not  material  to
     Cinergy's financial condition or results of operations. However, as further
     investigation and remediation activities are undertaken at these sites, the
     potential liability for the 21 MGP sites could be material to Cinergy's and
     PSI's financial condition or results of operations.

Cinergy,  CG&E,  and  ULH&P
     CG&E and its utility  subsidiaries  are aware of potential  sites where MGP
     activities  have occurred at some time in the past.  None of these sites is
     known  to  present  a  risk  to  the  environment.  CG&E  and  its  utility
     subsidiaries  have undertaken  preliminary  site assessments to obtain more
     information about some of these MGP sites.

Cinergy, CG&E, PSI, and ULH&P
10.  During the second quarter of 1998,  the FASB issued  Statement 133. The new
     standard requires companies to record derivative instruments, as defined in
     Statement  133,  as assets or  liabilities,  measured  at fair  value.  The
     Statement   requires  that  changes  in  the  derivative's  fair  value  be
     recognized  currently in earnings unless specific hedge accounting criteria
     are met.  Special  accounting for  qualifying  hedges allows a derivative's
     gains and losses to offset related results on the hedged item in the income
     statement,  and requires that a company must formally document,  designate,
     and assess the  effectiveness of transactions that receive hedge accounting
     treatment.  The  standard,  as  subsequently  amended by Statement  137, is
     effective for fiscal years beginning  after June 15, 2000.  Cinergy expects
     to reflect the  adoption of this  standard in financial  statements  issued
     beginning in the first quarter of 2001.

     The Company has not yet quantified the impacts of adopting Statement 133 on
     its consolidated financial statements. However, accounting prescribed under
     Statement 133 could increase volatility in earnings and other comprehensive
     income.

Cinergy
11.  Options  to  purchase   shares  of  common  stock  are  excluded  from  the
     calculation  of  EPS-assuming  dilution  when the exercise  prices of these
     options are  greater  than the average  market  price of the common  shares
     during the period. Options to purchase approximately  1,683,000 and 931,000
     shares were excluded from the calculation of EPS-assuming dilution for this
     reason  for the  quarters  ended  June 30,  1999,  and 1998,  respectively.
     Options  to  purchase  approximately  1,736,000  and  695,000  shares  were
     excluded fro . the calculation of EPS-assuming dilution for this reason for
     the six months ended June 30, 1999, and 1998, respectively.



Cinergy
12.  On July 15,  1999,  Cinergy  and GPU  completed a  transaction  whereby GPU
     acquired  Cinergy's  50%  ownership  interest  in Avon  Energy,  the parent
     company of Midlands.  In exchange for its interest in Avon Energy,  Cinergy
     received 452.5 million pounds sterling  (approximately $700 million).  As a
     result of the  transaction,  Cinergy will  realize a gain of  approximately
     $.50  cents per  share in the third  quarter.  After  deducting  financing,
     transaction, and currency costs, the net contribution to earnings will be .
     approximately $.43 cents per share.

<TABLE>
<CAPTION>

     Pro forma information is presented below:
<S>                               <C>      <C>             <C>       <C>
                                  Quarter Ended           Six Months Ended
                                  June 30, 1999            June 30, 1999
                                  Net   Earnings           Net   Earnings
                                Income Per Share(1)      Income Per Share(1)
                                ------ ------------      ------ -----------
                               (in millions, except for earnings per share)
                                               (unaudited)



      Cinergy                     $59      $.37            $186      $1.17
      Pro forma adjustments:
        Equity in earnings
          of Avon Energy          (13)                      (58)
        Interest expense           11                        22
        Income taxes                5                        20
                                  ---                      ----

      Pro forma result            $62      $.39            $170      $1.07
</TABLE>

(1) Both Basic and Fully Diluted.



Cinergy and PSI
13.  As  discussed  in the 1998 Form  10-K,  PSI and  Dynegy  (formerly  Destec)
     entered  into a 25-year  contractual  agreement  for the  provision of coal
     gasification  services in November 1995. The agreement  requires PSI to pay
     Dynegy a base monthly fee including certain monthly operating expenses. PSI
     received  authorization  in the  September  1996 Order for the inclusion of
     these costs in retail rates.  In addition,  PSI received  authorization  to
     defer,  for subsequent  recovery in retail rates, the base monthly fees and
     expenses  incurred prior to the effective date of the September 1996 Order.
     Over the next five years,  the base  monthly fees and expenses for the coal
     gasification service agreement are expected to total $201 million.




<PAGE>



     During the third quarter of 1998,  PSI reached an agreement  with Dynegy to
     purchase  the  remainder  of its  25-year  contract  for coal  gasification
     services.  The  settlement  agreement  specifies  a purchase  price of $249
     million.  The  proposed  purchase,  which  is  contingent  upon  regulatory
     approval   satisfactory  to  PSI,  could  be  completed  in  1999.  PSI  is
     investigating  financing  alternatives.  The  transaction,  if  approved as
     proposed, is not expected to have a material impact on PSI's earnings.

     In  anticipation  of the buyout,  PSI and the UCC have come to a settlement
     agreement with respect to the proper ratemaking treatment of the buyout fee
     and other buyout implementation costs. The agreement,  entered into on June
     21,  1999,  provides  for PSI's  retail  electric  rates to be decreased to
     eliminate  jurisdictional  costs associated with the gasification  services
     agreement.  Additionally,  the  agreement  allows PSI to recover the retail
     electric jurisdictional portion of the buyout fee and the associated buyout
     implementation  costs through its rates with carrying  costs on unrecovered
     amounts,  over an eighteen-year  period. The settlement  agreement has been
     submitted to the IURC for approval.

