### UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

### FORM 10-Q

(Mark One)

(X)     
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended June 30, 2001

or

(
)      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ___________to__________

|Commission | Registrant, State of Incorporation, | I.R.S. Employer                                                                                                                                                                                                                         
|---------- | ----------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|          
|           | 1-11377                             | CINERGY CORP.                                                                                                                                                                                                                           
|           |                                     | (A Delaware Corporation)
                                               139 East Fourth Street
                                               Cincinnati, Ohio 45202
                                                   (513) 421-9500  
|           | 1-1232                              | THE CINCINNATI GAS & ELECTRIC COMPANY                                                                                                                                                                                                   
|           |                                     | (An Ohio Corporation)
                                               139 East Fourth Street
                                               Cincinnati, Ohio 45202
                                                   (513) 421-9500     
|           | 1-3543                              | PSI ENERGY, INC.                                                                                                                                                                                                                        
|           |                                     | (An Indiana Corporation)
                                                1000 East Main Street
                                              Plainfield, Indiana 46168
                                                   (513) 421-9500
|           | 2-7793                              | THE UNION LIGHT, HEAT AND POWER COMPANY                                                                                                                                                                                                 
|           |                                     | (A Kentucky Corporation)
                                               139 East Fourth Street
                                               Cincinnati, Ohio 45202
                                                   (513) 421-9500  

---

Indicate by check mark
whether the registrants (1) have filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrants were required to file
such reports), and (2) have been subject to such filing requirements for the
past 90 days. 

Yes    X       No    __

---

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

The Union Light, Heat
and Power Company meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing its company specific
information with the reduced disclosure format specified in General Instruction
H(2) of Form 10-Q.

---

As of July 31, 2001, shares of Common Stock outstanding for each registrant were as listed:

|Registrant                              |  | Description                                    |  | Shares     
|--------------------------------------- |  | ---------------------------------------------- |  | -----------
|Cinergy Corp.                           |  | Par value $.01 per share                       |  | 159,094,704
|                                       
|The Cincinnati Gas & Electric Company   |  | Par value $8.50 per share                      |  | 89,663,086 
|                                       
|PSI Energy, Inc.                        |  | Without par value, stated value $.01 per share |  | 53,913,701 
|                                       
|The Union Light, Heat and Power Company |  | Par value $15.00 per share                     |  | 585,333    

---

`TABLE OF CONTENTS
--------------------------------------------------------------------------------
 Item                                                                      Page
Number                                                                    Number
------                                                                    ------
                          PART I FINANCIAL INFORMATION

  1    Financial Statements
            Cinergy Corp. .................................................... 4
                Consolidated Statements of Income............................. 5
                Consolidated Balance Sheets................................... 6
                Consolidated Statements of Changes in Common Stock Equity..... 8
                Consolidated Statements of Cash Flows.........................10

            The Cincinnati Gas & Electric Company.............................11
                Consolidated Statements of Income and Comprehensive Income....12
                Consolidated Balance Sheets...................................13
                Consolidated Statements of Cash Flows.........................15

            PSI Energy, Inc...................................................16
                Consolidated Statements of Income and Comprehensive Income....17
                Consolidated Balance Sheets...................................18
                Consolidated Statements of Cash Flows.........................20

            The Union Light, Heat and Power Company...........................21
                Statements of Income..........................................22
                Balance Sheets................................................23
                Statements of Cash Flows......................................25

       Notes to Financial Statements..........................................26

       Cautionary Statements Regarding Forward-Looking Information............45

  2    Management's Discussion and Analysis of Financial Condition and Results
       of Operations
                Introduction..................................................47
                Organization..................................................47
                Liquidity.....................................................48
                Capital Resources ............................................50
                2001 Quarterly Results of Operations - Historical.............54
                2001 Year to Date Results of Operations - Historical..........58
                Results of Operations - Future................................63

  3    Quantitative and Qualitative Disclosures About Market Risk.............71

                            PART II OTHER INFORMATION

  1    Legal Proceedings......................................................72

  6    Exhibits and Reports on Form 8-K.......................................73

       Signatures.............................................................74`

`CINERGY CORP.
                        CONSOLIDATED STATEMENTS OF INCOME

                                                        Quarter Ended             Year to Date
                                                           June 30                   June 30
                                                      2001          2000        2001          2000
----------------------------------------------------------------------------------------------------
                                                     (dollars in thousands, except per share amounts)
                                                                        (unaudited)

Operating Revenues
   Electric                                         $2,383,217   $1,250,353   $4,257,902   $2,317,050
   Gas                                               1,236,779      491,627    3,050,601      990,355
   Other                                                22,096       27,534       40,118       45,186
                                                        ------       ------       ------       ------
         Total Operating Revenues                    3,642,092    1,769,514    7,348,621    3,352,591

----------------------------------------------------------------------------------------------------
Operating Expenses
   Fuel and purchased and exchanged power            1,855,615      700,552    3,201,496    1,201,330
   Gas purchased                                     1,195,668      449,806    2,906,278      855,951
   Operation and maintenance                           267,065      297,584      516,555      550,511
   Depreciation and amortization                        92,203       85,807      180,767      168,438
   Taxes other than income taxes                        53,409       68,458      116,501      134,589
                                                        ------       ------      -------      -------
         Total Operating Expenses                    3,463,960    1,602,207    6,921,597    2,910,819

----------------------------------------------------------------------------------------------------
Operating Income                                       178,132      167,307      427,024      441,772
----------------------------------------------------------------------------------------------------

Equity in Earnings of Unconsolidated Subsidiaries        2,072        4,333          833        6,175
Miscellaneous - Net                                     13,173        2,617        8,479          114
Interest                                                68,067       53,113      131,617      104,543
----------------------------------------------------------------------------------------------------

Income Before Taxes                                    125,310      121,144      304,719      343,518
----------------------------------------------------------------------------------------------------

Income Taxes                                            41,485       44,754       99,789      127,326
Preferred Dividend Requirements of Subsidiaries            858        1,275        1,716        2,638
                                                           ---        -----        -----        -----
Net Income                                          $   82,967   $   75,115   $  203,214   $  213,554
                                                    ==========   ==========   ==========   ==========
----------------------------------------------------------------------------------------------------

Average Common Shares Outstanding                      159,061      158,923      159,025      158,923
----------------------------------------------------------------------------------------------------

Earnings Per Common Share
   Net Income                                       $     0.51   $     0.47   $     1.27   $     1.34
----------------------------------------------------------------------------------------------------

Earnings Per Common Share - Assuming Dilution
   Net Income                                       $     0.51   $     0.47   $     1.26   $     1.34
----------------------------------------------------------------------------------------------------

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

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.`

`CINERGY CORP.
                           CONSOLIDATED BALANCE SHEETS

ASSETS
                                                           June 30   December 31
                                                             2001        2000
                                                          (unaudited)
--------------------------------------------------------------------------------
                                                          (dollars in thousands)

Current Assets
   Cash and cash equivalents                            $   133,204  $    93,054
   Restricted deposits                                        7,528        4,195
   Notes receivable                                          25,837       35,945
   Accounts receivable less accumulated provision for
     doubtful accounts of $35,567 at June 30, 2001,
     and $29,951 at December 31, 2000                     1,864,630    1,623,402
   Materials, supplies, and fuel - at average cost          206,693      159,340
   Energy risk management current assets (Note 1(c))        512,842    1,413,281
   Prepayments and other                                    223,193      129,666
                                                            -------      -------
                  Total Current Assets                    2,973,927    3,458,883
--------------------------------------------------------------------------------

Property, Plant, and Equipment - at Cost
   Utility plant in service                               7,887,673    7,681,612
   Construction work in progress                            360,608      323,350
                                                            -------      -------
         Total Utility Plant                              8,248,281    8,004,962
   Non-regulated property, plant, and equipment           4,007,657    3,401,203
   Accumulated depreciation                               4,702,197    4,586,089
                                                          ---------    ---------
                  Net Property, Plant, and Equipment      7,553,741    6,820,076
--------------------------------------------------------------------------------

Other Assets
   Regulatory assets                                        974,507      976,614
   Investments in unconsolidated subsidiaries               562,931      538,322
   Energy risk management non-current assets (Note 1(c))     97,157       37,228
   Other investments                                        155,705      146,986
   Other                                                    315,590      351,619
                                                            -------      -------
                  Total Other Assets                      2,105,890    2,050,769
--------------------------------------------------------------------------------

Total Assets                                            $12,633,558  $12,329,728
                                                        ===========  ===========
--------------------------------------------------------------------------------

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated
financial statements.`

`CINERGY CORP.
                           CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                   June 30        December 31
                                                                     2001             2000
                                                                 (unaudited)
----------------------------------------------------------------------------------------------------
                                                                    (dollars in thousands)

Current Liabilities
   Accounts payable                                              $  1,798,198    $  1,496,494
   Accrued taxes                                                      219,938         247,006
   Accrued interest                                                    54,516          47,351
   Notes payable and other short-term obligations (Note 3)          1,653,136       1,128,657
   Long-term debt due within one year (Note 2)                         80,620          40,545
   Energy risk management current liabilities (Note 1(c))             527,645       1,456,375
   Other                                                               83,682         106,679
                                                                       ------         -------
                  Total Current Liabilities                         4,417,735       4,523,107
----------------------------------------------------------------------------------------------------

Non-Current Liabilities
   Long-term debt (Note 2)                                          3,188,174       2,876,367
   Deferred income taxes                                            1,198,350       1,185,968
   Unamortized investment tax credits                                 131,857         137,965
   Accrued pension and other postretirement benefit costs             423,553         404,764
   Energy risk management non-current liabilities (Note 1 (c))        135,482          97,507
   Other                                                              226,691         252,255
                                                                      -------         -------
                  Total Non-Current Liabilities                     5,304,107       4,954,826

----------------------------------------------------------------------------------------------------
Total Liabilities                                                   9,721,842       9,477,933
----------------------------------------------------------------------------------------------------

Cumulative Preferred Stock of Subsidiaries
   Not subject to mandatory redemption                                 62,833          62,834
----------------------------------------------------------------------------------------------------

Common Stock Equity
   Common stock - $.01 par value; authorized
     shares - 600,000,000;outstanding shares -
     158,088,053 at June 30, 2001 and 158,967,661
     December 31, 2000                                                  1,591           1,590
   Paid-in capital                                                  1,623,458       1,619,153
   Retained earnings                                                1,240,761       1,179,113
   Accumulated other comprehensive income (loss)                      (16,927)        (10,895)
                                                                      -------         -------
                  Total Common Stock Equity                         2,848,883       2,788,961
----------------------------------------------------------------------------------------------------

Commitments and Contingencies (Note 4)

Total Liabilities and Shareholders' Equity                       $ 12,633,558    $ 12,329,728
                                                                 ============    ============
----------------------------------------------------------------------------------------------------

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated
financial statements.`

`CINERGY CORP.
                         CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

                                                                                                            Accumulated     Total
                                                                                                               Other        Common
                                                                   Common     Paid-in       Retained       Comprehensive    Stock
                                                                    Stock     Capital       Earnings       Income/(Loss)    Equity
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         (dollars in thousands)
                                                                                               (unaudited)

Quarter Ended June 30, 2001

Balance at April 1, 2001                                      $     1,590    $ 1,619,366    $ 1,229,552   $   (15,356)  $ 2,835,152
Comprehensive income:
   Net income                                                                                    82,967                      82,967
   Other comprehensive income (loss), net of tax effect
     Foreign currency translation adjustment                                                                   (3,401)       (3,401)
     Unrealized gain (loss) on investment trusts                                                                  540           540
     Minimum pension liability adjustment                                                                         (23)          (23)
     Cash flow hedges (Note 1(b))                                                                               1,313         1,313
                                                                                                                              -----
   Total comprehensive income                                                                                                81,396

Issuance of 86,522 shares of common stock - net                         1          2,865                                      2,866
Treasury shares purchased                                                         (7,824)                                    (7,824)
Treasury shares reissued                                                           5,622                                      5,622
Dividends on common stock ($.45 per share)                                                      (71,555)                    (71,555)
Other                                                                              3,429           (203)                      3,226
                                                                    -----          -----           ----         -----         -----
Ending balance at June 30, 2001                               $     1,591    $ 1,623,458    $ 1,240,761   $   (16,927)  $ 2,848,883
                                                              ===========    ===========    ===========   ===========   ===========
------------------------------------------------------------------------------------------------------------------------------------

Quarter Ended June 30, 2000

Balance at April 1, 2000                                      $     1,589    $ 1,604,096    $ 1,131,695   $   (10,512)  $ 2,726,868
Comprehensive income:
   Net income                                                                                    75,115                      75,115
   Other comprehensive income (loss), net of tax effect
     Foreign currency translation adjustment                                                                    6,014         6,014
     Unrealized gain (loss) on investment trusts                                                                 (818)         (818)
                                                                                                                                ----
   Total comprehensive income                                                                                                80,311

Treasury shares purchased                                                         (1,490)                                    (1,490)
Treasury shares reissued                                                           5,795                                      5,795
Dividends on common stock ($.45 per share)                                                      (71,114)                    (71,114)
Other                                                                              4,171              7                       4,178
                                                                   -----           -----          -----         -----         -----
Ending Balance at June 30, 2000                               $     1,589    $ 1,612,572    $ 1,135,703   $    (5,316)  $ 2,744,548
                                                              ===========    ===========    ===========   ===========   ===========
------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.`

`CINERGY CORP.
                          CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
                                             (Continued)

                                                                                                         Accumulated        Total
                                                                                                            Other           Common
                                                                   Common      Paid-in     Retained     Comprehensive       Stock
                                                                   Stock       Capital     Earnings     Income/(Loss)       Equity
------------------------------------------------------------------------------------------------------------------------------------
                                                                                       (dollars in thousands)
                                                                                             (unaudited)

Six Months Ended June 30, 2001

Balance at January 1, 2001                                    $     1,590    $ 1,619,153    $ 1,179,113   $   (10,895)  $ 2,788,961
Comprehensive income:
   Net income                                                                                   203,214                     203,214
   Other comprehensive income (loss), net of tax effect
     Foreign currency translation adjustment                                                                   (2,705)       (2,705)
     Unrealized gain (loss) on investment trusts                                                                 (143)         (143)
     Cumulative effect of change in accounting
       principle (Note 1(b))                                                                                   (2,500)       (2,500)
     Minimum pension liability adjustment                                                                          68            68
     Cash flow hedges (Note 1(b))                                                                                (752)         (752)
                                                                                                                               ----
   Total comprehensive income                                                                                               197,182

Issuance of 120,392 shares of common stock - net                        1          3,691                                      3,692
Treasury shares purchased                                                        (10,015)                                   (10,015)
Treasury shares reissued                                                           6,000                                      6,000
Dividends on common stock ($.90 per share)                                                     (143,096)                   (143,096)
Other                                                                              4,629          1,530                       6,159
                                                                    -----          -----          -----         -----         -----
Ending balance at June 30, 2001                               $     1,591    $ 1,623,458    $ 1,240,761   $   (16,927)  $ 2,848,883
                                                              ===========    ===========    ===========   ===========   ===========

