<PAGE>
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       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, 1997
 
                                       OR
 
              [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                   For the transition period from     to
 
<TABLE>
<CAPTION>
 COMMISSION
    FILE         REGISTRANT; STATE OF INCORPORATION;              IRS EMPLOYER
   NUMBER           ADDRESS; AND TELEPHONE NUMBER              IDENTIFICATION NO.
 ----------      -----------------------------------           ------------------
 <C>            <S>                                            <C>
 1-11375        UNICOM CORPORATION                                 36-3961038
                (an Illinois corporation)
                37th Floor, 10 South Dearborn Street
                Post Office Box A-3005
                Chicago, Illinois 60690-3005
                312/394-7399

 1-1839         COMMONWEALTH EDISON COMPANY                        36-0938600
                (an Illinois corporation)
                37th Floor, 10 South Dearborn Street
                Post Office Box 767
                Chicago, Illinois 60690-0767
                312/394-4321
</TABLE>
 
  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, and (2) have been subject to such filing
requirements for the past 90 days.  Yes   X      No
 
Common Stock outstanding at July 31, 1997:
    Unicom Corporation                           216,407,283 shares
    Commonwealth Edison Company                  214,226,474 shares
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
 
                               UNICOM CORPORATION
                                      AND
                          COMMONWEALTH EDISON COMPANY
 
                         QUARTERLY REPORTS ON FORM 10-Q
                   TO THE SECURITIES AND EXCHANGE COMMISSION
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
 
  This document contains the Quarterly Reports on Form 10-Q for the quarterly
period ended June 30, 1997 for each of Unicom Corporation and Commonwealth
Edison Company. Information contained herein relating to an individual
registrant is filed by such registrant on its own behalf. Accordingly, except
for its subsidiaries, Commonwealth Edison Company makes no representation as to
information relating to Unicom Corporation or to any other companies affiliated
with Unicom Corporation. In addition, several portions of these Quarterly
Reports contain forward looking statements; and reference is made to page 61
for the location and character of such statements.
 
                                     INDEX
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          -----
<S>                                                                       <C>
Definitions..............................................................     3
PART I. FINANCIAL INFORMATION
Unicom Corporation and Subsidiary Companies:
  Financial Statements--
    Report of Independent Public Accountants.............................     4
    Statements of Consolidated Income for the three months, six months
     and twelve months ended June 30, 1997 and 1996......................     5
    Consolidated Balance Sheets--June 30, 1997 and December 31, 1996.....   6-7
    Statements of Consolidated Capitalization--June 30, 1997 and December
     31, 1996............................................................     8
    Statements of Consolidated Retained Earnings for the three months,
     six months and twelve months ended June 30, 1997 and 1996...........     9
    Statements of Consolidated Cash Flows for the three months, six
     months and twelve months ended June 30, 1997 and 1996...............    10
    Notes to Financial Statements........................................ 11-32
  Management's Discussion and Analysis of Financial Condition and Results
   of Operations......................................................... 33-47
Commonwealth Edison Company and Subsidiary Companies:
  Financial Statements--
    Report of Independent Public Accountants.............................    48
    Statements of Consolidated Income for the three months, six months
     and twelve months ended June 30, 1997 and 1996......................    49
    Consolidated Balance Sheets--June 30, 1997 and December 31, 1996..... 50-51
    Statements of Consolidated Capitalization--June 30, 1997 and December
     31, 1996............................................................    52
    Statements of Consolidated Retained Earnings for the three months,
     six months and twelve months ended June 30, 1997 and 1996...........    53
    Statements of Consolidated Cash Flows for the three months, six
     months and twelve months ended June 30, 1997 and 1996...............    54
    Notes to Financial Statements........................................ 55-58
  Management's Discussion and Analysis of Financial Condition and Results
   of Operations.........................................................    59
PART II. OTHER INFORMATION
  Item 1. Legal Proceedings.............................................. 60-61
  Item 4. Submission of Matters to a Vote of Security Holders............ 61-62
  Item 6. Exhibits and Reports on Form 8-K...............................    62
SIGNATURES...............................................................    63
</TABLE>
 
                                       2
<PAGE>
 
                                  DEFINITIONS
 
  The following terms are used in this document with the following meanings:
 
<TABLE>
<CAPTION>
         TERM                                  MEANING
 -------------------- ---------------------------------------------------------
 <C>                  <S>
 AFUDC                Allowance for funds used during construction
 AMT                  Alternative minimum tax
 APB                  Accounting Principles Board
 CERCLA               Comprehensive Environmental Response, Compensation and
                       Liability Act of 1980, as amended
 CFC                  Chlorofluorocarbon
 Clean Air Amendments Clean Air Act Amendments of 1990
 ComEd                Commonwealth Edison Company
 Cotter               Cotter Corporation, which is a wholly-owned subsidiary of
                       ComEd.
 DOE                  U.S. Department of Energy
 EITF                 Emerging Issues Task Force of the FASB
 EMFs                 Electric and magnetic fields
 EPS                  Earnings per Share
 ESPP                 Employee Stock Purchase Plan
 FASB                 Financial Accounting Standards Board
 FERC                 Federal Energy Regulatory Commission
 FERC Order           FERC Open Access Order No. 888 issued in April 1996
 GAAP                 Generally Accepted Accounting Principles
 ICC                  Illinois Commerce Commission
 Indiana Company      Commonwealth Edison Company of Indiana, Inc., which is a
                       wholly-owned subsidiary of ComEd.
 ISO                  Independent System Operator
 MGP                  Manufactured gas plant
 NEIL                 Nuclear Electric Insurance Limited
 NLRB                 National Labor Relations Board
 NML                  Nuclear Mutual Limited
 NPL                  National Priorities List
 NRC                  Nuclear Regulatory Commission
 O&M                  Operation and Maintenance
 Rate Order           ICC rate order issued in January 1995, as subsequently
                       modified
 Remand Order         ICC rate order issued in January 1993, as subsequently
                       modified
 RDI                  Resource Data International Inc., a consulting firm
 SEC                  Securities and Exchange Commission
 SFAS                 Statement of Financial Accounting Standards
 S&P                  Standard & Poor's
 Trusts               ComEd Financing I and ComEd Financing II, which are
                       wholly-owned subsidiary trusts of ComEd.
 Unicom               Unicom Corporation
 Unicom Enterprises   Unicom Enterprises Inc., which is a wholly-owned
                       subsidiary of Unicom.
 Unicom Resources     Unicom Resources Inc., which is a wholly-owned subsidiary
                       of Unicom.
 Unicom Thermal       Unicom Thermal Technologies Inc., which is a wholly-owned
                       subsidiary of Unicom Enterprises.
 Units                ComEd's nuclear generating units known as Byron Unit 2
                       and Braidwood Units 1 and 2
 U.S. EPA             U.S. Environmental Protection Agency
</TABLE>
 
                                       3
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Unicom Corporation:
 
  We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Unicom Corporation (an Illinois corporation)
and subsidiary companies as of June 30, 1997 and December 31, 1996, and the
related statements of consolidated income, retained earnings and cash flows for
the three-month, six-month and twelve-month periods ended June 30, 1997 and
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Unicom Corporation and
subsidiary companies as of June 30, 1997 and December 31, 1996, and the results
of their operations and their cash flows for the three-month, six-month and
twelve-month periods ended June 30, 1997 and 1996, in conformity with generally
accepted accounting principles.
 
 
 
                                            Arthur Andersen LLP
 
Chicago, Illinois
August 8, 1997
 
                                       4
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                       STATEMENTS OF CONSOLIDATED INCOME
 
  The following Statements of Consolidated Income for the three months, six
months and twelve months ended June 30, 1997 and 1996 reflect the results of
past operations and are not intended as any representation as to results of
operations for any future period. Future operations will necessarily be
affected by various and diverse factors and developments, including changes in
electric rates, regulation, population, business activity, competition, taxes,
environmental control, energy use, fuel, cost of labor, purchased power and
other matters, the nature and effect of which cannot now be determined.
 
<TABLE>
<CAPTION>
                           THREE MONTHS ENDED       SIX MONTHS ENDED       TWELVE MONTHS ENDED
                                 JUNE 30                 JUNE 30                 JUNE 30
                          ----------------------  ----------------------  ----------------------
                             1997        1996        1997        1996        1997        1996
                          ----------  ----------  ----------  ----------  ----------  ----------
                                          (THOUSANDS EXCEPT PER SHARE DATA)
<S>                       <C>         <C>         <C>         <C>         <C>         <C>
Operating Revenues......  $1,651,283  $1,547,913  $3,401,595  $3,231,842  $7,106,777  $7,004,231
                          ----------  ----------  ----------  ----------  ----------  ----------
Operating Expenses and
 Taxes:
 Fuel...................  $  308,722  $  254,557  $  617,790  $  538,532  $1,237,114  $1,096,946
 Purchased power........     119,333      33,061     183,640      64,500     264,440     118,892
 Operation and
  maintenance...........     642,291     536,822   1,212,537   1,050,524   2,323,905   2,183,878
 Depreciation...........     246,771     230,176     496,631     461,101     989,231     909,183
 Recovery of regulatory
  assets................       3,818       3,818       7,636       7,636      15,272      15,272
 Taxes (except income)..     192,065     159,466     397,763     377,705     803,589     811,307
 Income taxes...........      16,148      84,092     111,001     195,564     404,979     545,521
 Investment tax credits
  deferred--net ........      (7,897)     (7,165)    (15,794)    (14,332)    (34,840)    (28,685)
                          ----------  ----------  ----------  ----------  ----------  ----------
                          $1,521,251  $1,294,827  $3,011,204  $2,681,230  $6,003,690  $5,652,314
                          ----------  ----------  ----------  ----------  ----------  ----------
Operating Income........  $  130,032  $  253,086  $  390,391  $  550,612  $1,103,087  $1,351,917
                          ----------  ----------  ----------  ----------  ----------  ----------
Other Income and
 (Deductions):
 Interest on long-term
  debt..................  $ (121,644) $ (130,380) $ (248,612) $ (261,241) $ (502,656) $ (545,688)
 Interest on notes
  payable...............      (3,298)     (4,436)     (5,249)     (8,687)     (9,869)    (11,595)
 Allowance for funds
  used during
  construction--
   Borrowed funds.......       4,952       6,367       9,004      11,265      17,164      17,525
   Equity funds.........       5,706       6,068      10,786      10,766      20,797      18,026
 Income taxes
  applicable to
  nonoperating
  activities............       2,052         790       2,418       5,066       5,165       9,682
 Provision for
  dividends--
  Preferred and
   preference stocks of
   ComEd................     (15,485)    (16,472)    (31,012)    (32,986)    (62,450)    (69,172)
  ComEd-obligated
   mandatorily
   redeemable preferred
   securities of
   subsidiary trusts....      (7,428)     (4,240)    (14,076)     (8,480)    (22,556)    (12,908)
 Miscellaneous--net.....     (12,489)    (10,470)    (20,135)    (29,070)    (26,311)    (58,476)
                          ----------  ----------  ----------  ----------  ----------  ----------
                          $ (147,634) $ (152,773) $ (296,876) $ (313,367) $ (580,716) $ (652,606)
                          ----------  ----------  ----------  ----------  ----------  ----------
Net Income (Loss) Before
 Extraordinary Item.....  $  (17,602) $  100,313  $   93,515  $  237,245  $  522,371  $  699,311
Extraordinary Loss
 Related to Early
 Redemption of Long-Term
 Debt, Less Applicable
 Income Taxes...........         --          --          --          --          --      (20,022)
                          ----------  ----------  ----------  ----------  ----------  ----------
Net Income (Loss).......  $  (17,602) $  100,313  $   93,515  $  237,245  $  522,371  $  679,289
                          ==========  ==========  ==========  ==========  ==========  ==========
Average Number of Common
 Shares Outstanding.....     216,368     215,438     216,211     215,343     215,934     215,087
Earnings (Loss) per
 Common Share Before
 Extraordinary Item.....      $(0.08)      $0.47       $0.43       $1.10       $2.42       $3.25
Extraordinary Loss
 Related to Early
 Redemption of Long-Term
 Debt, Less Applicable
 Income Taxes...........         --          --          --          --          --        (0.09)
                          ----------  ----------  ----------  ----------  ----------  ----------
Earnings (Loss) per
 Common Share...........      $(0.08)      $0.47       $0.43       $1.10       $2.42       $3.16
                          ==========  ==========  ==========  ==========  ==========  ==========
Cash Dividends Declared
 per Common Share.......      $ 0.40       $0.40       $0.80       $0.80       $1.60       $1.60
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       5
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                       JUNE 30,    DECEMBER 31,
                       ASSETS                            1997          1996
                       ------                         -----------  ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Utility Plant:
  Plant and equipment, at original cost (includes
   construction work in progress of $1,143 million
   and $1,034 million, respectively)................. $28,253,144  $27,900,632
  Less--Accumulated provision for depreciation.......  12,038,829   11,479,991
                                                      -----------  -----------
                                                      $16,214,315  $16,420,641
  Nuclear fuel, at amortized cost....................     822,373      805,623
                                                      -----------  -----------
                                                      $17,036,688  $17,226,264
                                                      -----------  -----------
Investments and Other Property:
  Nuclear decommissioning funds...................... $ 1,712,464  $ 1,456,360
  Subsidiary companies...............................     114,251      113,888
  Other, at cost.....................................     181,399      146,302
                                                      -----------  -----------
                                                      $ 2,008,114  $ 1,716,550
                                                      -----------  -----------
Current Assets:
  Cash............................................... $     9,368  $     8,727
  Temporary cash investments.........................      86,793       51,821
  Other cash investments.............................       7,932           --
  Special deposits...................................         466        1,610
  Receivables--
    Customers........................................     562,836      568,155
    Other............................................      68,620      109,835
    Provisions for uncollectible accounts............     (13,747)     (12,893)
  Coal and fuel oil, at average cost.................     180,150      140,362
  Materials and supplies, at average cost............     323,944      324,485
  Deferred unrecovered energy costs..................      80,291      104,651
  Deferred income taxes related to current assets and
   liabilities.......................................     114,213      120,185
  Prepayments and other..............................      38,734       35,872
                                                      -----------  -----------
                                                      $ 1,459,600  $ 1,452,810
                                                      -----------  -----------
Deferred Charges and Other Noncurrent Assets:
  Regulatory assets.................................. $ 2,524,259  $ 2,434,807
  Unrecovered energy costs...........................     387,468      444,009
  Other..............................................     107,893      113,530
                                                      -----------  -----------
                                                      $ 3,019,620  $ 2,992,346
                                                      -----------  -----------
                                                      $23,524,022  $23,387,970
                                                      ===========  ===========
</TABLE>
 
 
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       6
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                        JUNE 30,   DECEMBER 31,
            CAPITALIZATION AND LIABILITIES                1997         1996
            ------------------------------             ----------- ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                    <C>         <C>
Capitalization (see accompanying statements):
  Common stock equity................................. $ 6,031,775 $ 6,104,380
  Preferred and preference stocks of ComEd--
    Without mandatory redemption requirements.........     507,103     507,342
    Subject to mandatory redemption requirements......     202,035     217,901
  ComEd-obligated mandatorily redeemable preferred 
   securities of subsidiary trusts*...................     350,000     200,000
  Long-term debt......................................   5,820,182   6,069,534
                                                       ----------- -----------
                                                       $12,911,095 $13,099,157
                                                       ----------- -----------
Current Liabilities:
  Notes payable--
    Commercial paper.................................. $   256,000 $   121,000
    Bank loans........................................       7,750       7,750
  Current portion of long-term debt, redeemable 
   preference stock and capitalized lease obligations 
   of subsidiary companies............................     713,883     745,665
  Accounts payable....................................     413,627     469,815
  Accrued interest....................................     170,443     168,750
  Accrued taxes.......................................     199,757     171,104
  Dividends payable...................................     107,624     101,850
  Customer deposits...................................      54,733      51,585
  Other...............................................     100,498      98,567
                                                       ----------- -----------
                                                       $ 2,024,315 $ 1,936,086
                                                       ----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
  Deferred income taxes............................... $ 4,545,639 $ 4,574,342
  Accumulated deferred investment tax credits.........     639,868     655,662
  Accrued spent nuclear fuel disposal fee and related
   interest...........................................     674,704     657,449
  Obligations under capital leases of subsidiary 
   companies..........................................     524,574     476,668
  Regulatory liabilities..............................     723,922     668,301
  Other...............................................   1,479,905   1,320,305
                                                       ----------- -----------
                                                       $ 8,588,612 $ 8,352,727
                                                       ----------- -----------
Commitments and Contingent Liabilities (Note 20)
                                                       $23,524,022 $23,387,970
                                                       =========== ===========
</TABLE>
 
  *As described in Note 8 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of
ComEd, is $154.6 million principal amount of ComEd's 8.50% subordinated
deferrable interest debentures due January 15, 2027.
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       7
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   STATEMENTS OF CONSOLIDATED CAPITALIZATION
 
<TABLE>
<CAPTION>
                                                       JUNE 30,    DECEMBER 31,
                                                         1997          1996
                                                      -----------  ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Common Stock Equity:
  Common stock, without par value--
   Outstanding--216,407,201 shares and 215,954,625
    shares, respectively (excludes $7 million and $4
    million as of June 30, 1997 and December 31,
    1996, respectively, held by trustee for Unicom
    Stock Bonus Deferral Plan)....................... $ 4,936,836  $ 4,929,909
  Preference stock expense of ComEd..................      (3,518)      (3,526)
  Retained earnings..................................   1,098,457    1,177,997
                                                      -----------  -----------
                                                      $ 6,031,775  $ 6,104,380
                                                      -----------  -----------
Preferred and Preference Stocks of ComEd:
  Without Mandatory Redemption Requirements:
    Preference stock, cumulative, without par value--
     Outstanding--13,499,549 shares.................. $   504,957  $   504,957
    $1.425 convertible preferred stock, cumulative,
     without par value--
     Outstanding--67,491 shares and 75,003 shares,
      respectively...................................       2,146        2,385
    Prior preferred stock, cumulative, $100 par value
     per share--
     No shares outstanding...........................         --           --
                                                      -----------  -----------
                                                      $   507,103  $   507,342
                                                      -----------  -----------
  Subject to Mandatory Redemption Requirements:
    Preference stock, cumulative, without par value--
     Outstanding--2,466,775 shares and 2,496,775
      shares, respectively........................... $   245,609  $   248,589
    Current redemption requirements for preference
     stock included
     in current liabilities..........................     (43,574)     (30,688)
                                                      -----------  -----------
                                                      $   202,035  $   217,901
                                                      -----------  -----------
ComEd-Obligated Mandatorily Redeemable Preferred
 Securities of Subsidiary Trusts..................... $   350,000  $   200,000
                                                      -----------  -----------
Long-Term Debt:
  First mortgage bonds:
    Maturing 1997 through 2001--5 3/8% to 9 3/8%..... $   920,000  $ 1,120,000
    Maturing 2002 through 2011--4.15% to 8 3/8%......   1,640,400    1,640,400
    Maturing 2012 through 2021--5.85% to 9 7/8%......   1,191,000    1,391,000
    Maturing 2022 through 2023--7 3/4% to 8 5/8%.....   1,160,000    1,160,000
                                                      -----------  -----------
                                                      $ 4,911,400  $ 5,311,400
  Sinking fund debentures, due 1999 through 2011--
   2 3/4% to 7 5/8%..................................     100,597      105,164
  Pollution control obligations, due 2007 through
   2014--4.10% to 5 7/8%.............................     142,200      142,200
  Other long-term debt...............................   1,248,819    1,100,833
  Deposit for retirement of long-term debt...........        (229)         --
  Current maturities of long-term debt included in
   current liabilities...............................    (534,077)    (540,505)
  Unamortized net debt discount and premium..........     (48,528)     (49,558)
                                                      -----------  -----------
                                                      $ 5,820,182  $ 6,069,534
                                                      -----------  -----------
                                                      $12,911,095  $13,099,157
                                                      ===========  ===========
</TABLE>
 
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       8
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                  STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED      SIX MONTHS ENDED    TWELVE MONTHS ENDED
                                JUNE 30                JUNE 30               JUNE 30
                         ---------------------- --------------------- ---------------------
                            1997        1996       1997       1996       1997       1996
                         ----------  ---------- ---------- ---------- ---------- ----------
                                              (THOUSANDS OF DOLLARS)
<S>                      <C>         <C>        <C>        <C>        <C>        <C>
Balance at Beginning of
 Period................. $1,202,631  $  907,723 $1,177,997 $  856,893 $  921,822 $  586,714
Add--Net income (loss)..    (17,602)    100,313     93,515    237,245    522,371    679,289
                         ----------  ---------- ---------- ---------- ---------- ----------
                         $1,185,029  $1,008,036 $1,271,512 $1,094,138 $1,444,193 $1,266,003
                         ----------  ---------- ---------- ---------- ---------- ----------
Deduct--
   Cash dividends
    declared on
    common stock........ $   86,565  $   86,207 $  173,048 $  172,309 $  345,631 $  344,211
   Other capital stock
    transactions--net...          7           7          7          7        105        (30)
                         ----------  ---------- ---------- ---------- ---------- ----------
                         $   86,572  $   86,214 $  173,055 $  172,316 $  345,736 $  344,181
                         ----------  ---------- ---------- ---------- ---------- ----------
Balance at End of
 Period................. $1,098,457  $  921,822 $1,098,457 $  921,822 $1,098,457 $  921,822
                         ==========  ========== ========== ========== ========== ==========
</TABLE>
 
 
 
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       9
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                     STATEMENTS OF CONSOLIDATED CASH FLOWS
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED     SIX MONTHS ENDED       TWELVE MONTHS ENDED
                                JUNE 30               JUNE 30                 JUNE 30
                          --------------------  --------------------  ------------------------
                            1997       1996       1997       1996        1997         1996
                          ---------  ---------  ---------  ---------  -----------  -----------
                                              (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>        <C>        <C>          <C>
Cash Flow from Operating
 Activities:
 Net income (loss)......  $ (17,602) $ 100,313  $  93,515  $ 237,245  $   522,371  $   679,289
 Adjustments to
  reconcile net income
  (loss) to net cash
  provided by operating
  activities:
   Depreciation and
    amortization........    257,231    238,539    516,686    479,727    1,027,738      952,257
   Deferred income taxes
    and investment tax
    credits--net........     (3,237)    26,060     18,391     42,320      105,768      164,711
   Extraordinary loss
    related to early
    redemption of long-
    term debt...........        --         --         --         --           --        33,158
   Equity component of
    allowance for funds
    used during
    construction........     (5,706)    (6,068)   (10,786)   (10,766)     (20,797)     (18,026)
   Recovery of
    regulatory assets...      3,818      3,818      7,636      7,636       15,272       15,272
   Provisions (payments)
    for liability for
    separation costs--
    net.................      1,428      2,373        802    (29,930)         845       30,223
   Net effect on cash
    flows of changes in:
     Receivables........     23,421     25,443     47,388    142,487      (25,393)     (27,252)
     Coal and fuel oil..     (7,513)   (22,314)   (39,788)   (37,805)     (13,169)     (33,683)
     Materials and
      supplies..........        571     (7,149)       541     (8,752)      18,347       24,239
     Accounts payable
      excluding nuclear
      fuel lease
      principal payments
      and separation
      costs--net........     29,949     22,452     30,848    (49,663)     186,945      332,131
     Accrued interest
      and taxes.........    (29,285)    18,965     30,346     60,195      (76,906)     (31,039)
     Other changes in
      certain current
      assets and
      liabilities.......     31,422    (17,869)    23,527     (8,455)      45,830        8,294
   Other--net...........     44,285     18,817    128,582     24,932      172,582       33,600
                          ---------  ---------  ---------  ---------  -----------  -----------
                          $ 328,782  $ 403,380  $ 847,688  $ 849,171  $ 1,959,433  $ 2,163,174
                          ---------  ---------  ---------  ---------  -----------  -----------
Cash Flow from Investing
 Activities:
 Construction
  expenditures..........  $(227,768) $(254,671) $(462,249) $(543,226) $  (901,297) $(1,078,420)
 Nuclear fuel
  expenditures..........    (41,943)  (109,184)   (90,716)  (143,603)    (228,946)    (321,567)
 Equity component of
  allowance for funds
  used during
  construction..........      5,706      6,068     10,786     10,766       20,797       18,026
 Contributions to
  nuclear
  decommissioning
  funds.................        --         --     (80,181)   (83,178)    (116,284)    (119,602)
 Other investments and
  special deposits......     (4,942)       --     (34,881)      (298)     (36,698)        (750)
                          ---------  ---------  ---------  ---------  -----------  -----------
                          $(268,947) $(357,787) $(657,241) $(759,539) $(1,262,428) $(1,502,313)
                          ---------  ---------  ---------  ---------  -----------  -----------
Cash Flow from Financing
 Activities:
 Issuance of
  securities--
  Long-term debt........  $  20,000  $ 231,902  $ 317,663  $ 231,902  $   337,663  $   268,902
  Preferred securities
   of subsidiary
   trusts...............        --         --     150,000        --       150,000      200,000
  Capital stock.........      3,536      5,885      9,313      6,521       20,546       22,261
 Retirement and
  redemption of
  securities--
  Long-term debt........    (72,570)  (267,056)  (576,453)  (268,196)    (741,341)  (1,113,805)
  Capital stock.........     (3,040)    (3,082)    (3,239)    (3,107)     (44,645)     (18,004)
 Deposits and
  securities held for
  retirement and
  redemption of
  securities............      2,102      2,643       (229)      (975)         746         (598)
 Premium paid on early
  redemption of long-
  term debt.............        --         --      (9,500)       --        (9,500)     (25,823)
 Cash dividends paid on
  common stock..........    (86,484)   (86,101)  (172,805)  (172,084)    (345,274)    (343,909)
 Proceeds from
  sale/leaseback of
  nuclear fuel..........     36,801     35,402     81,271    159,615      238,273      237,491
 Nuclear fuel lease
  principal payments....    (36,305)   (50,918)   (85,855)  (106,969)    (190,627)    (229,197)
 Increase (Decrease) in
  short-term
  borrowings............    134,000     98,850    135,000     66,250      (70,650)     287,250
                          ---------  ---------  ---------  ---------  -----------  -----------
                          $  (1,960) $ (32,475) $(154,834) $ (87,043) $  (654,809) $  (715,432)
                          ---------  ---------  ---------  ---------  -----------  -----------
Increase (Decrease) in
 Cash and Temporary Cash
 Investments............  $  57,875  $  13,118  $  35,613  $   2,589  $    42,196  $   (54,571)
Cash and Temporary Cash
 Investments at
 Beginning of Period....     38,286     40,847     60,548     51,376       53,965      108,536
                          ---------  ---------  ---------  ---------  -----------  -----------
Cash and Temporary Cash
 Investments at End of
 Period.................  $  96,161  $  53,965  $  96,161  $  53,965  $    96,161  $    53,965
                          =========  =========  =========  =========  ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       10
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                         NOTES TO FINANCIAL STATEMENTS
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
 
  Corporate Structure and Basis of Presentation. Unicom was incorporated in
January 1994 and became the parent holding company of ComEd and Unicom
Enterprises in a corporate restructuring that became effective on September 1,
1994. ComEd, an electric utility, is the principal subsidiary of Unicom. Unicom
Enterprises is an unregulated subsidiary of Unicom and is engaged, through its
subsidiaries, in energy service activities. Unicom Resources is also an
unregulated subsidiary of Unicom and is engaged, through its subsidiaries, in
the development of business ventures.
 