14.  As discussed  in the 1998 Form 10-K,  the  collective-bargaining  agreement
     with the  International  Brotherhood of Electrical  Workers Local No. 1393,
     covering approximately 1,470 employees, expired on May 1, 1999. A new labor
     agreement was ratified  April 22, 1999,  and is effective from May 1, 1999,
     through April 30, 2002.

Cinergy, CG&E, PSI, and ULH&P
15.  As  discussed  in  the  1998  Form  10-K,  during  1998,  Cinergy  and  its
     subsidiaries  adopted the  provisions  of Statement  131.  During the first
     quarter of 1999, Cinergy reorganized its reportable segments.  The business
     unit structure effective with that reorganization is described below.

     The ECBU operates and maintains,  exclusive of certain jointly-owned plant,
     all of the Company's domestic electric generation  facilities.  In addition
     to the production of electric power, all energy risk management, marketing,
     and proprietary  arbitrage trading,  with the exception of electric and gas
     retail  sales,  is  conducted  through  the ECBU.  Revenues  from  external
     customers  are  derived  from  the  ECBU's  marketing,  trading,  and  risk
     management  activities.  Intersegment revenues are derived from the sale of
     electric power to the EDBU.

     The  EDBU  plans,   constructs,   operates,  and  maintains  the  Company's
     transmission and distribution  systems and provides gas and electric energy
     to end users.  Revenues from  customers  other than end users are primarily
     derived  from the  transmission  of electric  power  through the  Company's
     transmission system.

     The CIBU  manages  the  development,  sales,  and  marketing  of  domestic,
     non-regulated  wholesale energy and  energy-related  products and services.
     Most of the CIBU's revenues are derived from the sales of such products and
     services to external,  end-use customers.  In addition,  some of the CIBU's
     activities are conducted through  joint-venture  affiliates,  including the
     construction and sale or lease of cogeneration and trigeneration facilities
     to large commercial/industrial  customers and energy management services to
     third parties.

     The IBU directs and manages  all of the  Company's  international  business
     holdings,  which include wholly-owned  subsidiaries and equity investments.
     Revenues and equity  earnings from  unconsolidated  companies are primarily
     derived from energy-related businesses.

     Transfer pricing for sales of electric energy and sales of electric and gas
     transmission  and  distribution  services  between  the  ECBU  and EDBU are
     derived from the operating utilities' retail and wholesale rate structures.




<PAGE>



<TABLE>
<CAPTION>

Financial  results by business  unit for the quarters  ended June 30, 1999,  and
1998, are as follows:
<S>                   <C>            <C>    <C>      <C>        <C>          <C>          <C>            <C>

                                                        ________      1999_____________________________________________________
                                                                                            All         Reconciling
                                                  Cinergy Business Units                   Other        Eliminations
                          ECBU          EDBU          CIBU         IBU         Total        (1)             (2)        Consolidated_
                      -------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
  External Customers  $  542,002     $  707,193      $10,884    $ 15,320     $1,275,399   $  -           $    -          $1,275,399
  Intersegment
    Revenues             423,777           -            -           -           423,777      -            (423,777)            -
Segment Profit (Loss)
  Before Taxes            45,758         47,129       (4,934)      5,377         93,330    (3,787)            -              89,543

                                                      ________        1998___ ______________________________________________________
                                                                                            All         Reconciling
                                                  Cinergy Business Units                   Other        Eliminations
                          ECBU          EDBU          CIBU         IBU         Total        (1)             (2)        Consolidated_
                      --------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
  External Customers  $  467,360     $  689,077      $10,643    $    629     $1,167,709   $  -           $    -          $1,167,709
  Intersegment
    Revenues             433,340           -            -           -           433,340      -            (433,340)            -
Segment Profit (Loss)
  Before Taxes           (49,246)        11,054       (4,426)     (3,965)       (46,583)   (1,669)            -             (48,252)

<FN>
Financial  results by business unit for the six months ended June 30, 1999,  and
1998, are as follows:
</FN>

                                                      ________        1999_________________________________________________________
                                                                                            All         Reconciling
                                                  Cinergy Business Units                   Other        Eliminations
                          ECBU          EDBU          CIBU         IBU         Total        (1)             (2)        Consolidated
                       ------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
  External Customers  $1,045,640     $1,575,560      $28,284    $ 28,194     $2,677,678   $  -           $    -          $2,677,678
  Intersegment
    Revenues             880,314           -            -           -           880,314      -            (880,314)            -
Segment Profit (Loss)
  Before Taxes           129,075        149,888       (7,664)     29,509        300,808    (5,092)            -             295,716


                                                       ________        1998_________________________________________________________
                                                                                            All         Reconciling
                                               Cinergy Business Units                      Other        Eliminations
                          ECBU          EDBU          CIBU         IBU         Total        (1)             (2)        Consolidated_
                       -------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
  External Customers  $  969,458    $1,521,530       $24,408    $    774     $2,516,170   $  -           $    -          $2,516,170
  Intersegment
    Revenues             868,272          -             -           -           868,272      -            (868,272)            -
Segment Profit (Loss)
  Before Taxes            41,907       101,603        (7,671)     (4,926)       130,913   (13,223)            -             117,690