------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2000

Balance at January 1, 2000                                    $     1,589    $ 1,597,554    $ 1,064,319   $    (9,741)  $ 2,653,721
Comprehensive income:
   Net income                                                                                   213,554                     213,554
   Other comprehensive income (loss), net of tax effect
     Foreign currency translation adjustment                                                                    4,286         4,286
     Unrealized gain (loss) on investment trusts                                                                  139           139
                                                                                                                                ---
   Total comprehensive income                                                                                               217,979

Treasury shares purchased                                                         (1,490)                                    (1,490)
Treasury shares reissued                                                          10,365                                     10,365
Dividends on common stock ($.90 per share)                                                     (142,191)                   (142,191)
Other                                                                              6,143             21                       6,164
                                                                    -----          -----          -----         -----         -----
Ending Balance at June 30, 2000                               $     1,589    $ 1,612,572    $ 1,135,703   $    (5,316)  $ 2,744,548
                                                              ===========    ===========    ===========   ===========   ===========

------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.`

`CINERGY CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                         Year to Date
                                                                           June 30
                                                                       2001          2000
------------------------------------------------------------------------------------------
                                                                    (dollars in thousands)
                                                                          (unaudited)

Operating Activities
   Net income                                                       $ 203,214    $ 213,554
   Items providing or (using) cash currently:
    Depreciation and amortization                                     180,767      168,438
    Unrealized (gain) loss from energy risk management activities     (50,245)     (49,032)
    Deferred income taxes and investment tax credits - net             13,886        9,625
    Equity in earnings of unconsolidated subsidiaries                    (833)      (6,175)
    Allowance for equity funds used during construction                (3,219)      (3,100)
    Regulatory assets - net                                            (7,672)      18,511
    Changes in other current assets and current liabilities:
        Restricted deposits                                              (882)     (15,333)
        Accounts and notes receivable, net of reserves
          on receivables sold                                        (234,953)    (197,566)
        Materials, supplies, and fuel                                 (47,346)      27,229
        Accounts payable                                              299,060      137,975
        Accrued taxes and interest                                    (19,903)       7,530
    Other items - net                                                 (90,212)     (49,403)
                                                                      -------      -------

                 Net cash provided by operating activities            241,662      262,253
------------------------------------------------------------------------------------------
Financing Activities
   Change in short-term debt                                          524,479      196,584
   Issuance of long-term debt                                         372,476      123,189
   Redemption of long-term debt                                       (37,090)     (55,720)
   Retirement of preferred stock of subsidiaries                          --       (10,951)
   Issuance of common stock                                             3,692           --
   Dividends on common stock                                         (143,096)    (142,191)
                                                                     --------     --------

                  Net cash provided by financing activities           720,461      110,911
------------------------------------------------------------------------------------------
Investing Activities
   Construction expenditures (less allowance for equity
     funds used during construction)                                 (376,917)    (215,519)
   Acquisitions and other investments                                (545,056)    (137,290)
                                                                     --------     --------

                  Net cash used in investing activities              (921,973)    (352,809)
------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                              40,150       20,355

Cash and cash equivalents at beginning of period                       93,054       81,919
                                                                       ------       ------

Cash and cash equivalents at end of period                          $ 133,204    $ 102,274
                                                                    =========    =========
------------------------------------------------------------------------------------------

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial
statements`

`THE CINCINNATI GAS & ELECTRIC COMPANY
                      CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                                               Quarter Ended              Year to Date
                                                                  June 30                   June 30
                                                            2001          2000         2001          2000
--------------------------------------------------------------------------------------------------------------
                                                                          (dollars in thousand)
                                                                               (unaudited)

Operating Revenues
   Electric                                            $ 1,198,015   $   646,973   $ 2,130,760    $ 1,184,991
   Gas                                                      79,407        59,598       404,500        238,060
                                                            ------        ------       -------        -------
         Total Operating Revenues                        1,277,422       706,571     2,535,260      1,423,051
--------------------------------------------------------------------------------------------------------------

Operating Expenses
   Fuel and purchased and exchanged power                  915,835       339,176     1,576,515        579,528
   Gas purchased                                            51,555        24,246       289,846        113,862
   Operation and maintenance                               120,770       130,274       232,395        242,557
   Depreciation and amortization                            46,656        45,569        92,263         89,326
   Taxes other than income taxes                            44,597        53,891        91,968        103,822
                                                            ------        ------        ------        -------
         Total Operating Expenses                        1,179,413       593,156     2,282,987      1,129,095
--------------------------------------------------------------------------------------------------------------

Operating Income                                            98,009       113,415       252,273        293,956
--------------------------------------------------------------------------------------------------------------

Miscellaneous - Net                                            672           962        (1,732)        (1,011)
Interest                                                    26,487        23,724        53,883         49,473
--------------------------------------------------------------------------------------------------------------

Income Before Taxes                                         72,194        90,653       196,658        243,472
--------------------------------------------------------------------------------------------------------------

Income Taxes                                                22,793        34,772        65,682         91,627
                                                            ------        ------        ------         ------

Net Income                                             $    49,401   $    55,881   $   130,976    $   151,845

Preferred Dividend Requirement                                 212           212           423            425
                                                               ---           ---           ---            ---

Net Income Applicable to Common Stock                  $    49,189   $    55,669   $   130,553    $   151,420
                                                       ===========   ===========   ===========    ===========
--------------------------------------------------------------------------------------------------------------

Net Income                                             $    49,401   $    55,881   $   130,976    $   151,845

Other Comprehensive Income (Loss), Net of Tax Effect         1,255            --        (2,660)            --
                                                             -----         -----        ------          -----

Comprehensive Income                                   $    50,656   $    55,881   $   128,316    $   151,845
                                                       ===========   ===========   ===========    ===========
--------------------------------------------------------------------------------------------------------------

The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial
statements.`

`THE CINCINNATI GAS & ELECTRIC COMPANY
                           CONSOLIDATED BALANCE SHEETS

ASSETS
                                                           June 30   December 31
                                                            2001         2000
                                                         (unaudited)
--------------------------------------------------------------------------------
                                                          (dollars in thousands)

Current Assets
   Cash and cash equivalents                             $    12,986 $    20,637
   Restricted deposits                                         1,085         160
   Notes receivable from affiliated companies                     --      91,732
   Accounts receivable less accumulated provision for
     doubtful accounts of $24,058 at June 30, 2001,
     and $19,044 at December 31, 2000                        664,552     494,501
   Accounts receivable from affiliated companies              24,193      26,743
   Materials, supplies, and fuel - at average cost           109,120      99,061
   Energy risk management current assets (Note 1(c))         225,751     697,488
   Prepayments and other                                      43,633      39,320
                                                              ------      ------
                  Total Current Assets                     1,081,320   1,469,642
--------------------------------------------------------------------------------

Property, Plant, and Equipment - at Cost
   Utility plant in service
     Electric                                              1,947,640   1,905,795
     Gas                                                     888,299     865,303
     Common                                                  251,619     211,424
                                                             -------     -------
         Total Utility Plant In Service                    3,087,558   2,982,522
   Construction work in progress                              91,431     132,577
                                                              ------     -------
         Total Utility Plant                               3,178,989   3,115,099
   Non-regulated property, plant, and equipment            3,234,794   3,181,076
   Accumulated depreciation                                2,499,659   2,444,867
                                                           ---------   ---------
                  Net Property, Plant, and Equipment       3,914,124   3,851,308
--------------------------------------------------------------------------------

Other Assets
   Regulatory assets                                         521,058     502,328
   Energy risk management non-current assets (Note 1(c))      37,841       7,000
   Other                                                     130,123     156,692
                                                             -------     -------
                  Total Other Assets                         689,022     666,020
--------------------------------------------------------------------------------

Total Assets                                             $ 5,684,466 $ 5,986,970
                                                         =========== ===========
--------------------------------------------------------------------------------

The  accompanying  notes as they  relate to The  Cincinnati  Gas &  Electric
Company are an integral part of these consolidated financial statements.`

`THE CINCINNATI GAS & ELECTRIC COMPANY
                           CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER'S EQUITY
                                                            June 30  December 31
                                                             2001         2000
                                                          (unaudited)
--------------------------------------------------------------------------------
                                                          (dollars in thousands)

Current Liabilities
 Accounts payable                                          $  709,053 $  543,006
 Accounts payable to affiliated companies                      31,613     23,927
 Accrued taxes                                                125,036    152,750
 Accrued interest                                              21,878     17,645
 Notes payable and other short-term obligations               184,000    264,000
 Notes payable to affiliated companies                        280,448    163,478
 Long-term debt due within one year                             1,200      1,200
 Energy risk management current liabilities (Note 1(c))       235,792    717,902
 Other                                                         32,292     37,603
                                                               ------     ------
                Total Current Liabilities                   1,621,312  1,921,511
--------------------------------------------------------------------------------

Non-Current Liabilities
 Long-term debt                                             1,205,234  1,205,061
 Deferred income taxes                                        738,470    735,799
 Unamortized investment tax credits                            94,153     98,624
 Accrued pension and other postretirement benefit costs       164,696    164,901
 Energy risk management non-current liabilities (Note 1(c))    53,361     26,337
 Other                                                        106,117    118,421
                                                              -------    -------
                Total Non-Current Liabilities               2,362,031  2,349,143
--------------------------------------------------------------------------------

Total Liabilities                                           3,983,343  4,270,654
--------------------------------------------------------------------------------

Cumulative Preferred Stock
 Not subject to mandatory redemption                           20,486     20,486
--------------------------------------------------------------------------------

Common Stock Equity
 Common stock - $8.50 par value; authorized shares -
 120,000,000;
   outstanding shares - 89,663,086 at June 30, 2001 and
   December 31, 2000                                          762,136    762,136
 Paid-in capital                                              565,777    565,777
 Retained earnings                                            356,378    368,911
 Accumulated other comprehensive income (loss)                 (3,654)      (994)
                                                               ------       ----
                Total Common Stock Equity                   1,680,637  1,695,830
--------------------------------------------------------------------------------

Commitments and Contingencies (Note 4)

Total Liabilities and Shareholder's Equity                 $5,684,466 $5,986,970
                                                           ========== ==========
--------------------------------------------------------------------------------

The  accompanying  notes as they  relate to The  Cincinnati  Gas &  Electric
Company are an integral part of these consolidated financial statements.`

`THE CINCINNATI GAS & ELECTRIC COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                          Year to Date
                                                                             June 30
                                                                       2001       2000
--------------------------------------------------------------------------------------------
                                                                     (dollars in thousands)
                                                                           (unaudited)

Operating Activities
   Net income                                                      $  130,976  $  151,845
   Items providing or (using) cash currently:
     Depreciation and amortization                                     92,263      89,326
     Deferred income taxes and investment tax credits - net             3,170       8,378
     Unrealized (gain) loss from energy risk management activities    (14,190)    (28,280)
     Allowance for equity funds used during construction                 (941)     (2,646)
     Regulatory assets - net                                          (28,623)      8,085
     Changes in current assets and current liabilities:
         Restricted deposits                                             (925)         22
         Accounts and notes receivable, net of reserves
          on receivables sold                                         (76,146)    (11,302)
         Materials, supplies, and fuel                                (10,059)        731
         Accounts payable                                             173,649      55,160
         Accrued taxes and interest                                   (23,481)     10,039
     Other items - net                                                  4,474     (38,678)
                                                                        -----     -------

                  Net cash provided by operating activities           250,167     242,680
--------------------------------------------------------------------------------------------
Financing Activities
   Change in short-term debt                                           36,970     (22,403)
   Retirement of preferred stock                                            -        (160)
   Dividends on preferred stock                                          (339)       (425)
   Dividends on common stock                                         (143,086)   (107,200)
                                                                     --------    --------

                  Net cash used in financing activities              (106,455)   (130,188)
--------------------------------------------------------------------------------------------
Investing Activities
   Construction expenditures (less allowance for equity
     funds used during                                               (151,363)   (107,109)
                                                                     --------    --------

                  Net cash used in investing activities              (151,363)   (107,109)
--------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                   (7,651)      5,383

Cash and cash equivalents at beginning of period                       20,637       9,554
                                                                       ------       -----

Cash and cash equivalents at end of period                         $   12,986  $   14,937
                                                                   ==========  ==========
--------------------------------------------------------------------------------------------

The  accompanying  notes as they  relate to The  Cincinnati  Gas &  Electric
Company are an integral part of these consolidated financial statements.`

`PSI ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                                          Quarter Ended          Year to Date
                                                             June 30               June 30
                                                         2001       2000        2001       2000
----------------------------------------------------------------------------------------------------
                                                                   (dollars in thousands)
                                                                         (unaudited)

Operating Revenues

   Electric                                          $1,184,393  $  619,760  $2,099,937  $1,153,512
----------------------------------------------------------------------------------------------------

Operating Expenses
   Fuel and purchased and exchanged power               967,888     397,807   1,655,979     669,236
   Operation and maintenance                            105,278     124,406     196,140     235,749
   Depreciation and amortization                         37,202      34,733      73,995      69,425
   Taxes other than income taxes                          7,551      13,800      22,535      28,409
                                                          -----      ------      ------      ------
         Total Operating Expenses                     1,117,919     570,746   1,948,649   1,002,819
----------------------------------------------------------------------------------------------------

Operating Income                                         66,474      49,014     151,288     150,693
----------------------------------------------------------------------------------------------------

Miscellaneous - Net                                       7,330       1,342       5,560         483
Interest                                                 20,597      19,769      38,537      39,853
----------------------------------------------------------------------------------------------------

Income Before Taxes                                      53,207      30,587     118,311     111,323
----------------------------------------------------------------------------------------------------

Income Taxes                                             18,990      11,671      42,662      42,194
                                                         ------      ------      ------      ------

Net Income                                           $   34,217  $   18,916  $   75,649  $   69,129

Preferred Dividend Requirement                              646       1,063       1,293       2,213
                                                            ---       -----       -----       -----

Net Income Applicable to Common Stock                $   33,571  $   17,853  $   74,356  $   66,916
----------------------------------------------------------------------------------------------------

Net Income                                           $   34,217  $   18,916  $   75,649  $   69,129

Other Comprehensive Income (Loss), Net of Tax Effect        338        (597)       (127)         35
                                                            ---        ----        ----          --

Comprehensive Income                                 $   34,555  $   18,319  $   75,522  $   69,164
                                                     ==========  ==========  ==========  ==========
----------------------------------------------------------------------------------------------------

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.`

`PSI ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS

ASSETS
                                                           June 30   December 31
                                                            2001          2000
                                                         (unaudited)
--------------------------------------------------------------------------------
                                                          (dollars in thousands)