  The consolidated financial statements include the accounts of Unicom, ComEd,
the Indiana Company, the Trusts and Unicom's unregulated subsidiaries. All
significant intercompany transactions have been eliminated. ComEd's investments
in other subsidiary companies, which are not material in relation to ComEd's
financial position or results of operations, are accounted for in accordance
with the equity method of accounting.
 
  Use of Estimates. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
 
  Regulation. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd's accounting policies and the
accompanying consolidated financial statements conform to GAAP applicable to
rate-regulated enterprises and reflect the effects of the ratemaking process in
accordance with SFAS No. 71, Accounting for the Effects of Certain Types of
Regulation. Such effects concern mainly the time at which various items enter
into the determination of net income in order to follow the principle of
matching costs and revenues.
 
  Regulatory Assets and Liabilities. Regulatory assets are incurred costs which
have been deferred and are amortized for ratemaking and accounting purposes.
Regulatory liabilities represent amounts to be settled with customers through
future rates. Regulatory assets and liabilities reflected on the Consolidated
Balance Sheets at June 30, 1997 and December 31, 1996 were as follows:
 
                                       11
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
<TABLE>
<CAPTION>
                                                          JUNE 30,  DECEMBER 31,
                                                            1997        1996
                                                         ---------- ------------
                                                         (THOUSANDS OF DOLLARS)
<S>                                                      <C>        <C>
Regulatory assets:
  Deferred income taxes (1)............................. $1,646,700  $1,649,037
  Deferred carrying charges (2).........................    390,357     396,879
  Nuclear decommissioning costs--Dresden Unit 1 (3).....    271,522     174,621
  Unamortized loss on reacquired debt (4)...............    151,412     148,380
  Other.................................................     64,268      65,890
                                                         ----------  ----------
                                                         $2,524,259  $2,434,807
                                                         ==========  ==========
Regulatory liabilities:
  Deferred income taxes (1)............................. $  723,922  $  668,301
                                                         ==========  ==========
</TABLE>
--------
(1) Recorded in compliance with SFAS No. 109.
(2) Recorded as authorized in the Remand Order. The amortization period is over
    the remaining lives of the Units.
(3) Amortized over the remaining current NRC license life of Dresden station.
    See "Depreciation and Decommissioning" below for additional information.
(4) Amortized over the remaining lives of the long-term debt issued to finance
    the reacquisition. See "Loss on Reacquired Debt" below for additional
    information.
 
See "Deferred Unrecovered Energy Costs" below regarding the fuel adjustment
clause, the DOE assessment and coal reserves.
 
  If a portion of ComEd's operations was no longer subject to the provisions of
SFAS No. 71 as a result of a change in regulation or the effects of
competition, ComEd would be required to write-off any related regulatory assets
and liabilities for which recovery or settlement is not provided through
revenues of the operation that remain subject to the provisions of SFAS No. 71.
In addition, ComEd would be required to determine any impairment to other
assets and purchase contracts and write down such assets or contracts to their
fair value.
 
  SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which was adopted in January 1996,
established accounting standards for the impairment of long-lived assets. The
SFAS also requires that regulatory assets, which are no longer probable of
recovery through future revenue, be charged to earnings. SFAS No. 121 did not
have an impact on ComEd's financial position or results of operations upon
adoption.
 
  Deferred Unrecovered Energy Costs. The fuel adjustment clause adopted by the
ICC provides for the recovery of changes in fossil and nuclear fuel costs and
the energy portion of purchased power costs as compared to the fuel and
purchased energy costs included in ComEd's base rates. As authorized by the
ICC, ComEd has recorded under or overrecoveries of allowable fuel and energy
costs which, under the clause, are recoverable or refundable in subsequent
months. Deferred unrecovered energy costs also include amounts to be recovered
through the fuel adjustment clause for assessments by the DOE to fund a portion
of the cost for the decontamination and decommissioning of uranium enrichment
facilities owned and previously operated by the DOE. As of June 30, 1997 and
December 31, 1996, an asset related to the assessments of $161 million and $168
million, respectively, was recorded, of which the current portion of $16
million was included in current assets as deferred unrecovered energy costs on
the Consolidated Balance Sheets. As of June 30, 1997 and December 31, 1996, a
corresponding liability of $157 million was recorded, of which the current
portion of $16 million was included in other current liabilities on the
Consolidated Balance Sheets.
 
  At June 30, 1997 and December 31, 1996, ComEd had unrecovered fuel costs in
the form of coal reserves of $311 million and $364 million, respectively. In
prior years, ComEd's commitments for the
 
                                       12
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
purchase of coal exceeded its requirements. Rather than take all the coal it
was required to take, ComEd agreed to purchase the coal in place in the form of
coal reserves. ComEd has been allowed to recover from its customers the costs
of the coal reserves through its fuel adjustment clause as coal is used for the
generation of electricity; however, ComEd is not earning a return on the
expenditures for coal reserves. Such fuel costs expected to be recovered within
one year amounting to $69 million and $73 million at June 30, 1997 and December
31, 1996, respectively, have been included in current assets as deferred
unrecovered energy costs on the Consolidated Balance Sheets. ComEd expects to
fully recover the costs of the coal reserves by the year 2000. See Note 20 for
additional information concerning ComEd's coal commitments.
 
  Customer Receivables and Revenues. ComEd is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of residential, commercial, industrial and wholesale customers.
ComEd's electric service territory has an area of approximately 11,300 square
miles and an estimated population of approximately 8 million as of June 30,
1997. It includes the city of Chicago, an area of about 225 square miles with
an estimated population of approximately 3 million from which ComEd derived
approximately one-third of its ultimate consumer revenues in the twelve months
ended June 30, 1997. ComEd had 3.4 million electric customers at June 30, 1997.
 
  Depreciation and Decommissioning. ComEd's depreciation is provided on the
straight-line basis by amortizing the cost of depreciable plant and equipment
over estimated composite service lives. Non-nuclear plant and equipment is
depreciated at annual rates developed for each class of plant based on their
composite service lives. Provisions for depreciation were at average annual
rates of 3.33%, 3.34% and 3.35% for the three months, six months and twelve
months ended June 30, 1997, respectively, of average depreciable utility plant
and equipment, including the effects of additional depreciation on ComEd's
nuclear generating units. Provisions for depreciation were at average annual
rates of 3.14% for the three months, six months and twelve months ended June
30, 1996. The annual rate for nuclear plant and equipment, excluding separately
collected decommissioning costs and additional depreciation, is 2.88%. The
additional depreciation on ComEd's nuclear generating units includes
depreciation related to its steam generators at Byron Unit 1 and Braidwood Unit
1, which are expected to be replaced prior to year-end 1998, of $15 million for
the three months ended and $30 million for the six months and twelve months
ended June 30, 1997. ComEd also recorded additional depreciation charges of $30
million on its nuclear generating units in the last half of 1996. See Note 2
for additional information.
 
  ComEd is currently evaluating the impact of the expected early retirement of
its Zion nuclear generating station, which has a net book value of
approximately $700 million, and other factors which may impact the composite
nuclear depreciation rate, and whether any required additional depreciation
would be recoverable under ComEd's rate cap initiative and the regulatory
reform legislation currently being considered in Illinois. Any unrecoverable
plant costs will be recognized as an expense when they are probable and
estimable.
 
  Nuclear plant decommissioning costs are accrued over the current NRC license
lives of the related nuclear generating units. The accrual is based on an
annual levelized cost of the unrecovered portion of estimated decommissioning
costs, which are escalated for expected inflation to the expected time of
decommissioning and are net of expected earnings on the trust funds. See
"Decommissioning" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Results of Operations," for a
discussion of questions raised by the staff of the SEC and a FASB review
regarding the electric utility industry method of accounting for
decommissioning costs. Dismantling is expected to occur relatively soon after
the end of the current NRC license life of each related generating
 
                                       13
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
station. The accrual for decommissioning is based on the prompt removal method
authorized by NRC guidelines. ComEd's 12 operating units have remaining current
NRC license lives ranging from 9 to 30 years. ComEd's first nuclear unit,
Dresden Unit 1, is retired and is expected to be dismantled at the end of the
current NRC license life of the last unit at that station, which is consistent
with the regulatory treatment for the related decommissioning costs.
 
  Based on ComEd's most recent study, decommissioning costs, including the cost
of decontamination and dismantling, are estimated to aggregate $4.6 billion in
current-year (1997) dollars, including a contingency allowance. ComEd estimates
that it will expend approximately $12.9 billion, including a contingency
allowance, for decommissioning costs primarily during the period from 2007
through 2032. Such costs are expected to be funded by the external
decommissioning trusts, which ComEd established in compliance with Illinois law
and into which ComEd has been making annual contributions. Future
decommissioning cost estimates may be significantly affected by the adoption of
or changes to NRC regulations as well as changes in the assumptions used in
making such estimates, including changes in technology, available alternatives
for the disposal of nuclear waste and inflation.
 
  Pursuant to the Rate Order, beginning in 1995, ComEd collects decommissioning
costs from its ratepayers under a rider which allows annual adjustments to
decommissioning cost collections outside the context of a traditional rate
proceeding. The current estimated decommissioning costs include a contingency
allowance. Contingency allowances used in decommissioning cost estimates
provide for currently unspecifiable costs that are likely to occur after
decommissioning begins and generally range from 20% to 25% of the currently
specifiable costs. Under its most recent annual rider, filed with the ICC on
February 28, 1997, ComEd has proposed to decrease its estimated annual
decommissioning cost accrual from $108.8 million to $107.5 million. The
reduction primarily reflects stronger than expected after-tax returns on the
external trust funds in 1996 and lower than expected escalation in low-level
waste disposal costs, partially offset by the higher current-year cost
estimates which include a contingency allowance.
 
  The proposed annual decommissioning cost accrual of $107.5 million was
determined using the following assumptions: the decommissioning cost estimate
of $4.6 billion in current-year (1997) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.30% and 6.26%,
respectively, as well as an escalation rate for future decommissioning costs of
4.1%. The annual accrual of $107.5 million provided over the current NRC
license lives of the nuclear plants, coupled with the expected fund earnings
and amounts previously recovered in rates, is expected to aggregate
approximately $12.9 billion.
 
  For the 12 operating nuclear units, decommissioning costs are recorded as
portions of depreciation expense and accumulated provision for depreciation on
the Statements of Consolidated Income and the Consolidated Balance Sheets,
respectively. As of June 30, 1997, the total decommissioning costs included in
the accumulated provision for depreciation were $1,745 million. For ComEd's
retired nuclear unit, Dresden Unit 1, the total estimated liability at June 30,
1997 in current-year (1997) dollars of $386 million was recorded as an other
noncurrent liability and the unrecovered portion of the liability of $272
million was recorded as a regulatory asset on the Consolidated Balance Sheets.
The increase from December 31, 1996 to June 30, 1997 in the total estimated
liability related to Dresden Unit 1, and the unrecovered portion of that
liability, is due to higher current-year cost estimates, which include a
contingency allowance.
 
   Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts; and, consequently, such collections do not add
to the cash flows available for general corporate purposes. The ICC has
approved ComEd's funding plan, which provides for annual contributions of
 
                                       14
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
current accruals and ratable contributions of past accruals over the remaining
current NRC license lives of the nuclear plants. At June 30, 1997, the past
accruals that are required to be contributed to the external trusts aggregate
$147 million. The fair value of funds accumulated in the external trusts at
June 30, 1997 was $1,712 million, which includes pre-tax unrealized
appreciation of $361 million. The earnings on the external trusts accumulate in
the fund balance and accumulated provision for depreciation.
 
  Amortization of Nuclear Fuel. The cost of nuclear fuel is amortized to fuel
expense based on the quantity of heat produced using the unit of production
method. As authorized by the ICC, provisions for spent nuclear fuel disposal
costs have been recorded at a level required to recover the fee payable on the
current nuclear-generated and sold electricity and the current interest accrual
on the one-time fee payable to the DOE for nuclear generation prior to April 7,
1983. The one-time fee and interest thereon have been recovered and the current
fee and interest on the one-time fee are presently being recovered through the
fuel adjustment clause. See Note 11 for further information concerning the
disposal of spent nuclear fuel, the one-time fee and the interest accrual on
the one-time fee. Nuclear fuel expenses, including leased fuel costs and
provisions for spent nuclear fuel disposal costs, were $63 million and $84
million for the three months ended June 30, 1997 and 1996, respectively, $143
million and $179 million for the six months ended June 30, 1997 and 1996,
respectively, and $318 million and $374 million for the twelve months ended
June 30, 1997 and 1996, respectively.
 
  Income Taxes. Deferred income taxes are provided for income and expense items
recognized for financial accounting purposes in periods that differ from those
for income tax purposes. Income taxes deferred in prior years are charged or
credited to income as the book/tax timing differences reverse. Prior years'
deferred investment tax credits are amortized through credits to income
generally over the lives of the related property. Income tax credits resulting
from interest charges applicable to nonoperating activities, principally
construction, are classified as other income.
 
  AFUDC. In accordance with the uniform systems of accounts prescribed by
regulatory authorities, ComEd capitalizes AFUDC, compounded semiannually, which
represents the estimated cost of funds used to finance its construction
program. The equity component of AFUDC is recorded on an after-tax basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates were 9.16% and 8.73% for the three months
ended June 30, 1997 and 1996, respectively, 9.25% and 8.78% for the six months
ended June 30, 1997 and 1996, respectively, and 9.26% and 9.11% for the twelve
months ended June 30, 1997 and 1996, respectively. AFUDC does not contribute to
the current cash flow of Unicom or ComEd.
 
  Interest. Total interest costs incurred on debt, leases and other obligations
were $149 million and $158 million for the three months ended June 30, 1997 and
1996, respectively, $303 million and $317 million for the six months ended June
30, 1997 and 1996, respectively, and $612 million and $659 million for the
twelve months ended June 30, 1997 and 1996, respectively.
 
  Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of ComEd are being amortized over the lives of the respective issues.
 
  Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition in connection with the refinancing of first mortgage
bonds, sinking fund debentures and pollution control obligations prior to their
scheduled maturity dates is deferred and amortized over the lives of the long-
term debt issued to finance the reacquisition.
 
  Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to adopt
SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure purposes
only. Unicom accounts for its stock option awards and ESPP under APB Opinion
No. 25, Accounting for Stock Issued to Employees. See Note 5 for additional
information.
 
                                       15
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  Earnings per Share. In February 1997, the FASB issued SFAS No. 128, Earnings
per Share. The standard simplifies the computation of EPS required by existing
rules. The new standard is effective for interim and annual periods ending
after December 15, 1997; early adoption is not permitted. Had SFAS No. 128 been
effective at June 30, 1997, there would have been no impact on Unicom or
ComEd's reported EPS.
 
  Reporting Comprehensive Income. In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income. The standard establishes rules for reporting
and display of comprehensive income and its components. The new standard is
effective for fiscal years beginning after December 15, 1997. Adoption of this
statement will not have an impact on Unicom or ComEd's financial reports.
 
  Segment Reporting. In June 1997, the FASB issued SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. The standard
establishes requirements that public business enterprises report certain
information about operating segments. The new statement is effective for fiscal
years beginning after December 15, 1997. This statement may result in
additional financial disclosures but will not impact Unicom or ComEd's
financial position or results of operations.
 
  Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no effect
on net income.
 
  Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be cash
equivalents. Supplemental cash flow information for the three months, six
months and twelve months ended June 30, 1997 and 1996 was as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED   SIX MONTHS ENDED  TWELVE MONTHS ENDED
                                JUNE 30             JUNE 30            JUNE 30
                          -------------------- ----------------- -------------------
                            1997       1996      1997     1996     1997      1996
                          --------- ---------- -------- -------- --------- ---------
                                            (THOUSANDS OF DOLLARS)
<S>                       <C>       <C>        <C>      <C>      <C>       <C>
Supplemental Cash Flow
 Information:
 Cash paid during the
  period for:
   Interest (net of
    amount capitalized).    $98,665   $115,492 $259,593 $273,336  $524,608  $561,796
   Income taxes (net of
    refunds)............    $48,503   $  9,284 $ 55,501 $  9,284  $280,960  $354,460
Supplemental Schedule of
 Non-Cash Investing and
 Financing Activities:
 Capital lease obliga-
  tions incurred by
  subsidiary companies..    $39,376   $ 36,994 $ 85,773 $162,486  $244,261  $242,820
</TABLE>
 
  (2) RATE MATTERS. In January 1995, the ICC issued its Rate Order in the
proceedings relating to ComEd's February 1994 rate increase request. The Rate
Order provided, among other things, for an increase in ComEd's total revenues
of approximately $302 million (excluding add-on revenue taxes) on an annual
basis. The rates provided in the Rate Order became effective on January 14,
1995; however, they are being collected subject to refund as a result of
subsequent judicial action. The Rate Order was appealed by intervenors and
ComEd to the Illinois Appellate Court, which issued a decision on May 30, 1997
affirming the Rate Order in all respects with the exception of two issues which
it remanded to the ICC for the purpose of providing further analysis. Those
issues relate to: (i) the manner in which certain costs are recovered and which
customers should pay these costs, and (ii) the proper rate of return on common
equity for ComEd. ComEd believes that the ICC can satisfy the Appellate Court's
remand directions on the basis of the existing record from the ICC proceedings
which led to the Rate Order. The Appellate Court's decision was not appealed
and the matter has been returned to the ICC.
 
  With respect to the first of the issues remanded to the ICC, ComEd does not
believe it will have any effect on the overall level of rates. With respect to
the rate of return issue, the ICC had determined in the
 
                                       16
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
Rate Order that ComEd's cost of common equity was 12.28%. Intervenors had
submitted testimony recommending a return on common equity of 11.50%. The
Appellate Court decision requires the ICC to clarify the basis for certain of
its findings relating to its rejection of the intervenors' recommendation and
to analyze further how it arrived at its conclusions. The Appellate Court
stated that after reanalyzing these bases, the ICC can determine whether or not
the cost of common equity determination it adopted, should still be followed.
Each tenth of one percent change in the common equity rate of return has an
approximately $8 million effect on the level of annual rates. The Appellate
Court's decision does not have any immediate effect on ComEd's rates or require
any refunds. In connection with the initiation of the appeal, ComEd committed
to make refunds "in the event that a final, non-appealable order is entered
reversing the ICC's Rate Order." Approximately $165 million would be subject to
refund if the ICC were to adopt the lower rate of return on common equity
recommended by intervenors. As noted, the Appellate Court's decision did not
reverse the Rate Order.
 
  In December 1995, ComEd announced certain customer initiatives related to its
efforts to address competition. Such initiatives include a five-year cap on
base electric rates at current levels effective December 1995. Additionally,
ComEd's costs increased by $30 million in 1996 (before income tax effects),
through the increase in depreciation charges on its nuclear generating units
related to ComEd's additional depreciation initiative in 1996. ComEd also
continues to consider the possibility of additional depreciation options. See
Note 1 under "Depreciation and Decommissioning" for information concerning
additional depreciation charges related to ComEd's steam generators at Byron
Unit 1 and Braidwood Unit 1 and ComEd's ongoing evaluation of the impact of the
expected early retirement of Zion.
 
  Under ComEd's initiatives, the five-year base rate cap at current levels
became effective in December 1995 and will extend until January 1, 2001. The
rate cap does not affect ComEd's fuel cost or nuclear decommissioning cost
recovery provisions. ComEd's fuel cost variances will continue to be collected
through its fuel adjustment clause, and such collections will continue to be
subject to annual reconciliation proceedings before the ICC. Likewise, nuclear
decommissioning costs will continue to be collected as described in Note 1
under "Depreciation and Decommissioning."
 
  See "Changes in the Electric Utility Industry" under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for information
regarding the legislative proposal supported by ComEd.
 
  (3) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At June 30, 1997,
Unicom's authorized shares consisted of 400,000,000 shares of common stock. The
authorized shares of ComEd preferred and preference stocks at June 30, 1997
were: preference stock--22,776,775 shares; $1.425 convertible preferred stock--
67,491 shares; and prior preferred stock--850,000 shares. The preference and
prior preferred stocks are issuable in series and may be issued with or without
mandatory redemption requirements. Holders of outstanding Unicom shares are
entitled to one vote for each share held on each matter submitted to a vote of
such shareholders; and holders of outstanding ComEd shares are entitled to one
vote for each share held on each matter submitted to a vote of such
shareholders. All such shares have the right to cumulate votes in elections for
the directors of the corporation which issued the shares.
 
  (4) COMMON STOCK. At June 30, 1997, shares of Unicom common stock were
reserved for the following purposes:
 
<TABLE>
      <S>                                                              <C>
      Long-Term Incentive Plan........................................ 3,340,526
      Employee Stock Purchase Plan....................................   588,606
      Exchange for ComEd common stock not held by Unicom..............    99,638
      1996 Directors' Fee Plan........................................   187,308
                                                                       ---------
                                                                       4,216,078
                                                                       =========
</TABLE>
 
                                       17
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  Common stock for the three months, six months and twelve months ended June
30, 1997 and 1996 was issued as follows:
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED    SIX MONTHS ENDED    TWELVE MONTHS ENDED
                                JUNE 30              JUNE 30              JUNE 30
                          --------------------  ------------------  --------------------
                            1997       1996       1997      1996      1997       1996
                          ---------  ---------  --------  --------  ---------  ---------
<S>                       <C>        <C>        <C>       <C>       <C>        <C>
Shares of Common Stock
 Issued:
 Long-Term Incentive
  Plan..................        --      (3,563)   45,144   (26,367)   204,090    272,502
 Employee Stock Purchase
  Plan..................    114,964     97,888   114,964    97,888    213,589    191,144
 Employee Savings and
  Investment Plan.......     71,503    132,400   274,203   177,500    435,803    284,600
 Exchange for ComEd com-
  mon stock not held by
  Unicom................      4,016      2,433    10,685     2,433     33,575      2,433
 1996 Directors' Fee
  Plan..................      3,631      1,222     7,580     1,222     11,470      1,222
                          ---------  ---------  --------  --------  ---------  ---------
                            194,114    230,380   452,576   252,676    898,527    751,901
                          =========  =========  ========  ========  =========  =========
<CAPTION>
                                           (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>       <C>       <C>        <C>
Amount of Common Stock
 Issued:
 Total issued...........  $   3,585  $   5,871  $  9,311  $  6,482  $  20,562  $  22,149
 Held by trustee for
  Unicom Stock Bonus De-
  ferral Plan...........        (43)       (32)   (2,386)   (4,235)    (2,451)    (4,235)
 Other..................        (49)        15         2        40        --         114
                          ---------  ---------  --------  --------  ---------  ---------
                          $   3,493  $   5,854  $  6,927  $  2,287  $  18,111  $  18,028
                          =========  =========  ========  ========  =========  =========
</TABLE>
 
  At June 30, 1997 and December 31, 1996, 77,068 and 78,045 ComEd common stock
purchase warrants, respectively, were outstanding. The warrants entitle the
holders to convert such warrants into common stock of ComEd at a conversion
rate of one share of common stock for three warrants.
 