Total segment assets at June 30, 1999, and December 31, 1998, are as follows:
                              ________            _________________________________________                         ________________
                              ------------------------------------------------------------------------------------------------------
                                                                                            All         Reconciling
                                               Cinergy Business Units                      Other        Eliminations
                          ECBU          EDBU          CIBU         IBU         Total        (1)             (2)        Consolidated_
                       -------------------------------------------------------------------------------------------------------------
(in thousands)
Total Segment Assets
  at June 30, 1999    $4,595,911    $3,925,844       $48,996    $774,459     $9,345,210   $47,639        $    -          $9,392,849
Total Segment Assets
  at December
  31, 1998            $4,863,014    $3,987,055       $42,107    $751,861     $9,644,037   $43,344        $    -          $9,687,381

<FN>

(1) The all other category represents  miscellaneous  corporate items, which are
    not  allocated  to  business  units  for  the  purposes  of  segment  profit
    measurement.

(2) The reconciling  eliminations  category eliminates the intersegment revenues
    of the ECBU and the EDBU.
</FN>

</TABLE>



<PAGE>



Cinergy, CG&E, and PSI

16.  During  late  July,  the  geographic   region  in  which  Cinergy  operates
     experienced  extreme weather  conditions.  As a result of these conditions,
     Cinergy  expects a reduction  in net income for July of $57 million  (after
     tax, $16 million and $41 million for CG&E and PSI,  respectively),  or $.36
     per  share  basic  and  dilutive.  Cash  losses  reflecting  costs to serve
     wholesale power contracts and anticipated  liquidated damage claims totaled
     $73 million, $27 million, and $46 million after tax or $.46 per share basic
     and dilutive for Cinergy, CG&E, and PSI, respectively. Also, as a result of
     the extreme weather, increased sales from retail operations contributed $16
     million,  $11 million,  and $5 million or $.10 per share basic and dilutive
     after tax for Cinergy, CG&E, and PSI, respectively.

     The extreme  weather  conditions  required  the purchase of power needed to
     supplement  generation to meet record wholesale and retail customer demand.
     The anticipated  liquidated  damages are related to supply  curtailments to
     eight power marketers for four-to six hours on July 30.

     These weather conditions in Cinergy's service area included  record-setting
     temperatures  and  extraordinary  levels  of  demand.  Preliminary  figures
     indicate  electric  demand  in  the  Cinergy  system's   tri-state  service
     territory  peaked at  10,858  MW July 22.  On July 30  demand  peaked at an
     estimated  10,811  MW.  An  aggressive  call  for  voluntary  conservation,
     including  2,600  contacts  with  large-volume  power  users as well as the
     triggering  of standard  industrial  interruptible  contracts,  reduced the
     potential peak by more than 600 MW.

     Additionally,  the Company experienced  regional  transmission  constraints
     which prevented it from receiving significant amounts of prescheduled power
     and further  limited hourly  purchases  from the north,  east, and west for
     both service territory and other wholesale obligations.

     The Company is continuing to consider a number of strategies to address the
     electricity   market   volatility   being   encountered   as  the  industry
     restructures,  including  construction of additional  generation  capacity,
     securing  additional sources of supply,  possible expansion of or exit from
     the power supply  business,  and pursuit of asset  flexibility and customer
     choice in all states where it operates.  The Company  intends to pursue the
     alternatives which it believes will appropriately  enable it to address the
     volatility of the developing eletricity market.



<PAGE>




            ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

Cinergy, CG&E, PSI, and ULH&P
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Matters discussed in
this "Item 2.  Management's  Discussion and Analysis of Financial  Condition and
Results of Operations" in "Part I. Financial  Information" reflect and elucidate
Cinergy's  corporate vision of the future and, as a part of that,  outline goals
and aspirations,  as well as specific  projections.  These goals and projections
are considered forward-looking statements and are based on management's beliefs,
as well as certain  assumptions made by management.  Forward-looking  statements
involve  risks  and  uncertainties  which  may cause  actual  results  to differ
materially from the forward-looking  statements.  In addition to any assumptions
and other factors that are referred to  specifically  in  connection  with these
statements,  other factors that could cause actual results to differ  materially
from those indicated in any forward-looking  statements  include,  among others:
factors  generally  affecting  operations,  such as unusual weather  conditions,
unscheduled  generation outages;  unusual maintenance or repairs,  unanticipated
changes  in  fuel  costs,   environmental   incidents,  or  system  constraints;
legislative and regulatory  initiatives regarding deregulation and restructuring
of  the  industry;  increased  competition  in  the  electric  and  gas  utility
environment;  challenges  related to Year 2000  readiness;  regulatory  factors;
changes in  accounting  principles or policies;  adverse  political,  legal,  or
economic conditions; changing market conditions; success of efforts to invest in
and develop new opportunities in non-traditional business;  availability or cost
of capital;  employee workforce  factors;  legal and regulatory delays and other
obstacles  associated  with  mergers,  acquisitions,  and  investments  in joint
ventures; costs and effects of legal and administrative proceedings;  changes in
legislative  requirements;  and  other  risks.  The SEC's  rules do not  require
forward-looking statements to be revised or updated, and Cinergy does not intend
to do so.