Current Assets
   Cash and cash equivalents                               $    9,600 $    1,311
   Restricted deposits                                          1,014        341
   Notes receivable                                                --          3
   Notes receivable from affiliated companies                  88,188     12,798
   Accounts receivable less accumulated provision
     for doubtful accounts of $9,392 at June 30, 2001,
      and $9,317 at December 31, 2000                         727,344    464,930
   Accounts receivable from affiliated companies                3,262      5,385
   Materials, supplies, and fuel - at average cost             92,314     53,838
   Energy risk management current assets (Note 1(c))          225,751    697,488
   Prepayments and other                                       48,148     49,049
                                                               ------     ------
                  Total Current Assets                      1,195,621  1,285,143
--------------------------------------------------------------------------------

Property, Plant, and Equipment - at Cost
   Utility plant in service                                 4,800,115  4,699,090
   Construction work in progress                              269,177    190,773
         Total Utility Plant                                5,069,292  4,889,863
   Accumulated depreciation                                 2,162,814  2,110,747
                                                            ---------  ---------
                  Net Property, Plant, and Equipment        2,906,478  2,779,116
--------------------------------------------------------------------------------

Other Assets
   Regulatory assets                                          453,449    474,286
   Energy risk management non-current assets (Note 1(c))       37,841      7,000
   Other investments                                           56,148     51,343
   Other                                                       40,569     32,887
                                                               ------     ------
                  Total Other Assets                          588,007    565,516
--------------------------------------------------------------------------------

Total Assets                                               $4,690,106 $4,629,775
                                                           ========== ==========
--------------------------------------------------------------------------------

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.`

`PSI ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER'S EQUITY
                                                          June 30   December 31
                                                            2001        2000
                                                         (unaudited)
--------------------------------------------------------------------------------
                                                          (dollars in thousands)

Current Liabilities
  Accounts payable                                       $  653,590  $  392,206
  Accounts payable to affiliated companies                   41,578      32,448
  Accrued taxes                                              87,291      80,995
  Accrued interest                                           27,055      23,708
  Notes payable and other short-term obligations            180,600     188,391
  Notes payable to affiliated companies                           -     146,381
  Long-term debt due within one year                         42,424      38,325
  Energy risk management current liabilities (Note 1(c))    235,792     717,902
  Other                                                      14,855      12,748
                                                             ------      ------
                  Total Current Liabilities               1,283,185   1,633,104
--------------------------------------------------------------------------------

Non-Current Liabilities
  Long-term debt (Note 2)                                 1,374,956   1,074,255
  Deferred income taxes                                     473,445     458,593
  Unamortized investment tax credits                         37,704      39,341
  Accrued pension and other postretirement benefit costs    150,454     143,990
  Energy risk management non-current liabilities (Note 1(c)) 53,361      26,337
  Other                                                      66,731      78,112
                                                             ------      ------
                  Total Non-Current Liabilities           2,156,651   1,820,628
--------------------------------------------------------------------------------

Total Liabilities                                         3,439,836   3,453,732
--------------------------------------------------------------------------------

Cumulative Preferred Stock
  Not subject to mandatory redemption                        42,347      42,348
--------------------------------------------------------------------------------

Common Stock Equity
  Common stock - without par value; $.01 stated value;
    authorized shares - 60,000,000; outstanding shares -
    53,913,701 at June 30, 2001 and December 31, 2000           539         539
  Paid-in capital                                           413,523     413,523
  Retained earnings                                         794,508     720,153
  Accumulated other comprehensive income (loss)                (647)       (520)
                                                               ----        ----
                  Total Common Stock Equity               1,207,923   1,133,695
--------------------------------------------------------------------------------

Commitments and Contingencies (Note 4)

Total Liabilities and Shareholder's Equity               $4,690,106  $4,629,775
                                                         ==========  ==========
--------------------------------------------------------------------------------

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.`

`PSI ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                           Year to Date
                                                                              June 30
                                                                         2001       2000
--------------------------------------------------------------------------------------------
                                                                      (dollars in thousands)
                                                                            (unaudited)

Operating Activities
   Net income                                                         $  75,649  $  69,129
   Items providing or (using) cash currently:
     Depreciation and amortization                                       73,995     69,425
     Deferred income taxes and investment tax credits - net              11,735      5,517
     Unrealized gain from energy risk management activities             (14,190)   (23,081)
     Allowance for equity funds used during construction                 (2,278)      (454)
     Regulatory assets - net                                             20,951     10,426
     Changes in other current assets and current liabilities:
         Restricted deposits                                               (673)      (155)
         Accounts and notes receivable, net of reserves on
          receivables sold                                             (331,677)    75,266
         Materials, supplies, and fuel                                  (38,476)    26,783
         Accounts payable                                               270,514     49,495
         Accrued taxes and interest                                       9,643    (23,943)
     Other items - net                                                  (15,534)   (41,861)
                                                                        -------    -------

                  Net cash provided by operating activities              59,659    216,547
--------------------------------------------------------------------------------------------
Financing Activities
   Change in short-term debt                                           (154,172)   (58,408)
   Issuance of long-term debt                                           322,471     53,075
   Redemption of long-term debt                                         (19,825)   (55,276)
   Retirement of preferred stock                                              -    (10,791)
   Dividends on preferred stock                                          (1,294)    (2,295)
   Dividends on common stock                                                  -    (36,000)
                                                                          -----    -------

                  Net cash provided by (used in) financing activities   147,180   (109,695)
--------------------------------------------------------------------------------------------
Investing Activities
   Construction expenditures (less allowance for equity
     funds used during construction)                                   (193,691)  (108,461)
   Other investments                                                     (4,859)    (3,157)
                                                                         ------     ------

                  Net cash used in investing activities                (198,550)  (111,618)
--------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                      8,289     (4,766)

Cash and cash equivalents at beginning of period                          1,311      8,842
                                                                          -----      -----

Cash and cash equivalents at end of period                            $   9,600  $   4,076
                                                                      =========  =========
--------------------------------------------------------------------------------------------

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.`

`THE UNION LIGHT, HEAT AND POWER COMPANY
                              STATEMENTS OF INCOME

                                        Quarter Ended       Year to Date
                                           June 30            June 30
                                        2001      2000     2001      2000
--------------------------------------------------------------------------------
                                             (dollars in thousands)
                                                  (unaudited)

Operating Revenues
   Electric                         $  62,260 $  55,080 $ 116,862 $ 104,368
   Gas                                 13,608    11,060    72,770    44,547
                                       ------    ------    ------    ------
         Total Operating Revenues      75,868    66,140   189,632   148,915
--------------------------------------------------------------------------------

Operating Expenses
   Electricity purchased from parent
    company for resale                 34,523    39,929    71,367    75,140
   Gas purchased                        8,324     4,988    51,236    22,982
   Operation and maintenance            8,954     9,466    18,201    18,694
   Depreciation and amortization        4,239     3,922     8,404     7,658
   Taxes other than income taxes        1,155     1,025     2,262     2,123
                                        -----     -----     -----     -----
         Total Operating Expenses      57,195    59,330   151,470   126,597
--------------------------------------------------------------------------------

Operating Income                       18,673     6,810    38,162    22,318
--------------------------------------------------------------------------------

Miscellaneous - Net                      (144)     (439)     (613)     (630)
Interest                                1,550     1,573     3,243     3,144
--------------------------------------------------------------------------------

Income Before Taxes                    16,979     4,798    34,306    18,544
--------------------------------------------------------------------------------

Income Taxes                            5,968     2,021     9,440     7,621
                                        -----     -----     -----     -----

Net Income                          $  11,011 $   2,777 $  24,866 $  10,923
                                    ========= ========= ========= =========
--------------------------------------------------------------------------------

The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.`

`THE UNION LIGHT, HEAT AND POWER COMPANY
                                 BALANCE SHEETS

ASSETS                                                  June 30   December 31
                                                         2001         2000
                                                      (unaudited)
--------------------------------------------------------------------------------
                                                        (dollars in thousands)

Current Assets
   Cash and cash equivalents                            $ 4,426    $  6,460
   Accounts receivable less accumulated provision for
     doubtful accounts of $2,343 at June 30, 2001,
     and $1,492 at December 31, 2000                      9,926      28,518
   Accounts receivable from affiliated companies             21       2,279
   Materials, supplies, and fuel - at average cost        7,264       6,300
   Prepayments and other                                    600         274
                                                            ---         ---
                  Total Current Assets                   22,237      43,831
--------------------------------------------------------------------------------

Property, Plant, and Equipment - at Cost
   Utility plant in service
     Electric                                           241,556     234,482
     Gas                                                188,718     184,878
     Common                                              49,633      44,603
                                                         ------      ------
         Total Utility Plant In Service                 479,907     463,963
   Construction work in progress                         11,249      15,069
                                                         ------      ------
         Total Utility Plant                            491,156     479,032
   Accumulated depreciation                             174,555     169,403
                                                        -------     -------
                  Net Property, Plant, and Equipment    316,601     309,629
--------------------------------------------------------------------------------

Other Assets
   Regulatory assets                                     10,384      10,177
   Other                                                  5,069       5,110
                                                          -----       -----
                  Total Other Assets                     15,453      15,287
--------------------------------------------------------------------------------

Total Assets                                           $354,291    $368,747
                                                       ========    ========
--------------------------------------------------------------------------------

The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.`

`THE UNION LIGHT, HEAT AND POWER COMPANY
                                 BALANCE SHEETS

LIABILITIES AND SHAREHOLDER'S EQUITY
                                                           June 30   December 31
                                                            2001        2000
                                                         (unaudited)
--------------------------------------------------------------------------------
                                                         (dollars in thousands)

Current Liabilities
   Accounts payable                                        $  4,563  $ 24,249
   Accounts payable to affiliated companies                  21,562    20,192
   Accrued taxes                                              1,004    (5,760)
   Accrued interest                                           1,265     1,215
   Notes payable to affiliated companies                     13,565    29,403
   Other                                                      4,015    11,669
                                                              -----    ------
                  Total Current Liabilities                  45,974    80,968
--------------------------------------------------------------------------------

Non-Current Liabilities
   Long-term debt                                            74,605    74,589
   Deferred income taxes                                     38,631    35,822
   Unamortized investment tax credits                         3,546     3,684
   Accrued pension and other postretirement benefit costs    13,085    13,041
   Amounts due to customers - income taxes                    7,439     7,439
   Other                                                      3,787     6,016
                                                              -----     -----
                  Total Non-Current Liabilities             141,093   140,591
--------------------------------------------------------------------------------

Total Liabilities                                           187,067   221,559
--------------------------------------------------------------------------------

Common Stock Equity
   Common stock - $15.00 par value; authorized shares -
     1,000,000; outstanding shares - 585,333 at
     June 30, 2001 and December 31, 2000                      8,780     8,780
   Paid-in capital                                           20,305    20,305
   Retained earnings                                        138,139   118,103
                                                            -------   -------
                  Total Common Stock Equity                 167,224   147,188
--------------------------------------------------------------------------------

Commitments and Contingencies (Note 4)

Total Liabilities and Shareholder's Equity                 $354,291  $368,747
                                                           ========  ========
--------------------------------------------------------------------------------

The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.`

`THE UNION LIGHT, HEAT AND POWER COMPANY
                                      STATEMENTS OF CASH FLOWS

                                                                                        Year to Date
                                                                                           June 30
                                                                                     2001           2000
------------------------------------------------------------------------------------------------------------
                                                                                   (dollars in thousands)
                                                                                         (unaudited)

Operating Activities
   Net income                                                                     $ 24,866        $ 10,923
   Items providing or (using) cash currently:
     Depreciation and amortization                                                   8,404           7,658
     Deferred income taxes and investment tax credits - net                          2,671            (565)
     Allowance for equity funds used during construction                               (37)            (28)
     Regulatory assets - net                                                          (377)            203
     Changes in current assets and current liabilities:
         Accounts and notes receivable, net of reserves on receivables sold         21,274           7,298
         Materials, supplies, and fuel                                                (964)          2,497
         Accounts payable                                                          (18,316)         (1,762)
         Accrued taxes and interest                                                  6,814           4,294
     Other items - net                                                             (10,993)          4,474
                                                                                   -------           -----

                  Net cash provided by operating activities                         33,342          34,992
------------------------------------------------------------------------------------------------------------
Financing Activities
   Change in short-term debt                                                       (15,838)        (16,229)
   Dividends on common stock                                                        (4,829)         (4,975)
                                                                                    ------          ------

                  Net cash used in financing activities                            (20,667)        (21,204)
------------------------------------------------------------------------------------------------------------
Investing Activities
   Construction expenditures (less allowance for equity funds used during
     construction)                                                                 (14,709)        (12,761)
                                                                                   -------         -------

                  Net cash used in investing activities                            (14,709)        (12,761)
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                (2,034)          1,027

Cash and cash equivalents at beginning of period                                     6,460           3,641
                                                                                     -----           -----
Cash and cash equivalents at end of period                                        $  4,426        $  4,668
                                                                                  ========        ========
------------------------------------------------------------------------------------------------------------

The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of
these financial statements.`

### NOTES TO
FINANCIAL STATEMENTS

In this report Cinergy (which includes Cinergy Corp. and all of our regulated and non-regulated
subsidiaries) is, at times, referred to in the first person as "we," "our," or "us."

#### 1.      Summary of
Significant Accounting Policies

#### (a)        
Presentation

Our Financial Statements
reflect all adjustments (which include normal, recurring adjustments) necessary
in the opinion of the registrants for a fair presentation of the interim
results. These statements should be read in conjunction with the Financial
Statements and the notes thereto included in the combined 2000 Form 10-K of the
registrants. Certain amounts in the 2000 Financial Statements have been
reclassified to conform to the 2001 presentation.

#### (b)        
Financial
Derivatives

We use derivative financial instruments to manage:

- funding costs;
- exposure to fluctuations in interest rates; and
- exposure to foreign currency exchange rates.

We account for derivatives
under Statement of Financial Accounting Standards No. 133, Accounting for
Derivatives and Hedging Activities (Statement 133), which requires all
derivatives that are not exempted to be accounted for at fair value. Changes in
the derivatives fair value must be recognized currently in earnings unless
specific hedge accounting criteria are met. Gains and losses on derivatives that
qualify as hedges can (a) offset related fair value changes on the hedged item
in the income statement for fair value hedges; or (b) be recorded in other
comprehensive income for cash flow hedges. To qualify for hedge accounting,
financial instruments must be designated as a hedge (for example, an offset of
foreign exchange or interest rate risks) at the inception of the contract and
must be effective at reducing the risk associated with the hedged item.
Accordingly, changes in the fair values or cash flows of instruments designated
as hedges must be highly correlated with changes in the fair values or cash
flows of the related hedged items.