  (5) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN. Unicom has a
nonqualified stock option awards program under its Long-Term Incentive Plan and
ESPP. The stock option awards program was adopted by Unicom in July 1996 to
reward valued employees responsible for, or contributing to, the management,
growth and profitability of Unicom and its subsidiaries. As of June 30, 1997,
1,205,500 options have been granted, primarily to employees of ComEd and its
subsidiaries. Of this amount, 34,500 options have been canceled and 1,171,000
options are outstanding. The weighted average exercise price for the stock
options granted in 1996 is $25.50. The stock options granted in 1996 will
expire 10 years from their grant date. One-third of the shares subject to the
options vest on each of the next 3 anniversaries of the option grant date. In
addition, the stock options will become fully vested immediately if the holder
dies, retires, is terminated other than for cause or qualifies for long-term
disability and will also vest in full upon a change in control of Unicom. As of
June 30, 1997, 33,250 of the granted stock options are exercisable and none of
the stock options have been exercised. As of July 31, 1997, 410,603 of the
outstanding stock options granted in 1996 were fully vested.
 
  The estimated fair market value for each of the stock options granted in 1996
was $3.74. The fair value of each stock option granted was estimated as of the
date of grant using the Black-Scholes option-pricing model. Assumptions used to
determine the estimated fair market value of the stock options include (i)
dividend yield of 6.30%, (ii) expected volatility of 20.98%, (iii) risk-free
interest rate of 6.64% and (iv) expected life of 7 years.
 
  The ESPP allows employees to purchase Unicom common stock at a 10% discount
from market value. Substantially all of the employees of Unicom, ComEd and
certain subsidiaries are eligible to participate in the ESPP. Unicom issued
213,589 shares and 191,144 shares of common stock for the twelve months ended
June 30, 1997 and 1996, respectively, under the ESPP at an average annual
purchase price of $19.65 and $26.56, respectively.
 
                                       18
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  Unicom has adopted the disclosure-only provisions of SFAS No. 123, Accounting
for Stock-Based Compensation. For financial reporting purposes, Unicom has
adopted APB No. 25, Accounting for Stock Issued to Employees, and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If Unicom had recorded compensation expense for the stock options granted
in 1996 and the shares of common stock issued under the ESPP in accordance with
SFAS No. 123 using the fair value based method of accounting, the resulting
effect on net income and earnings per share would have been de minimis.
 
  (6) COMED PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS. No shares of ComEd preferred or preference stocks without
mandatory redemption requirements were issued or redeemed during the twelve
months ended June 30, 1997 and 1996. The series of ComEd preference stock
without mandatory redemption requirements outstanding at June 30, 1997 are
summarized as follows:
 
<TABLE>
<CAPTION>
                                                                        INVOLUNTARY
                    SHARES           AGGREGATE         REDEMPTION       LIQUIDATION
      SERIES      OUTSTANDING       STATED VALUE        PRICE(1)         PRICE(1)
      ------      -----------       ------------       ----------       -----------
                                 (THOUSANDS
                                 OF DOLLARS)
      <S>         <C>               <C>                <C>              <C>
      $1.90        4,249,549          $106,239          $ 25.25           $25.00
      $2.00        2,000,000            51,560          $ 26.04           $25.00
      $1.96        2,000,000            52,440          $ 27.11           $25.00
      $7.24          750,000            74,340          $101.00           $99.12
      $8.40          750,000            74,175          $101.00           $98.90
      $8.38          750,000            73,566          $100.16           $98.09
      $2.425       3,000,000            72,637          $ 25.00           $25.00
                  ----------          --------
                  13,499,549          $504,957
                  ==========          ========
</TABLE>
     --------
     (1) Per share plus accrued and unpaid dividends, if any.
 
  The outstanding shares of ComEd's $1.425 convertible preferred stock are
convertible at the option of the holders thereof, at any time, into common
stock of ComEd at the rate of 1.02 shares of common stock for each share of
convertible preferred stock, subject to future adjustment. The convertible
preferred stock may be redeemed by ComEd at $42 per share, plus accrued and
unpaid dividends, if any. The involuntary liquidation price of the $1.425
convertible preferred stock is $31.80 per share, plus accrued and unpaid
dividends, if any.
 
  (7) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS.
During the twelve months ended June 30, 1997 and 1996, no shares of ComEd
preference stock subject to mandatory redemption requirements were issued. The
series of ComEd preference stock subject to mandatory redemption requirements
outstanding at June 30, 1997 are summarized as follows:
 
<TABLE>
<CAPTION>
                  SHARES     AGGREGATE
    SERIES      OUTSTANDING STATED VALUE            OPTIONAL REDEMPTION PRICE(1)
--------------  ----------- ------------ --------------------------------------------------
                             (THOUSANDS
                            OF DOLLARS)
<S>             <C>         <C>          <C>
$8.20              214,275    $ 21,428   $103 through October 31, 1997; and $101 thereafter
$8.40 Series B     300,000      29,798   $101
$8.85              262,500      26,250   $103 through July 31, 1998; and $101 thereafter
$9.25              600,000      60,000   $103 through July 31, 1999; and $101 thereafter
$9.00              390,000      38,659   Non-callable
$6.875             700,000      69,474   Non-callable
                 ---------    --------
                 2,466,775    $245,609
                 =========    ========
</TABLE>
--------
(1) Per share plus accrued and unpaid dividends, if any.
 
                                       19
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  The annual sinking fund requirements and sinking fund and involuntary
liquidation prices per share of the outstanding series of ComEd preference
stock subject to mandatory redemption requirements are summarized as follows:
<TABLE>
<CAPTION>
                                              SINKING
                     ANNUAL SINKING             FUND               INVOLUNTARY
    SERIES          FUND REQUIREMENT          PRICE(1)         LIQUIDATION PRICE(1)
--------------      -----------------         -------          -------------------
<S>                 <C>                       <C>              <C>
$8.20                35,715 shares             $100                 $100.00
$8.40 Series B       30,000 shares(2)          $100                 $ 99.326
$8.85                37,500 shares             $100                 $100.00
$9.25                75,000 shares             $100                 $100.00
$9.00               130,000 shares(2)          $100                 $ 99.125
$6.875                     (3)                 $100                 $ 99.25
</TABLE>
--------
(1) Per share plus accrued and unpaid dividends, if any.
(2) ComEd has a non-cumulative option to increase the annual sinking fund
    payment on each sinking fund redemption date to retire an additional number
    of shares, not in excess of the sinking fund requirement, at the applicable
    redemption price.
(3) All shares are required to be redeemed on May 1, 2000.
 
  Annual remaining sinking fund requirements through 2001 on ComEd preference
stock outstanding at June 30, 1997 will aggregate $41 million in 1997, $31
million in 1998, $18 million in 1999, $88 million in 2000 and $18 million in
2001. During the twelve months ended June 30, 1997 and 1996, 438,215 and
178,215 shares, respectively, of ComEd preference stock subject to mandatory
redemption requirements were reacquired to meet sinking fund requirements plus
any optional additional sinking fund payments.
 
  Sinking fund requirements due within one year, including the optional sinking
fund payment of an additional 130,000 shares of the $9.00 Series of preference
stock on August 1, 1997, are included in current liabilities.
 
  (8) COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS. In September 1995, ComEd Financing I, a wholly-owned subsidiary trust
of ComEd, issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable
preferred securities. The sole asset of ComEd Financing I is $206.2 million
principal amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. In January 1997, ComEd Financing II, a wholly-owned
subsidiary trust of ComEd, issued 150,000 of its 8.50% ComEd-obligated
mandatorily redeemable capital securities. The sole asset of ComEd Financing II
is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable
interest debentures due January 15, 2027. There is a full and unconditional
guarantee by ComEd of the Trusts' obligations under the securities issued by
the Trusts. However, ComEd's obligations are subordinate and junior in right of
payment to certain other indebtedness of ComEd. ComEd has the right to defer
payments of interest on the subordinated deferrable interest notes by extending
the interest payment period, at any time, for up to 20 consecutive quarters.
Similarly, ComEd has the right to defer payments of interest on the
subordinated deferrable interest debentures by extending the interest payment
period, at any time, for up to 10 consecutive semi-annual periods. If interest
payments on the subordinated deferrable interest notes or debentures are so
deferred, distributions on the preferred securities will also be deferred.
During any deferral, distributions will continue to accrue with interest
thereon. In addition, during any such deferral, ComEd may not declare or pay
any dividend or other distribution on, or redeem or purchase, any of its
capital stock.
 
  The subordinated deferrable interest notes are redeemable by ComEd, in whole
or in part, from time to time, on or after September 30, 2000, and with respect
to the subordinated deferrable interest debentures, on or after January 15,
2007, or at any time in the event of certain income tax circumstances. If the
subordinated deferrable interest notes or debentures are redeemed, the Trusts
must redeem preferred securities having an aggregate liquidation amount equal
to the aggregate principal amount of
 
                                       20
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
the subordinated deferrable interest notes or debentures so redeemed. In the
event of the dissolution, winding up or termination of the Trusts, the holders
of the preferred securities will be entitled to receive, for each preferred
security, a liquidation amount of $25 for the securities of ComEd Financing I
and $1,000 for the securities of ComEd Financing II, plus accrued and unpaid
distributions thereon, including interest thereon, to the date of payment,
unless in connection with the dissolution, the subordinated deferrable interest
notes or debentures are distributed to the holders of the preferred securities.
 
  (9) LONG-TERM DEBT. Sinking fund requirements and scheduled maturities
remaining through 2001 for ComEd's first mortgage bonds, sinking fund
debentures and other long-term debt outstanding at June 30, 1997, after
deducting deposits made for retirement of sinking fund debentures and sinking
fund debentures reacquired for satisfaction of future sinking fund
requirements, are summarized as follows: 1997--$165 million; 1998--$496
million; 1999--$150 million; 2000--$463 million; and 2001--$108 million. Unicom
Enterprises' note payable to bank of $115 million will mature in 1999.
 
  At June 30, 1997, ComEd's outstanding first mortgage bonds maturing through
2001 were as follows:
 
<TABLE>
<CAPTION>
                                                             PRINCIPAL AMOUNT
                   SERIES                                 ----------------------
                                                          (THOUSANDS OF DOLLARS)
      <S>                                                 <C>
      6 1/4% due October 1, 1997.........................        $ 60,000
      6 1/4% due February 1, 1998........................          50,000
      6% due March 15, 1998..............................         130,000
      6 3/4% due July 1, 1998............................          50,000
      6 3/8% due October 1, 1998.........................          75,000
      9 3/8% due February 15, 2000.......................         125,000
      6 1/2% due April 15, 2000..........................         230,000
      6 3/8% due July 15, 2000...........................         100,000
      7 1/2% due January 1, 2001.........................         100,000
                                                                 --------
                                                                 $920,000
                                                                 ========
</TABLE>
 
                                       21
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  Other long-term debt outstanding at June 30, 1997 is summarized as follows:
 
<TABLE>
<CAPTION>
                                 PRINCIPAL
         DEBT SECURITY             AMOUNT                     INTEREST RATE
-------------------------------  ---------- --------------------------------------------------
                                 (THOUSANDS
                                     OF
                                  DOLLARS)
<S>                              <C>        <C>
Unicom--
 Loans Payable:
 Loan due January 1, 2003        $    7,978 Interest rate of 8.31%
 Loan due January 1, 2004             8,951 Interest rate of 8.44%
                                 ----------
                                 $   16,929
                                 ----------
ComEd--
 Notes:
 Medium Term Notes, Series 1N
  due various dates through
  April 1, 1998                  $   35,500 Interest rates ranging from 9.52% to 9.65%
 Medium Term Notes, Series 3N
  due various dates through
  October 15, 2004                  296,000 Interest rates ranging from 9.00% to 9.20%
 Notes due July 15, 1997            100,000 Interest rate of 6.50%
 Notes due October 15, 2005         235,000 Interest rate of 6.40%
 Notes due January 15, 2004         150,000 Interest rate of 7.375%
 Notes due January 15, 2007         150,000 Interest rate of 7.625%
                                 ----------
                                 $  966,500
                                 ----------
 Long-Term Note Payable to Bank
 due June 1, 1998                $  150,000 Prevailing interest rate of 6.34% at June 30, 1997
                                 ----------
 Purchase Contract Obligation
 due April 30, 2005              $      390 Interest rate of 3.00%
                                 ----------
Total ComEd                      $1,116,890
                                 ----------
Unicom Enterprises--
 Long-Term Note Payable to Bank
 due November 15, 1999           $  115,000 Prevailing interest rate of 6.69% at June 30, 1997
                                 ----------
Total Unicom                     $1,248,819
                                 ==========
</TABLE>
 
  Long-term debt maturing within one year has been included in current
liabilities.
 
  ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.
 
  ComEd recorded an extraordinary loss of $33 million in the fourth quarter of
1995 related to the early redemption of $645 million of long-term debt which
reduced net income by $20 million, after reflecting income tax effects of $13
million, or $0.09 per common share.
 
  (10) LINES OF CREDIT. ComEd had total bank lines of credit of $896 million
and unused bank lines of credit of $888 million at June 30, 1997. Of that
amount, $888 million (of which $175 million expires on September 29, 1997, $45
million expires in equal quarterly installments commencing on September 30,
1997 and ending on September 30, 1998 and $668 million expires in equal
quarterly installments commencing on December 31, 1997 and ending on September
30, 1999) may be borrowed on secured or unsecured notes of ComEd at various
interest rates. The interest rate is set at the time of a borrowing and is
based on several floating rate bank indices plus a spread which is dependent
upon the credit rating of ComEd's outstanding first mortgage bonds or on a
prime interest rate. Amounts under the remaining
 
                                       22
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
lines of credit may be borrowed at prevailing prime interest rates on unsecured
notes of ComEd. Collateral, if required for the borrowings, would consist of
first mortgage bonds issued under and in accordance with the provisions of
ComEd's mortgage. ComEd is obligated to pay commitment fees with respect to the
unused portion of such lines of credit.
 
  Unicom Enterprises has a $200 million credit facility which will expire in
November 1999, of which $85 million was unused as of June 30, 1997. The credit
facility can be used by Unicom Enterprises to finance investments in
unregulated businesses and projects, including Unicom Thermal, and for general
corporate purposes. The credit facility is guaranteed by Unicom and includes
certain covenants with respect to Unicom and Unicom Enterprises' operations.
Such covenants include, among other things, (i) a requirement that Unicom and
its consolidated subsidiaries maintain a tangible net worth at least $10
million over that of ComEd and its consolidated subsidiaries, (ii) a
requirement that Unicom's consolidated debt to consolidated capitalization not
exceed 0.65 to 1, (iii) restrictions on the indebtedness for borrowed money
that Unicom (excluding ComEd) and Unicom Enterprises may incur, and (iv) a
requirement that Unicom own 100% of the outstanding stock of Unicom Enterprises
and at least 80% of the outstanding stock of ComEd; and provide that Unicom may
not declare or pay dividends during the continuance of an event of default.
Interest rates for borrowings under the credit facility are set at the time of
a borrowing and are based on either a prime interest rate or a floating rate
bank index plus a spread which varies with the credit rating of ComEd's
outstanding first mortgage bonds. Unicom Enterprises is obligated to pay
commitment fees with respect to the unused portion of such lines of credit.
 
  (11) DISPOSAL OF SPENT NUCLEAR FUEL. Under the Nuclear Waste Policy Act of
1982, the DOE is responsible for the selection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive waste.
ComEd, as required by that Act, has signed a contract with the DOE to provide
for the disposal of spent nuclear fuel and high-level radioactive waste from
ComEd's nuclear generating stations beginning not later than January 1998. The
DOE advised ComEd in December 1996 that it anticipates it will be unable to
begin acceptance of spent nuclear fuel by January 1998. It is expected this
delivery schedule will be delayed significantly. Extended delays in spent
nuclear fuel acceptance by the DOE would lead to ComEd's consideration of
costly storage alternatives. The contract with the DOE requires ComEd to pay
the DOE a one-time fee applicable to nuclear generation through April 6, 1983
of $277 million, with interest to date of payment, and a fee payable quarterly
equal to one mill per kilowatthour of nuclear-generated and sold electricity
after April 6, 1983. As provided for under the contract, ComEd has elected to
pay the one-time fee, with interest, just prior to the first delivery of spent
nuclear fuel to the DOE. The liability for the one-time fee and the related
interest is reflected on the Consolidated Balance Sheets.
 
  (12) FAIR VALUE OF FINANCIAL INSTRUMENTS. The following methods and
assumptions were used to estimate the fair value of financial instruments
either held or issued and outstanding. The disclosure of such information does
not purport to be a market valuation of Unicom and subsidiary companies as a
whole. The impact of any realized or unrealized gains or losses related to such
financial instruments on the financial position or results of operations of
Unicom and subsidiary companies is primarily dependent on the treatment
authorized under future ComEd ratemaking proceedings.
 
  Investments. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by the
trustee and based on published market data, as of June 30, 1997 and December
31, 1996, was as follows:
 
                                       23
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
<TABLE>
<CAPTION>
                                  JUNE 30, 1997                  DECEMBER 31, 1996
                         -------------------------------- --------------------------------
                                    UNREALIZED                       UNREALIZED
                                      GAINS                            GAINS
                         COST BASIS  (LOSSES)  FAIR VALUE COST BASIS  (LOSSES)  FAIR VALUE
                         ---------- ---------- ---------- ---------- ---------- ----------
                                              (THOUSANDS OF DOLLARS)
<S>                      <C>        <C>        <C>        <C>        <C>        <C>
  Short-term
   investments.......... $   25,059  $      7  $   25,066 $   29,848  $     17  $   29,865
  U.S. Government and
   Agency issues........    204,687     5,738     210,425    253,491     6,889     260,380
  Municipal bonds.......    286,783    13,646     300,429    333,369    18,002     351,371
  Corporate bonds.......    184,015      (251)    183,764     54,584      (800)     53,784
  Common stock..........    629,388   335,809     965,197    539,392   201,304     740,696
  Other.................     21,700     5,883      27,583     15,283     4,981      20,264
                         ----------  --------  ---------- ----------  --------  ----------
                         $1,351,632  $360,832  $1,712,464 $1,225,967  $230,393  $1,456,360
                         ==========  ========  ========== ==========  ========  ==========
</TABLE>
 
  At June 30, 1997, the debt securities held by the nuclear decommissioning
funds had the following maturities:
 
<TABLE>
<CAPTION>
                                                           COST BASIS FAIR VALUE
                                                           ---------- ----------
                                                               (THOUSANDS OF
                                                                 DOLLARS)
      <S>                                                  <C>        <C>
      Within 1 year.......................................  $ 36,076   $ 36,075
      1 through 5 years...................................   183,451    186,064
      5 through 10 years..................................   220,581    227,822
      Over 10 years.......................................   279,139    288,425
</TABLE>
 
  The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the three months,
six months and twelve months ended June 30, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED       SIX MONTHS ENDED         TWELVE MONTHS ENDED
                                JUNE 30                 JUNE 30                   JUNE 30
                          --------------------  ------------------------  ------------------------
                            1997       1996        1997         1996         1997         1996
                          ---------  ---------  -----------  -----------  -----------  -----------
                                                (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>          <C>          <C>          <C>
Gross proceeds from
 sales of securities....  $ 551,707  $ 644,794  $ 1,122,476  $ 1,262,665  $ 2,195,786  $ 2,442,973
Less cost based on spe-
 cific identification...   (542,265)  (636,848)  (1,099,773)  (1,240,344)  (2,159,467)  (2,407,619)
                          ---------  ---------  -----------  -----------  -----------  -----------
Realized gains on sales
 of securities..........  $   9,442  $   7,946  $    22,703  $    22,321  $    36,319  $    35,354
Other realized fund
 earnings net of
 expenses...............     14,314      6,861       22,781       13,582       42,207       37,545
                          ---------  ---------  -----------  -----------  -----------  -----------
Total realized net earn-
 ings of the funds......  $  23,756  $  14,807  $    45,484  $    35,903  $    78,526  $    72,899
Unrealized gains (loss-
 es)....................    144,496     (2,842)     130,439      (14,764)     210,719       54,332
                          ---------  ---------  -----------  -----------  -----------  -----------
 Total net earnings of
  the funds.............  $ 168,252  $  11,965  $   175,923  $    21,139  $   289,245  $   127,231
                          =========  =========  ===========  ===========  ===========  ===========
</TABLE>
 
  Current Assets. Cash, temporary cash investments and other cash investments,
which include U.S. Government Obligations and other short-term marketable
securities, and special deposits, which primarily includes cash deposited for
the redemption, refund or discharge of debt securities, are stated at cost,
which approximates their fair value because of the short maturity of these
instruments. The securities included in these categories have been classified
as "available for sale" securities.
 
                                       24
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  Capitalization. The estimated fair values of ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of the
Trusts and long-term debt were obtained from an independent consultant. The
estimated fair values, which include the current portions of redeemable
preference stock and long-term debt but exclude accrued interest and dividends,
as of June 30, 1997 and December 31, 1996 were as follows:
 
<TABLE>
<CAPTION>
                                  JUNE 30, 1997                  DECEMBER 31, 1996
                         -------------------------------- --------------------------------
                                    UNREALIZED
                          CARRYING   (GAINS)               CARRYING  UNREALIZED
                           VALUE      LOSSES   FAIR VALUE   VALUE      LOSSES   FAIR VALUE
                         ---------- ---------- ---------- ---------- ---------- ----------
                                              (THOUSANDS OF DOLLARS)
<S>                      <C>        <C>        <C>        <C>        <C>        <C>
  ComEd preferred and
   preference stocks.... $  752,712  $ 11,849  $  764,561 $  755,931  $  3,948  $  759,879
  ComEd-obligated
   mandatorily
   redeemable preferred
   securities of the
   Trusts............... $  350,000  $ (2,772) $  347,228 $  200,000  $  1,000  $  201,000
  Long-term debt........ $6,072,177  $168,742  $6,240,919 $6,345,533  $159,818  $6,505,351
</TABLE>
 
  Long-term notes payable, which are not included in the above table, amounted
to $282 million and $264 million at June 30, 1997 and December 31, 1996,
respectively. Such notes, for which interest is paid at fixed and prevailing
rates, are included in the consolidated financial statements at cost, which
approximates their fair value.
 
  Current Liabilities. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the fair
value because of the short maturity of these instruments. See "Capitalization"
above for a discussion of the fair value of the current portion of long-term
debt and redeemable preference stock.
 
  Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
June 30, 1997 and December 31, 1996; therefore, the carrying value is equal to
the fair value.
 
  (13) PENSION BENEFITS. ComEd and the Indiana Company have qualified non-
contributory defined benefit pension plans which cover all regular employees.
Benefits under these plans reflect each employee's compensation, years of
service and age at retirement. During 1995, these plans were amended to more
closely base retirement benefits on final pay. Funding is based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution required under
the Employee Retirement Income Security Act of 1974, as amended. The June 30,
1997 and December 31, 1996 pension liabilities and related data were estimated
pending completion of the January 1, 1997 actuarial valuation. Additionally,
ComEd maintains a nonqualified supplemental retirement plan which covers any
excess pension benefits that would be payable to management employees under the
qualified plan but which are limited by the Internal Revenue Code.
 