FINANCIAL CONDITION

Recent Developments

Cinergy
Acquisitions  During  the  first  six  months  of  1999,  Cinergy,  through  its
international subsidiaries,  invested an additional $27 million in international
unconsolidated subsidiaries.

Dispositions  See Note 12 of the  "Notes to  Financial  Statements"  in "Part I.
Financial Information."

Subsequent Event See Note 16 of the "Notes to Financial  Statements" in "Part I.
Financial Information."

Competitive Pressures

Cinergy,  CG&E, PSI, and ULH&P
Federal The Clinton  Administration  has  introduced  a bill--the  Comprehensive
Electricity   Competition   Act--that  would  grant  all  retail   customers  of
electricity the right to choose their electricity  supplier beginning January 1,
2003. The legislation would allow a state regulatory authority to opt out of the
retail  competition  system if the authority  conducted a public  proceeding and
determined that the electric customers of that state would be better served by a
monopoly  system  or an  alternative  retail  competition  plan.  A  "compromise
bipartisan"  deregulation bill introduced on May 26 by  Representatives  Largent
(R-Ok.) and Markey  (D-Mass.)  included  similar  mandate and opt out provisions
with an effective date of January 1, 2002.



<PAGE>




Both  the  House  and  the  Senate   continue  to  hold   hearings  on  electric
restructuring  and to see if consensus  legislation can be developed,  but it is
uncertain  whether federal retail customer choice  legislation will be passed by
this Congress.

Ohio As discussed in the 1998 Form 10-K,  comprehensive  electric  restructuring
legislation  was  reintroduced  in 1999  in  both  houses  of the  Ohio  General
Assembly.  One of these bills--Senate Bill 3--subsequently  received approval by
both  houses,   and  in  July  1999,   Ohio  Governor  Robert  Taft  signed  the
restructuring  legislation  into law.  The new law becomes  effective in October
1999.

The new law calls for a competitive  retail electric market starting  January 1,
2001. Other details of the law include:

-    A 5% cut  in the  generation  component  of  rates  for  every  residential
     customer beginning January 1, 2001;

-    Utility rates otherwise are frozen for non-switching customers through each
     utility's  market  development  period  (ending no later than  December 31,
     2005);


-    The  filing  of a  transition  plan by each  utility  within 90 days of the
     effective  date of the law (the PUCO is given 275 days to approve or reject
     a utility's  filing).  The transition  plan must include a rate  unbundling
     plan, a corporate separation plan, an operational support plan, an employee
     assistance plan, and a consumer education plan. The plan may also include a
     quantification  of  utility  transition  costs and  application  to receive
     transition revenues;

-    The establishment of a market development  period,  which is the transition
     period to full market competition;

-    The recovery of transition costs throughout the market development  period,
     as determined by the PUCO;

-    The recovery of regulatory assets through December 31, 2010, as approved by
     the PUCO;

-    The transfer of either ownership or control of the  transmission  system to
     an independent transmission entity before December 31, 2003; and

-    The establishment of incentives to induce twenty percent (20%) of the loads
     by customer class to switch providers by no later than December 31, 2003.

At this time,  CG&E has not  completed  its  transition  plan and as such cannot
predict the ultimate  financial  impact the electric  restructuring  legislation
will have on future earnings and financial position.

Indiana As discussed in the 1998 Form 10-K, electric  restructuring  legislation
supported  by a group of large  industrial  customers  was  introduced  into the
Indiana  legislature in January 1999. This  legislation did not pass in the 1999
session of the Indiana General  Assembly,  which ended in April,  1999.  Cinergy
anticipates that electric restructuring  legislation will again be introduced in
the "short session" in Indiana in 2000.

Kentucky Throughout 1999, a task force convened by the Kentucky  legislature has
been meeting to study the issue of electric restructuring.  The legislature next
meets in January 2000, and it is not certain  whether an electric  restructuring
bill will be introduced at that time.


Regulatory Matters

Cinergy and PSI
Coal Contract Buyout Costs See Note 13 of the "Notes to Financial Statements" in
"Part I. Financial Information."

Cinergy and CG&E
PUCO Order - CG&E's Gas Rate Order As discussed in the 1998 Form 10-K,  in April
1997,  CG&E filed a notice of appeal with the Supreme Court of Ohio  challenging
the disallowance of information systems costs and imputation of certain revenues
by the PUCO when it approved an overall average  increase in CG&E's gas revenues
in December  1996.  On July 7, 1999,  the Supreme  Court  issued a ruling on the
appeal  supporting the PUCO's  decision to exclude a portion of the  development
costs of the information systems from the rate based calculation.  However,  the
Supreme Court ruled in favor of CG&E on the imputed revenue appeal, deciding the
PUCO  acted   unlawfully  in  imputing  certain   revenues.   The  ruling  will,
prospectively, result in a revision in rates generating a $3 million increase in
annual revenues for CG&E, which  represents less than a one percentage  increase
in retail rates.

Other Matters

Midwest ISO In July of 1999, the Midwest ISO named Matthew  Cordaro as the first
President and Chief Executive Officer of the  organization.  It also updated its
expectations to begin operations in June of 2001.

As of August 1, 1999,  there are 12  transmission  owners  participating  in the
Midwest ISO. The participating  transmission  owners cover territories with over
47,000 miles of transmission  lines extending into 11 states,  and includes over
$7 billion of  transmission  investment,  forming one of the largest ISOs in the
country.