From time to time, we may
use foreign currency contracts (for example, a contract obligating one party to
buy, and the other to sell, a specified quantity of a foreign currency for a
fixed price at a future date) and currency swaps (for example, a contract
whereby two parties exchange principal and interest cash flows denominated in
different currencies) to hedge foreign currency denominated purchase and sale
commitments (cash flow hedges) and certain of our net investments in foreign
operations (net investment hedges) against currency exchange rate fluctuations.
At June 30, 2001, the fair value, and ineffectiveness, of instruments that we
have classified as foreign currency cash flow hedges was not material.
Reclassification of unrealized gains or losses on foreign currency cash flow
hedges from other comprehensive income occurs when the underlying hedged item is
recorded in income.

We also use interest rate
swaps (an agreement by two parties to exchange fixed-interest rate cash flows
for floating-interest rate cash flows). Through December 31, 2000, we utilized
the accrual method to account for these interest rate swaps. Accordingly, gains
and losses were calculated based on the current period difference between the
fixed-rate and the floating-rate interest amounts, using agreed upon notional
amounts. These gains and losses were recognized in our Consolidated Statements
of Income as a component of Interest over the life of the agreement.
Effective with our adoption of Statement 133 in the first quarter of 2001, we
began accounting for interest rate swaps using mark-to-market accounting and are
assessing the effectiveness of any swaps used in hedging activities. At June 30,
2001, the fair value, and ineffectiveness, of instruments that we have
classified as cash flow hedges of variable rate debt instruments was not
material. Reclassification of unrealized gains or losses on cash flow hedges of
variable-rate debt instruments from other comprehensive income occurs as
interest payments are made on the debt instrument. See Note 1(d) below for
further discussion of Statement 133.

#### (c
)        
Energy Marketing and
Trading

We market and trade
electricity, natural gas, and other energy-related products. We designate
transactions as physical or trading at the time they are originated. Physical
refers to our intent and projected ability to fulfill substantially all
obligations from company-owned assets. We sell generation to third parties when
it is not required to meet native load requirements (end-use customers within
our public utility companies franchise service territory). All other
energy contracts (including most natural gas contracts) are classified as
trading. We account for physical transactions on a settlement basis and trading
transactions using the mark-to-market method of accounting, consistent with our
application of EITF 98-10, Accounting for Contracts Involved in Energy
Trading and Risk Management Activities. To the extent that physical
transactions constitute derivatives under Statement 133, we typically utilize
the normal purchases and sales exemption, when the criteria for the application
of the normal exemption are met. To the extent trading transactions constitute
derivatives under Statement 133, we typically do not attempt to identify them as
a hedging instrument. Under the mark-to-market method of accounting, trading
transactions are shown at fair value in our Consolidated Balance Sheets as
Energy risk management assets  and Energy risk management
liabilities current and non-current. We reflect changes in
fair value resulting in unrealized gains and losses in Fuel and purchased and
exchanged powerand Gas purchased. We record the revenues and costs
for all transactions in our Consolidated Statements of Income when the contracts
are settled. We recognize revenues in Operating revenues; costs are
recorded in Fuel and purchased and exchanged power and Gas
purchased.

Although we intend to
settle physical contracts with company-owned generation, occasionally we settle
these contracts with power purchased on the open trading markets. The cost of
these purchases could be in excess of the associated revenues. We recognize the
gains or losses on these transactions as the power is delivered. Due to the
infrequency of such settlements, both historical and projected, and the fact
that physical power settlement to the customer still occurs, we continue to
apply the normal purchases and sales exemption to such physical contracts that
constitute derivatives. Open market purchases may occur for the following
reasons:

- generating station outages;
- least-cost alternative;
- native load requirements; and
- extreme weather.

We value contracts in the trading portfolio using end-of-the-period market prices, utilizing the
following factors (as applicable):

- closing exchange prices (that is, closing prices for standardized electricity
and natural gas products traded on an organized exchange such as the New York
Mercantile Exchange);
- broker-dealer and over-the-counter price quotations; and
- model pricing (which considers time value and historical volatility factors of
electricity and natural gas pricing underlying any options and contractual
commitments).

We anticipate that some of
the electricity obligations, even though considered trading contracts, will
ultimately be settled using company-owned generation. The cost of this
generation is usually below the market price at which the trading portfolio has
been valued. We expect earnings volatility from period to period due to the
risks associated with marketing and trading electricity, natural gas, and other
energy-related products.

During the first six months of 2001, our natural gas trading volumes increased substantially.
Because of this volume change and the potential volatility of gas prices, our risk exposure to
these markets has increased.  However, we continue to employ value-at-risk analysis and other
methodologies to mitigate our risks in all trading operations, including natural gas trading.

#### (d)        
Accounting Changes

On July 20, 2001, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 141, Business Combinations (Statement 141), and
No. 142, Goodwill and Other Intangible Assets (Statement 142). Statement
141 requires all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method. With the adoption of Statement 142,
goodwill and other intangibles with indefinite lives will no longer be subject
to amortization. Goodwill will be initially assessed for impairment shortly
after adoption and at least annually thereafter by applying a fair-value-based
test, as opposed to the undiscounted cash flow test applied under current
accounting standards. This test must be applied at the reporting
unit level, which will be defined within Cinergy after further
review and will be a level no broader than the current business segments
discussed in Note 5. Under Statement 142, an acquired intangible asset should be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented, or exchanged, regardless of the acquirers
intent to do so. We will begin applying Statement 141 in the third quarter of
2001 and adopt Statement 142 in the first quarter of 2002. Until we adopt
Statement 142, goodwill will continue to be amortized. We do not believe that
the discontinuance of amortization of goodwill will be material to our 2002
results of operations. We are analyzing the impact of the initial impairment
test, and are unable to predict, at this time, whether the implementation of
these accounting standards will be material to our financial position or results
of operations.

During 1998, FASB issued
Statement 133. This standard was effective for calendar year-end companies
beginning in 2001, and requires companies to record derivative instruments which
are not exempt under certain provisions of Statement 133 as assets or
liabilities, measured at fair value (i.e., marked-to-market). Our financial
statements reflect the adoption of Statement 133 in January 2001. Since many of
our derivatives were previously required to use mark-to-market accounting, the
effects of implementation were immaterial.

Our adoption did not
reflect the potential impact of applying mark-to-market accounting to selected
call options and forwards. We had not historically marked these instruments to
market because they are intended as either hedges of peak period exposure or
sales contracts served with physical generation, neither of which were
considered trading activities. At adoption, we classified these contracts as
normal purchases or sales based on our interpretation of Statement 133 and in
the absence of definitive guidance on such contracts. In June 2001, the
FASB-sponsored Derivatives Implementation Group issued final guidance on the
application of the normal purchases and sales exemption to electricity contracts
structured as options or forwards. While much of the criteria that this guidance
requires is consistent with the existing guidance in Statement 133, some
criteria were added. We will adopt the new guidance in the third quarter of
2001, and preliminary estimates indicate that the effects of implementation for
these contracts will not be material. We will continue to apply this guidance to
any new electricity contracts that meet the definition of a derivative.

#### 2.        Long-Term
Debt

In January 2001, PSI
Energy, Inc. (PSI) retired $19.8 million principal amount of non-interest
bearing Series 1994 Promissory Note, which had matured. The securities were not
replaced by new issues of debt. In March 2001, Cinergy Global Resources, Inc., a
subsidiary of Cinergy, borrowed $26 million at a fixed interest rate of
6.10%, maturing on March 31, 2003.

On June 22, 2001,
PSI issued $325 million principal amount of First Mortgage Bonds Series
EEE, 6.65% with a maturity date of June 15, 2006. The net proceeds of the
offering were used to repay short-term indebtedness.

#### 3.         Short-Term
Debt

On March 21, 2001, Cinergy Corp. placed a $500 million, 364-day senior revolving credit facility.
Also, on May 4, 2001, Cinergy Corp. placed a $400 million, three-year senior revolving credit
facility which replaced Cinergy Corp.'s $400 million, five-year revolving credit facility that
expired on May 6, 2001, and a $200 million, three-year revolving credit facility that expired on
July 20, 2001.  These facilities are used to provide short-term interim financing.

#### 4.        Commitments and Contingencies

#### (a)        
Ozone Transport Rulemaking

In June 1997, the Ozone
Transport Assessment Group, which consisted of 37 states, made a wide range of
recommendations to the United States (U.S.) Environmental Protection Agency
(EPA) to address the impact of ozone transport on serious non-attainment areas
(geographic areas defined by the EPA as non-compliant with ozone standards) in
the Northeast, Midwest, and South. Ozone transport refers to wind-blown movement
of ozone and ozone-causing materials across city and state boundaries. In late
1997, the EPA published a proposed call for revisions to State Implementation
Plans (SIPs) for achieving emissions reductions to address air quality concerns.
The EPA must approve all SIPs.

(i)        Nitrogen Oxide (NOX) SIP Call

In October 1998, the EPA
finalized its ozone transport rule, also known as the NOX SIP Call.
It applied to 22 states in the eastern half of the U.S., including the three
states in which our electric utilities operate, and also proposed a model
NOX emission allowance-trading program. This rule recommended states
reduce NOX emissions primarily from industrial and utility sources to
a certain level by May 2003. The EPA gave the affected states until September
30, 1999, to incorporate NOX reductions and, at the discretion of the
state, a NOX trading program into their SIPs. The EPA proposed to
implement a federal plan to accomplish the equivalent NOX reductions
by May 1, 2003, if states failed to revise their SIPs.

Ohio, Indiana, a number of
other states, and various industry groups (some of which we are a member), filed
legal challenges to the NOX SIP Call in late 1998. On May 25, 1999,
the U.S. Circuit Court of Appeals for the District of Columbia (Court of
Appeals) granted a request for a deferral of the rule and indefinitely suspended
the September 30 filing deadline, pending further review by the Court of
Appeals.

In March 2000, the Court of
Appeals substantially upheld the EPAs rule. On April 11, 2000, the EPA
asked the Court of Appeals to remove its May 25, 1999 suspension of the rule and
also directed states to submit SIP revisions by September 1, 2000. On April 17,
2000, various states and industry groups (some of which we are a member) filed a
request with the Court of Appeals for a rehearing of the NOX SIP Call
decisions. On April 24, 2000, the same group filed a request with the Court of
Appeals to require a rulemaking and a comment period to determine a new
compliance date. The states also filed a request to obtain more time to file
their SIPs. On June 23, 2000, the Court of Appeals denied both requests and
directed the states to submit their SIP revisions by October 30, 2000. The
states of Indiana, Kentucky, and Ohio subsequently submitted letters stating
their intent to revise their SIPs in response to the NOX SIP Call. On
December 26, 2000, the EPA took final action against Indiana, Kentucky, Ohio,
and most other SIP Call affected states for failing to make complete SIP
revisions. This action triggers an 18-month time clock for mandatory sanctions
under a Federal Implementation Plan.

In August 2000, the Court
of Appeals extended the May 1, 2003 deadline for NOX reductions to
May 31, 2004. The states and other groups sought review of the Court of Appeals
ruling by the U.S. Supreme Court (Supreme Court). In March 2001, the Supreme
Court decided not to grant that review.

In June 2001, the Court of
Appeals remanded portions of the NOX SIP Call to the EPA for
reconsideration of how growth was factored into the state NOX
budgets. It is unclear whether this decision will result in an increase or
decrease in the size of the NOX reduction requirement.

The states of Indiana and
Kentucky approved the final NOX SIP Call rule, through a cap and
trade program, in June and July of 2001, respectively. The EPA is expected to
approve the state rules by the end of 2001. The State of Ohio is still in the
process of developing its version of the NOXSIP Call rule.

On September 25, 2000,
Cinergy announced a plan for its subsidiaries, The Cincinnati Gas &
Electric Company (CG&E) and PSI, to invest in pollution
control equipment and other methods to reduce NOXemissions. The
current estimate of costs for this expected investment is approximately $800
million (in nominal dollars) from 2001-2005, and includes the following:

- install selective catalytic reduction units (SCRs) at several different generating
              stations;
- install other pollution control technologies, including new computer software, at all
              generating stations;
- make combustion improvements; and
- utilize market opportunities to buy and sell NOX allowances.

SCRs are the most proven technology currently available of reducing NOX emissions produced in
coal-fired generating stations.

(ii)        Section 126 Petitions

In February 1998, the
northeast states filed petitions seeking the EPAs assistance in reducing
ozone in the Eastern U.S. under Section 126 of the Clean Air Act (CAA). The EPA
believes that Section 126 petitions allow a state to claim that sources in
another state are contributing to its air quality problem and request that the
EPA require the upwind sources to reduce their emissions.

In December 1999, the EPA
granted four Section 126 petitions relating to NOXemissions. This
ruling affected all of our Ohio and Kentucky facilities, as well as some of our
Indiana facilities, and requires us to reduce our NOX emissions to a
certain level by May 2003. In May 2001, the Court of Appeals substantially
upheld a challenge to the Section 126 requirements, and remanded portions of the
rule to the EPA for reconsideration of how growth was factored into the emission
limitations. It is uncertain whether the May 2003 compliance deadline will be
deferred while the EPA revisits the size of the emission limitations.

(iii)        State Ozone Plans

On November 15, 1999, the
State of Indiana and the Commonwealth of Kentucky (along with Jefferson County,
Kentucky) jointly filed an amendment to their attainment demonstration on how
they intend to bring the greater Louisville area, including Floyd and Clark
Counties in Indiana, into attainment with the one-hour ozone standard. The SIP
amendments call for, among other things, statewide NOX reductions
from utilities in Indiana, Kentucky, and surrounding states which are less
stringent than the EPAs NOX SIP Call. Indiana and Kentucky
committed to adopt utility NOX control rules by December 2000, that
would require controls be installed by May 2003. However, Indiana halted the
rulemaking for NOX controls at this level, but completed
NOX SIP Call level reduction regulations. Kentucky has completed its
rulemaking, and issued a final rule that changed the compliance deadline to
mirror the NOX SIP Call of May 31, 2004.

See Note 4(d) below for a discussion of the tentative EPA settlement, which relates to matters
discussed within this note.

#### (b
)        
New Source
Review (NSR)

The CAAs NSR
provisions require that a company obtain a pre-construction permit if it plans
to build a new stationary source of pollution or make a major modification to an
existing facility unless the changes are exempt. In July 1998, the EPA requested
comments on proposed revisions to the NSR rules that would change NSR
applicability by eliminating exemptions contained in the current regulation.
On June 22, 2001, the EPA issued a NSR 90-Day Review Paper and scheduled
four public forums across the U.S. to gather more information on the impacts of
NSR. Cinergy provided oral testimony at an EPA public forum held in
Cincinnati, Ohio on July 10, 2001, and plans to submit written comments as well.