                                       25
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  The funded status of these plans, including the supplemental plan, at June
30, 1997 and December 31, 1996 was as follows:
 
<TABLE>
<CAPTION>
                                                       JUNE 30,    DECEMBER 31,
                                                         1997          1996
                                                     ------------  ------------
                                                      (THOUSANDS OF DOLLARS)
<S>                                                  <C>           <C>
Actuarial present value of accumulated pension plan
 benefits:
  Vested benefit obligation........................  $ (3,101,000) $(3,034,000)
  Nonvested benefit obligation.....................      (137,000)    (134,000)
                                                     ------------  -----------
  Accumulated benefit obligation...................  $ (3,238,000) $(3,168,000)
  Effect of projected future compensation levels...      (381,000)    (372,000)
                                                     ------------  -----------
  Projected benefit obligation.....................  $ (3,619,000) $(3,540,000)
Fair value of plan assets, invested primarily in
 U.S. Government, government-sponsored corporation
 and agency securities, fixed income funds,
 registered investment companies, equity index
 funds and other equity and fixed income funds.....     3,559,000    3,281,000
                                                     ------------  -----------
Plan assets less than projected benefit obligation.  $    (60,000) $  (259,000)
Unrecognized prior service cost....................       (67,000)     (69,000)
Unrecognized transition asset......................      (123,000)    (130,000)
Unrecognized net (gain) loss.......................      (150,000)      74,000
                                                     ------------  -----------
  Accrued pension liability........................  $   (400,000) $  (384,000)
                                                     ============  ===========
</TABLE>
 
  The fair value of plan assets excludes $15 million held in grantor trust as
of June 30, 1997 for payment of benefits under the supplemental plan.
 
  The assumed discount rate was 7.5% at June 30, 1997 and December 31, 1996,
and the assumed annual rate of increase in future compensation levels was 4.0%.
These rates were used in determining the projected benefit obligations, the
accumulated benefit obligations and the vested benefit obligations.
 
  Pension costs were determined using the projected unit credit actuarial cost
method and the following actuarial assumptions for periods during 1997, 1996
and 1995:
 
<TABLE>
<CAPTION>
                                                               1997  1996  1995
                                                               ----- ----- -----
<S>                                                            <C>   <C>   <C>
Annual discount rate.......................................... 7.50% 7.50% 8.00%
Annual rate of increase in future compensation levels......... 4.00% 4.00% 4.00%
Annual long-term rate of return on plan assets................ 9.75% 9.75% 9.75%
</TABLE>
 
  The components of pension costs, portions of which were recorded as
components of construction costs, for the three months, six months and twelve
months ended June 30, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED    SIX MONTHS ENDED     TWELVE MONTHS ENDED
                               JUNE 30               JUNE 30               JUNE 30
                          -------------------  --------------------  --------------------
                            1997       1996      1997       1996       1997       1996
                          ---------  --------  ---------  ---------  ---------  ---------
                                            (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>       <C>        <C>        <C>        <C>
Service cost............  $  25,000  $ 25,000  $  50,000  $  50,000  $  92,000  $  95,000
Interest cost on pro-
 jected benefit obliga-
 tion...................     64,000    62,000    129,000    124,000    252,000    235,000
Actual return on plan
 assets.................   (360,000)  (70,000)  (380,000)  (140,000)  (661,000)  (446,000)
Net amortization and de-
 ferral.................    279,000    (7,000)   216,000    (14,000)   346,000    155,000
                          ---------  --------  ---------  ---------  ---------  ---------
                          $   8,000  $ 10,000  $  15,000  $  20,000  $  29,000  $  39,000
                          =========  ========  =========  =========  =========  =========
</TABLE>
 
  In addition, an employee savings and investment plan is available to eligible
employees of ComEd and certain of its and Unicom's subsidiaries. Under the plan
each participating employee may contribute up to 20% of such employee's base
pay and the participating companies match the first 6% of such
 
                                       26
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
contribution equal to 100% of the first 2% of contributed base salary, 70% of
the next 3% of contributed base salary and 25% of the next 1% of contributed
base salary. The participating companies' contributions were $7 million for the
three months ended June 30, 1997 and 1996, $16 million and $15 million for the
six months ended June 30, 1997 and 1996, respectively, and $31 million and $28
million for the twelve months ended June 30, 1997 and 1996, respectively.
 
  (14) POSTRETIREMENT BENEFITS. ComEd and the Indiana Company provide certain
postretirement health care, dental care, vision care and life insurance for
retirees and their dependents and for the surviving dependents of eligible
employees and retirees. The employees become eligible for postretirement
benefits when they reach age 55 with 10 years of service. The liability for
postretirement benefits is funded through trust funds based upon actuarially
determined contributions that take into account the amount deductible for
income tax purposes. The plan is contributory, funded jointly by the companies
and the participating employees. The June 30, 1997 and December 31, 1996
postretirement benefit liabilities and related data were estimated pending
completion of the January 1, 1997 actuarial valuations.
 
  Postretirement health care costs in the twelve months ended June 30, 1997 and
1996 included $5 million and $26 million, respectively, related to a voluntary
separation offer for union employees who accepted and left ComEd's employ
combined with separation offers to selected groups of non-union employees.
 
  The funded status of the plan at June 30, 1997 and December 31, 1996 was as
follows:
 
<TABLE>
<CAPTION>
                                                       JUNE 30,    DECEMBER 31,
                                                         1997          1996
                                                      -----------  ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Actuarial present value of accumulated
 postretirement benefit obligation:
 Retirees...........................................  $  (636,000) $  (615,000)
 Active fully eligible participants.................      (23,000)     (23,000)
 Other participants.................................     (454,000)    (439,000)
                                                      -----------  -----------
 Accumulated benefit obligation.....................  $(1,113,000) $(1,077,000)
Fair value of plan assets, invested primarily in S&P
 500 common stocks, registered investment companies
 and U.S. Government, government agency, municipal
 and listed corporate obligations...................      728,000      665,000
                                                      -----------  -----------
Plan assets less than accumulated postretirement
 benefit obligation.................................  $  (385,000) $  (412,000)
Unrecognized transition obligation..................      358,000      370,000
Unrecognized prior service cost.....................       44,000       45,000
Unrecognized net gain...............................     (319,000)    (270,000)
                                                      -----------  -----------
 Accrued liability for postretirement benefits......  $  (302,000) $  (267,000)
                                                      ===========  ===========
</TABLE>
 
  Different health care cost trends are used for pre-Medicare and post-Medicare
expenses. The pre-Medicare trend rate was 9.0% at December 31, 1996, grading
down in 0.5% annual increments and leveling off at 5.0%. The post-Medicare
trend rate was 7.0% at December 31, 1996, grading down in 0.5% annual
increments to 5.0%. The assumed discount rate was 7.5% at December 31, 1996.
That rate was used to determine the accumulated benefit obligations. The effect
of a 1% increase in the health care cost trend rate for each future year would
increase the accumulated postretirement health care obligations by
approximately $158 million.
 
                                       27
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  The components of postretirement health care costs, portions of which were
recorded as components of construction costs, for the three months, six months
and twelve months ended June 30, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                           THREE MONTHS                            TWELVE MONTHS
                               ENDED         SIX MONTHS ENDED          ENDED
                              JUNE 30             JUNE 30             JUNE 30
                         ------------------  ------------------  -------------------
                           1997      1996      1997      1996      1997       1996
                         --------  --------  --------  --------  ---------  --------
                                         (THOUSANDS OF DOLLARS)
<S>                      <C>       <C>       <C>       <C>       <C>        <C>
Service cost............ $  8,000  $  7,000  $ 17,000  $ 15,000  $  34,000  $ 24,000
Interest cost on
 accumulated benefit
 obligation.............   20,000    18,000    40,000    35,000     78,000    61,000
Actual return on plan
 assets.................  (76,000)  (12,000)  (86,000)  (36,000)  (140,000)  (98,000)
Amortization of transi-
 tion obligation........    5,000     5,000    11,000    11,000     22,000    20,000
Severance plan cost.....    2,000     1,000     2,000     1,000      5,000    26,000
Other...................   60,000    (3,000)   53,000     4,000     78,000    35,000
                         --------  --------  --------  --------  ---------  --------
                         $ 19,000  $ 16,000  $ 37,000  $ 30,000  $  77,000  $ 68,000
                         ========  ========  ========  ========  =========  ========
</TABLE>
 
  Postretirement benefit costs were determined using the projected unit credit
actuarial cost method. The discount rates used were 7.5% for the 1997 and 1996
periods and 8.0% for the 1995 period and the estimated long-term rate of return
of fund assets, net of income tax effects, were 9.40%, 9.38% and 9.32% for the
1997, 1996 and 1995 periods, respectively. Pre-Medicare health care cost trend
rates were 13.5% for the first three months of 1995 and 10% for the remainder
of the year, grading down in 0.5% annual increments to 5.0%. Post-Medicare
health care cost trend rates were 11% for the first three months of 1995 and 8%
for the remainder of the year, grading down in 0.5% annual increments to 5.0%.
The effect of a 1% increase in the health care cost trend rate for each future
year would increase the aggregate of the service and interest cost components
of postretirement benefit costs by approximately $21 million for the twelve
months ended June 30, 1997.
 
  (15) SEPARATION PLAN COSTS. O&M expenses included $16 million and $99 million
for the twelve months ended June 30, 1997 and 1996, respectively, related to a
voluntary separation offer for union employees who accepted and left ComEd's
employ combined with separation plans offered to selected groups of non-union
employees. These employee separation plans reduced net income by $10 million or
$0.05 per common share and $60 million or $0.28 per common share for the twelve
months ended June 30, 1997 and 1996, respectively. ComEd estimates that it will
incur additional O&M expenses in the second half of 1997 of approximately $25
million for a voluntary separation offer made to certain ComEd management
employees.
 
  (16) INCOME TAXES. The components of the net deferred income tax liability at
June 30, 1997 and December 31, 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                         JUNE 30,   DECEMBER 31,
                                                           1997         1996
                                                        ----------  ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                     <C>         <C>
Deferred income tax liabilities:
 Accelerated cost recovery and liberalized deprecia-
  tion, net of removal costs..........................  $3,536,738   $3,514,300
 Overheads capitalized................................     252,727      261,437
 Repair allowance.....................................     222,775      228,426
 Regulatory assets recoverable through future rates...   1,646,700    1,649,037
Deferred income tax assets:
 Postretirement benefits..............................    (289,035)    (269,179)
 Unbilled revenues....................................    (119,645)    (136,406)
 Alternative minimum tax..............................     (37,737)     (80,159)
 Unamortized investment tax credits to be settled
  through future rates................................    (419,936)    (430,297)
 Other regulatory liabilities to be settled through
  future rates........................................    (303,986)    (238,004)
 Other--net...........................................     (57,175)     (44,998)
                                                        ----------   ----------
Net deferred income tax liability.....................  $4,431,426   $4,454,157
                                                        ==========   ==========
</TABLE>
 
                                       28
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  The $23 million decrease in the net deferred income tax liability from
December 31, 1996 to June 30, 1997 is comprised of $35 million of deferred
income tax expense and a $58 million decrease in regulatory assets net of
regulatory liabilities pertaining to income taxes for the period. The amount of
regulatory assets included in deferred income tax liabilities primarily relates
to the equity component of AFUDC which is recorded on an after-tax basis, the
borrowed funds component of AFUDC which was previously recorded net of tax and
other temporary differences for which the related tax effects were not
previously recorded. The amount of other regulatory liabilities included in
deferred income tax assets primarily relates to deferred income taxes provided
at rates in excess of the current statutory rate.
 
  The components of net income tax expense charged to continuing operations for
the three months, six months and twelve months ended June 30, 1997 and 1996
were as follows:
 
<TABLE>
<CAPTION>
                           THREE MONTHS                           TWELVE MONTHS
                               ENDED        SIX MONTHS ENDED          ENDED
                              JUNE 30            JUNE 30             JUNE 30
                          ----------------  ------------------  ------------------
                           1997     1996      1997      1996      1997      1996
                          -------  -------  --------  --------  --------  --------
                                        (THOUSANDS OF DOLLARS)
<S>                       <C>      <C>      <C>       <C>       <C>       <C>
Operating income:
 Current income taxes...  $10,811  $51,383  $ 76,076  $138,725  $265,794  $349,596
 Deferred income taxes..    5,337   32,709    34,925    56,839   139,185   195,925
 Investment tax credits
  deferred--net.........   (7,897)  (7,165)  (15,794)  (14,332)  (34,840)  (28,685)
Other (income) and de-
 ductions...............   (1,837)    (912)   (2,120)   (5,037)   (4,465)  (12,171)
                          -------  -------  --------  --------  --------  --------
Net income taxes charged
 to continuing opera-
 tions..................  $ 6,414  $76,015  $ 93,087  $176,195  $365,674  $504,665
                          =======  =======  ========  ========  ========  ========
</TABLE>
 
  Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the three months, six months and twelve months ended June
30, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                      THREE MONTHS
                                                          ENDED         SIX MONTHS ENDED    TWELVE MONTHS ENDED
                                                         JUNE 30             JUNE 30              JUNE 30
                                                    ------------------  ------------------  --------------------
                                                      1997      1996      1997      1996      1997       1996
                                                    --------  --------  --------  --------  --------  ----------
                                                                    (THOUSANDS OF DOLLARS)
<S>                                                 <C>       <C>       <C>       <C>       <C>       <C>
Net income (loss) before extraordinary item.......  $(17,602) $100,313  $ 93,515  $237,245  $522,371  $  699,311
Net income taxes charged to continuing operations.     6,414    76,015    93,087   176,195   365,674     504,665
Provision for dividends on ComEd preferred and
 preference stocks................................    15,485    16,472    31,012    32,986    62,450      69,172
                                                    --------  --------  --------  --------  --------  ----------
Pre-tax income before provision for dividends.....  $  4,297  $192,800  $217,614  $446,426  $950,495  $1,273,148
                                                    ========  ========  ========  ========  ========  ==========
Effective income tax rate.........................     149.3%     39.4%     42.8%     39.5%     38.5%       39.6%
                                                    ========  ========  ========  ========  ========  ==========
</TABLE>
 
  The principal differences between net income taxes charged to continuing
operations and the amounts computed at the federal statutory rate of 35% for
the three months, six months and twelve months ended June 30, 1997 and 1996
were as follows:
 
<TABLE>
<CAPTION>
                           THREE MONTHS                           TWELVE MONTHS
                               ENDED        SIX MONTHS ENDED          ENDED
                              JUNE 30            JUNE 30             JUNE 30
                          ----------------  ------------------  ------------------
                           1997     1996      1997      1996      1997      1996
                          -------  -------  --------  --------  --------  --------
                                        (THOUSANDS OF DOLLARS)
<S>                       <C>      <C>      <C>       <C>       <C>       <C>
Federal income taxes
 computed at statutory
 rate...................  $ 1,504  $67,480  $ 76,165  $156,249  $332,673  $445,602
Equity component of
 AFUDC which was ex-
 cluded from taxable
 income.................   (1,997)  (2,124)   (3,775)   (3,768)   (7,279)   (6,309)
Amortization of invest-
 ment tax credits.......   (7,897)  (7,165)  (15,794)  (14,332)  (34,840)  (28,685)
State income taxes, net
 of federal income tax-
 es.....................    2,804   10,721    14,451    24,123    48,715    66,811
Differences between book
 and tax accounting,
 primarily property-
 related deductions.....   12,229    6,029    22,526    11,911    24,674    11,936
Other--net..............     (229)   1,074      (486)    2,012     1,731    15,310
                          -------  -------  --------  --------  --------  --------
Net income taxes charged
 to continuing opera-
 tions..................  $ 6,414  $76,015  $ 93,087  $176,195  $365,674  $504,665
                          =======  =======  ========  ========  ========  ========
</TABLE>
 
  The effects of an income tax refund related to prior years increased net
income by $26 million or $0.12 per common share for the twelve months ended
June 30, 1997.
 
                                       29
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  Current federal income tax liabilities which were recorded prior to 1995
included excess amounts of AMT over the regular federal income tax, which
amounts were also recorded as decreases to deferred federal income taxes. The
excess amounts of AMT were carried forward and portions were applied as credits
against the post-1994 regular federal income tax liabilities. The remaining
excess amounts of AMT can be carried forward indefinitely as credits against
future periods' regular federal income tax liabilities.
 
  (17) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months, six months and twelve months ended June 30, 1997 and 1996
were as follows:
 
<TABLE>
<CAPTION>
                         THREE MONTHS ENDED  SIX MONTHS ENDED  TWELVE MONTHS ENDED
                               JUNE 30            JUNE 30            JUNE 30
                         ------------------- ----------------- -------------------
                           1997      1996      1997     1996     1997      1996
                         --------- --------- -------- -------- --------- ---------
                                          (THOUSANDS OF DOLLARS)
<S>                      <C>       <C>       <C>      <C>      <C>       <C>
Illinois public utility
 revenue................ $  57,154 $  51,982 $111,409 $110,492 $ 227,978 $ 232,097
Illinois invested capi-
 tal....................    25,827    26,025   52,017   52,179   104,501   104,899
Municipal utility gross
 receipts...............    39,067    37,823   81,570   79,401   170,884   172,253
Real estate.............    34,112     8,650   73,280   53,778   149,272   143,221
Municipal compensation..    18,315    17,709   38,025   36,804    79,765    79,979
Other--net..............    17,590    17,277   41,462   45,051    71,189    78,858
                         --------- --------- -------- -------- --------- ---------
                         $ 192,065 $ 159,466 $397,763 $377,705 $ 803,589 $ 811,307
                         ========= ========= ======== ======== ========= =========
</TABLE>
 
  ComEd's real estate taxes for the three months, six months and twelve months
ended June 30, 1996 reflect a credit of $23 million which related to the year
1995.
 
  (18) LEASE OBLIGATIONS OF SUBSIDIARY COMPANIES. Under its nuclear fuel lease
arrangement, ComEd may sell and lease back nuclear fuel from a lessor who may
borrow an aggregate of $700 million, consisting of $300 million of commercial
paper or bank borrowings and $400 million of intermediate term notes, to
finance the transactions. With respect to the commercial paper/bank borrowing
portion, $100 million will expire on November 23, 1998 and $200 million will
expire on November 23, 1999. With respect to the intermediate term notes, $77
million expires in November 1997, and an additional portion each November
thereafter through November 2001 and in November 2003. At June 30, 1997,
ComEd's obligation to the lessor for leased nuclear fuel amounted to
approximately $687 million. ComEd has agreed to make lease payments which cover
the amortization of the nuclear fuel used in ComEd's reactors plus the lessor's
related financing costs. ComEd has an obligation for spent nuclear fuel
disposal costs of leased nuclear fuel.
 
  Future minimum rental payments, net of executory costs, at June 30, 1997 for
capital leases are estimated to aggregate $798 million, including $91 million
in 1997, $223 million in 1998, $192 million in 1999, $121 million in 2000, $79
million in 2001 and $92 million in 2002-2043. The estimated interest component
of such rental payments aggregates $114 million. The estimated portions of
obligations due within one year under capital leases of $136 million and $174
million at June 30, 1997 and December 31, 1996, respectively, were included in
current liabilities on the Consolidated Balance Sheets.
 
  Future minimum rental payments at June 30, 1997 for operating leases are
estimated to aggregate $185 million, including $11 million in 1997, $20 million
in 1998, $18 million in 1999, $14 million in 2000, $13 million in 2001 and $109
million in 2002-2024.
 
  (19) JOINT PLANT OWNERSHIP. ComEd has a 75% undivided ownership interest in
the Quad Cities nuclear generating station. Further, ComEd is responsible for
75% of all costs which are charged to
 
                                       30
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
appropriate investment, operation or maintenance accounts and provides its own
financing. At June 30, 1997, for its share of ownership in the station, ComEd
had an investment of $648 million in production and transmission plant in
service (before reduction of $200 million for the related accumulated provision
for depreciation) and $23 million in construction work in progress.
 
  (20) COMMITMENTS AND CONTINGENT LIABILITIES. Purchase commitments,
principally related to construction and nuclear fuel, approximated $883 million
at June 30, 1997, comprised of approximately $845 million for ComEd and the
Indiana Company and approximately $38 million for Unicom Thermal. In addition,
ComEd has substantial commitments for the purchase of coal. ComEd's coal costs
are high compared to those of other utilities. ComEd's western coal contracts
and its rail contracts for delivery of the western coal provide for the
purchase of certain coal at prices substantially above currently prevailing
market prices. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," subcaption "Liquidity and Capital Resources," for
additional information regarding ComEd's purchase commitments.
 
  ComEd is a member of NML, established to provide insurance coverage against
property damage to members' nuclear generating facilities. The members are
subject to a retrospective premium adjustment in the event losses exceed
accumulated reserve funds. Capital has been accumulated in the reserve funds of
NML to the extent that ComEd would not be liable for a retrospective premium
adjustment in the event of a single incident. However, ComEd could be subject
to a maximum assessment of approximately $53 million in any policy year, in the
event losses exceed accumulated reserve funds.
 
  ComEd also is a member of NEIL, which provides insurance coverage against the
cost of replacement power obtained during certain prolonged accidental outages
of nuclear generating units and coverage for property losses in excess of $500
million occurring at nuclear stations. All companies insured with NEIL are
subject to retrospective premium adjustments if losses exceed accumulated
reserve funds. Capital has been accumulated in the reserve funds of NEIL to the
extent that ComEd would not be liable for a retrospective premium adjustment in
the event of a single incident under the replacement power coverage and the
property damage coverage. However, ComEd could be subject to maximum
assessments, in any policy year, of approximately $21 million and $73 million
in the event losses exceed accumulated reserve funds under the replacement
power and property damage coverages, respectively.
 
  The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessed in the event of nuclear
incidents. Based on the number of nuclear reactors with operating licenses,
ComEd would currently be subject to a maximum assessment of $991 million in the
event of an incident, limited to a maximum of $125 million in any calendar
year.
 
  In addition, ComEd participates in the American Nuclear Insurers and Mutual
Atomic Energy Liability Underwriters Master Worker Program which provides
coverage for worker tort claims filed for bodily injury caused by the nuclear
energy hazard. The coverage applies to workers whose "nuclear related
employment" began after January 1, 1988. ComEd would currently be subject to a
maximum assessment of approximately $36 million in the event losses exceed
accumulated reserve funds.
 
  During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that Cotter has permitted radioactive and other
hazardous material to be released from its mill into areas owned or occupied by
the plaintiffs resulting in property damage and potential adverse health
effects. In 1994, a
 
                                       31
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONCLUDED
 
federal jury returned nominal dollar verdicts on 8 bellwether plaintiffs'
claims in these cases, which verdicts were upheld on appeal. The remaining
claims in the 1989 actions are the subject of a settlement agreement entered
into by counsel for the plaintiffs and Cotter. If the settlement agreement is
implemented, the 1989 actions will be dismissed. Although the remaining cases
will necessarily involve the resolution of numerous contested issues of fact
and law, Unicom and ComEd's determination is that these actions will not have a
material impact on their financial position or results of operations.
 
  ComEd is involved in administrative and legal proceedings concerning air
quality, water quality and other matters. The outcome of these proceedings may
require increases in future construction expenditures and operating expenses
and changes in operating procedures. ComEd and its subsidiaries are or are
likely to become parties to proceedings initiated by the U.S. EPA, state
agencies and/or other responsible parties under CERCLA with respect to a number
of sites, including MGP sites, or may voluntarily undertake to investigate and
remediate sites for which they may be liable under CERCLA.
 
  ComEd generally did not operate MGPs as a corporate entity but did, however,
acquire MGP sites as part of the absorption of smaller utilities. Approximately
half of these sites were transferred to Northern Illinois Gas Company as part
of a general conveyance in 1954. ComEd also acquired former MGP sites as vacant
real estate on which ComEd facilities have been constructed. To date, ComEd has
identified 44 former MGP sites for which it may be liable for remediation.
ComEd presently estimates that its costs of former MGP site investigation and
remediation will aggregate from $25 million to $150 million in current-year
(1997) dollars. It is expected that the costs associated with investigation and
remediation of former MGP sites will be incurred over a period not to exceed 30
years. Because ComEd is not able to determine the most probable liability for
such MGP costs, in accordance with accounting standards, a reserve of $25
million has been included in other noncurrent liabilities on the Consolidated
Balance Sheets as of June 30, 1997 and December 31, 1996, which reflects the
low end of the range of ComEd's estimate of the liability associated with
former MGP sites. In addition, as of June 30, 1997 and December 31, 1996, a
reserve of $8 million has been included in other noncurrent liabilities on the
Consolidated Balance Sheets, representing ComEd's estimate of the liability
associated with cleanup costs of remediation sites other than former MGP sites.
Approximately half of this reserve relates to anticipated cleanup costs
associated with a property formerly used as a tannery which was purchased by
ComEd in 1973. Unicom and ComEd presently estimate that ComEd's costs of
investigating and remediating the former MGP and other remediation sites,
pursuant to CERCLA and state environmental laws, will not have a material
impact on the financial position or results of operations of Unicom or ComEd.
These cost estimates are based on currently available information regarding the
responsible parties likely to share in the costs of responding to site
contamination, the extent of contamination at sites for which the investigation
has not yet been completed and the cleanup levels to which sites are expected
to have to be remediated.
 