Repeal of the PUHCA As discussed  in the 1998 Form 10-K,  in February  1999,  S.
313, a bill to repeal  significant  portions  of PUHCA,  was  introduced  in the
Senate.  The bill is currently awaiting action by the full Senate. In June 1999,
H.R.  2363, a bill to repeal PUHCA,  was  introduced in the House as a companion
bill to S. 313. H.R.  2363 is currently  awaiting  action by the House  Commerce
Committee.

While it is  uncertain  whether  these bills will be enacted  into law,  Cinergy
continues  to support  the  repeal of this act  either as part of  comprehensive
reform of the electric industry or as separate legislation.

Environmental Issues

Cinergy, CG&E, and PSI
Ozone Transport  Rulemaking As discussed in the 1998 Form 10-K, in October 1998,
the EPA finalized its Ozone  Transport Rule (or NOx SIP Call).  It applies to 22
states in the eastern  half of the US,  including  the three states in which the
Cinergy  electric  utilities  operate,  and also  proposes  a model NOx  trading
program.  This rule  recommends  that states reduce NOx emissions from primarily
industrial and utility  sources to a certain limit by May 2003. The EPA gave the
affected states until September 30, 1999, to incorporate  utility NOx reductions
with a trading program into their SIPs. Ohio, Indiana, a number of other states,
and various industry groups,  including some of which Cinergy is a member, filed
legal  challenges  to the NOx SIP Call in late 1998.  Ohio and Indiana have also
provided  preliminary  indications that they will seek fewer NOx reductions from
the utility sector in their  implementing  regulations than the EPA has budgeted
in its rulemaking.

On April 30, 1999, the EPA made an affirmative  technical  determination  on the
February 1998 northeast state CAAA Section 126 petitions seeking to reduce ozone
in the eastern US. By affirming  these  Section 126  petitions,  the EPA makes a
finding that the named Midwest  stationary  sources  (including all of Cinergy's
facilities)  are  significantly  contributing to ozone problems in the northeast
for both the one- and  eight-hour  ozone  standard.  The EPA has stated that the
Section 126 petitions and the NOx SIP call  requirements  should be coordinated.
Therefore,  the EPA will defer fully  granting the relief sought by  petitioners
until the affected states file their proposed SIPs in September 1999.

On May 25, 1999,  the Court of Appeals  granted the  petitioners'  request for a
stay of the rule and  indefinitely  suspended the September 30 filing  deadline,
pending  further  review by the Court of  Appeals.  The Court of  Appeals is now
scheduled to hear  arguments on the case in the fall of 1999,  making a decision
in early 2000.

Based on the May 14 court decision (see below) and the May 25 court decision, in
mid-June  the EPA  modified and  re-proposed  the Section 126  petitions to only
address the one-hour  ozone  standard.  The EPA also limited the petitions to 12
states instead of the original 22 states.  NOx sources in the states of Indiana,
Kentucky,  and  Ohio  would  still  be  required  to  meet  the  same  emissions
requirements. The new rulemaking is scheduled for completion by November 1999.

Ambient Air  Standards  and Regional Haze As discussed in the 1998 Form 10-K, in
1997, the EPA revised the National  Ambient Air Quality  Standards for ozone and
fine particulate  matter.  Utility NOx reductions  called for in the EPA's final
NOx  SIP  call  were  anticipated  to  address  both  the  one-hour  and the new
eight-hour ozone standard.  With the recent challenges to the NOx SIP call it is
unclear to what extent  additional NOx reductions would be required of utilities
to address eight-hour ozone non-attainment issues.

On May 14, 1999, the Court of Appeals ruled that both the new  eight-hour  ozone
standard and the fine  particulate  matter  standard were  unconstitutional  and
therefore  unenforceable by the EPA. In June, the EPA appealed the decision.  At
this  time,  the  outcome  of the  appeals  process  and the  effects  on future
emissions reduction requirements cannot be determined.

The EPA  published  the  final  regional  haze rule on July 1,  1999.  This rule
establishes  planning  and  emission  reduction  timelines  for states to use to
improve  visibility in national parks  throughout the US. The ultimate effect of
the new  regional  haze  rule  could  be  requirements  for  newer  and  cleaner
technologies  and  additional  controls  on  conventional   particulates  and/or
reductions  in SO2 and NOx  emissions  from  utility  sources.  If more  utility
emissions reductions are required, the compliance cost could be significant. The
outcome or effects of the states' determination cannot currently be predicted.

Air  Toxics As  discussed  in the 1998 Form  10-K,  in  November  1998,  the EPA
finalized  its ICR.  Pursuant  to the ICR,  all  generating  units must  provide
detailed  information  about  coal use and  mercury  content.  The EPA has since
selected  about 100  generating  units for one-time  stack  sampling,  including
Cinergy's Gibson Unit No. 3 and the Wabash River Repowering Project.  The EPA is
planning  to make  its  regulatory  determination  on the  need  for  additional
regulation  by the fourth  quarter of 2000. If more air toxics  regulations  are
issued, the compliance cost could be significant.  The outcome or effects of the
EPA's determination cannot currently be predicted.