Since July 1999,
CG&E and PSI have received requests from the EPA (Region 5),
under Section 114 of the CAA, seeking documents and information regarding
capital and maintenance expenditures at several of their respective generating
stations. These requests were part of an industry-wide investigation assessing
compliance with the NSR and the New Source Performance Standards (NSPS) of the
CAA at electric generating stations.

On September 15, 1999,
November 3, 1999, and February 2, 2001, the Attorneys General of New York,
Connecticut, and New Jersey, respectively, issued letters notifying
Cinergy and CG&E of their intent to sue under the
citizens suit provisions of the CAA. These states allege violations of the
CAA by constructing and continuing to operate a major modification of
CG&Es W.C. Beckjord Generating Station (Beckjord Station)
without obtaining the required NSR pre-construction permits.

On November 3, 1999, the
EPA sued a number of holding companies and electric utilities, including
Cinergy, CG&E, and PSI, in various U.S. District Courts
(District Court). The Cinergy, CG&E, and PSI suit
alleged violations of the CAA at two of our generating stations relating to NSR
and NSPS requirements. The suit sought (1) injunctive relief to require
installation of pollution control technology on each of the generating units at
Beckjord Station and at PSIs Cayuga Generating Station (Cayuga
Station), and (2) civil penalties in amounts of up to $27,500 per day for each
violation.

On March 1, 2000, the EPA
filed an amended complaint against Cinergy, CG&E, and
PSI. The amended complaint added alleged violations of the NSR
requirements of the CAA at two of our generating stations contained in a notice
of violation (NOV) filed by the EPA on November 3, 1999. It also added claims
for relief of alleged violations of nonattainment NSR, Indiana and Ohio SIPs,
and particulate matter emission limits (as discussed below in the Beckjord
Station NOV section.)

The amended complaint
sought (1) injunctive relief to require installation of pollution control
technology on each of the generating units at Beckjord Station, Cayuga Station,
and PSIs Wabash River Generating Station and Gallagher Generating
Station, and such other measures as necessary, and (2) civil penalties in
amounts of up to $27,500 per day for each violation.

On March 1, 2000, the EPA
also filed an amended complaint in a separate lawsuit alleging violations of the
CAA relating to NSR, Prevention of Significant Deterioration (PSD), and Ohio SIP
requirements regarding various generating stations, including a generating
station operated by the Columbus Southern Power Company (CSP) and jointly-owned
by CSP, the Dayton Power and Light Company (DP&L), and CG&E. The
EPA is seeking injunctive relief and civil penalties of up to $27,500 per day
for each violation. This suit is being defended by CSP. On April 4, 2001, the
District Court in that case ruled that neither the Government nor the
intervening plaintiff environmental groups could obtain civil penalties for any
alleged violations that occurred more than five years prior to the filing of the
complaint, but that both parties could seek injunctive relief for alleged
violations that occurred more than five years before the filing of the
complaint. Thus, if the plaintiffs prevail in their claims, any calculation for
penalties will not start on the date of the alleged violations unless those
alleged violations occurred after November 3, 1994, but CSP would be forced to
install the controls required under the CAA.  Neither party appealed that decision.

On June 28, 2000, the EPA
issued a NOV to Cinergy, CG&E, and PSI for alleged
violations of NSR, PSD, and SIP requirements at CG&Es Miami
Fort Generating Station and PSIsGibson Generating Station. In
addition, Cinergy and CG&E have been informed by DP&L, the
operator of J.M. Stuart Generating Station (Stuart Station), that on June 30,
2000, the EPA issued a NOV for alleged violations of NSR, PSD, and SIP
requirements at this station. CG&E owns 39% of Stuart Station. The
NOVs indicated that the EPA may (1) issue an order requiring compliance with the
requirements of the SIP, or (2) bring a civil action seeking injunctive relief
and civil penalties of up to $27,500 per day for each violation.

On August 2, 2001, the
states of New York, New Jersey, and Connecticut filed an Assented to Motion to
Intervene in this litigation. Their motion was granted by the District Court on
August 3, 2001. The states proposed complaint is an exhibit to the motion
to intervene. Cinergy,CG&E and PSI are in the process of evaluating the states'
complaint but, at this time, we are unable to determine the effect, if any, that
this filing will have on the issues affecting us regarding NSR as framed in the
EPA's Amended Complaint.

See Note 4(d) below for a discussion of the tentative EPA settlement, which relates to matters
discussed within this note.

#### (c
)        
Beckjord
Station NOV

On November 30, 1999, the
EPA filed a NOV against Cinergy and CG&E alleging that
emissions of particulate matter at the Beckjord Station exceeded the allowable
limit. The NOV indicated that the EPA may (1) issue an administrative penalty
order, or (2) file a civil action seeking injunctive relief and civil penalties
of up to $27,500 per day for each violation. The allegations contained in this
NOV were incorporated within the March 1, 2000 amended complaint, as discussed
in Note 4(b) above. On June 22, 2000, the EPA issued a NOV and a Finding of
Violation (FOV) alleging additional particulate emission violations at Beckjord
Station and offered us an opportunity to meet and discuss the allegations and
corrective measures. The NOV/FOV indicated the EPA may issue an administrative
compliance order, issue an administrative penalty order, or bring a civil or
criminal action.

See Note 4(d) below for a discussion of the tentative EPA settlement, which relates to matters
discussed within this note.

#### (d
)        
EPA Agreement

On December 21, 2000,
Cinergy, CG&E, and PSI reached an agreement in
principle with the EPA, the U.S. Department of Justice, three northeast states,
and two environmental groups that could serve as the basis for a negotiated
resolution of CAA claims and other related matters brought against coal-fired
power plants owned and operated by Cinergys operating subsidiaries.
The complete resolution of these issues is contingent upon establishing a final
agreement with the EPA and other parties. If a final agreement is reached with
these parties, this would resolve past claims of NSR violations as well as the
Beckjord Station NOVs/FOV discussed above.

Under the terms of the
tentative agreement, the EPA and the other plaintiffs have agreed to drop all
challenges of past maintenance and repair activities at our coal-fired
generation plants. In addition, the intent of the tentative agreement is that we
would be allowed to continue on-going activities to maintain reliability and
availability without subjecting the plants to future litigation regarding
federal permitting requirements.

In return for resolution of
past claims, future operational certainty, and protection of system wide demand
growth, we have tentatively agreed to:

- shut down or repower with natural gas nine small coal-fired boilers at three power plants
              beginning in 2004;
- build four additional sulfur dioxide (SO2) scrubbers, the first of which must be
              operational by December 31, 2007;
- upgrade existing pollution control systems;
- phase in the operation of
NOX reduction technology year-round starting in 2004;
- retire 50,000
tons of SO2 allowances between 2001 and 2005 and reduce our
SO2 cap by 35% in 2013;
- pay a civil penalty of $8.5 million to the U.S. government; and
- implement $21.5 million in environmental mitigation projects.

The estimated cost for
these capital expenditures is expected to be approximately $700 million. These
capital expenditures are in addition to our previously announced commitment to
install NOXcontrols over the next five years at an estimated cost of
approximately $800 million as previously discussed in Ozone Transport
Rulemaking.

In reaching the tentative
agreement, we did not admit any wrongdoing and remain free to continue our
current maintenance practices, as well as implement future projects for improved
reliability. If the settlement is not completed, we intend to defend the suit
vigorously in court. In such an event, it is not possible to determine the
likelihood that the plaintiffs would prevail on their claims or whether
resolution of this matter would have a material effect on our financial
condition or results of operations.

#### (e
)        
Manufactured Gas Plant (MGP) Sites

(i)        General

Prior to the 1950s, gas was produced at MGP sites through a process that involved the heating of
coal and/or oil.  The gas produced from this process was sold for residential, commercial, and
industrial uses.

(ii)        PSI

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

IGC (in 1994) and NIPSCO
(in 1995) both made claims against PSI. The basis of these claims was
that PSI is a Potentially Responsible Party with respect to the 21 MGP
sites under the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA). The claims further asserted that PSI was legally
responsible for the costs of investigating and remediating the sites. In August
1997, NIPSCO filed suit against PSI in federal court claiming recovery
(pursuant to CERCLA) of NIPSCOs past and future costs of investigating and
remediating MGP-related contamination at the Goshen MGP site.

In November 1998, NIPSCO,
IGC, and PSI entered into a Site Participation and Cost Sharing Agreement
(Agreement). This agreement allocated CERCLA liability for past and future costs
at seven MGP sites in Indiana among the three companies. As a result of the
Agreement, NIPSCOs lawsuit against PSI was dismissed. The parties
have assigned lead responsibility for managing further investigation and
remediation activities at each of the sites to one of the parties. Similar
agreements were reached between IGC and PSI that allocate CERCLA
liability at 14 MGP sites with which NIPSCO was not involved. These agreements
concluded all CERCLA and similar claims between the three companies related to
MGP sites. The parties continue to investigate and remediate the sites, as
appropriate under the agreements and applicable laws. The Indiana Department of
Environmental Management (IDEM) oversees investigation and cleanup of some of
the sites.

PSI notified its
insurance carriers of the claims related to MGP sites raised by IGC, NIPSCO, and
IDEM. In April 1998, PSI filed suit in Hendricks County Circuit Court in
the State of Indiana (Court) against its general liability insurance carriers.
Subsequently, PSI sought a declaratory judgment to obligate its insurance
carriers to (1) defend MGP claims against PSI, or (2) pay PSIscosts of defense and compensate PSI for its costs of investigating,
preventing, mitigating, and remediating damage to property and paying claims
related to MGP sites. The Court rescheduled the trial date for the case from May
2001 to January 2002. The Court ordered the parties to submit the case to
mediation in February 2001. The mediation was not successful in resolving
PSIs claims against all of the insurance carriers. Settlement
discussions with some of the insurance carriers have been ongoing. At the
present time, PSI cannot predict either the progress or outcome of these
discussions or the outcome of this litigation.

PSI has accrued
costs for the sites related to investigation, remediation, and groundwater
monitoring to the extent such costs are probable and can be reasonably
estimated. PSI does not believe it can provide an estimate of the
reasonably possible total remediation costs for any site before a remedial
investigation/feasibility study has been completed. To the extent remediation is
necessary, the timing of the remediation activities impacts the cost of
remediation. Therefore, PSIcurrently cannot determine the total costs
that may be incurred in connection with the remediation of all sites, to the
extent that remediation is required. According to current information, these
future costs at the 21 Indiana MGP sites are not material to our financial
condition or results of operations. As further investigation and remediation
activities are performed at these sites, the potential liability for the 21
Indiana MGP sites could be material to our financial position or results of
operations.

(iii)        CG&E

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

#### (f
)        
Gas Customer Choice

In January 2000, Cinergy
Investments, Inc. (Investments) sold Cinergy Resources, Inc. (CRI), a former
subsidiary, to Licking Rural Electrification, Inc. doing business as The Energy
Cooperative (Energy Cooperative). In February 2001, Cinergy,
CG&E, and CRI were named as defendants in three class actions
lawsuits relating to Energy Cooperatives removal from the Ohio Gas
Customer Choice program and the failure to deliver gas to customers.
Subsequently, these class action suits were amended and consolidated into one
suit. CG&E has been dismissed as a defendant in the consolidated
suit. On March 30, 2001, Cinergy, CG&E, and Investments were
named as defendants in a lawsuit filed by both Energy Cooperative and CRI. This
lawsuit concerns any obligations or liability Investments may have to Energy
Cooperative following its sale of CRI. We intend to vigorously defend these
lawsuits. At the present time, Cinergy cannot predict the outcome of
these suits.

#### (g)         PSI Fuel Adjustment Charge

As discussed in the 2000
Form 10-K, PSI defers fuel costs that are recoverable in future periods
subject to Indiana Utility Regulatory Commission (IURC) approval under a fuel
recovery mechanism. On June 6, 2001, the IURC issued an order in a PSI
fuel recovery proceeding, disallowing approximately $14 million of deferred
costs. On June 26, 2001, PSI formally requested that the IURC reconsider
its disallowance decision. PSIbelieves ithas strong legal and
factual arguments in its favor and that it will ultimately be permitted to
recover these costs. However, PSI cannot definitively predict the
ultimate outcome of either the petition for IURC reconsideration or any possible
appeal of this matter.

#### (h)        Other

In May 2001, the Kentucky
Public Service Commission (KPSC) approved an offer of settlement by The Union
Light, Heat and Power Company (ULH&P) which allows ULH&P
to maintain its existing retail electric base rates and fuel adjustment clause
at current levels through December 2003 and limits electric rate increases for
three years thereafter, resolving all related matters previously pending before
the KPSC. The settlement also approved the proposed wholesale power supply
contract between ULH&P and CG&E, beginning January 1,
2002, and made the necessary determinations under the Public Utilities Holding
Company Act of 1935, as amended (PUHCA), for CG&E to transfer its
generating assets and liabilities to an exempt wholesale generator (EWG). In
connection with this settlement ULH&P recognized revenues of
approximately $10 million, which had been previously deferred subject to refund.

#### 5.         Financial
Information by Business Segment

As discussed in the 2000 Form
10-K, in early 2001, Cinergy announced certain organizational changes
which further aligned the business units to reflect Cinergys
strategic vision. The revised structure has three business units, as follows:

- Energy Merchant Business Unit (Energy Merchant);
- Regulated Businesses Business Unit (Regulated Businesses); and
- Power Technology and Infrastructure Services Business Unit (PTIS).

Energy Merchant manages
wholesale generation and the buying and selling of energy commodities. Energy
Merchant earns revenues from the electric generation and the operation of power
plants; wholesale energy trading, marketing, and risk management; and customized
energy solutions.

Regulated Businesses
consists of a regulated, integrated utility, and regulated electric and gas
transmission and distribution services. Regulated Businesses plans, constructs,
operates, and maintains the Cinergy operating companies
transmission and distribution systems and delivers gas and electric energy to
consumers. Regulated Businesses also earns revenues from wholesale customers
primarily by transmitting electric power through Cinergys
transmission system.

PTIS primarily manages the
development, marketing and sales of our non-regulated retail energy and
energy-related businesses. Products and services offered by PTIS include energy
management and consulting services to commercial customers that operate retail
facilities; utility operations and infrastructure services to utilities; and
building and maintaining fiber optic telecommunication networks for businesses,
municipalities, telecommunications carriers, and schools. PTIS also manages
Cinergy Ventures, LLC (Ventures), Cinergys venture capital
subsidiary. Ventures invests in emerging energy technologies with promising
commercial applications that can benefit future Cinergybusiness
development activities.

Financial results by
business unit are as indicated below. Amounts for the prior year have been
restated to reflect segment restructuring which includes the consolidation of
the former International Business Unit into the Energy Merchant and Regulated
Businesses business units. This restructuring became effective January 1, 2001.