                                       32
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
CHANGES IN THE ELECTRIC UTILITY INDUSTRY
 
  Unicom and its predominant business, electric energy generation, transmission
and distribution, are in a period of fundamental change in the manner in which
customers obtain, and energy suppliers provide, energy services. These changes
are attributable to changes in technology, the relaxation of regulatory
barriers to utilities' respective service territories as well as to efforts to
change the manner in which electric utilities are regulated. Federal law and
regulations have been amended to provide for open transmission system access,
and various states are considering, or have adopted, new regulatory structures
to allow access by some or all customers to energy suppliers in addition to the
local utility.
 
  Various legislative proposals have been pending in the Illinois legislature
for the purpose of, among other things, introducing price-based competition
into the supply of electric energy in Illinois under a less regulated
structure. On May 30, 1997, the Illinois House of Representatives approved, on
a vote of 85 to 12, a bill that would have provided for a 10% residential rate
reduction commencing in 1998, an additional 5% residential rate reduction
commencing October 1, 2000, customer access to other electric suppliers in a
phased-process over several years, recovery of a portion of a utility's
stranded costs through a non-bypassable competitive transition charge, and a
leveling of certain regulatory and tax provisions as applied to various
electric service providers. The Illinois Senate, however, deferred final
consideration of the bill until the Fall veto session scheduled for October and
November 1997. As explained below, the timing of customer access to other
suppliers and the impact on prevailing rates can have a significant impact upon
the recoverability of a utility's invested costs and, consequently, the amount
at which such costs are reflected in its financial statements.
 
  In response to changes in the industry, ComEd has implemented certain
customer initiatives designed to improve and strengthen customer relationships
and is undertaking an evaluation of its operations and assets, particularly
generating assets, with a view toward positioning itself for market and
industry changes. As discussed below, ComEd's actions to date have included a
five-year base rate cap, efforts to control expenditure growth through
personnel reductions, operational efficiencies and sales of generating plants.
Although ComEd's operating results and financial condition have historically
been affected by various rate proceedings, ComEd expects that these industry
changes, and ComEd's activities anticipating or responding to them, will
directly impact its operating results and financial condition over the next
several years.
 
  Electric Utility Industry. The electric utility industry has historically
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively defined
service territories; and operate under extensive regulation with respect to
rates, operations and other matters. Utilities operated under a regulatory
compact with the state, with a statutory obligation to serve all of the
electricity needs within their service territory in a nondiscriminatory manner.
Historically, investment and operating decisions have been made based upon the
utilities' respective assessment of the current and projected needs of their
customers. In view of this obligation, regulation has focused on investment and
operating costs, and rates have been based on a recovery of some or all of such
prudently incurred costs plus a return on invested capital. Such rate
regulation, and the ability of utilities to recover investment and other costs
through rates, has provided the basis for recording certain costs as regulatory
assets. These assets represent costs which are allocated over future periods
reflecting related regulatory treatment, rather than expensed in the current
period.
 
  As noted previously, the United States electric utility industry is in a
process of fundamental change as state legislators and regulators re-examine
their approach to regulation and its objectives and consider a transition to a
competitive or market-based system of pricing for electric energy. Although the
process and approach have varied from state to state in terms of the elements
and timing of implementation, it is
 
                                       33
<PAGE>
 
evident that the question is no longer if, but rather how and when there will
be a more competitive electricity market. The Federal Energy Policy Act of
1992, among other things, empowered FERC to introduce a greater level of
competition into the wholesale marketplace for electric energy. In April 1996,
the FERC Order was issued requiring utilities to file open access tariffs with
regard to their transmission systems. These tariffs set forth the terms,
including prices, under which other parties and the utility's wholesale
marketing function may use the utility's transmission system. ComEd has filed
an open access tariff with the FERC. The FERC Order requires the separation of
the transmission operations and wholesale marketing functions so as to ensure
that unaffiliated third parties have access to the same information as to
system availability and other requirements. The FERC Order further requires
utilities to operate an electronic bulletin board to make transmission price
and access data available to all potential users. A key feature of the FERC
Order is that it contemplates full recovery of a utility's costs "stranded" by
competition. These costs are "stranded" or "strandable" to the extent market-
based rates would be insufficient to allow for their full recovery. To recover
stranded costs, the utility must show that it had a reasonable expectation that
it would continue to serve the customer in question under its regulatory
compact.
 
  An important element of reform proposals under consideration is the ability
of other suppliers to provide energy in competition with a utility within its
service territory. This element generally has included consideration of some
future form of "retail wheeling," whereby a utility's transmission and
distribution system is made available to other energy suppliers for delivery of
their services to retail customers. Some of ComEd's customers are presently
seeking some form of "retail wheeling." In addition, some governmental
entities, such as cities, may elect to "municipalize" a utility's distribution
facilities through condemnation proceedings. Such municipalities would then be
able to purchase electric power on a wholesale basis and resell it to customers
over the newly acquired facilities. The FERC Order provides for the recovery of
a utility's investment stranded by municipalization. While municipalization is
possible under the present regulatory system, ComEd is currently not required
to grant alternative electric suppliers access to its distribution system
through any type of "retail wheeling."
 
  Presumably, under such a modified regulatory structure, customers will base
energy purchase decisions on a combination of factors, including price,
reliability and service. In addition to the potential effects on revenues and
marketing and sales efforts, such changes can raise the question as to whether
an affected utility's rates are based on cost-based regulation, allowing
recovery of incurred costs, or are based on something else, i.e., the
marketplace. Under GAAP, the latter determination would require the write-off
of regulatory assets and liabilities and would require an examination as to the
recoverability in revenues of other incurred costs, with any portion determined
to be unrecoverable being subject to write-off. Various approaches have been
proposed to deal with such strandable costs, from full recovery, as provided in
the FERC Order, to no recovery, as proposed by at least some of the
participants in virtually all legislative debates on regulatory reform
proposals. In addition, the EITF of the FASB has recently considered the
accounting treatment for costs related to a portion of a utility's business
which are being recovered during a regulator required period of transition from
cost-based to market-based pricing. The EITF concluded that SFAS No. 71 should
be discontinued for that portion of the business at the beginning of such
transition period. Any stranded costs for which cash flow recovery is not
included in the revenues from the portion of the business that remains subject
to SFAS No. 71 should be expensed currently. For additional information, see
"Regulatory Assets and Liabilities" in Note 1 of Notes to Financial Statements.
 
  Retail wheeling and municipalization are significant issues for electric
utility companies, including ComEd, because of their ability to "strand" a
utility's costs--i.e., result in a situation where the utility cannot recover
all of its incurred costs in its revenues. A calculation of potentially
strandable costs is, in essence, an estimate of the amount of incurred costs
that may not be recoverable under the future projected revenue and cost
structure of the utility. As a result, the calculation requires that a number
of complex and interrelated assumptions be made, any one of which can have a
significant effect upon the ultimate result of the calculation. These
assumptions include the timing of open access (customer choice),
 
                                       34
<PAGE>
 
the extent of open access allowed, potential market prices over time, sales and
load growth forecasts, operating performance over time, allowed rates over
time, cost structure over time, mitigation opportunities and strandable cost
recoveries. The calculation of strandable costs is extremely sensitive to the
assumptions made, and the resulting estimates are potentially misleading if
removed from the context in which they were calculated. In connection with the
debates in Illinois regarding deregulation legislation, RDI, a consulting firm,
estimated that ComEd's strandable costs are approximately $9.9 billion. That
estimate was based on RDI's evaluation and quantification of the amount of
ComEd's costs (including generating assets, regulatory assets and fuel supply
agreements) that might not be recoverable under assumed future prevailing
market rates for electric energy. Although ComEd does not agree with some of
the assumptions used by RDI in computing its number, the number is a reasonable
estimate of ComEd's potentially strandable costs assuming no mitigation or
replacement revenues and no stranded cost recovery. The legislation pending
before the Illinois legislature provides for the recovery of a portion of a
utility's strandable costs through a non-bypassable competitive transition
charge. ComEd would be required to take steps to mitigate the portion of
stranded costs which are not recoverable through the non-bypassable competitive
transition charge. As indicated above and in Note 1 of Notes to Financial
Statements, the impact of stranded costs on the financial statements is
dependent upon the continued applicability of SFAS No. 71 and the amount of
stranded cost recovery that is allowed. See Notes 1 and 2 of Notes to Financial
Statements for additional information.
 
  ComEd. ComEd is responding, and is undertaking a significant planning effort
with respect to further responses, to the developments within the utility
industry, the legislative proposals in Illinois and its potential for resulting
in strandable investment. During the past several years, such efforts have
focused on cost reductions, including personnel reductions, efficiencies in
purchasing and inventory management, and an incentive compensation system keyed
to cost reduction and control. Notwithstanding these efforts, ComEd's costs
remain high in comparison to its neighboring utilities.
 
  ComEd anticipates that the proposed Illinois legislative changes and the
resultant increasing competition to supply energy in Illinois and elsewhere
will have significant effects upon its revenues and assets as it takes steps to
adjust its operations and services to meet the changing market for electric
energy. Both Unicom and ComEd have been examining methods of positioning
themselves and their affiliates to deal with those effects and to address the
developing opportunities and challenges. Unicom has been engaged in an
examination and development of expanded offerings of energy services and
sources of energy. In this latter regard, it has recently entered into a joint
venture with Sonat Marketing Company L.P. to market natural gas sales and
services to larger gas purchasers within ComEd's service area and other
Midwestern areas. ComEd has been engaged in a broad based examination of its
assets and operations, particularly nuclear and fossil generating and
generating related (i.e. fuel and inventory) assets, with a view toward
rationalizing their investment and operating costs against their ability to
contribute to the revenues of ComEd under various market scenarios. Such an
assessment involves the consideration of numerous factors, including revenue
contribution, operating costs, impacts on ComEd's service obligations, purchase
commitments and the impact of various options. Such options include continued
operation with accelerated depreciation, indefinite suspension from operation,
sale to a third party and retirement or closure. If ComEd retired or closed one
or more generating plants, particularly a nuclear plant, without a regulatory
or legislative provision for continued recovery of its investment, such
retirement could have a material impact on Unicom and ComEd's financial
position and results of operations. See "Liquidity and Capital Resources--
Utility Operations," subcaption "Construction Program" below regarding ComEd's
ongoing evaluation of the impact of the expected early retirement of its Zion
nuclear generating station.
 
  In April 1996, ComEd announced that it had finalized agreements to sell 2 of
its coal-fired generating stations, representing approximately 1,600 megawatts
of generating capacity. Under the agreements, State Line and Kincaid stations
would be sold for a total of $250 million, which approximates the book value of
the stations. The net proceeds, after income tax effects, would be
approximately $200 million,
 
                                       35
<PAGE>
 
which would be used to retire or redeem existing debt. Under the terms of the
sales, ComEd would enter into exclusive 15-year purchased power agreements for
the output of the plants. On March 31, 1997, the ICC issued an order approving
the agreements; however, the order has been appealed to the Illinois Appellate
Court. ComEd's principal union filed a lawsuit in state court alleging that the
labor provisions of the Kincaid agreement are violative of state law and
seeking to enjoin the ICC proceedings. ComEd had previously filed an action in
federal court seeking confirmation that the state law is preempted by federal
labor law. These actions involving the union were consolidated in federal
court, which has since ruled in favor of ComEd. The union has appealed and also
has filed a grievance under its collective bargaining agreement with ComEd
claiming that ComEd is required by that agreement to require the Kincaid
purchaser to assume the terms of that agreement. The union has also filed an
unfair labor practice charge with the NLRB against the Kincaid purchaser
regarding the purchaser's alleged failure to bargain in good faith with the
union. The State Line and Kincaid agreements give the purchasers the right to
terminate the agreements if a closing has not occurred prior to December 31,
1996 for State Line and June 30, 1997 for Kincaid. Such closings have not
occurred as of August 8, 1997.
 
  With respect to its transmission assets, ComEd is participating with
approximately 20 other electric utility companies in an effort to form an ISO
for the midwest United States. Under the structure currently contemplated, the
ISO would set standard transmission rates and facilitate compliance with the
FERC Order. In addition, while individual utility companies would continue to
own their transmission lines, the ISO would oversee regional planning to avoid
transmission constraints. Creation of the ISO will be subject to further
negotiations among the parties as well as federal and state regulatory
approval.
 
  ComEd is also taking actions to strengthen its relationship with its
customers. In December 1995, ComEd instituted a five-year base rate cap for all
of its customers. The base rate cap does not affect ComEd's fuel cost or
nuclear decommissioning cost recovery provisions. See Note 2 of Notes to
Financial Statements for additional information about ComEd's base rate cap.
 
LIQUIDITY AND CAPITAL RESOURCES
 
                              UTILITY OPERATIONS
 
  Construction Program. ComEd and the Indiana Company have a construction
program for the year 1997, which consists principally of improvements to their
existing nuclear and other electric production, transmission and distribution
facilities. It does not include funds to add new generating capacity to ComEd's
system. The program, as currently approved by ComEd, calls for electric plant
and equipment expenditures of approximately $982 million (excluding nuclear
fuel expenditures of approximately $322 million). It is estimated that such
construction expenditures will be as follows:
 
<TABLE>
<CAPTION>
                                                             1997
                                                             ----
                                                     (MILLIONS OF DOLLARS)
   <S>                                                   <C>    
   Production...........................................     $420
   Transmission and Distribution........................      421
   General..............................................      141
                                                             ----
      Total.............................................     $982
                                                             ====
</TABLE>
 
  Such construction program includes $130 million toward the replacement by
year-end 1998 of the steam generators at ComEd's Braidwood Unit 1 and Byron
Unit 1 nuclear generating units. The total replacement cost is estimated to be
$460 million, of which approximately $206 million has been incurred through
June 30, 1997. On April 17, 1997, ComEd decided not to invest in the
replacement of the steam generators at its Zion nuclear generating station. In
absence of replacing the steam generators, Zion would be retired substantially
earlier than the end of its licensed life in 2013, and most probably prior to
2005. ComEd is currently evaluating the impact of the expected early retirement
of its Zion station, which has a net book value of approximately $700 million,
and whether any required additional depreciation would be recoverable under
ComEd's rate cap initiative and the regulatory reform legislation currently
being considered in Illinois. Any unrecoverable plant costs will be recognized
as an expense when they are probable and estimable.
 
                                       36
<PAGE>
 
  ComEd's forecasts of peak load indicate a need for additional resources to
meet demand, either through generating capacity, equivalent purchased power or
the development of additional demand-side management resources, in 1998 and
each year thereafter. However, it believes that adequate resources, including
cost-effective demand-side management resources, non-utility generation
resources and other-utility power purchases, could be obtained in sufficient
quantities to meet such forecasted needs. If ComEd instead were to build
additional capacity to meet its needs, it would need to make additional capital
expenditures during 1997.
 
  Purchase commitments for ComEd and the Indiana Company, principally related
to construction and nuclear fuel, approximated $845 million at June 30, 1997.
In addition, ComEd's estimated commitments for the purchase of coal are
indicated in the following table.
 
<TABLE>
<CAPTION>
      CONTRACT                                            PERIOD   COMMITMENT(1)
      --------                                           --------- -------------
      <S>                                                <C>       <C>
      Black Butte Coal Co. ............................. 1997-2000     $749
      Decker Coal Co. .................................. 1997-2014     $532
      Other commitments................................. 1997-1998     $ 38
</TABLE>
     --------
     (1) In millions of dollars, excluding transportation costs. No
         estimate of future cost escalation has been made.
 
For additional information concerning these coal contracts and ComEd's fuel
supply, see "Results of Operations" below and Notes 1 and 20 of Notes to
Financial Statements.
 
  The foregoing paragraphs in this "Construction Program" section and the
"Construction Program" section below under "Unregulated Operations" include
forward-looking statements with respect to the future levels of capital
expenditures which are necessarily based upon assumptions regarding estimated
costs and the availability of materials and services as well as contingencies.
Unforeseen events or conditions may require changes in the scope of work with
consequent changes in the timing and level of the projected expenditures. In
addition, changes in laws and regulations, or their interpretation and
enforcement, can affect the scope of certain projects, the manner in which they
are undertaken and the costs associated therewith. While ComEd and Unicom
Thermal give consideration to such factors in developing their respective
budgets, such consideration cannot predict the course of future events or
anticipate the interaction of multiple factors beyond management's control upon
project timing and cost. Consequently, actual results could differ materially
from those described.
 
  Capital Resources. ComEd forecasts that internal sources will provide more
than three-fourths of the funds required for ComEd's construction program and
other capital requirements, including nuclear fuel expenditures, contributions
to nuclear decommissioning funds, sinking fund obligations and refinancing of
scheduled debt maturities. See Notes 7 and 9 of Notes to Financial Statements
for the summaries of the annual sinking fund requirements and scheduled
maturities for ComEd preference stock and long-term debt, respectively. The
forecast assumes the rate levels reflected in the Rate Order, which has been
remanded to the ICC for further analysis regarding two issues, remain in
effect. See "Regulation," subcaption "Rate Matters" below for additional
information.
 
  The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of ComEd at the time of such
financing. A portion of ComEd's financing is expected to be provided through
the continued sale and leaseback of nuclear fuel through ComEd's existing
nuclear fuel lease facility. See Note 18 of Notes to Financial Statements for
more information concerning ComEd's nuclear fuel lease facility. ComEd has $888
million of unused bank lines of credit at June 30, 1997, which may be borrowed
at various interest rates and may be secured or unsecured. The interest rate is
set at the time of a borrowing and is based on several floating rate bank
indices plus a spread, which is dependent upon the credit ratings of ComEd's
outstanding first mortgage bonds or on a prime interest rate. Collateral, if
required for the borrowings, would consist of first mortgage bonds issued under
and in accordance with the provisions of ComEd's mortgage. See Note 10 of Notes
to Financial Statements for information concerning lines of credit. See the
Statements of Consolidated Cash Flows for the construction expenditures and
cash flow from operating activities for the three months, six months and twelve
months ended June 30, 1997.
 
                                       37
<PAGE>
 
  During the first six months of 1997, ComEd sold and leased back approximately
$81 million of nuclear fuel through its existing nuclear fuel lease facility.
In January 1997, ComEd issued $150 million principal amount of 7.375% Notes due
January 15, 2004, $150 million principal amount of 7.625% Notes due January 15,
2007 and $150 million principal amount of 8.50% Company-obligated preferred
securities of subsidiary trust due January 15, 2027, the proceeds of which were
used to discharge current maturities of long-term debt and to redeem $200
million principal amount of first mortgage bonds. See the Statements of
Consolidated Cash Flows and Note 4 of Notes to Financial Statements for
information regarding common stock activity.
 
  As of August 8, 1997, ComEd has an effective "shelf" registration statement
with the SEC for the future sale of up to an additional $505 million of debt
securities and cumulative preference stock for general corporate purposes of
ComEd, including the discharge or refund of other outstanding securities.
 
  ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
 
<TABLE>
<CAPTION>
                                                                STANDARD DUFF &
                                                        MOODY'S & POOR'S PHELPS
                                                        ------- -------- ------
      <S>                                               <C>     <C>      <C>
      First mortgage and secured pollution control
       bonds...........................................  Baa2     BBB     BBB
      Publicly-held debentures and unsecured pollution
       control obligations.............................  Baa3     BBB-    BBB-
      Convertible preferred stock......................  baa3     BBB-    BBB-
      Preference stock.................................  baa3     BBB-    BBB-
      ComEd-obligated mandatorily redeemable preferred
       securities of subsidiary trusts.................  baa3     BBB-    BBB-
      Commercial paper.................................  P-2      A-2     D-2
</TABLE>
 
  In January 1997, Moody's changed the rating outlook on ComEd's securities
from "stable" to "negative" and Duff & Phelps added ComEd's securities to
"Rating Watch-Down." As of July 1997, S&P's rating outlook on ComEd remained
"stable."
 
  See "Part II, Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters" in Unicom and ComEd's Annual Reports on Form 10-K for the
year ended December 31, 1996, for additional information regarding ComEd's
securities ratings.
 
  Capital Structure. ComEd's ratio of long-term debt to total capitalization
has decreased to 44.7% at June 30, 1997 from 46.1% at December 31, 1996. This
decrease is related primarily to the retirement of long-term debt and the
issuance of ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trust, which are treated as equity for purposes of the calculation
of the ratio.
 
                             UNREGULATED OPERATIONS
 
  Unicom Enterprises is engaged, through its subsidiaries, in energy service
activities which are not subject to utility regulation by state or federal
agencies. Its principal subsidiary, Unicom Thermal, currently provides district
cooling services to office and other buildings in the city of Chicago under a
non-exclusive use agreement with Chicago for an initial term expiring in 2014.
District cooling involves, in essence, the production of chilled water at a
central location(s) and its circulation to customers' buildings through a
closed circuit of supply and return piping. Such water is circulated through
customers' premises primarily for air conditioning. This process is used by
customers in lieu of self-generated cooling. As a result of the Clean Air
Amendments, the manufacture of CFCs has been curtailed, commencing in January
1996, thereby creating a marketing opportunity for non-CFC based systems, such
as Unicom Thermal's district cooling. Unicom Thermal is involved in district
cooling projects with local utilities in other cities, including Boston,
Houston and Las Vegas in the United States and Windsor, Ontario, Canada.
 
  Unicom Energy Services Inc., which is another subsidiary of Unicom
Enterprises, is engaged in energy services. It recently entered into a joint
venture with Sonat Marketing Company L.P. to market
 
                                       38
<PAGE>
 
natural gas sales and services to larger gas purchasers within ComEd's service
area in Northern Illinois and other Midwestern areas.
 
  Construction Program. Unicom has approved capital expenditures for 1997 of
approximately $56 million for Unicom Thermal, primarily representing the
construction costs of its district cooling facilities in Chicago and its share
of construction costs in Boston and Windsor. Unicom Thermal's first two
district cooling facilities in Chicago began serving customers in May 1995 and
July 1996, respectively. Its third district cooling facility in Chicago is
scheduled to be completed in 1997. As of June 30, 1997, Unicom Thermal's
purchase commitments, principally related to construction, were approximately
$38 million.
 
  Capital Resources. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from dividends received on its ComEd
common stock and from bank borrowings. The availability of ComEd's dividends to
Unicom is dependent on ComEd's financial performance and cash position. Other
forms of financing by ComEd to Unicom or the unregulated subsidiaries of
Unicom, such as loans or additional equity investments, none of which is
expected, would be subject to prior approval by the ICC.
 
  Unicom Enterprises has a $200 million credit facility which will expire in
November 1999, of which $85 million was unused as of June 30, 1997. The credit
facility can be used by Unicom Enterprises to finance investments in
unregulated businesses and projects, including Unicom Thermal, and for general
corporate purposes. The credit facility is guaranteed by Unicom and includes
certain covenants with respect to Unicom and Unicom Enterprises' operations.
Interest rates for borrowings under the credit facility are set at the time of
a borrowing and are based on either a prime interest rate or a floating rate
bank index plus a spread which varies with the credit rating of ComEd's
outstanding first mortgage bonds. See Note 10 of Notes to Financial Statements
for additional information regarding certain covenants with respect to Unicom
and Unicom Enterprises' operations.
 
REGULATION
 
  ComEd and the Indiana Company are subject to state and federal regulation in
the conduct of their respective businesses, including the operations of Cotter.
Such regulation includes rates, securities issuance, nuclear operations,
environmental and other matters. Particularly in the cases of nuclear
operations and environmental matters, such regulation can and does affect
operational and capital expenditures.
 
  Rate Matters. In January 1995, the ICC issued its Rate Order in the
proceedings relating to ComEd's February 1994 rate increase request. The Rate
Order provided, among other things, for an increase in ComEd's total revenues
of approximately $302 million (excluding add-on revenue taxes) on an annual
basis. The rates provided in the Rate Order became effective on January 14,
1995; however, they are being collected subject to refund as a result of
subsequent judicial action. The Rate Order was appealed by intervenors and
ComEd to the Illinois Appellate Court, which issued a decision on May 30, 1997
affirming the Rate Order in all respects with the exception of two issues which
it remanded to the ICC for the purpose of providing further analysis. Those
issues relate to: (i) the manner in which certain costs are recovered and which
customers should pay these costs, and (ii) the proper rate of return on common
equity for ComEd. ComEd believes that the ICC can satisfy the Appellate Court's
remand directions on the basis of the existing record from the ICC proceedings
which led to the Rate Order. The Appellate Court's decision was not appealled
and the matter has been returned to the ICC.
 