NSR On July  21,  1992,  the  EPA  published  final  regulations  governing  the
application  of new  source  rules to  electric  generating  plant  repairs  and
pollution control projects  undertaken to comply with the CAAA.  Generally,  the
rule  provides  that plants  undertaking  pollution  control  projects  will not
trigger NSR  requirements.  The Natural Resources Defense Council and a group of
utilities  including  CG&E  and PSI  have  filed  petitions  for  review  of the
regulations with the Court of Appeals.  In July 1998, the EPA requested  comment
on proposed  revisions to the NSR rules which would change NSR  applicability by
eliminating exemptions contained in the current regulation.

On July 13 and 14, 1999,  CG&E and PSI received from the EPA (Region 5) requests
under  section  114 of the CAAA  seeking  documents  and  information  regarding
capital and maintenance expenditures at Beckjord and Cayuga, respectively. These
activities are part of an industry-wide  investigation assessing compliance with
the NSR and New Source Performance  Standards of the CAAA at electric generating
units.

MGP  Sites  See  Note 9 of the  "Notes  to  Financial  Statements"  in  "Part I.
Financial Information."

Accounting Issues

Cinergy, CG&E, PSI, and ULH&P
New Accounting  Standards See Note 10 of the "Notes to Financial  Statements" in
"Part I. Financial Information."

Market Risk Sensitive Instruments and Positions

Cinergy, CG&E, and PSI
Energy  Commodities  Sensitivity  The Company  markets  and trades  electricity,
natural  gas,  and  other   energy-related   products.   The  Company   utilizes
over-the-counter  forward  and option  contracts  for the  purchase  and sale of
electricity and also trades exchange-traded futures contracts. See Notes 7 and 8
of the "Notes to Financial  Statements" in "Part I. Financial  Information"  for
the  Company's  accounting  policies  for certain  derivative  instruments.  The
Company's  market  risks  have not  changed  materially  from the  market  risks
reported in the 1998 Form 10-K.

Cinergy
Exchange  Rate   Sensitivity  The  Company  utilizes  foreign  exchange  forward
contracts and currency swaps to hedge certain of its net  investments in foreign
operations.  As  part of the  sale of the  investment  in Avon  Energy,  Cinergy
eliminated  the  hedges  related  to  the  Midlands  investment  in  July  1999.
Additionally,  the Company  eliminated the forward exchange contracts related to
its  investment  in the  Czech  Republic.  See  Notes 7 and 8 of the  "Notes  to
Financial  Statements"  in "Part I.  Financial  Information"  for the  Company's
accounting policies for certain derivative instruments.

Cinergy, CG&E, PSI, and ULH&P
Interest  Rate  Sensitivity  The  Company's  net exposure to changes in interest
rates primarily  consists of debt instruments with floating  interest rates that
are benchmarked to various market indices.  To manage the Company's  exposure to
fluctuations in interest rates and to lower funding costs, the Company evaluates
the use of, and has entered into,  interest rate swaps. See Notes 7 and 8 of the
"Notes to  Financial  Statements"  in "Part I.  Financial  Information"  for the
Company's accounting policies for certain derivative instruments.  The Company's
market risks have not changed  materially  from the market risks reported in the
1998 Form 10-K.

CAPITAL RESOURCES AND REQUIREMENTS

Cinergy, CG&E, PSI, and ULH&P
Long-term Debt For  information  regarding  recent  issuances and redemptions of
long-term  debt  securities,  see  Notes  2,  3, 4, 5,  and 6 of the  "Notes  to
Financial Statements" in "Part I. Financial Information."

As of July 31, 1999, CG&E and PSI have remaining state regulatory  authority for
long-term  debt  issuance of $200 million and $30 million,  respectively.  ULH&P
received a state regulatory order for authority to issue long-term debt of up to
$50 million on August 5, 1999, that will expire on December 31, 2001.




<PAGE>



Cinergy, CG&E, PSI, and ULH&P
Short-term  Debt  Obligations  representing  notes payable and other  short-term
obligations  (excluding notes payable to affiliated companies) at June 30, 1999,
were as follows:


Cinergy

                                  Established
                                     Lines         Outstanding
                                          (in millions)

Cinergy
  Committed lines
    Acquisition line                $  160          $  160
    Revolving line                     600              -
  Commercial paper                      -              165
  Uncommitted line                      45              46*
Utility subsidiaries
  Committed lines                      215              -
  Uncommitted lines                    380             157
  Pollution control notes              267             267
Non-utility subsidiary                 142              42
                                    ------          ------

Total                               $1,809          $  837


* Excess  over  Established  Line  represents  amount  sold by  dealers to other
investors.



CG&E

                                  Established
                                     Lines         Outstanding
                                          (in millions)


Committed lines                      $ 85             $ -
Uncommitted lines                     185               82
Pollution control notes               184              184
                                     ----             ----

Total                                $454             $266

PSI
                                  Established
                                     Lines         Outstanding
                                          (in millions)

Committed lines                      $130             $ -
Uncommitted lines                     195               75
Pollution control notes                83               83
                                     ----             ----
Total                                $408             $158


Cinergy, CG&E, and PSI
Cinergy's  committed lines are comprised of an acquisition  line and a revolving
line. The established  revolving line also provides credit support for Cinergy's
commercial paper program, which is limited to a maximum principal amount of $400
million.  The  proceeds  from the  commercial  paper sales were used for general
corporate purposes.

The  established  committed  lines for CG&E and PSI each  included  $75  million
designated  as backup for  certain of the  uncommitted  lines at June 30,  1999;
however,  if  not in use  as  backup,  these  amounts  would  be  available  for
borrowing.  CG&E and PSI also have the capacity to issue  commercial  paper that
must be supported by committed lines of the respective company. Neither CG&E nor
PSI issued commercial paper during the second quarter of 1999.