Financial results by
business unit for the quarters ended June 30, 2001 and June 30, 2000:

---

#### Business Units

---

`Cinergy Business Units
                                               ----------------------
                                 Energy        Regulated                              Reconciling
                               Merchant(5)   Businesses(5)      PTIS         Total   Eliminations(1) Consolidated
                               -----------   -------------      ----         -----  ---------------  -------------
                                                                  (in thousands)
Quarter ended 6/30/01

Operating revenues-
   External customers     $  3,045,280(3)  $    586,228   $    10,584    $ 3,642,092     $      --    $ 3,642,092
   Intersegment revenues        29,070(4)            --            --         29,070       (29,070)            --
Segment profit (loss)(2)        30,310           55,896        (3,239)        82,967           --          82,967
------------------------------------------------------------------------------------------------------------------------------------
Quarter ended 6/30/00

Operating revenues-
   External customers     $  1,003,793(3)  $    748,370   $    17,351    $ 1,769,514     $      --    $ 1,769,514
   Intersegment revenues       241,270(4)            --            --        241,270     (241,270)             --
Segment profit (loss)(2)        38,435           39,235        (2,555)        75,115           --          75,115
------------------------------------------------------------------------------------------------------------------------------------

(1)  The Reconciling Eliminations category eliminates the intersegment revenues of Energy Merchant.
(2)  Management utilizes segment profit (loss) to evaluate segment performance.
(3)  The increase in 2001 as compared to 2000 is primarily due to the increase in volumes and average price realized on non-firm wholesale
     transactions.
(4)  In connection with deregulation in Ohio, beginning in 2001, certain revenues which were previously recorded through intersegment transfer
     pricing, are now directly recorded to the business segment.
(5)  Effective January 2001, electric customer choice legislation was implemented in Ohio.  For comparative purposes, the estimated pro forma
     adjustment to reflect this effect on second quarter 2000 results would be as follows:

                                            Energy         Regulated
                                           Merchant        Businesses
                                           --------        ----------
              Operating revenues        $ (28,904)        $  28,904
              Segment profit (loss)     $  (9,535)        $   9,535`

---

Financial results by business
unit for the six months ended June 30, 2001 and June 30, 2000:

---

#### Business Units

---

`Cinergy Business Units
                                               ----------------------
                               Energy         Regulated                               Reconciling
                             Merchant(5)     Businesses(5)      PTIS        Total    Eliminations(1) Consolidated
                             -----------     -------------      ----        -----   ---------------  -------------
                                                            (in thousands)
Six months ended 6/30/01

Operating revenues-
   External customers      $ 5,919,557(3) $   1,404,039     $  25,025    $ 7,348,621 $           -     $7,348,621
   Intersegment revenues        64,273(4)             -             -         64,273       (64,273)             -
Segment profit (loss)(2)        69,605          141,646        (8,037)       203,214             -        203,214
------------------------------------------------------------------------------------------------------------------------------------
Six months ended 6/30/00

Operating revenues-
   External customers      $ 1,708,435(3) $   1,608,318     $  35,838    $ 3,352,591 $           -     $3,352,591
   Intersegment revenues       482,858(4)             -             -        482,858      (482,858)             -
Segment profit (loss)(2)        89,712          127,007        (3,165)       213,554             -        213,554
------------------------------------------------------------------------------------------------------------------------------------

(1)  The Reconciling Eliminations category eliminates the intersegment revenues of Energy Merchant.
(2)  Management utilizes segment profit (loss) to evaluate segment performance.
(3)  The increase in 2001 as compared to 2000 is primarily due to the increase in volumes and average price realized on non-firm wholesale
     transactions.
(4)  In connection with deregulation in Ohio, beginning in 2001, certain revenues which were previously recorded through intersegment transfer
     pricing, are now directly recorded to the business segment.
(5)  Effective January 2001, electric customer choice legislation was implemented in Ohio.  For comparative purposes, the estimated pro forma
     adjustment to reflect this effect on the six months ended June 30, 2000 results would be as follows:

                                           Energy         Regulated
                                          Merchant       Businesses
                                          --------       ----------
              Operating revenues        $   (60,201)    $    60,201
              Segment profit (loss)     $   (20,626)    $    20,626`

---

Total segment assets at
June 30, 2001 and December 31, 2000, are as follows:

---

#### Business Units

---

`Cinergy Business Units
                                                             ----------------------
                                                            Regulated
                                        Energy Merchant    Businesses     PTIS            Total          All Other      Consolidated
                                        ---------------    ----------     ----            -----          ---------      ------------
                                                                               (in thousands)
Total segment assets at June 30, 2001        $5,461,535    $6,921,852   $210,323       $12,593,710        $39,848        $12,633,558
Total segment assets at December 31, 2000     5,947,824     6,162,243    177,173        12,287,240         42,488         12,329,728`

---

#### 6.         Earnings Per
Common Share (EPS)

A reconciliation of EPS to
earnings per common share assuming dilution (diluted EPS) is presented below for
the quarters ended June 30, 2001 and June 30, 2000:

---

`Income      Shares         EPS
                                                   ------      ------         ---
                                                  (in thousands, except per share amounts)
          Quarter ended June 30, 2001
          EPS:
             Net Income                                 $82,967    159,061    $   0.51

          Effect of dilutive securities:
             Common stock options                                    1,157
             Share saver plan common stock                               1
             Directors' compensation plans                             139
             Contingently issuable common stock                        588
                                                                       ---

           EPS - assuming dilution:
             Net income plus assumed conversions        $82,967    160,946    $   0.51

--------------------------------------------------------------------------------
          Quarter ended June 30, 2000
          EPS:
             Net Income                                 $75,115    158,923    $   0.47

          Effect of dilutive securities:
             Common stock options                                      318
             Contingently issuable common stock                        293
                                                                       ---

           EPS - assuming dilution:
             Net income plus assumed conversions        $75,115    159,534    $   0.47`

---

Options to purchase shares of common stock are excluded from the calculation of diluted EPS when
the exercise prices of these options are greater than the average market price of the common shares
during the period.  For the quarters ended June 30, 2001 and 2000, approximately 1.8 million and 2
million shares, respectively, were excluded from the diluted EPS calculation.

A reconciliation of EPS to diluted EPS is presented below for the six months ended June 30, 2001
and June 30, 2000:

---

`Income           Shares          EPS
                                       ------           ------          ---
                                       (in thousands, except per share amounts)
Six months ended June 30, 2001
EPS:
   Net Income                           $203,214        159,025       $  1.27

Effect of dilutive securities:
   Common stock options                                  1,060
   Directors' compensation plans                           139
   Contingently issuable common stock                      563
                                                           ---

 EPS - assuming dilution:
   Net income plus assumed conversions  $203,214        160,787       $  1.26
--------------------------------------------------------------------------------
Six months ended June 30, 2000
EPS:
   Net Income                           $213,554        158,923       $  1.34

Effect of dilutive securities:
   Common stock options                                     94
   Contingently issuable common stock                      322
                                                           ---

 EPS - assuming dilution:
   Net income plus assumed conversions  $213,554        159,339       $  1.34`

---

Options to purchase shares of common stock are excluded from the calculation of diluted EPS when
the exercise prices of these options are greater than the average market price of the common shares
during the period.  For the six months ended June 30, 2001 and 2000, approximately 2.1 million and
2 million shares, respectively, were excluded from the diluted EPS calculation.

#### 7.        Ohio Deregulation

As discussed in the 2000 Form 10-K, on July 6, 1999, Ohio Governor Robert Taft signed Amended
Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to electric
deregulation and customer choice for the State of Ohio.  The Electric Restructuring Bill created a
competitive electric retail service market effective January 1, 2001.  The legislation provides for
a market development period that began January 1, 2001 and ends no later than December 31, 2005.

On May 8, 2000, CG&E reached a stipulated agreement with the Public Utilities Commission of Ohio
(PUCO) staff and various other interested parties with respect to its proposal to implement
electric customer choice in Ohio effective January 1, 2001.  On August 31, 2000, the PUCO approved
CG&E's stipulation agreement.  Two parties filed applications for rehearing with the PUCO.  On
October 18, 2000, the PUCO denied these applications.  One of the parties appealed to the Ohio
Supreme Court in the fourth quarter of 2000 and CG&E subsequently intervened in that case.  On
April 6, 2001, CG&E filed for dismissal of this appeal.  On July 25, 2001, the Ohio Supreme Court
denied CG&E's motion to dismiss.  CG&E is unable to predict the outcome of this proceeding.

The August 31, 2000 order authorizes CG&E to transfer its generation assets to one or more
non-regulated corporate subsidiary(ies).  In addition to the regulatory approvals received from the
PUCO and the KPSC this transfer may also require the approval or consent of one or more of the
following:  the IURC, the Federal Energy Regulatory Commission (FERC), the Securities and Exchange
Commission under the PUHCA, and various third parties.  As the transfer is contingent upon CG&E
receiving various other consents and approvals, the timing and receipt of which are unknown, the
completion date of the transfer of generation assets to the non-regulated subsidiary(ies) is
uncertain.

#### 8.        Power Trading

Contracts within the trading portfolio of the power marketing and trading operations are primarily
with power marketers and other investor-owned utilities.  The majority of these contracts are for
terms of one year or less.  Electric power prices can be extremely volatile, and the market can, at
times, lack liquidity.  Because of these issues, credit risk is generally greater than with other
commodity trading, especially when dealing with new market entrants.  Credit discounts are included
in the determination of fair value for all open positions in the power-trading portfolio.

As stated in our 2000 Form 10-K, in 2000 the Western U.S., primarily California, began experiencing
unprecedented price levels and volatility for wholesale electricity.  Because of the nature of
deregulation in California, California's two largest utilities have accumulated significant unpaid
obligations, are having difficulty obtaining capital, and one of these utilities has declared
bankruptcy.  We continue to maintain a balanced Western U.S. portfolio and have no unrealized gain
positions directly with these utilities.  A portion of our Energy risk management assets and Energy
risk management liabilities-current are with counterparties in the Western U.S.  Although prices
dropped significantly in the second quarter of 2001, the volatility of prices, the possibility of
certain utilities defaulting on their unpaid obligations, and the potential for further
FERC-ordered wholesale electric refunds could result in credit failures by power marketers.  Given
these issues, the fair values of our positions in the Western U.S. continue to reflect an elevated
level of credit discount.  Nonperformance by any of the Western U.S. counterparties could have a
material effect on the operating results of Cinergy, CG&E, and PSI.

### Cautionary Statements Regarding Forward-Looking Information

In this report we discuss various matters that may make management's corporate vision of the future
clearer for you.  This report outlines management's goals and projections for the future.  These
goals and projections are considered forward-looking statements and are based on management's
beliefs and assumptions.

Forward-looking statements involve risks and uncertainties that may cause actual results to be
materially different from the results predicted.  Factors that could cause actual results to differ
are often presented with forward-looking statements.  In addition, other factors could cause actual
results to differ materially from those indicated in any forward-looking statement.  These include:

- Factors affecting operations, such as:unusual weather conditions;catastrophic weather-related damage;unscheduled generation outages;unusual maintenance or repairs;unanticipated changes in fossil fuel costs, gas supply costs, or
                  availability constraints;environmental incidents; andelectric transmission or gas pipeline system constraints.
- unusual weather conditions;
- catastrophic weather-related damage;
- unscheduled generation outages;
- unusual maintenance or repairs;
- unanticipated changes in fossil fuel costs, gas supply costs, or
                  availability constraints;
- environmental incidents; and
- electric transmission or gas pipeline system constraints.
- Legislative and regulatory initiatives regarding deregulation of the industry or,
              potential national deregulation legislation.
- The timing and extent of the entry of additional competition in electric or gas markets
              and the effects of continued industry consolidation through the pursuit of mergers,
              acquisitions, and strategic alliances.
- Regulatory factors such as changes in the policies or procedures that set rates; changes
              in our ability to recover capital expenditures for environmental compliance,
              purchased power costs and investments made under traditional regulation through rates
              and rate cases; and changes to the frequency and timing of rate increases.
- Financial or regulatory accounting principles or policies imposed by governing bodies.
- Political, legal, and economic conditions and developments in the United States and the
              foreign countries in which we have a presence.  This would include inflation rates
              and monetary fluctuations.
- Changing market conditions and other factors related to physical energy and financial
              trading activities.  These would include price, basis, credit, liquidity, volatility,
              capacity, transmission, currency exchange rates, interest rates, and warranty risks.
- The performance of projects undertaken by our non-regulated businesses and the success of
              efforts to invest in and develop new opportunities.
- Availability of, or cost of, capital.
- Employee workforce factors, including changes in key executives, collective bargaining
              agreements with union employees, and work stoppages.
- Legal and regulatory delays and other obstacles associated with mergers, acquisitions, and
              investments in joint ventures.
- Costs and effects of legal and administrative proceedings, settlements, investigations,
              and claims.  Examples can be found in Note 4 of the "Notes to Financial Statements"
              in "Part I.  Financial Information."
- Changes in international, federal, state, or local legislative requirements, such as
              changes in tax laws, tax rates, and environmental laws and regulations.

Unless we otherwise have a duty to do so, the Securities and Exchange Commission's (SEC) rules do
not require forward-looking statements to be revised or updated (whether as a result of changes in
actual results, changes in assumptions, or other factors affecting the statements).  Our
forward-looking statements reflect our best beliefs as of the time they are made and may not be
updated for subsequent developments.

### Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

In this report Cinergy (which includes Cinergy Corp. and all of our regulated and non-regulated
subsidiaries) is, at times, referred to in the first person as "we," "our," or "us."

### INTRODUCTION

- factors affecting current and future operations;
- why revenues and expenses changed from period to period; and
- how the above items affect our overall financial condition.

### ORGANIZATION

Cinergy Corp., a Delaware corporation created in October 1994, owns all outstanding common stock of
The Cincinnati Gas & Electric Company (CG&E) and PSI Energy, Inc. (PSI), both of which are public
utility subsidiaries (operating companies).  As a result of this ownership, we are considered a
utility holding company.  Because we are a holding company whose utility subsidiaries operate in
multiple states, we are registered with and are subject to regulation by the SEC under the Public
Utility Holding Company Act of 1935 (PUHCA), as amended.  Our other principal subsidiaries are:

- Cinergy Services, Inc. (Services) - is a service company that provides our regulated and
              non-regulated subsidiaries with a variety of centralized administrative, management,
              and support services;
- Cinergy Investments, Inc. (Investments) - holds most of our domestic non-regulated,
              energy-related businesses and investments;
- Cinergy Global Resources, Inc. - holds our international businesses and investments and
              directs our renewable energy investing activities (for example, wind farms);
- Cinergy Technologies, Inc. - primarily holds our portfolio of technology related
              investments; and
- Cinergy Wholesale Energy, Inc. - was formed to act as a holding company for our energy
              merchant businesses, including production, as the generation assets eventually become
              unbundled from the utility subsidiaries.