  With respect to the first of the issues remanded to the ICC, ComEd does not
believe it will have any effect on the overall level of rates. With respect to
the rate of return issue, the ICC had determined in the Rate Order that ComEd's
cost of common equity was 12.28%. Intervenors had submitted testimony
recommending a return on common equity of 11.50%. The Appellate Court decision
requires the ICC to clarify the basis for certain of its findings relating to
its rejection of the intervenors' recommendation and
 
                                       39
<PAGE>
 
to analyze further how it arrived at its conclusions. The Appellate Court
stated that after reanalyzing these bases the ICC can determine whether or not
the cost of common equity determination it adopted should still be followed.
Each tenth of one percent change in the common equity rate of return has an
approximately $8 million effect on the level of annual rates. The Appellate
Court's decision does not have any immediate effect on ComEd's rates or require
any refunds. In connection with the initiation of the appeal, ComEd committed
to make refunds "in the event that a final, non-appealable order is entered
reversing the ICC's Rate Order." Approximately $165 million would be subject to
refund if the ICC were to adopt the lower rate of return on common equity
recommended by intervenors. As noted, the Appellate Court's decision did not
reverse the Rate Order. For additional information see the Unicom and ComEd
Current Report on Form 8-K dated May 30, 1997 and Note 2 of Notes to Financial
Statements.
 
  Nuclear Matters. Nuclear operations have been, and remain, an important focus
of ComEd--given the impact of such operations on overall O&M expenditures and
the ability of nuclear power plants to produce electric energy at a relatively
low marginal cost. ComEd operates a large number of nuclear plants, ranging
from the older Zion, Dresden and Quad Cities stations to the more recently
completed LaSalle, Byron and Braidwood stations, and is intent upon safe,
reliable and efficient operation. These plants were constructed over a period
of time in which technology, construction procedures and regulatory initiatives
and oversight have evolved, with the result that older plants generally require
greater attention and resources to meet regulatory requirements and
expectations as well as to maintain operational reliability.
 
  On January 29, 1997, the NRC determined that ComEd's Dresden nuclear
generating station should remain on the NRC's list of plants to be monitored
closely, where it has been since being placed on that list in 1992. The NRC
also determined that ComEd's LaSalle and Zion nuclear generating stations
should be added to that list. On June 25, 1997, the NRC reported that Dresden,
LaSalle and Zion stations should remain on that list. With respect to Dresden,
the NRC noted improvements in performance but concluded that sustained improved
performance needs to be demonstrated. Although in each case the NRC recognized
that ComEd had undertaken significant management changes and had accomplished a
number of performance improvements, it expressed concern with specific issues
at each station and expressed a general concern with the sustainability of
improvements as the basis for its determination. The listing of the plants does
not prevent ComEd from operating the generating units; however, it does mean
that the NRC will devote additional resources to monitoring ComEd's operating
performance and that ComEd will need to work to demonstrate to the NRC the
sustainability of improvements which it believes it has undertaken and is
continuing to implement.
 
  In late January 1997, the NRC also took the unusual additional step of
requiring ComEd to submit information to allow the NRC to determine what
actions, if any, should be taken to assure that ComEd can safely operate its 6
nuclear generating stations while sustaining performance improvement at each
site. The request also required ComEd to submit information regarding the
criteria that it has established, or plans to establish, to measure performance
and to explain ComEd's proposed actions if the criteria are not met. The
request stated the NRC staff's concerns with the "cyclical safety performance
of ComEd nuclear stations," noting the presence on the list of plants to be
monitored closely of Dresden, LaSalle and Zion stations at various times during
the past 10 years. It also noted concerns regarding "ComEd's ability to
establish lasting and effective programs that result in sustained performance
improvement." The request did acknowledge the management and organizational
changes implemented by ComEd, including the "additional focus placed on
management and leadership, accountability, the problem identification and
corrective action processes, material condition improvement, work control, and
radiation protection." It also acknowledged improvements seen at Dresden and
Quad Cities stations; but indicated at the same time performance declines were
observed at both LaSalle and Zion stations. The problems identified by the NRC
are consistent with weaknesses that had been identified in station self-
assessments initiated by ComEd; and management had already undertaken to
develop and implement programs designed to address these issues. ComEd
submitted a response to the NRC on March 28, 1997; and the NRC indicated in an
April 25, 1997 public meeting with representatives of ComEd
 
                                       40
<PAGE>
 
management that ComEd's response was generally adequate to demonstrate ComEd's
ability to operate its nuclear generating stations while sustaining performance
improvements. The NRC and representatives of ComEd's management will meet
periodically in the future to follow-up on these matters.
 
  ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. Over the
past several years, it has increased and reinforced station management with
managers drawn from other utilities which have resolved similar operational and
performance issues. It has also sought to identify, anticipate and address
operating and performance issues in a safe, cost-effective manner while seeking
to improve the availability and capacity factors of its nuclear generating
units.
 
  ComEd's activities with respect to its nuclear generating stations have
included improvements in operating and personnel procedures and repair and
replacement of equipment and can result in longer unit outages. In this regard,
ComEd's management decided to continue the present unit outages at its LaSalle
station until the identified performance issues have been appropriately
addressed. ComEd presently expects the LaSalle outage to extend into the Spring
of 1998. Zion station is also presently out of service. The current Zion Unit 2
outage is expected to extend into the fourth quarter of 1997, and Zion Unit 1
is expected to be out of service until early 1998. Prior to restarting either
LaSalle or Zion stations, ComEd must brief the NRC regional staff as to certain
matters.
 
  The LaSalle and Zion outages are part of several outages of nuclear and
fossil generating stations that several utilities operating in the Midwestern
power grid (including ComEd) experienced or are experiencing during 1997. Prior
to the beginning of the summer, the North American Electric Reliability Council
had forecast the possibility of electric energy shortages during summer peak
demand periods due to generating station outages in the Midwestern power grid
and transmission limitations on delivering power from neighboring systems.
ComEd has worked to increase the availability of its remaining nuclear and
fossil generating capacity and to reinforce transmission capacity and has
negotiated the purchase of power and related transmission service from third
parties in light of these regional circumstances. A portion of ComEd's fuel and
purchased power costs, including certain coal transportation costs, are not
recoverable under ComEd's fuel adjustment clause. ComEd estimates that it will
incur approximately $110 million of such unrecovered energy costs in 1997
related to retail sales. ComEd is also utilizing additional methods of managing
customer demand for power. As of August 8, 1997, customer demands have been met
without undue disruption.
 
  Generating station availability and performance during a year may be issues
in fuel reconciliation proceedings in assessing the prudence of fuel and the
purchase of power during such year. Final ICC orders have been issued in fuel
reconciliation proceedings for years prior to 1994 and for the year 1995. In
1996, an intervenor filed testimony in the fuel reconciliation proceeding for
1994 seeking a refund of approximately $90 million relating to nuclear station
performance.
 
  Based on ComEd's most recent study, decommissioning costs, including the cost
of decontamination and dismantling, are estimated to aggregate $4.6 billion in
current-year (1997) dollars including a contingency allowance. ComEd estimates
that it will expend approximately $12.9 billion, including a contingency
allowance, for decommissioning costs primarily during the period from 2007
through 2032. Such costs are expected to be funded by external decommissioning
trusts which ComEd established in compliance with Illinois law and into which
ComEd has been making annual contributions. Future decommissioning cost
estimates may be significantly affected by the adoption of or changes to NRC
regulations as well as changes in the assumptions used in making such
estimates, including changes in technology, available alternatives for the
disposal of nuclear waste, and inflation. See Note 1 of Notes to Financial
Statements under "Depreciation and Decommissioning" for additional information.
 
  Environmental Matters. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The
outcome of these proceedings may require increases in
 
                                       41
<PAGE>
 
future construction expenditures and operating expenses and changes in
operating procedures. See Note 20 of Notes to Financial Statements and "Part
II. Other Information, Item 1. Legal Proceedings."
 
RESULTS OF OPERATIONS
 
  Unicom recorded a loss per common share of $0.08 for the three months ended
June 30, 1997 compared to earnings of $0.47 for the three months ended June 30,
1996, earnings of $0.43 for the six months ended June 30, 1997 compared to
$1.10 for the six months ended June 30, 1996, and earnings of $2.42 for the
twelve months ended June 30, 1997 compared to $3.16 for the twelve months ended
June 30, 1996. Substantially all of the results of operations for Unicom are
the results of operations for ComEd. The results of Unicom's unregulated
subsidiaries are not material to the results of Unicom and subsidiary companies
as a whole. As such, the following section discusses the results of operations
for ComEd alone.
 
  Net Income. ComEd's loss in the three months ended June 30, 1997, compared to
earnings in the same period ended June 30, 1996, reflects, among other factors,
a 20% increase in O&M expenses, which had a net income effect of $63 million or
$0.29 per common share. Also contributing to the loss were higher fuel and
purchased power costs, of which $59 million, with a net income effect of $36
million or $0.17 per common share, was not recoverable through the fuel
adjustment clause, reflecting an increase in generation at ComEd's coal fired
stations and increased sales to wholesale customers. Depreciation expense for
the three months ended June 30, 1997 included $15 million for additional
depreciation related to the steam generators that are being replaced at Byron
Unit 1 and Braidwood Unit 1. The three months ended June 30, 1996 included
property tax credits of $23 million, with a net income effect of $14 million or
$0.07 per common share, related to the year 1995.
 
  The decrease in ComEd's earnings in the six months ended June 30, 1997,
compared to the same period ended June 30, 1996, reflects, among other factors,
a 15% increase in O&M expenses, which had a net income effect of $98 million or
$0.45 per common share. Also contributing to the lower earnings were higher
fuel and purchased power costs, of which $90 million, with a net income effect
of $54 million or $0.25 per common share, was not recoverable through the fuel
adjustment clause, reflecting an increase in generation at ComEd's coal fired
stations and increased sales to wholesale customers. Depreciation expense for
the six months ended June 30, 1997 included $30 million for additional
depreciation related to the steam generators that are being replaced at Byron
Unit 1 and Braidwood Unit 1. The six months ended June 30, 1996 included
property tax credits of $23 million, with a net income effect of $14 million or
$0.07 per common share, related to the year 1995.
 
  The decrease in ComEd's earnings in the twelve months ended June 30, 1997,
compared to the same period ended June 30, 1996, reflects, among other factors,
a 6% increase in O&M expenses, which had a net income effect of $84 million or
$0.39 per common share. Also contributing to the lower earnings were higher
fuel and purchased power costs, of which $133 million, with a net income effect
of $81 million or $0.37 per common share, was not recoverable through the fuel
adjustment clause, reflecting an increase in generation at ComEd's coal fired
stations and increased sales to wholesale customers. The earnings for the
twelve months ended June 30, 1997 include charges for additional depreciation
related to ComEd's nuclear generating units, which includes the Byron Unit 1
and Braidwood Unit 1 steam generators, of $59 million. Property tax credits of
$23 million, with a net income effect of $14 million or $0.07 per common share,
related to the year 1995, were recorded in the second quarter of 1996. The
decrease in earnings was partially offset by the positive effects of an income
tax refund related to prior years with a net income effect of $26 million or
$0.12 per common share. In the fourth quarter of 1995, ComEd recorded an after-
tax charge of $20 million or $0.09 per common share related to the early
redemption of $645 million of long-term debt.
 
  Operating Revenues. ComEd's electric operating revenues reflect revenues from
sales to ultimate consumers (including residential, commercial and industrial
customers within its service territory), revenues from sales for resale (i.e.,
sales to wholesale customers, principally other electric utilities), and
 
                                       42
<PAGE>
 
revenues from collections under its fuel adjustment clause (which is intended
to recover variations in ComEd's fuel cost for generating electric energy and
the energy portion of purchased power cost in relation to the amount included
in ComEd's base rates). Operating revenues are affected by kilowatthour sales,
rates and fuel adjustment clause recoveries. Kilowatthour sales, in turn, are
affected by weather, the level of economic activity within ComEd's service
area, and off-system or wholesale sales to other utilities. Off-system sales
opportunities are affected by a number of factors, including nuclear generating
availability and performance.
 
  Operating revenues increased $102 million in the three months ended June 30,
1997 compared to the three months ended June 30, 1996, primarily due to
increased collections under ComEd's fuel adjustment clause and sales to
wholesale customers. Kilowatthour sales to retail customers during the three
months ended June 30, 1997 were down 0.5% compared to the same period in 1996,
including a 4.3% decrease in sales to residential customers, reflecting
unseasonably mild weather. Operating revenues increased $168 million in the six
months ended June 30, 1997 compared to the six months ended June 30, 1996,
primarily due to increased collections under ComEd's fuel adjustment clause and
sales to wholesale customers. Increased sales to commercial and industrial
customers partially offset by a 1.7% decrease in sales to residential
customers, reflecting unseasonably mild weather in the second quarter of 1997,
resulted in a 1.1% increase in kilowatthour sales to retail customers during
the six months ended June 30, 1997 compared to the same period in 1996.
Operating revenues increased $99 million in the twelve months ended June 30,
1997 compared to the twelve months ended June 30, 1996, primarily due to
increased sales to wholesale customers and increased collections under ComEd's
fuel adjustment clause, partially offset by a 2.0% decrease in kilowatthour
sales to retail customers.
 
  Fuel Costs. Changes in fuel expense for the three months, six months and
twelve months ended June 30, 1997 compared to the same periods ended June 30,
1996 primarily resulted from changes in the average cost of fuel consumed,
changes in the mix of fuel sources of electric energy generated and changes in
net generation of electric energy. Fuel mix is determined primarily by system
load, the costs of fuel consumed and the availability of nuclear generating
units. The cost of fuel consumed, net generation of electric energy and fuel
sources of kilowatthour generation were as follows:
 
<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED    SIX MONTHS ENDED    TWELVE MONTHS ENDED
                                                         JUNE 30              JUNE 30              JUNE 30
                                                   --------------------  ------------------  --------------------
                                                     1997       1996       1997      1996      1997       1996
                                                   ---------  ---------  --------  --------  ---------  ---------
   <S>                                             <C>        <C>        <C>       <C>       <C>        <C>
   Cost of fuel consumed (per million Btu):
     Nuclear.....................................      $0.60      $0.54     $0.57     $0.53      $0.55      $0.53
     Coal........................................      $2.37      $2.56     $2.41     $2.51      $2.37      $2.45
     Oil.........................................      $4.49      $3.80     $3.86     $3.27      $3.72      $3.17
     Natural gas.................................      $2.37      $2.87     $2.57     $2.91      $2.59      $2.22
     Average all fuels...........................      $1.45      $1.23     $1.37     $1.13      $1.28      $1.10
   Net generation of electric energy (millions of
    kilowatthours)...............................     18,761     21,822    41,080    45,315     88,813     93,748
   Fuel sources of kilowatthour generation:
     Nuclear.....................................         52%        67%       57%       71%        61%        71%
     Coal........................................         43         30        39        26         36         25
     Oil.........................................        --         --          1         1        --           1
     Natural gas.................................          5          3         3         2          3          3
                                                   ---------  ---------  --------  --------  ---------  ---------
                                                         100%       100%      100%      100%       100%       100%
                                                   =========  =========  ========  ========  =========  =========
</TABLE>
 
  The decrease in nuclear generation as a percentage of total generation, for
the three months, six months and twelve months ended June 30, 1997 compared to
the same periods ended June 30, 1996, is primarily due to outages at certain of
ComEd's nuclear generating stations. See "Regulation," subcaption "Nuclear
Matters" above for information regarding outages at certain of ComEd's nuclear
generating stations and outages in the Midwestern power grid in 1997.
 
  Fuel costs, not recoverable under ComEd's fuel adjustment clause, increased
$36 million, $67 million and $108 million for the three months, six months and
twelve months ended June 30, 1997, respectively,
 
                                       43
<PAGE>
 
compared to the same periods ended June 30, 1996. The increased fuel costs are
due primarily to an increase in generation at ComEd's coal fired stations and
increased sales to wholesale customers. See "Regulation," subcaption "Nuclear
Matters" above for information regarding outages at certain of ComEd's nuclear
generating stations.
 
  Under the Energy Policy Act of 1992, investor-owned electric utilities that
have purchased enrichment services from the DOE are being assessed amounts to
fund a portion of the cost for the decontamination and decommissioning of
uranium enrichment facilities owned and previously operated by the DOE. ComEd's
portion of such assessments is estimated to be approximately $15 million per
year (to be adjusted annually for inflation) to 2007. The Act provides that
such assessments are to be treated as a cost of fuel. See Note 1 of Notes to
Financial Statements under "Deferred Unrecovered Energy Costs" for information
related to the accounting for such costs.
 
  Fuel Supply. Compared to other utilities, ComEd has relatively low average
fuel costs as a result of its reliance predominantly on lower cost nuclear
generation. ComEd's coal costs, however, are high compared to those of other
utilities. ComEd's western coal contracts and its rail contracts for delivery
of the western coal provide for the purchase of certain coal at prices
substantially above currently prevailing market prices, and ComEd has
significant purchase commitments under its contracts. In addition, as of June
30, 1997, ComEd had unrecovered fuel costs in the form of coal reserves of $311
million. In prior years, ComEd's commitments for the purchase of coal exceeded
its requirements. Rather than take all the coal it was required to take, ComEd
agreed to purchase the coal in place in the form of coal reserves. For
additional information concerning ComEd's coal purchase commitments, fuel
reconciliation proceedings and coal reserves, see "Liquidity and Capital
Resources" above and "Deferred Unrecovered Energy Costs" in Note 1 of Notes to
Financial Statements.
 
  Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of ComEd and the Indiana Company's generating units and
the availability and cost of power from other utilities. Purchased power costs
not recoverable under ComEd's fuel adjustment clause increased $23 million for
the three months and six months ended and $25 million for the twelve months
ended June 30, 1997, respectively, compared to the same periods ended June 30,
1996. The increased purchased power costs are due primarily to a decrease in
nuclear generation. See "Fuel Costs" and "Regulation," subcaption "Nuclear
Matters" above.
 
  The number and average cost of kilowatthours purchased were as follows:
 
<TABLE>
<CAPTION>
                            THREE MONTHS    SIX MONTHS ENDED      TWELVE MONTHS ENDED
                            ENDED JUNE 30        JUNE 30                JUNE 30
                            --------------  -------------------   ---------------------
                             1997    1996     1997       1996       1997        1996
                            ------  ------  --------   --------   ----------  ---------
   <S>                      <C>     <C>     <C>        <C>        <C>         <C>
   Kilowatthours
    (millions)............. 5,530   1,376      8,982      2,847       12,264      4,874
   Cost per kilowatthour...  2.16c   2.40c      2.04c      2.27c        2.16c      2.44c
</TABLE>
 
  Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for the
three months, six months and twelve months ended June 30, 1997 and 1996 include
the net change in under or overrecovered allowable energy costs under ComEd's
fuel adjustment clause. See "Fuel Costs" and "Fuel Supply" above and Note 1 of
Notes to Financial Statements under "Deferred Unrecovered Energy Costs."
 
  Operation and Maintenance Expenses. O&M expenses include the expenses
associated with operating and maintaining ComEd's generation, transmission and
distribution assets as well as administrative overhead and support. Given the
variety of expense categories covered, there are a number of factors which
affect the level of such expenses within any given period. Two major components
of such expenses, however, are the costs associated with operating and
maintaining ComEd's nuclear and fossil generating facilities. Generating
station expenses are affected by the cost of materials, regulatory requirements
and expectations, the age of facilities as well as cost control efforts.
 
                                       44
<PAGE>
 
  During the three months, six months and twelve months ended June 30, 1997,
the aggregate level of O&M expenses increased 20%, 15% and 6%, respectively,
compared to the same periods ended June 30, 1996. The periods include increases
in the level of nuclear generating station expenses, as discussed below. The
twelve months ended June 30, 1996 reflects the impact of an early separation
program offered to ComEd's employees, which resulted in a $99 million charge
related to the offered incentives. Additional factors in each period also
affected the level of O&M expenses.
 
  O&M expenses associated with nuclear generating stations increased $97
million, $142 million and $221 million during the three months, six months and
twelve months ended June 30, 1997, respectively, compared to the same periods
ended June 30, 1996, as a result of activities associated with the repair,
replacement and improvement of nuclear generating facility equipment. Beginning
in 1995, ComEd increased the number and scope of maintenance activities
associated with its nuclear generating stations. Such efforts are the result of
station performance evaluations performed to identify the sources and causes of
unplanned equipment repairs. The goal of such efforts is to design and
implement cost effective repairs and improvements to increase station
availability. The efforts begun in 1995 are expected to continue through 1998.
 
  The increase in O&M expenses associated with nuclear generating stations has
been driven by ComEd's objective to improve station availability as well as to
meet regulatory requirements and expectations. ComEd is pursuing a program to
improve the quality of nuclear operations, including safety and efficiency,
which is also expected to achieve a longer term goal of improved availability
and to be positioned to take advantage of opportunities in a more competitive
market. Over the past several years, ComEd has increased and reinforced station
management with managers drawn from other utilities which have resolved similar
operating issues. It has also sought to identify, anticipate and address
nuclear station operation and performance issues in a safe, cost-effective
manner while seeking to improve the availability and capacity factors of its
nuclear generating units. Such activities have included improvements in
operating and personnel procedures and repair and replacement of equipment, and
can result in longer unit outages. Such activities have involved increased
maintenance and repair expenses in recent years.
 
  During the three months, six months and twelve months ended June 30, 1997,
O&M expenses associated with fossil generating stations increased $7 million,
and decreased $7 million and $26 million, respectively, compared to the same
periods ended June 30, 1996. The increase related to fossil generating stations
in the recent three months ended is primarily due to an increase in the repair
and improvement of fossil generating facility equipment, partially offset by a
reduction of personnel. The decreases related to the fossil generating stations
in the recent six months and twelve months ended are primarily due to
reductions in the repair and improvement of fossil generating facility
equipment and a reduction of personnel.
 
  O&M expenses associated with ComEd's transmission and distribution system
increased $6 million, $14 million and $29 million in the three months, six
months and twelve months ended June 30, 1997, respectively, compared to the
same periods ended June 30, 1996. The increases in the recent three months, six
months and twelve months ended are due to a variety of reasons, including
increased emergency restoration costs and certain load dispatching activities.
O&M expenses associated with customer related activities increased $14 million
in the twelve months ended June 30, 1997 compared to the same period ended June
30, 1996, primarily due to an increase in uncollectible accounts and sales and
marketing expenses.
 
  O&M expenses also include compensation and benefits expenses. Since 1995,
ComEd has reduced the size of its workforce by offering incentives for
employees to leave voluntarily. Such incentives included both current payments
and earlier eligibility for post-retirement health care benefits, resulting in
provisions of $11 million for the payments and $5 million for the benefits
incentives for the twelve months ended June 30, 1997 and resulted in provisions
of $73 million for payments and $26 million for benefits
 
                                       45
<PAGE>
 
incentives for the twelve months ended June 30, 1996. ComEd also recorded a
reduction of $7 million in the provision for pension costs for the six months
and twelve months ended June 30, 1997, compared to the same periods ended June
30, 1996. Finally, O&M expenses reflect $38 million and $65 million for
employee incentive compensation plan costs for the twelve months ended June 30,
1997 and 1996, respectively. The payments, which were made partly in cash and
partly in shares of Unicom common stock, were made under Unicom's Long-Term
Incentive Plan as the result of the achievement during the years 1996 and 1995,
respectively, of specified financial performance, cost containment and
operating performance goals. The effects of inflation have also increased O&M
expenses during the periods and are reflected in the increases and decreases
discussed herein.
 
  Excluding the special items described below, ComEd expects 1997 overall O&M
expenses to increase by approximately $150 million over 1996 expenses.
Approximately $100 million of this increase is related to nuclear operations
and is intended to address previously identified operational issues, including
issues identified by the NRC in connection with its determination regarding the
plants to be monitored closely, and to achieve a longer term benefit of
improved capacity factors. ComEd expects this increased level of expenses to
continue through 1998. In addition to the $150 million O&M increase discussed
above, ComEd estimates that it will incur O&M charges in the second half of
1997 of approximately $25 million for a voluntary separation offer made to
certain ComEd management employees. In addition, the delay in the closing of
the sale of the State Line and Kincaid generating stations is expected to
increase 1997 O&M expenses by approximately $25 million, however, such delay
also results in decreased purchased power costs of a comparable amount.
 
  Depreciation. Depreciation expense for the three months, six months and
twelve months ended June 30, 1997 increased over the same periods a year ago as
a result of additional nuclear depreciation and additions to plant in service.
The additional depreciation on ComEd's nuclear generating units includes
depreciation recorded on a straight-line basis related to its steam generators
at Byron Unit 1 and Braidwood Unit 1, which are expected to be replaced prior
to year-end 1998. Use of the straight-line methodology for these components
resulted in $15 million of additional depreciation expense for the three months
ended June 30, 1997 and $30 million of additional depreciation expense for the
six months and twelve months ended June 30, 1997. ComEd also recorded
additional depreciation charges of $30 million on its nuclear generating units
in the last half of 1996. ComEd also continues to consider the possibility of
additional depreciation options. See "Depreciation and Decommissioning" in Note
1 and Note 2 of Notes to Financial Statements.
 