Both CG&E and PSI have issued variable rate pollution control notes.  Holders of
these  pollution  control notes have the right to put their notes to the issuing
company for  redemption on any business day.  Accordingly,  these  issuances are
reflected  in the  Consolidated  Balance  Sheets  as  "Notes  payable  and other
short-term obligations."

Cinergy
Global  Resources has  established a $100 million  revolving  credit  agreement,
which was due to expire in June 1999 and has been extended to August 1999.

During  mid-July,  Cinergy's  acquisition  line was  settled  due to the sale of
Cinergy's 50% ownership  interest in Avon Energy.  (See Note 12 of the "Notes to
Financial Statements" in "Part I. Financial Information.")

Cinergy, CG&E, PSI, and ULH&P
Year 2000 The Year 2000 issue generally exists because many computer systems and
applications,   including  those  embedded  in  equipment  and  facilities,  use
two-digit rather than four-digit date fields to designate an applicable year. As
a  result,  the  systems  and  applications  may not  properly  recognize  dates
including  and beyond  the year 2000 or  accurately  process  data in which such
dates are included, potentially causing data miscalculations and inaccuracies or
operational   malfunctions  and  failures,   which  could  materially  affect  a
business's financial condition, results of operations, and cash flows.

Cinergy has established a centrally managed,  company-wide initiative,  known as
the Cinergy Year 2000 Readiness Program, to identify, evaluate, and address Year
2000 issues. The Cinergy Year 2000 Readiness Program,  which began in the fourth
quarter of 1996,  is generally  focused on three  elements  that are integral to
this  initiative:   (1)  business  continuity,  (2)  risk  management,  and  (3)
regulatory compliance.  Business continuity includes providing reliable electric
and gas supply and service in a safe and  cost-effective  manner.  This  element
encompasses mission-critical generation,  transmission, and distribution systems
and related infrastructure,  as well as operational and financial IT systems and
applications,  end-user  computing  resources,  and  building  systems  (such as
security, elevator, and heating and cooling systems). Risk management includes a
review of the Year 2000 readiness efforts of Cinergy's critical  suppliers,  key
customers  and other  principal  business  partners,  and, as  appropriate,  the
development of joint business support,  contingency  plans, and the inclusion of
Year 2000  concerns as a regular  part of the due  diligence  process in any new
business venture.  Regulatory compliance includes communications with regulatory
agencies, other utilities, and various industry groups. While this initiative is
broad in scope,  it has been  structured to identify and prioritize  efforts for
mission-critical  electric  and  gas  systems  and  services  and  key  business
partners.

Under the Cinergy Year 2000 Readiness Program, Cinergy achieved a target date of
June  30,  1999,  for  the  remediation  and  testing  of  its  mission-critical
generation, transmission, and distribution systems, components, and applications
(gas and electric).  An innovative remediation and testing effort, which Cinergy
also  completed on June 30, 1999,  involved  resetting  the clocks on all of the
generation units it operates in Ohio, Indiana, and Kentucky so that they are now
operating as if it were already January 1, 2000.  Cinergy's  experience has been
that those units have continued to operate  without any material  adverse result
relating  to  a  Year  2000  issue.   Cinergy  will   continue  to  monitor  its
mission-critical  systems,  components and applications for the remainder of the
year to maintain their Year 2000 readiness status.

Cinergy has also reviewed its existing contingency and business continuity plans
and  modified  them in light of the Year 2000  issue.  Contingency  planning  to
maintain  and  restore  service  in the event of  natural  and  other  disasters
(including software- and  hardware-related  problems) has been part of Cinergy's
standard  operation  for many years,  and  Cinergy is working to  leverage  this
experience  in the  review  of  existing  plans  to  address  Year  2000-related
challenges. These reviews have assessed the potential for business disruption in
various scenarios, including the most reasonably likely worst-case scenario, and
to provide for key operational back up, recovery, and restoration alternatives.

Cinergy  cannot  guarantee  that third  parties on whom it depends for essential
goods and services (those where the interruption of the supply of such goods and
services could lead to issues involving the safety of employees,  customers,  or
the public; the continued reliable delivery of gas and/or  electricity;  and the
ability to comply  with  applicable  laws or  regulations)  will  convert  their
mission-critical  systems,  components,  and  applications  in a timely  manner.
Failure  or delay by any of these  third  parties  could  significantly  disrupt
business.  However,  to address this issue,  Cinergy has  established a supplier
compliance  program,  and is working with its critical suppliers in an effort to
minimize such risks.

In addition,  Cinergy is  coordinating  its findings and other issues with other
utilities and various industry groups via the Electric Power Research  Institute
Year  2000  Embedded  Systems  Project  and the Year 2000  Readiness  Assessment
Program of the NERC, acting at the request of the DOE. The DOE has asked NERC to
report on the  integrity  of the  transmission  system for North  America and to
coordinate and assess the  preparation of the electric  systems in North America
for the Year 2000.  NERC  submitted  its  initial  quarterly  status  report and
coordination  plan to the DOE in September 1998, and a second  quarterly  status
report for the fourth quarter of 1998 was submitted on January 11, 1999. A third
quarterly status report for the first quarter of 1999 was submitted on April 30,
1999. A fourth and final quarterly  status report for the second quarter of 1999
was  submitted to the DOE by NERC on August 3, 1999, in which Cinergy was listed
as a "Y2k Ready" organization.