CG&E, an Ohio corporation, is a combination electric and gas public utility company that provides
service in the southwestern portion of Ohio and, through its subsidiaries, in nearby areas of
Kentucky and Indiana.  It has three wholly-owned utility subsidiaries and two wholly-owned
non-utility subsidiaries.  CG&E's principal utility subsidiary, The Union Light, Heat and Power
Company (ULH&P), is a Kentucky corporation that provides electric and gas service in northern
Kentucky.  CG&E's other subsidiaries are insignificant to its results of operations.

PSI, an Indiana corporation, is an electric utility that provides service in north central,
central, and southern Indiana.

The majority of our operating revenues are derived from the sale of electricity and the sale and/or
transportation of natural gas.

In early 2001, we announced certain organizational changes which further aligned the business units
to reflect Cinergy's strategic vision.  The revised structure reflects three business units, as
follows:

- Energy Merchant Business Unit (Energy Merchant) - operates power plants, both domestically
              and abroad, and conducts all wholesale energy marketing, trading, origination and
              risk management services;
- Regulated Businesses Business Unit(Regulated Businesses)- operates all gas and electric
              transmission and distribution services, both domestically and abroad, and is
              responsible for all regulatory planning for the regulated utility businesses of CG&E,
              PSI, and ULH&P; and
- Power Technology and Infrastructure Services Business Unit (PTIS) - originates and manages
              a portfolio of emerging energy businesses.

See Note 5 of the "Notes to Financial Statements" in "Part I.  Financial Information," for
financial information by business unit.

### LIQUIDITY

In the "Liquidity" section, we discuss environmental issues as they relate to our current and
future cash needs.  In the "Capital Resources" section, we discuss how we intend to meet these
capital requirements.

#### Environmental Issues

#### Ambient Air Standards

As discussed in the 2000 Form 10-K, in 1997 the U.S. Environmental Protection Agency (EPA) revised
the National Ambient Air Quality Standards for ozone and fine particulate matter.  The EPA has
estimated that it will take up to five years to collect sufficient ambient air monitoring data to
determine fine particulate matter non-attainment areas.  A fine particulate monitoring network was
put in place during 1999 and 2000.  Following identification of non-attainment areas, the states
will identify the sources of particulate emissions and develop emission reduction plans.  These
plans may be state-specific or regional.  We currently cannot predict the exact amount and timing
of required reductions.

On May 14, 1999, the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals)
ruled that the EPA's final rule establishing the new eight-hour ozone standard and the fine
particulate matter standard constituted an invalid delegation of legislative authority.  In June
1999, the EPA appealed the decision.  On October 29, 1999, the full Court of Appeals rejected the
EPA's request for reconsideration.  In January 2000, the EPA appealed to the U.S. Supreme Court
(Supreme Court) and on February 27, 2001 the Supreme Court reversed the Court of Appeals' ruling.
However, the Supreme Court invalidated the EPA's implementation procedure for the portion of the
case dealing with the eight-hour ozone standard.  The EPA currently is evaluating approaches for
implementing the eight-hour ozone standard in accordance with the Supreme Court's opinion.
Meanwhile, the Court of Appeals continues to consider the validity of the eight-hour ozone standard
and the fine particulate matter standard, as a number of issues that were raised by the parties
were not addressed in its original opinion, invalidating those standards.  The parties will file
supplemental briefs on these issues, and further oral argument may be held.  We currently cannot
determine the outcome of this litigation or of future EPA actions in response to the litigation and
the effects on future emissions reduction requirements.

See Notes 4(a), (b), (c), (d), and (e), respectively, of the "Notes to Financial Statements" in
"Part I.  Financial Information" for a discussion of other environmental issues.

#### Foreign Utility Companies (FUCOs)/Exempt Wholesale Generators (EWGs) Investment Limitations

As discussed in the 2000 Form 10-K, our ability to invest in growth initiatives, such as EWGs and
FUCOs, is limited by certain legal and regulatory requirements, including the PUHCA.  In March
1998, the SEC granted us authority under PUHCA to invest in EWGs and FUCOs in an aggregate amount
equal to our consolidated retained earnings, as determined from time to time.  Following our
request for increase in investment authority, in May 2001, the SEC issued a supplemental order,
authorizing us to invest an additional $2 billion in EWGs and FUCOs, in addition to an amount equal
to our consolidated retained earnings.

### CAPITAL RESOURCES

We meet our capital requirements through a combination of internally generated funds and debt
issuances.  We expect to meet our future capital needs through a combination of internally and
externally generated funds, including the issuance of debt and/or equity securities.

In early May 2001, Cinergy Corp.'s certificate of incorporation was amended to authorize the
issuance of preferred securities in addition to common stock, following approval by the SEC under
the PUHCA and the shareholders of Cinergy Corp.

#### Debt

Cinergy Corp. has current authorization from the SEC under the PUHCA to increase its total
capitalization at December 31, 1999 (excluding retained earnings and accumulated other
comprehensive income) by an additional $5 billion, through issuance of any combination of equity
and debt securities.  This increased authorization is subject to certain conditions, including,
among others, that common equity comprises at least 30% of Cinergy Corp.'s consolidated capital
structure and that Cinergy Corp., under certain circumstances, maintains an investment grade rating
on its senior debt obligations.

#### Short-term Debt

In connection with the current SEC authorization, Cinergy Corp. has $1.7 billion in established
lines of credit.  As of June 30, 2001, $387 million was unused and available on these lines.

On March 21, 2001, Cinergy Corp. placed a $500 million, 364-day senior revolving credit facility.
Also, on May 4, 2001, Cinergy Corp. placed a $400 million, three-year senior revolving credit
facility which replaced Cinergy Corp.'s $400 million, five-year revolving credit facility that
expired on May 6, 2001, and a $200 million, three-year revolving credit facility that expired on
July 20, 2001.  These facilities are being utilized to provide short-term interim financing.

Our non-regulated subsidiaries have the ability to borrow funds from Cinergy Corp. if the need
arises.  Certain of our non-regulated subsidiaries also have established lines of credit.  As of
June 30, 2001, $3.7 million was unused and available on these established lines.

Our operating companies, CG&E and PSI, have established lines of credit of $15 million and $60
million respectively, of which $15 million for CG&E remained unused and available.

In May 2001, CG&E filed an application with the PUCO to increase its short-term debt authority
to $600 million and on June 28, 2001, the PUCO granted this request.
On April 6, 2001, Cinergy Corp. filed an application with the SEC to increase PSI's and ULH&P's
short-term debt authority to $600 million and $65 million respectively.  On August 2, 2001, the SEC
granted our request effective immediately.  As of August 2, 2001, our operating companies had
regulatory authority to borrow up to a total of $1.3 billion in short-term debt ($671 million for
CG&E and its subsidiaries, including $65 million for ULH&P, and $600 million for PSI.)

#### Commercial Paper

As of June 30, 2001, the commercial paper program was limited to a maximum outstanding principal
amount of $800 million for Cinergy Corp.  In early 2001, Cinergy Corp. expanded the commercial
paper program to this amount and reduced the established lines of credit at CG&E and PSI.  The
expansion of the commercial paper program at the Cinergy Corp. level will, in part, support the
short-term borrowing needs of CG&E and PSI and will eliminate the need for commercial paper
programs at CG&E and PSI.  The Cinergy Corp. commercial paper program expansion is supported by the
new $400 million, 364-day revolving credit facility that was placed in early 2001.  As of June 30,
2001, Cinergy Corp. had issued $566 million in commercial paper.

#### Long-term Debt

Under the PUHCA authorization mentioned above, we are able to issue and sell long-term debt at the
parent holding company level.  In May 2001, CG&E filed an application with the PUCO to increase
its long-term debt authority to $400 million and on June 28, 2001, the PUCO granted this request.
As of June 30, 2001, Cinergy Corp. had $400 million of long-term
debt outstanding.  As of June 30, 2001, CG&E, PSI, and ULH&P have remaining state regulatory
authority for long-term debt issuances of $400 million, $21 million, and $30 million,
respectively.  PSI intends to file an application with the IURC requesting an increase in long-term
debt issuance authority up to $400 million.  On July 26, 2001, Cinergy Corp. filed a registration
statement with the SEC requesting authority to issue up to $500 million in unsecured debt.  The
registration is pending SEC approval.  We may, at any time, request additional long-term debt
authorization, which is subject to regulatory approval.

#### Variable Rate Pollution Control Notes

CG&E and PSI have issued variable rate pollution control notes (tax-exempt notes obtained to
finance equipment or land development for pollution control purposes).  Because the holders of
these notes have the right to redeem their notes on any business day, they are reflected in Notes
payable and other short-term obligations in the Consolidated Balance Sheets for Cinergy, CG&E, and
PSI.  At June 30, 2001, CG&E and PSI had $184 million and $83 million, respectively, outstanding in
pollution control notes, classified as short-term debt.

#### Money Pool

Cinergy Corp., Services, and our operating companies and their subsidiaries participate in a money
pool arrangement to better manage cash and working capital requirements.  Under this arrangement,
those companies with surplus short-term funds provide short-term loans to others.  This surplus
cash may be from internal or external sources.  The amounts outstanding under this money pool
arrangement are shown as Notes receivable from affiliated companies or Notes payable to affiliated
companies on the Consolidated Balance Sheets for CG&E and PSI and on the Balance Sheets for ULH&P.

#### Securities Ratings

As of July 31, 2001, the major credit ratings agencies rated our securities as follows:

---

`Fitch (1)        Moody's (2)       S&P (3)
                                  ---------        -----------      -----------

Cinergy Corp.
   Corporate Credit                  BBB+             Baa2          BBB+/A-2
   Senior Unsecured Debt             BBB+             Baa2          BBB+
   Commercial Paper                  F-2              P-2           A-2

CG&E
   Senior Secured Debt               A-               A3            A-
   Senior Unsecured Debt             BBB+             Baa1          BBB+
   Junior Unsecured Debt             BBB              Baa2          BBB
   Preferred Stock                   BBB              Baa3          BBB
   Commercial Paper                  F-2              P-2           Not Rated

PSI
   Senior Secured Debt               A-               A3            A-
   Senior Unsecured Debt             BBB+             Baa1          BBB+
   Junior Unsecured Debt             BBB              Baa2          BBB
   Preferred Stock                   BBB              Baa3          BBB
   Commercial Paper                  F-2              P-2           Not Rated

ULH&P
   Senior Unsecured Debt             Not Rated        Baa1          BBB+

(1) During 2000, Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co. merged, and are
    now known as Fitch, thereby combining their ratings of Cinergy Corp. and its
    affiliates.
(2) Moody's Investors Service (Moody's)
(3) Standard & Poor's Ratings Services (S&P)`

---

As discussed in the 2000 Form 10-K, on December 12, 2000, S&P placed its ratings of Cinergy Corp.
and its operating affiliates, CG&E and PSI, on CreditWatch with negative implications.  On January
22, 2001, Moody's announced it had assigned negative outlooks to the debt and preferred stock
securities of Cinergy Corp. and all of its subsidiaries.  These actions are primarily in response
to Cinergy's announcement regarding one of its non-regulated subsidiaries entering into a
definitive agreement to acquire two natural gas-fired merchant electric generating facilities from
Enron North America.  Other items of concern include (1) the announcement that Cinergy Corp., CG&E,
and PSI have reached an agreement in principle with the EPA; (2) the continuing uncertainty
surrounding CG&E's post-deregulation corporate and financial structure; (3) the absence of
restructuring legislation and stranded investment resolution in Indiana; and (4) Cinergy's emphasis
on higher-risk non-regulated activities.

Effective July 27, 2001, Moody's changed its assignment of ratings to different classes of
securities issued by the same company, which was prompted by Moody's research published in November
2000.  The refinements are of a technical nature and are not indicative of changes in fundamental
credit quality.  CG&E's and PSI's preferred stock were affected by these changes and the new
ratings are noted in the table above.
These securities ratings may be revised or withdrawn at any time, and each rating should be
evaluated independently of any other rating.

#### Guarantees

We are subject to an SEC order under the PUHCA, which limits the amounts Cinergy Corp. can have
outstanding under guarantees (promises to pay by one party in the event of default by another
party) at any one time to $2 billion.  As of June 30, 2001, we had $1.3 billion outstanding under
the guarantees issued.  This amount represents Cinergy Corp.'s guarantees of liabilities and
commitments of our consolidated subsidiaries, unconsolidated subsidiaries, and joint ventures.

### 2001 QUARTERLY RESULTS OF OPERATIONS - HISTORICAL

#### Summary of Results

Electric and gas gross margins and net income for Cinergy, CG&E, and PSI for the quarters ended
June 30, 2001 and 2000 were as follows:

---

`Cinergy(1)      CG&E and subsidiaries       PSI
                               ----------    ------------------------      ---
                            2001      2000       2001       2000      2001       2000
                            ----      ----       ----       ----      ----       ----
                                                   (in thousands)
Electric gross margin   $527,602   $549,801   $282,180   $307,797   $216,505   $221,953
Gas gross margin          41,111     41,821     27,852     35,352         --         --
Net income                82,967     75,115     49,401     55,881     34,217     18,916

(1)  The results of Cinergy also include amounts related to non-registrants.`

---

Diluted earnings per share for the second quarter 2001 was $.51 per share as compared to $.47 per
share for the same period last year.  This increase in earnings was primarily attributable to the
growth in Energy Merchant's origination and marketing and trading segment.  Also contributing to
the increase was the effect of a one-time charge relating to a limited early retirement program
reflected in the second quarter of 2000.  Offsetting this increase were reduced margins due to
lower generation availability and reduced industrial demand, increased coal costs and increased
interest primarily associated with the company's larger portfolio of peaking generation.

The explanations below follow the line items on the Consolidated Statements of Income for Cinergy,
CG&E, and PSI.  However, only the line items that varied significantly from prior periods are
discussed.

#### Electric Operating Revenues

---

`Cinergy(1)         CG&E and subsidiaries              PSI
                    ----------         -------------------------          ---
              2001   2000   % Change   2001   2000   % Change    2001   2000 % Change
              ----   ----   --------   ----   ----   --------    ----   ---- ---------
                                                (in millions)
Retail     $  652   $  651      -    $  355    360      (1)    $  297   $291     2
Wholesale   1,666      555    200       833    282     195        879    321   174
Other          65       44     48        10      5     100          8      8     -
               --       --               --      -                  -      -
    Total  $2,383   $1,250     91    $1,198    647      85     $1,184   $620    91
(1)  The results of Cinergy also include amounts related to non-registrants.`

---

Electric operating revenues for Cinergy, CG&E, and PSI increased for the quarter ended June 30,
2001, as compared to 2000, mainly due to an increase in volumes on non-firm wholesale transactions
related to energy marketing and trading activity.  Non-firm power is power without a guaranteed
commitment for physical delivery.  The increase in other electric operating revenues for Cinergy
primarily reflects increased activities of our foreign subsidiaries.