  Interest on Debt. Changes in interest on long-term debt and notes payable for
the three months, six months and twelve months ended June 30, 1997 compared to
the same periods ended June 30, 1996 were due to changes in average interest
rates and in the amounts of long-term debt and notes payable outstanding.
Changes in interest on ComEd's long-term debt also reflected new issues of
debt, the retirement and early redemption of debt, and the retirement and
redemption of issues which were refinanced at generally lower rates of
interest. The average amounts of ComEd's long-term debt and notes payable
outstanding and average interest rates thereon were as follows:
 
<TABLE>
<CAPTION>
                                 THREE MONTHS ENDED     SIX MONTHS ENDED     TWELVE MONTHS ENDED
                                       JUNE 30               JUNE 30               JUNE 30
                                --------------------- --------------------- ---------------------
                                   1997       1996       1997       1996       1997       1996
                                ---------- ---------- ---------- ---------- ---------- ----------
      <S>                       <C>        <C>        <C>        <C>        <C>        <C>
      Long-term debt outstand-
       ing:
       Average amount (mil-
        lions)................    $6,245     $6,682     $6,395     $6,700     $6,493     $7,011
       Average interest rate..      7.64%      7.72%      7.65%      7.72%      7.63%      7.73%
      Notes payable outstand-
       ing:
       Average amount (mil-
        lions)................    $  222     $  313     $  180     $  301     $  170     $  196
       Average interest rate..      5.95%      5.71%      5.87%      5.81%      5.81%      5.91%
</TABLE>
 
  Decommissioning. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including ComEd,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in financial statements of electric
utilities. In
 
                                       46
<PAGE>
 
response to these questions, the FASB is reviewing the accounting for nuclear
decommissioning costs and issued an exposure draft in February 1996 requesting
written comment. If current electric utility industry accounting practices for
such decommissioning costs are changed, annual provisions for decommissioning
could increase and the estimated cost for decommissioning could be recorded as
a liability rather than as accumulated depreciation. Unicom does not believe
that such changes, if required, would have an adverse effect on the results of
operations due to ComEd's ability to recover decommissioning costs through
rates.
 
  Other Items. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates as discussed in Note 1 of Notes to Financial Statements under "AFUDC".
AFUDC does not contribute to the current cash flow of Unicom or ComEd.
 
  ComEd's ratios of earnings to fixed charges for the twelve months ended June
30, 1997 and December 31, 1996 were 2.57 and 2.90, respectively. ComEd's ratios
of earnings to fixed charges and preferred and preference stock dividend
requirements for the twelve months ended June 30, 1997 and December 31, 1996
were 2.20 and 2.48, respectively.
 
  Business corporations, in general, have been adversely affected by inflation
because amounts retained after the payment of all costs have been inadequate to
replace, at increased costs, the productive assets consumed. Electric
utilities, in particular, have been especially affected as a result of their
capital intensive nature and regulation, which limits capital recovery and
prescribes installation or modification of facilities to comply with
increasingly stringent safety and environmental requirements. Because the
regulatory process limits the amount of depreciation expense included in
ComEd's revenue allowance to the original cost of utility plant investment, the
resulting cash flows are inadequate to provide for replacement of that
investment in future years or preserve the purchasing power of common equity
capital previously invested.
 
                                       47
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
 
To Commonwealth Edison Company:
 
  We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Commonwealth Edison Company (an Illinois
corporation) and subsidiary companies as of June 30, 1997 and December 31,
1996, and the related statements of consolidated income, retained earnings and
cash flows for the three-month, six-month and twelve-month periods ended June
30, 1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Commonwealth Edison Company
and subsidiary companies as of June 30, 1997 and December 31, 1996, and the
results of their operations and their cash flows for the three-month, six-month
and twelve-month periods ended June 30, 1997 and 1996, in conformity with
generally accepted accounting principles.
 
 
                                            Arthur Andersen LLP
Chicago, Illinois
August 8, 1997
 
                                       48
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                       STATEMENTS OF CONSOLIDATED INCOME
 
  The following Statements of Consolidated Income for the three months, six
months and twelve months ended June 30, 1997 and 1996 reflect the results of
past operations and are not intended as any representation as to results of
operations for any future period. Future operations will necessarily be
affected by various and diverse factors and developments, including changes in
electric rates, regulation, population, business activity, competition, taxes,
environmental control, energy use, fuel, cost of labor, purchased power and
other matters, the nature and effect of which cannot now be determined.
 
<TABLE>
<CAPTION>
                           THREE MONTHS ENDED       SIX MONTHS ENDED       TWELVE MONTHS ENDED
                                 JUNE 30                 JUNE 30                 JUNE 30
                          ----------------------  ----------------------  ----------------------
                             1997        1996        1997        1996        1997        1996
                          ----------  ----------  ----------  ----------  ----------  ----------
                                          (THOUSANDS EXCEPT PER SHARE DATA)
<S>                       <C>         <C>         <C>         <C>         <C>         <C>
Electric Operating
 Revenues...............  $1,650,057  $1,547,632  $3,399,142  $3,231,121  $7,102,569  $7,003,236
                          ----------  ----------  ----------  ----------  ----------  ----------
Electric Operating
 Expenses and Taxes:
 Fuel...................  $  289,828  $  287,910  $  597,623  $  548,882  $1,215,781  $1,111,292
 Purchased power........     119,333      33,061     183,640      64,500     264,440     118,892
 Deferred
  (under)/overrecovered
  energy costs--net.....      18,894     (33,353)     20,167     (10,350)     21,333     (14,346)
 Operation..............     428,611     379,122     828,821     726,568   1,598,428   1,571,767
 Maintenance............     209,073     154,445     377,497     317,992     712,000     599,819
 Depreciation...........     245,966     229,827     495,086     460,438     986,512     907,947
 Recovery of regulatory
  assets................       3,818       3,818       7,636       7,636      15,272      15,272
 Taxes (except income)..     191,249     159,351     396,850     377,481     802,037     810,122
 Income taxes--
   Current--Federal.....      11,970      41,810      62,677     109,522     218,480     263,709
   --State..............       3,997      11,470      22,040      32,659      63,574      91,690
   Deferred--Federal--
    net.................       2,811      27,477      30,624      51,348     119,396     184,351
   --State--net.........         680       5,169         794       5,376      11,559      12,920
 Investment tax credits
  deferred--net.........      (7,897)     (7,165)    (15,794)    (14,332)    (34,840)    (28,685)
                          ----------  ----------  ----------  ----------  ----------  ----------
                          $1,518,333  $1,292,942  $3,007,661  $2,677,720  $5,993,972  $5,644,750
                          ----------  ----------  ----------  ----------  ----------  ----------
Electric Operating
 Income.................  $  131,724  $  254,690  $  391,481  $  553,401  $1,108,597  $1,358,486
                          ----------  ----------  ----------  ----------  ----------  ----------
Other Income and
 (Deductions):
 Interest on long-term
  debt..................  $ (119,363) $ (128,949) $ (244,472) $ (258,679) $ (495,691) $ (541,720)
 Interest on notes
  payable...............      (3,298)     (4,436)     (5,249)     (8,687)     (9,869)    (11,595)
 Allowance for funds
  used during
  construction--
   Borrowed funds.......       4,952       6,367       9,004      11,265      17,164      17,525
   Equity funds.........       5,706       6,068      10,786      10,766      20,797      18,026
 Income taxes
  applicable to
  nonoperating
  activities............       2,052         790       2,418       5,066       5,165       9,682
 Provision for
  dividends on company-
  obligated mandatorily
  redeemable preferred
  securities of
  subsidiary trusts.....      (7,428)     (4,240)    (14,076)     (8,480)    (22,556)    (12,908)
 Miscellaneous--net.....     (12,378)    (10,842)    (21,250)    (29,313)    (26,935)    (59,406)
                          ----------  ----------  ----------  ----------  ----------  ----------
                          $ (129,757) $ (135,242) $ (262,839) $ (278,062) $ (511,925) $ (580,396)
                          ----------  ----------  ----------  ----------  ----------  ----------
Net Income Before
 Extraordinary Item.....  $    1,967  $  119,448  $  128,642  $  275,339  $  596,672  $  778,090
Extraordinary Loss
 Related to Early
 Redemption of Long-Term
 Debt, Less Applicable
 Income Taxes...........         --          --          --          --          --      (20,022)
                          ----------  ----------  ----------  ----------  ----------  ----------
Net Income..............  $    1,967  $  119,448  $  128,642  $  275,339  $  596,672  $  758,068
Provision for Dividends
 on Preferred and
 Preference Stocks......      15,485      16,472      31,012      32,986      62,450      69,172
                          ----------  ----------  ----------  ----------  ----------  ----------
Net Income (Loss) on
 Common Stock...........  $  (13,518) $  102,976  $   97,630  $  242,353  $  534,222  $  688,896
                          ==========  ==========  ==========  ==========  ==========  ==========
Average Number of Common
 Shares Outstanding.....     214,226     214,198     214,223     214,196     214,218     214,195
Earnings (Loss) per
 Common Share Before
 Extraordinary Item.....      $(0.06)      $0.48       $0.46       $1.13       $2.49       $3.31
Extraordinary Loss
 Related to Early
 Redemption of Long-Term
 Debt, Less Applicable
 Income Taxes...........         --          --          --          --          --        (0.09)
                          ----------  ----------  ----------  ----------  ----------  ----------
Earnings (Loss) per
 Common Share...........      $(0.06)      $0.48       $0.46       $1.13       $2.49       $3.22
                          ==========  ==========  ==========  ==========  ==========  ==========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       49
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                       JUNE 30,    DECEMBER 31,
                       ASSETS                            1997          1996
                       ------                         -----------  ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Utility Plant:
  Plant and equipment, at original cost (includes
   construction work in progress of $1,143 million
   and $1,034 million, respectively)................. $28,253,144  $27,900,632
  Less--Accumulated provision for depreciation.......  12,038,829   11,479,991
                                                      -----------  -----------
                                                      $16,214,315  $16,420,641
  Nuclear fuel, at amortized cost....................     822,373      805,623
                                                      -----------  -----------
                                                      $17,036,688  $17,226,264
                                                      -----------  -----------
Investments:
  Nuclear decommissioning funds...................... $ 1,712,464  $ 1,456,360
  Subsidiary companies...............................     120,937      118,188
  Other investments, at cost.........................      36,530       14,903
                                                      -----------  -----------
                                                      $ 1,869,931  $ 1,589,451
                                                      -----------  -----------
Current Assets:
  Cash............................................... $       --   $        89
  Temporary cash investments.........................      49,796       28,801
  Other cash investments.............................       7,932          --
  Special deposits...................................         466        1,610
  Receivables--
    Customers........................................     562,836      568,155
    Other............................................      63,735      103,243
    Provisions for uncollectible accounts............     (13,747)     (12,893)
  Coal and fuel oil, at average cost.................     180,150      140,362
  Materials and supplies, at average cost............     323,944      324,485
  Deferred unrecovered energy costs..................      80,291      104,651
  Deferred income taxes related to current assets and
   liabilities.......................................     113,909      119,917
  Prepayments and other..............................      38,417       35,315
                                                      -----------  -----------
                                                      $ 1,407,729  $ 1,413,735
                                                      -----------  -----------
Deferred Charges and Other Noncurrent Assets:
  Regulatory assets.................................. $ 2,524,259  $ 2,434,807
  Unrecovered energy costs...........................     387,468      444,009
  Other..............................................      97,472      108,834
                                                      -----------  -----------
                                                      $ 3,009,199  $ 2,987,650
                                                      -----------  -----------
                                                      $23,323,547  $23,217,100
                                                      ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       50
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                        JUNE 30,   DECEMBER 31,
            CAPITALIZATION AND LIABILITIES                1997         1996
            ------------------------------             ----------- ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                    <C>         <C>
Capitalization (see accompanying statements):
  Common stock equity................................. $ 5,969,582 $ 6,043,093
  Preferred and preference stocks without mandatory
   redemption requirements............................     507,103     507,342
  Preference stock subject to mandatory redemption
   requirements.......................................     202,035     217,901
  Company-obligated mandatorily redeemable preferred
   securities of subsidiary trusts*...................     350,000     200,000
  Long-term debt......................................   5,690,718   5,957,604
                                                       ----------- -----------
                                                       $12,719,438 $12,925,940
                                                       ----------- -----------
Current Liabilities:
  Notes payable--
    Commercial paper.................................. $   256,000 $   121,000
    Bank loans........................................       7,750       7,750
  Current portion of long-term debt, redeemable
   preference stock and capitalized lease obligations.     711,253     743,528
  Accounts payable....................................     407,470     478,876
  Accrued interest....................................     168,813     166,862
  Accrued taxes.......................................     221,620     182,366
  Dividends payable...................................     106,750     101,216
  Customer deposits...................................      54,733      51,585
  Other...............................................     100,348      98,444
                                                       ----------- -----------
                                                       $ 2,034,737 $ 1,951,627
                                                       ----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
  Deferred income taxes............................... $ 4,535,545 $ 4,568,832
  Accumulated deferred investment tax credits.........     639,868     655,662
  Accrued spent nuclear fuel disposal fee and related
   interest...........................................     674,704     657,449
  Obligations under capital leases....................     522,746     474,841
  Regulatory liabilities..............................     723,922     668,301
  Other...............................................   1,472,587   1,314,448
                                                       ----------- -----------
                                                       $ 8,569,372 $ 8,339,533
                                                       ----------- -----------
Commitments and Contingent Liabilities (Note 20)
                                                       $23,323,547 $23,217,100
                                                       =========== ===========
</TABLE>
 
  *As described in Note 8 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of
ComEd, is $154.6 million principal amount of ComEd's 8.50% subordinated
deferrable interest debentures due January 15, 2027.
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       51
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                   STATEMENTS OF CONSOLIDATED CAPITALIZATION
 
<TABLE>
<CAPTION>
                                                       JUNE 30,    DECEMBER 31,
                                                         1997          1996
                                                      -----------  ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Common Stock Equity:
  Common stock, $12.50 par value per share--
   Outstanding--214,226,420 shares and 214,218,454
    shares, respectively............................. $ 2,677,830  $ 2,677,731
  Premium on common stock and other paid-in capital..   2,223,535    2,223,396
  Capital stock and warrant expense..................     (15,982)     (15,990)
  Retained earnings..................................   1,084,199    1,157,956
                                                      -----------  -----------
                                                      $ 5,969,582  $ 6,043,093
                                                      -----------  -----------
Preferred and Preference Stocks Without Mandatory
 Redemption Requirements:
  Preference stock, cumulative, without par value--
   Outstanding--13,499,549 shares ................... $   504,957  $   504,957
  $1.425 convertible preferred stock, cumulative,
   without par value--
   Outstanding--67,491 shares and 75,003 shares,
    respectively.....................................       2,146        2,385
  Prior preferred stock, cumulative, $100 par value
   per share--
   No shares outstanding.............................         --           --
                                                      -----------  -----------
                                                      $   507,103  $   507,342
                                                      -----------  -----------
Preference Stock Subject to Mandatory Redemption
 Requirements:
  Preference stock, cumulative, without par value--
   Outstanding--2,466,775 shares and 2,496,775
    shares, respectively............................. $   245,609  $   248,589
  Current redemption requirements for preference
   stock included in current liabilities.............     (43,574)     (30,688)
                                                      -----------  -----------
                                                      $   202,035  $   217,901
                                                      -----------  -----------
Company-Obligated Mandatorily Redeemable Preferred
 Securities of Subsidiary Trusts..................... $   350,000  $   200,000
                                                      -----------  -----------
Long-Term Debt:
  First mortgage bonds:
    Maturing 1997 through 2001--5 3/8% to 9 3/8%..... $   920,000  $ 1,120,000
    Maturing 2002 through 2011--4.15% to 8 3/8%......   1,640,400    1,640,400
    Maturing 2012 through 2021--5.85% to 9 7/8%......   1,191,000    1,391,000
    Maturing 2022 through 2023--7 3/4% to 8 5/8%.....   1,160,000    1,160,000
                                                      -----------  -----------
                                                      $ 4,911,400  $ 5,311,400
  Sinking fund debentures, due 1999 through 2011--
   2 3/4% to 7 5/8%..................................     100,597      105,164
  Pollution control obligations, due 2007 through
   2014-- 4.10% to 5 7/8%............................     142,200      142,200
  Other long-term debt...............................   1,116,890      986,932
  Deposit for retirement of long-term debt...........        (229)         --
  Current maturities of long-term debt included in
   current liabilities...............................    (531,612)    (538,534)
  Unamortized net debt discount and premium..........     (48,528)     (49,558)
                                                      -----------  -----------
                                                      $ 5,690,718  $ 5,957,604
                                                      -----------  -----------
                                                      $12,719,438  $12,925,940
                                                      ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       52
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                  STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
 
<TABLE>
<CAPTION>
                         THREE MONTHS ENDED    SIX MONTHS ENDED     TWELVE MONTHS ENDED
                               JUNE 30              JUNE 30               JUNE 30
                         ------------------- --------------------- ---------------------
                            1997      1996      1997       1996       1997       1996
                         ---------- -------- ---------- ---------- ---------- ----------
                                             (THOUSANDS OF DOLLARS)
<S>                      <C>        <C>      <C>        <C>        <C>        <C>
Balance at Beginning of
 Period................. $1,183,414 $875,547 $1,157,956 $  821,848 $  892,836 $  546,624
Add--Net income.........      1,967  119,448    128,642    275,339    596,672    758,068
                         ---------- -------- ---------- ---------- ---------- ----------
                         $1,185,381 $994,995 $1,286,598 $1,097,187 $1,489,508 $1,304,692
                         ---------- -------- ---------- ---------- ---------- ----------
Deduct--
   Dividends declared
    on--
    Common stock........ $   85,691 $ 85,680 $  171,381 $  171,358 $  342,755 $  342,713
    Preferred and pref-
     erence stocks......     15,463   16,451     30,990     32,965     62,121     66,066
   Other capital stock
    transactions--net...         28       28         28         28        433      3,077
                         ---------- -------- ---------- ---------- ---------- ----------
                         $  101,182 $102,159 $  202,399 $  204,351 $  405,309 $  411,856
                         ---------- -------- ---------- ---------- ---------- ----------
Balance at End of
 Period................. $1,084,199 $892,836 $1,084,199 $  892,836 $1,084,199 $  892,836
                         ========== ======== ========== ========== ========== ==========
</TABLE>
 
 
 
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       53
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                     STATEMENTS OF CONSOLIDATED CASH FLOWS
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED     SIX MONTHS ENDED       TWELVE MONTHS ENDED
                                JUNE 30               JUNE 30                 JUNE 30
                          --------------------  --------------------  ------------------------
                            1997       1996       1997       1996        1997         1996
                          ---------  ---------  ---------  ---------  -----------  -----------
                                              (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>        <C>        <C>          <C>
Cash Flow from Operating
 Activities:
 Net income.............  $   1,967  $ 119,448  $ 128,642  $ 275,339  $   596,672  $   758,068
 Adjustments to
  reconcile net income
  to net cash provided
  by operating
  activities:
   Depreciation and
    amortization........    256,426    238,191    515,140    479,065    1,025,019      951,021
   Deferred income taxes
    and investment tax
    credits--net........     (5,082)    25,996     14,885     42,204       97,538      166,057
   Extraordinary loss
    related to early
    redemption of long-
    term debt...........        --         --         --         --           --        33,158
   Equity component of
    allowance for funds
    used during
    construction........     (5,706)    (6,068)   (10,786)   (10,766)     (20,797)     (18,026)
   Recovery of
    regulatory assets...      3,818      3,818      7,636      7,636       15,272       15,272
   Provisions/(payments)
    for liability for
    separation costs--
    net.................      1,428      2,373        802    (29,930)         845       30,223
   Net effect on cash
    flows of changes in:
     Receivables........     22,189     26,180     45,681    136,864      (23,295)     (26,208)
     Coal and fuel oil..     (7,513)   (22,314)   (39,788)   (37,805)     (13,169)     (33,683)
     Materials and
      supplies..........        571     (7,149)       541     (8,752)      18,347       24,239
     Accounts payable
      excluding nuclear
      fuel lease
      principal payments
      and separation
      costs--net........     10,050     16,453     15,630    (49,359)     175,425      334,897
     Accrued interest
      and taxes.........    (24,687)    23,237     41,205     72,881      (68,697)     (22,397)
     Other changes in
      certain current
      assets and
      liabilities.......     31,408    (17,941)    23,260     (8,670)      45,694        8,294
   Other--net...........     47,457     26,359    113,359     29,850      189,050       40,532
                          ---------  ---------  ---------  ---------  -----------  -----------
                          $ 332,326  $ 428,583  $ 856,207  $ 898,557  $ 2,037,904  $ 2,261,447
                          ---------  ---------  ---------  ---------  -----------  -----------
Cash Flow from Investing
 Activities:
 Construction
  expenditures..........  $(216,138) $(237,046) $(425,844) $(517,880) $  (857,834) $(1,037,280)
 Nuclear fuel
  expenditures..........    (41,943)  (109,184)   (90,716)  (143,603)    (228,946)    (321,567)
 Equity component of
  allowance for funds
  used during
  construction..........      5,706      6,068     10,786     10,766       20,797       18,026
 Contributions to
  nuclear
  decommissioning
  funds.................        --         --     (80,181)   (83,178)    (116,284)    (119,602)
 Other investments and
  special deposits......     (4,998)       --     (29,300)       (48)     (29,304)      20,200
                          ---------  ---------  ---------  ---------  -----------  -----------
                          $(257,373) $(340,162) $(615,255) $(733,943) $(1,211,571) $(1,440,223)
                          ---------  ---------  ---------  ---------  -----------  -----------
Cash Flow from Financing
 Activities:
 Issuance of
  securities--
  Long-term debt........  $     --   $ 198,902  $ 297,663  $ 198,902  $   297,663  $   198,902
  Preferred securities
   of subsidiary
   trusts...............        --         --     150,000        --       150,000      200,000
  Capital stock.........         39         80        238        105          802          180
 Retirement and
  redemption of
  securities--
  Long-term debt........    (72,571)  (267,056)  (574,482)  (267,097)    (739,370)  (1,112,706)
  Capital stock.........     (3,040)    (3,082)    (3,239)    (3,107)     (44,645)     (18,004)
 Deposits and
  securities held for
  retirement and
  redemption of
  securities............      2,102      2,643       (229)      (975)         746         (598)
 Premium paid on early
  redemption of long-
  term debt.............        --         --      (9,500)       --        (9,500)     (25,823)
 Cash dividends paid on
  capital stock.........   (105,457)  (106,433)  (210,913)  (208,625)    (427,052)    (417,840)
 Proceeds from
  sale/leaseback of
  nuclear fuel..........     36,801     35,402     81,271    159,615      238,273      237,491
 Nuclear fuel lease
  principal payments....    (36,305)   (50,918)   (85,855)  (106,969)    (190,627)    (229,197)
 Increase (Decrease) in
  short-term
  borrowings............    134,000     98,850    135,000     66,250      (70,650)     287,250
                          ---------  ---------  ---------  ---------  -----------  -----------
                          $ (44,431) $ (91,612) $(220,046) $(161,901) $  (794,360) $  (880,345)
                          ---------  ---------  ---------  ---------  -----------  -----------
Increase (Decrease) in
 Cash and Temporary Cash
 Investments............  $  30,522  $  (3,191) $  20,906  $   2,713  $    31,973  $   (59,121)
Cash and Temporary Cash
 Investments at
 Beginning of Period....     19,274     21,014     28,890     15,110       17,823       76,944
                          ---------  ---------  ---------  ---------  -----------  -----------
Cash and Temporary Cash
 Investments at End of
 Period.................  $  49,796  $  17,823  $  49,796  $  17,823  $    49,796  $    17,823
                          =========  =========  =========  =========  ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       54
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                         NOTES TO FINANCIAL STATEMENTS
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
 
  See Unicom's Note 1 of Notes to Financial Statements for a discussion of
significant accounting policies, except for the following specific policies
discussed below.
 
  Income Taxes. ComEd is included in the consolidated federal and state income
tax returns filed by Unicom. Current and deferred income taxes of the
consolidated group are allocated to ComEd as if ComEd filed separate tax
returns. Deferred income taxes are provided for income and expense items
recognized for financial accounting purposes in periods that differ from those
for income tax purposes. Income taxes deferred in prior years are charged or
credited to income as the book/tax timing differences reverse. Prior years'
deferred investment tax credits are amortized through credits to income
generally over the lives of the related property. Income tax credits resulting
from interest charges applicable to nonoperating activities, principally
construction, are classified as other income.
 