Cinergy plans to participate in a NERC-sponsored  national preparedness drill on
September 8 and 9, 1999, involving its Year 2000 contingency plans.

Cinergy currently  estimates that the total cost for the inventory,  assessment,
remediation,  testing, and upgrading of its systems as a result of the Year 2000
effort is approximately $13 million.  Approximately $12 million in expenses have
been  incurred  through June 30, 1999,  for such things as external  labor,  for
hardware and software  upgrades,  and for Cinergy  employees  who are  dedicated
full-time  to the  Cinergy  Year 2000  Readiness  Program.  The  timing of these
expenses may vary and is not  necessarily  indicative  of  readiness  efforts or
progress to date.  Cinergy  anticipates that a portion of its Year 2000 expenses
will not be incremental  costs,  but rather,  will represent the redeployment of
existing IT  resources.  Since its  formation,  Cinergy has  incurred,  and will
continue to incur,  significant  capital  improvement  costs  related to planned
system upgrades or replacements required in the normal course of business. These
costs have not been accelerated as a result of the Year 2000 issue.

The above information is based on Cinergy's  current best estimates,  which were
derived using numerous assumptions of future events,  including the availability
and  future  costs of certain  technological  and other  resources,  third-party
modification  actions,  and other factors.  Given the complexity of these issues
and possible  unidentified  risks, actual results may vary materially from those
anticipated  and  discussed  above.  Specific  factors  that  might  cause  such
differences  include,  among  others;  the  ability  to locate and  correct  all
affected   computer  code,  the  timing  and  success  of  remedial  efforts  of
third-party suppliers, and similar uncertainties.

The  above  information  is a Year 2000  Readiness  Disclosure  pursuant  to the
Federal Year 2000 Information and Readiness Disclosure Act.

Cinergy
Other  Commitments  At June  30,  1999,  Cinergy  had  issued  $321  million  in
guarantees  primarily related to the energy marketing and trading  activities of
its  subsidiaries  and  affiliates.  In addition,  Cinergy had  guaranteed  $258
million of the debt securities of its  subsidiaries  and affiliates.

RESULTS OF OPERATIONS

Cinergy, CG&E, PSI, and ULH&P
Reference  is made to  "Item 1.  Financial  Statements"  in  "Part I.  Financial
Information."


       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Cinergy, CG&E, PSI, and ULH&P
Reference  is made to the "Market  Risk  Sensitive  Instruments  and  Positions"
section in "Item 2. Management's  Discussion and Analysis of Financial Condition
and Results of Operations" in "Part I. Financial  Information" and Notes 7 and 8
of the "Notes to Financial Statements" in "Part I. Financial Information."



<PAGE>



                           PART II. OTHER INFORMATION



                            ITEM 1. LEGAL PROCEEDINGS
     Cinergy, CG&E, and PSI
     Manufactured Gas Plant Sites
     See Note 9 of the  "Notes to  Financial  Statements"  in Part I.  Financial
     Information.



                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits  identified  with a pound sign (#) are being filed herewith by
     the  registrant   identified  in  the  exhibit  discussion  below  and  are
     incorporated  herein by  reference  with  respect  to any other  designated
     registrant. Exhibits not so identified are filed herewith:

       Exhibit
     Designation                                     Nature of Exhibit


     Cinergy, CG&E, PSI, and ULH&P

          27            Financial Data Schedules (included in electronic
                        submission only)



     (b) The  following  reports  on Form 8-K were filed  during the  quarter or
     prior to the filing of the Form 10-Q for the quarter ended June 30, 1999.


      Date of Report                           Item Filed


Cinergy

     July 6, 1999       Item 5.  Other Events
                        Item 7.  Financial Statements and Exhibits

     July 15, 1999      Item 2.  Acquisition or Disposition of Assets
                        Item 7.  Financial Statements and Exhibits

     August 10, 1999    Item 5.  Other Events
                        Item 7.  Financial Statements and Exhibits

CG&E

     August 10, 1999    Item 5.  Other Events

PSI

     August 10, 1999    Item 5.  Other Events




<PAGE>




                                   SIGNATURES

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted pursuant to such rules and regulations,  although
Cinergy,  CG&E, PSI, and ULH&P believe that the disclosures are adequate to make
the information presented not misleading.  In the opinion of Cinergy, CG&E, PSI,
and ULH&P,  these  statements  reflect all  adjustments  (which include  normal,
recurring  adjustments)  necessary to reflect the results of operations  for the
respective periods.  The unaudited statements are subject to such adjustments as
the annual audit by independent public accountants may disclose to be necessary.

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrants  have duly  caused this report to be signed by an
officer  and the chief  accounting  officer on their  behalf by the  undersigned
thereunto duly authorized.

                                                      CINERGY CORP.
                                          THE CINCINNATI GAS & ELECTRIC COMPANY
                                                    PSI ENERGY, INC.
                                         THE UNION LIGHT, HEAT AND POWER COMPANY
                                                       Registrants






Date:  August 13, 1999                         /s/Bernard F. Roberts_      __
                                       --------------------------------------
                                                 Bernard F. Roberts
                                               Duly Authorized Officer
                                                        and
                                              Chief Accounting Officer