  Interest. Total interest costs incurred on debt, leases and other obligations
were $147 million and $157 million for the three months ended June 30, 1997 and
1996, respectively, $299 million and $314 million for the six months ended June
30, 1997 and 1996, respectively, and $604 million and $654 million for the
twelve months ended June 30, 1997 and 1996, respectively.
 
  Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be cash
equivalents. Supplemental cash flow information for the three months, six
months and twelve months ended June 30, 1997 and 1996 was as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED SIX MONTHS ENDED  TWELVE MONTHS ENDED
                               JUNE 30            JUNE 30            JUNE 30
                          ------------------ ----------------- -------------------
                            1997     1996      1997     1996     1997      1996
                          ------------------ -------- -------- --------- ---------
                                           (THOUSANDS OF DOLLARS)
<S>                       <C>      <C>       <C>      <C>      <C>       <C>
Supplemental Cash Flow
 Information:
 Cash paid during the
  period for:
   Interest (net of
    amount capitalized).   $97,518  $114,114 $255,253 $270,724  $518,027  $558,660
   Income taxes (net of
    refunds)............  $ 48,503 $   9,284 $ 55,501 $  9,284 $ 285,137 $ 355,634
Supplemental Schedule of
 Non-Cash Investing and
 Financing Activities:
 Capital lease obliga-
  tions incurred........  $ 39,376 $  36,994 $ 85,773 $162,486  $244,261 $ 242,820
</TABLE>
 
  (2) RATE MATTERS. See Unicom's Note 2 of Notes to Financial Statements.
 
  (3) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At June 30, 1997,
the authorized shares of capital stock were: common stock--250,000,000 shares;
preference stock--22,776,775 shares; $1.425 convertible preferred stock--67,491
shares; and prior preferred stock-- 850,000 shares. The preference and prior
preferred stocks are issuable in series and may be issued with or without
mandatory redemption requirements. Holders of shares at any time outstanding,
regardless of class, are entitled to one vote for each share held on each
matter submitted to a vote at a meeting of shareholders, with the right to
cumulate votes in all elections for directors.
 
  (4) COMMON STOCK. At June 30, 1997, shares of common stock were reserved for
the following purposes:
 
<TABLE>
      <S>                                                                 <C>
      Conversion of $1.425 convertible preferred stock................... 68,840
      Conversion of warrants............................................. 25,689
                                                                          ------
                                                                          94,529
                                                                          ======
</TABLE>
 
                                       55
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  During the three months, six months and twelve months ended June 30, 1997 and
1996, shares of common stock were issued as follows:
 
<TABLE>
<CAPTION>
                                                SIX MONTHS
                         THREE MONTHS ENDED        ENDED     TWELVE MONTHS ENDED
                               JUNE 30            JUNE 30          JUNE 30
                         --------------------  ------------- ---------------------
                           1997       1996      1997   1996    1997       1996
                         ---------  ---------  ------ ------ ---------- ----------
<S>                      <C>        <C>        <C>    <C>    <C>        <C>
Conversion of $1.425
 convertible preferred
 stock..................     1,272      2,634  7,654  3,435      26,365     5,834
Conversion of warrants..       131        336    312    399       1,271       482
                         ---------  ---------  -----  -----  ---------- ---------
                             1,403      2,970  7,966  3,834      27,636     6,316
                         =========  =========  =====  =====  ========== =========
</TABLE>
 
  At June 30, 1997 and December 31, 1996, 77,068 and 78,045 common stock
purchase warrants, respectively, were outstanding. The warrants entitle the
holders to convert such warrants into common stock at a conversion rate of one
share of common stock for three warrants.
 
  (5) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN. See Unicom's Note 5 of
Notes to Financial Statements.
 
  (6) PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS. See Unicom's Note 6 of Notes to Financial Statements.
 
  (7) PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS. See
Unicom's Note 7 of Notes to Financial Statements.
 
  (8) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS. See Unicom's Note 8 of Notes to Financial Statements.
 
  (9) LONG-TERM DEBT. See Unicom's Note 9 of Notes to Financial Statements.
 
  (10) LINES OF CREDIT. See the first paragraph of Unicom's Note 10 of Notes to
Financial Statements.
 
  (11) DISPOSAL OF SPENT NUCLEAR FUEL. See Unicom's Note 11 of Notes to
Financial Statements.
 
  (12) FAIR VALUE OF FINANCIAL INSTRUMENTS. See Unicom's Note 12 of Notes to
Financial Statements.
 
  (13) PENSION BENEFITS. See Unicom's Note 13 of Notes to Financial Statements.
 
  (14) POSTRETIREMENT BENEFITS. See Unicom's Note 14 of Notes to Financial
Statements.
 
  (15) SEPARATION PLAN COSTS. See Unicom's Note 15 of Notes to Financial
Statements.
 
  (16) INCOME TAXES. The components of the net deferred income tax liability at
June 30, 1997 and December 31, 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                         JUNE 30,   DECEMBER 31,
                                                           1997         1996
                                                        ----------  ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                     <C>         <C>
Deferred income tax liabilities:
 Accelerated cost recovery and liberalized deprecia-
  tion, net of removal costs..........................  $3,527,392   $3,507,916
 Overheads capitalized................................     252,727      261,437
 Repair allowance.....................................     222,775      228,426
 Regulatory assets recoverable through future rates...   1,646,700    1,649,037
Deferred income tax assets:
 Postretirement benefits..............................    (289,014)    (269,153)
 Unbilled revenues....................................    (119,645)    (136,406)
 Alternative minimum tax..............................     (37,737)     (80,159)
 Unamortized investment tax credits to be settled
  through future rates................................    (419,936)    (430,297)
 Other regulatory liabilities to be settled through
  future rates........................................    (303,986)    (238,004)
 Other--net...........................................     (57,640)     (43,882)
                                                        ----------   ----------
Net deferred income tax liability.....................  $4,421,636   $4,448,915
                                                        ==========   ==========
</TABLE>
 
 
                                       56
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
  The $27 million decrease in the net deferred income tax liability from
December 31, 1996 to June 30, 1997 is comprised of $31 million of deferred
income tax expense and a $58 million decrease in regulatory assets net of
regulatory liabilities pertaining to income taxes for the period. The amount of
regulatory assets included in deferred income tax liabilities primarily relates
to the equity component of AFUDC which is recorded on an after-tax basis, the
borrowed funds component of AFUDC which was previously recorded net of tax and
other temporary differences for which the related tax effects were not
previously recorded. The amount of other regulatory liabilities included in
deferred income tax assets primarily relates to deferred income taxes provided
at rates in excess of the current statutory rate.
 
  The components of net income tax expense charged to continuing operations for
the three months, six months and twelve months ended June 30, 1997 and 1996
were as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED    SIX MONTHS ENDED   TWELVE MONTHS ENDED
                                JUNE 30             JUNE 30              JUNE 30
                          --------------------  -----------------  --------------------
                            1997       1996      1997      1996      1997       1996
                          ---------  ---------  -------  --------  ---------  ---------
                                           (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>      <C>       <C>        <C>
Electric operating in-
 come:
 Current income taxes...  $  15,967  $  53,280  $84,717  $142,181  $ 282,054  $ 355,399
 Deferred income taxes..      3,491     32,646   31,418    56,724    130,955    197,271
 Investment tax credits
  deferred--net.........     (7,897)    (7,165) (15,794)  (14,332)   (34,840)   (28,685)
Other (income) and de-
 ductions...............     (1,837)      (912)  (2,120)   (5,037)    (4,465)   (12,171)
                          ---------  ---------  -------  --------  ---------  ---------
Net income taxes charged
 to continuing opera-
 tions..................  $   9,724  $  77,849  $98,221  $179,536  $ 373,704  $ 511,814
                          =========  =========  =======  ========  =========  =========
</TABLE>
 
  Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the three months, six months and twelve months ended June
30, 1997 and 1996:
 
<TABLE>
<CAPTION>
                         THREE MONTHS ENDED   SIX MONTHS ENDED    TWELVE MONTHS ENDED
                              JUNE 30              JUNE 30              JUNE 30
                         -------------------  ------------------  --------------------
                           1997      1996       1997      1996      1997       1996
                         --------- ---------  --------  --------  --------  ----------
<S>                      <C>       <C>        <C>       <C>       <C>       <C>
Pre-tax book income
 (thousands)............  $11,692   $197,297  $226,864  $454,875  $970,376  $1,289,904
Effective income tax
 rate...................     83.2%      39.5%     43.3%     39.5%     38.5%       39.7%
</TABLE>
 
  The principal differences between net income taxes charged to continuing
operations and the amounts computed at the federal statutory rate of 35% for
the three months, six months and twelve months ended June 30, 1997 and 1996
were as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED   SIX MONTHS ENDED   TWELVE MONTHS ENDED
                               JUNE 30             JUNE 30              JUNE 30
                          -------------------  -----------------  --------------------
                            1997      1996      1997      1996      1997       1996
                          --------- ---------  -------  --------  ---------  ---------
                                          (THOUSANDS OF DOLLARS)
<S>                       <C>       <C>        <C>      <C>       <C>        <C>
Federal income taxes
 computed at statutory
 rate...................  $  4,092  $  69,054  $79,402  $159,206  $ 339,632  $ 451,467
Equity component of
 AFUDC which was
 excluded from taxable
 income.................    (1,997)    (2,124)  (3,775)   (3,768)    (7,279)    (6,309)
Amortization of invest-
 ment tax credits.......    (7,897)    (7,165) (15,794)  (14,332)   (34,840)   (28,685)
State income taxes, net
 of federal income tax-
 es.....................     2,804     10,721   14,451    24,123     48,709     66,811
Differences between book
 and tax accounting,
 primarily property-re-
 lated deductions.......    12,229      6,029   22,526    11,911     24,674     11,936
Other--net..............       493      1,334    1,411     2,396      2,808     16,594
                          --------  ---------  -------  --------  ---------  ---------
Net income taxes charged
 to continuing opera-
 tions..................  $  9,724  $  77,849  $98,221  $179,536  $ 373,704  $ 511,814
                          ========  =========  =======  ========  =========  =========
</TABLE>
 
  The effects of an income tax refund related to prior years increased net
income by $26 million or $0.12 per common share for the twelve months ended
June 30, 1997.
 
                                       57
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONCLUDED
 
  Current federal income tax liabilities which were recorded prior to 1995
included excess amounts of AMT over the regular federal income tax, which
amounts were also recorded as decreases to deferred federal income taxes. The
excess amounts of AMT were carried forward and portions were applied as credits
against the post-1994 regular federal income tax liabilities. The remaining
excess amounts of AMT can be carried forward indefinitely as credits against
future periods' regular federal income tax liabilities.
 
  (17) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months, six months and twelve months ended June 30, 1997 and 1996
were as follows:
 
<TABLE>
<CAPTION>
                         THREE MONTHS ENDED  SIX MONTHS ENDED  TWELVE MONTHS ENDED
                               JUNE 30            JUNE 30            JUNE 30
                         ------------------- ----------------- -------------------
                           1997      1996      1997     1996     1997      1996
                         --------- --------- -------- -------- --------- ---------
                                          (THOUSANDS OF DOLLARS)
<S>                      <C>       <C>       <C>      <C>      <C>       <C>
Illinois public utility
 revenue................ $  57,154 $  51,982 $111,409 $110,492 $ 227,978 $ 232,097
Illinois invested capi-
 tal....................    25,827    26,025   52,017   52,179   104,501   104,899
Municipal utility gross
 receipts...............    39,067    37,823   81,570   79,401   170,884   172,253
Real estate.............    33,395     8,650   72,562   53,778   148,770   142,572
Municipal compensation..    18,315    17,709   38,025   36,804    79,765    79,979
Other--net..............    17,491    17,162   41,267   44,827    70,139    78,322
                         --------- --------- -------- -------- --------- ---------
                         $ 191,249 $ 159,351 $396,850 $377,481 $ 802,037 $ 810,122
                         ========= ========= ======== ======== ========= =========
</TABLE>
 
  ComEd's real estate taxes for the three months, six months and twelve months
ended June 30, 1996 reflect a credit of $23 million which related to the year
1995.
 
  (18) LEASE OBLIGATIONS. See the first paragraph of Unicom's Note 18 of Notes
to Financial Statements.
 
  Future minimum rental payments, net of executory costs, at June 30, 1997 for
capital leases are estimated to aggregate $786 million, including $91 million
in 1997, $223 million in 1998, $191 million in 1999, $121 million in 2000, $79
million in 2001 and $81 million in 2002-2005. The estimated interest component
of such rental payments aggregates $101 million. The estimated portions of
obligations due within one year under capital leases of $136 million and $174
million at June 30, 1997 and December 31, 1996, respectively, were included in
current liabilities on the Consolidated Balance Sheets.
 
  Future minimum rental payments at June 30, 1997 for operating leases are
estimated to aggregate $164 million, including $10 million in 1997, $19 million
in 1998, $17 million in 1999, $13 million in 2000, $12 million in 2001 and $93
million in 2002-2024.
 
  (19) JOINT PLANT OWNERSHIP. See Unicom's Note 19 of Notes to Financial
Statements.
 
  (20) COMMITMENTS AND CONTINGENT LIABILITIES. See Unicom's Note 20 of Notes to
Financial Statements.
 
                                       58
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  CHANGES IN THE ELECTRIC UTILITY INDUSTRY. See Unicom's "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Changes in the Electric Utility Industry," which is incorporated
herein by this reference.
 
  LIQUIDITY AND CAPITAL RESOURCES. See Unicom's "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Liquidity and Capital Resources--UTILITY OPERATIONS," which is incorporated
herein by this reference.
 
  REGULATION. See Unicom's "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Regulation," which is
incorporated herein by this reference.
 
  RESULTS OF OPERATIONS. See Unicom's "Management's Discussion and Analysis of
Financial Condition and Results of Operations," subcaption "Results of
Operations" (other than the first paragraph thereof), which is incorporated
herein by this reference.
 
 
 
 
 
 
                                       59
<PAGE>
 
                           PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.
 
 
  Since January 1, 1997, civil penalties were imposed on ComEd on 5 occasions
for violations of NRC regulations in amounts aggregating $950,000. To ComEd's
knowledge, there are 3 current enforcement issues outstanding and under review
by the NRC.
 
  As described under "Part I, Item 3. Legal Proceedings" in Unicom and ComEd's
Annual Report on Form 10-K for the year ended December 31, 1996, certain Ogle
County taxing bodies appealed certain decisions which led to a lower property
tax assessment for ComEd's Byron nuclear generating station. The Illinois
Appellate Court affirmed the decisions; however, on April 2, 1997, the Illinois
Supreme Court accepted an appeal by the taxing bodies from the Illinois
Appellate Court decision.
 
  CERCLA provides for immediate response and removal actions coordinated by the
U.S. EPA to releases of hazardous substances into the environment and
authorizes the U.S. Government either to clean up sites at which hazardous
substances have created actual or potential environmental hazards or to order
persons responsible for the situation to do so. Under CERCLA, generators and
transporters of hazardous substances, as well as past and present owners and
operators of hazardous waste sites, are made strictly, jointly and severally
liable for the cleanup costs of waste at sites, most of which are listed by the
U.S. EPA on the NPL. These responsible parties can be ordered to perform a
cleanup, can be sued for costs associated with a U.S. EPA directed cleanup, may
voluntarily settle with the U.S. Government concerning their liability for
cleanup costs, or may voluntarily begin a site investigation and site
remediation prior to listing on the NPL under state oversight. Various states,
including Illinois, have enacted statutes which contain provisions
substantially similar to CERCLA. ComEd and its subsidiaries are or are likely
to become parties to proceedings initiated by the U.S. EPA, state agencies
and/or other responsible parties under CERCLA with respect to a number of
sites, including MGP sites, or may voluntarily undertake to investigate and
remediate sites for which they may be liable under CERCLA. See Note 20 of Notes
to Financial Statements for information regarding costs associated with
investigating and remediating former MGP sites.
 
  An unresolved issue is whether exposure to EMFs may result in adverse health
effects or damage to the environment. EMFs are produced by virtually all
devices carrying or utilizing electricity, including transmission and
distribution lines as well as home appliances. If regulations are adopted
related to EMFs, they could affect the construction and operation of electrical
equipment, including transmission and distribution lines and the cost of such
equipment. ComEd cannot predict the effect on the cost of such equipment or
operations if new regulations related to EMFs are adopted. In the absence of
such regulations, EMFs have nonetheless become an issue in siting facilities
and in other land use contexts. Litigation has been filed in a variety of
locations against a variety of defendants, including ComEd, alleging that the
presence or use of electrical equipment has had an adverse effect on the health
of persons or has caused a diminution in property values of land adjacent to
these facilities. If plaintiffs are successful in litigation of this type and
it becomes widespread, the impact on ComEd and on the electric utility industry
is not predictable, but could be severe.
 
  From time to time, Unicom and its subsidiaries are, or are claimed to be, in
violation of or in default under orders, statutes, rules or regulations
relating to environmental controls and other matters, compliance plans imposed
upon or agreed to by them or permits issued by various state and federal
agencies for the construction or operation of their facilities. Unicom and
ComEd do not believe, so far as they now foresee, that such violations or
defaults will have a material adverse effect on their future business and
operating results, except for events otherwise described in Unicom and ComEd's
Annual Reports on Form 10-K for the year ended December 31, 1996 or in these
Quarterly Reports on Form 10-Q for the quarterly period ended June 30, 1997,
which could have such an effect.
 
                                       60
<PAGE>
 
  FORWARD LOOKING INFORMATION. Certain portions of these Quarterly Reports
contain forward looking statements with respect to the consequences of future
events, including estimates of costs associated with certain actions and
outcomes. Unforeseen events or conditions may require changes in the factors
affecting such estimates and the projected results thereof. Consequently,
actual results could differ materially from the estimates presented. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Liquidity and Capital Resources--Construction Program"
for additional information regarding certain caveats affecting forward looking
statements. Forward looking information is contained in various sections of
these reports, including, without limitation, (i) Note 1 of Notes to Financial
Statements, under "Depreciation and Decommissioning" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Regulation--Nuclear Matters" with respect to the estimated costs of
decommissioning nuclear generating stations, (ii) "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Liquidity and Capital Resources--Construction Program" and Note 1 of Notes to
Financial Statements, under "Depreciation and Decommissioning," regarding
ComEd's construction program budget and the early retirement of ComEd's Zion
nuclear generating station, (iii) Note 20 of Notes to Financial Statements,
regarding cleanup costs associated with MGP and other remediation sites and
(iv) "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Results of Operations--Operation and Maintenance
Expenses," regarding ComEd's 1997 O&M expenses increase over 1996.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
  Unicom's annual meeting of shareholders was held on May 29, 1997. At that
meeting, each of the persons named in the table below was elected as a
director. Vote totals for each director are shown below:
 
<TABLE>
<CAPTION>
                                                         SHARES       SHARES
  NOMINEE                                               VOTED FOR  WITHHELD FROM
  -------                                              ----------- -------------
<S>                                                    <C>         <C>
Edward A. Brennan..................................... 176,687,877   5,082,303
James W. Compton...................................... 176,610,157   5,160,023
Bruce DeMars.......................................... 176,627,267   5,142,913
Sue L. Gin............................................ 176,734,983   5,035,197
Donald P. Jacobs...................................... 176,667,789   5,102,391
Edgar D. Jannotta..................................... 176,763,464   5,006,716
George E. Johnson..................................... 176,607,742   5,162,438
Leo F. Mullin......................................... 176,912,895   4,857,285
James J. O'Connor..................................... 176,640,759   5,129,421
Samuel K. Skinner..................................... 176,610,852   5,159,328
</TABLE>
 
  Also at the meeting, the appointment by Unicom's Board of Directors of Arthur
Andersen LLP as auditors for the year 1997 was approved. A total of 178,493,310
shares voted to approve the appointment, 1,915,775 shares voted against the
appointment and 1,361,095 shares abstained.
 
  In addition, the amended and restated Unicom Corporation Long-Term Incentive
Plan was approved at the meeting. A total of 164,874,643 shares voted to
approve the plan, 13,279,413 shares voted against approval of the plan and
3,562,934 shares abstained.
 
  Also, the Unicom Corporation Long-Term Performance Unit Awards under the
Long-Term Incentive Plan was approved at the meeting. A total of 146,419,072
shares voted to approve the plan, 31,336,003 shares voted against approval of
the plan and 3,961,916 shares abstained.
 
  Finally, the shareholder proposal to limit to an annual maximum of $250,000
the value of stock and/or cash paid to any one executive under the Long-Term
Incentive Plan or as a bonus was not approved at the meeting. A total of
21,998,600 shares voted to approve the plan, 142,746,215 shares voted against
approval of the plan and 4,115,182 shares abstained.
 
                                       61
<PAGE>
 
  ComEd's annual meeting of shareholders was held on May 29, 1997. At that
meeting, each of the persons named in the table below was elected as a
director. Vote totals for each director are shown below:
 
<TABLE>
<CAPTION>
                                                                       SHARES
  NOMINEE                                                             VOTED FOR
  -------                                                            -----------
<S>                                                                  <C>
Edward A. Brennan................................................... 214,217,564
James W. Compton.................................................... 214,217,564
Bruce DeMars........................................................ 214,217,564
Sue L. Gin.......................................................... 214,217,564
Donald P. Jacobs.................................................... 214,217,564
Edgar D. Jannotta................................................... 214,217,564
George E. Johnson................................................... 214,217,564
Leo F. Mullin....................................................... 214,217,564
James J. O'Connor................................................... 214,217,564
Samuel K. Skinner................................................... 214,217,564
</TABLE>
 
  Also at the meeting, the appointment by ComEd's Board of Directors of Arthur
Andersen LLP as auditors for the year 1997 was approved. A total of 214,217,564
shares voted to approve the appointment.
 
  In addition, the amended and restated Unicom Corporation Long-Term Incentive
Plan was approved at the meeting. A total of 214,217,564 shares voted to
approve the plan.
 
  Also, the Unicom Corporation Long-Term Performance Unit Awards under the
Long-Term Incentive Plan was approved at the meeting. A total of 214,217,564
shares voted to approve the plan.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
 
  (a) Exhibits
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                        DESCRIPTION OF EXHIBIT
     ------- ------------------------------------------------------------------
     <C>     <S>
     (12)    Statement computing Commonwealth Edison Company ratios of earnings
             to fixed charges and ratios of earnings to fixed charges and
             preferred and preference stock dividend requirements.
     (23)-1  Consent of independent public accountants applicable to Unicom
             Corporation.
     (23)-2  Consent of independent public accountants applicable to
             Commonwealth Edison Company.
     (27)-1  Financial data schedule of Unicom Corporation.
     (27)-2  Financial data schedule of Commonwealth Edison Company.
</TABLE>
 
  (b) Reports on Form 8-K
 
    A Current Report on Form 8-K dated May 30, 1997 was filed by Unicom and
  ComEd describing (i) the Illinois Appellate Court actions regarding the
  Rate Order in connection with ComEd's most recent rate case and (ii)
  Pending Deregulation Legislation.
 
                                       62
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 8th day of August, 1997. The
signature for each undersigned company shall be deemed to relate only to
matters having reference to such company and its subsidiaries thereof.
 
                                                   Unicom Corporation
                                                       Registrant
 
                                                    Robert E. Berdelle
                                          By __________________________________
                                                    Robert E. Berdelle
                                                        Comptroller
                                               (Chief accounting officer and
                                            officer duly authorized to sign on
                                                 behalf of the registrant)
 
 
                                               Commonwealth Edison Company
                                                       Registrant
 
                                                    Robert E. Berdelle
                                          By __________________________________
                                                    Robert E. Berdelle
                                                        Comptroller
                                               (Chief accounting officer and
                                            officer duly authorized to sign on
                                                 behalf of the registrant)
 
                                       63
<PAGE>
 
                                 EXHIBIT INDEX

     Exhibits filed with or incorporated by reference in Form 10-Q for the 
quarterly period ended June 30, 1997;
<TABLE>
<CAPTION>
EXHIBIT
NUMBER     DESCRIPTION OF EXHIBIT
-------    ------------------------------------------------------------------
<C>        <S>
(12)       Statement computing Commonwealth Edison Company ratios of earnings
           to fixed charges and ratios of earnings to fixed charges and
           preferred and preference stock dividend requirements.
(23)-1     Consent of independent public accountants applicable to Unicom
           Corporation.
(23)-2     Consent of independent public accountants applicable to
           Commonwealth Edison company.
(27)-1     Financial data schedule of Unicom Corporation.
(27)-2     Financial data schedule of Commonwealth Edison Company.
</TABLE>