#### Gas Operating Revenues

---

`Cinergy(1)         CG&E and subsidiaries
                         ----------       -------------------------
                    2001   2000   % Change  2001   2000  % Change
                    ----   ----   --------  ----   ----  --------
                                          (in millions)
Non-regulated   $1,158     $432      168     $ -    $ -       -
Retail              69       48       44      69     48      44
Transportation       7       11      (36)      7     11     (36)
Other                3        1      200       3      1     200
                   ---      ---              ---    ---
     Total      $1,237     $492      151     $79    $60      32

(1)  The results of Cinergy also include amounts related to non-registrants.`

---

Gas operating
revenues for Cinergy increased in the second quarter of 2001, when
compared to the same period last year. This increase was primarily the result of
increased volumes and a higher price received per thousand cubic feet (mcf) sold
by Cinergy Marketing and Trading, LLC (Marketing and Trading).

CG&Es
retail gas revenues increased primarily due to a higher price received per mcf
sold and an increase in retail gas customers. The higher price reflects a
substantial increase in the wholesale gas commodity cost, which is passed
directly to the retail customer dollar-for-dollar under the state mandated gas
cost recovery mechanism. Retail sales increased and transportation sales
decreased as a result of customers switching back to CG&E gas
service.

#### Operating Expenses

---

`Cinergy(1)             CG&E and subsidiaries              PSI
                            ----------             -------------------------          ---
                       2001    2000  % Change     2001    2000  % Change    2001    2000   % Change
                       ----    ----  --------     ----    ----  --------    ----    ----   --------
                                                        (in millions)
Fuel                $  196   $  206      (5)    $   84       87     (3)   $   109  $  113     (4)
Purchased and
   exchanged power   1,660      494     236        832      252    230        859     285    201
Gas purchased        1,195      450     166         52       24    117          -       -      -
Operation and
   maintenance         268      299     (10)       120      131     (8)       105     125    (16)
Depreciation and
   amortization         92       85       8         46       45      2         37      34      9
Taxes other than
   income taxes         53       68     (22)        45       54    (17)         8      14    (43)
                        --       --                 --       --               ---      --
    Total           $3,464   $1,602     116     $1,179      593     99    $ 1,118  $  571     96

(1)  The results of Cinergy also include amounts related to non-registrants.`

---

#### Fuel

Fuel represents the
cost of coal, natural gas, and oil that is used to generate electricity. The
following table details the changes to fuel expense from the quarter ended June
30, 2000, to the quarter ended June 30, 2001:

---

`Cinergy(1)      CG&E           PSI
                                          ----------      --------       ---
                                                     (in millions)
Fuel expense - June 30, 2000               $ 206         $  87        $ 113

Increase (decrease) due to changes in:
Price of fuel                                 19            12            7
Deferred fuel cost                           (10)           (5)          (5)
MWh generation                               (16)          (10)          (6)
Other                                         (3)            -            -
                                              --            --           --
Fuel expense - June 30, 2001               $ 196         $  84        $ 109

(1)  The results of Cinergy also include amounts related to non-registrants.`

---

Fuel expense for
Cinergy, CG&E, and PSI decreased for the quarter ended
June 30, 2001, when compared to the same period last year, primarily as a result
of lower generation and lower deferred fuel costs. CG&Es
decrease in deferred fuel costs was the result of the implementation of electric
deregulation in the State of Ohio and the associated termination of the fuel
recovery mechanism.

Fuel prices for
Cinergy, CG&E, and PSI increased for the quarter ended
June 30, 2001, when compared to the same period last year. This increase was
primarily due to increases in the market price of coal.

#### Purchased and Exchanged Power

Purchased and exchanged
power expenseincreased for Cinergy, CG&E, and PSI
for the second quarter of 2001, as compared to last year, primarily due to an
increase in purchases of non-firm wholesale power, reflecting higher sales
volumes in the energy marketing and trading operations.

#### Gas Purchased

Gas purchased
expense increased for Cinergy and CG&E for the second quarter
of 2001, when compared to the same period last year, primarily due to an
increase in gas commodity trading volumes and an increase in the average cost
per mcf of gas purchased. CG&Es wholesale commodity cost is
passed directly to the retail customer dollar-for-dollar under the gas cost
recovery mechanism.

#### Operation and Maintenance

Cinergys
andPSIs Operation and maintenance expense decreased for the
quarter ended June 30, 2001, as compared to the same period last year, primarily
due to a reduction in the amortization of demand-side management costs,
resulting from the expiration of the agreement in May 2000. Also contributing to
this decrease were expenses related to the limited early retirement plan in 2000
as discussed in the 2000 Form 10-K.

#### Taxes Other Than Income Taxes

Cinergys,
CG&Es, and PSIs Taxes other than income taxesdecreased for the quarter ended June 30, 2001, as compared to the same
period last year. This decrease was primarily attributable to reduced property
tax expense and other tax changes associated with deregulation in Ohio.

#### Interest

Cinergys
Interest expense increased $15 million for the second quarter ended June
30, 2001, when compared to the same period last year. This increase was
primarily due to the financing of additional investments, principally peaking
generation.

#### Income Taxes

CG&Es
Income taxexpense decreased $12 million for the second quarter of 2001,
when compared to the same period last year. This decrease was primarily due to
the decrease in taxable income.

### 2001 YEAR TO
DATE RESULTS OF OPERATIONS - HISTORICAL

#### Summary of
Results

Electric and gas gross margins and net income for Cinergy, CG&E, and PSI for the six months ended
June 30, 2001 and 2000 were as follows:

---

`Cinergy(1)       CG&E and subsidiaries          PSI
                            ----------       -------------------------      ---
                          2001       2000       2001       2000       2001     2000
                          ----       ----       ----       ----       ----     ----
                                                (in thousands)
Electric gross margin  $1,056,406 $1,115,720  $554,245   $605,463  $443,958  $484,276
Gas gross margin          144,323    134,404   114,654    124,198         -         -
Net income                203,214    213,554   130,976    151,845    75,649    69,129

(1)  The results of Cinergy also include amounts related to non-registrants.`

---

Diluted earnings per share
for the six months ended June 30, 2001 was $1.26 per share as compared to $1.34
per share for the same period last year. This decrease in earnings was
attributable to reduced margins due to lower generation availability, reduced
industrial demand, increased coal costs, and higher interest primarily
associated with the companys larger portfolio of peaking generation.
Offsetting this decrease was the growth in Energy Merchants origination
and marketing and trading segment and reduced operation and maintenance
expenditures related to our continuous cost improvement initiatives.

The explanations below follow the line items on the Consolidated Statements of Income for Cinergy,
CG&E, and PSI.  However, only the line items that varied significantly from prior periods are
discussed.

#### Electric Operating Revenues

---

`Cinergy(1)            CG&E and subsidiaries               PSI
                  ----------            -------------------------           ---
             2001    2000   % Change   2001     2000  % Change    2001     2000  % Change
             ----    ----   --------   ----     ----  --------    ----     ----  --------
                                           (in millions)
Retail     $1,280   $1,301      (2)   $  694  $  712      (3)    $  586   $  589     (1)
Wholesale   2,836      939     202     1,419     463     206      1,498      548    173
Other         142       77      84        18      10      80         16       17     (6)
              ---       --                --      --                 --       --
    Total  $4,258   $2,317      84    $2,131  $1,185      80     $2,100   $1,154     82

(1)  The results of Cinergy also include amounts related to non-registrants.`

---

Electric operating
revenues for Cinergy, CG&E, and PSI increased for
the six months ended June 30, 2001, as compared to 2000, mainly due to an
increase in volumes on non-firm wholesale transactions related to energy
marketing and trading activity. Partially offsetting this increase was a
decrease in the average realization on retail sales, reflecting, in part, the
expiration of certain interim tariff adjustments (riders). The increase in other
electric operating revenues for Cinergyprimarily reflects increased
activities of our foreign subsidiaries.

#### Gas Operating Revenues

---

`Cinergy(1)         CG&E and subsidiaries
                        ----------         -------------------------
                   2001   2000  % Change   2001   2000  % Change
                   ----   ----  --------   ----   ----  --------
                                  (in millions)
Non-regulated   $2,647    $753     252     $  -   $  -      -
Retail             376     201      87      376    201     87
Transportation      23      33     (30)      23     33    (30)
Other                5       3      67        6      4     50
                   ---     ---              ---    ---
     Total      $3,051    $990     208     $405   $238     70

(1)  The results of Cinergy also include amounts related to non-registrants.`

---

Gas operating
revenues for Cinergy increased for the six months ended June 30,
2001, when compared to the same period last year. This increase was primarily
the result of increased volumes and a higher price received per mcf sold by
Marketing and Trading.

CG&Esretail gas revenues increased primarily due to a higher price received per
mcf sold and an increase in retail gas sales resulting from colder weather in
the first quarter of 2001. The higher price reflects a substantial increase in
the wholesale gas commodity cost, which is passed directly to the retail
customer dollar-for-dollar under the state mandated gas cost recovery mechanism.
Retail sales increased and transportation sales decreased as a result of
customers switching back to CG&E gas service.

#### Operating Expenses

---

`Cinergy(1)                   CG&E                         PSI
                              ----------                   -----                        ---
                      2001     2000  % Change    2001      2000   % Change    2001      2000   % Change
                      ----     ----  --------    ----      ----   --------    ----      ----   --------
                                                              (in millions)
Fuel                $  396   $  392      1     $  180    $  169       7      $  208    $  212      (2)
Purchased and
   exchanged power   2,806      809    247      1,397       410     241       1,448       458     216
Gas purchased        2,906      856    239        290       114     154           -         -       -
Operation and
   maintenance         517      551     (6)       232       243      (5)        196       236     (17)
Depreciation and
   amortization        181      168      8         92        89       3          74        69       7
Taxes other than
   income taxes        116      135    (14)        92       104     (12)         23        28     (18)
                       ---      ---                --       ---                  --        --
     Total          $6,922   $2,911    138     $2,283    $1,129     102      $1,949    $1,003      94

(1)  The results of Cinergy also include amounts related to non-registrants.`

---

#### Fuel

Fuel represents the
cost of coal, natural gas, and oil that is used to generate electricity. The
following table details the changes to fuel expense from the six months ended
June 30, 2000, to the six months ended June 30, 2001:

---

`Cinergy(1)      CG&E         PSI
                                      ----------      -----        ---
                                                (in millions)
Fuel expense - June 30, 2000            $392         $169         $212

Increase (decrease) due to changes in:
Price of fuel                             40           24           16
Deferred fuel cost                       (11)          (5)          (6)
MWh generation                           (22)          (8)         (14)
Other                                     (3)           -            -
                                          --           --           --
Fuel expense - June 30, 2001            $396         $180         $208

(1)  The results of Cinergy also include amounts related to non-registrants.`

---

Fuel expense for
Cinergy andCG&E increased for the six months ended June 30,
2001, when compared to the same period last year, primarily due to increases in
the market price of coal. Partially offsetting this increase were lower
generation and lower deferred fuel costs. CG&Es decrease in
deferred fuel costs was the result of the implementation of electric
deregulation in the State of Ohio and the associated termination of the fuel
recovery mechanism.

#### Purchased and Exchanged Power

Purchased and exchanged
powerexpense increased for Cinergy, CG&E, and PSI
for the six months ended June 30, 2001, as compared to last year, primarily due
to an increase in purchases of non-firm wholesale power, reflecting higher sales
volumes in the energy marketing and trading operations.

#### Gas Purchased

Gas purchased
expense increased for Cinergy and CG&E for the six months
ended June 30, 2001, when compared to the same period last year, primarily due
to an increase in gas commodity trading volumes and an increase in the average
cost per mcf of gas purchased. CG&Es wholesale commodity cost
is passed directly to the retail customer dollar-for-dollar under the gas cost
recovery mechanism.

#### Operation and Maintenance

Cinergysand
PSIs Operation and maintenance expense decreased for the six
months ended June 30, 2001, as compared to the same period last year, primarily
due to a reduction in the amortization of demand-side management costs,
resulting from the expiration of the agreement in May 2000. Also contributing to
this decrease were expenses related to the limited early retirement plan in 2000
as discussed in the 2000 Form 10-K.

#### Taxes Other Than Income Taxes

Cinergys,
CG&Es, and PSIs Taxes other than income taxesdecreased for the six months ended June 30, 2001, as compared to the same
period last year. This decrease was primarily attributable to reduced property
tax expense and other tax changes associated with deregulation in Ohio.

#### Interest

Cinergys
Interestexpense increased $27.1 million for the six months ended June
30, 2001, when compared to the same period last year. This increase was
primarily due to the financing of additional investments, principally peaking
generation.

#### Income Taxes

Cinergys and
CG&Es Income tax expense decreased $27.5 million for the
six months ended June 30, 2001, when compared to the same period last year. The
decrease was primarily due to the decrease in taxable income.

### ULH&P

The Results of Operations
discussion for ULH&P is presented only for the six months ended June
30, 2001, in accordance with General Instruction H(2)(a) of Form 10-Q.

Electric and gas margins
and net income for ULH&P for the six months ended June 30, 2001, and
2000, were as follows:

---

`ULH&P
                                                        ---------
                                                       2001      2000
                                                       ----      ----
                                                       (in thousands)
                           Electric gross margin     $45,495   $29,228
                           Gas gross margin           21,534    21,565
                           Net income                 24,866    10,923`

---

Electric operating
revenues for the six months ended June 30, 2001, compared to last year,
increased primarily due to the recognition of revenues previously deferred
subject to refund in connection with a retail rate filing with the Kentucky
Public Service Company (KPSC). A settlement agreement, which allowed the
retention of such revenues, was approved by the KPSC in May 2001. For further
information see Note 4(h) in the Notes to Financial Statements in
Part I. Financial Information.

The increase in Gas
operating revenues for the six months ended June 30, 2001, compared to last
year, was mainly due to a higher price received per mcf sold. Gas purchasedexpense increased due to an increase in the average cost per mcf of gas
purchased. The market price of natural gas has increased significantly since the
same period last year, which has caused ULH&P to pay more for the gas
it delivers to customers. The wholesale gas commodity cost is passed directly to
the retail customer dollar-for-dollar under the gas cost recovery mechanism that
is mandated under state law.

### RESULTS OF
OPERATIONS - FUTURE

#### Electric
Industry

#### Wholesale Market Developments

Supply-side Actions

As discussed in the 2000
Form 10-K, on September 30, 1999, Cinergy Capital and Trading, Inc. (CC&T)
formed a partnership (each party having a 50 percent ownership) with Duke Energy
North America, LLC (Duke), to increase the available generating capacity for use
during peak demand periods. The partnership was formed for the purpose of
jointly constructing and owning three wholesale generating facilities.

On March 9, 2000, the
Indiana Utility Regulatory Commission (IURC) issued an order, requiring the
partnership to immediately suspend all construction activities at the site
located near Cadiz, (Henry County) Indiana (a peaking plant with a total
capacity of 129 megawatts (MW, the basic unit of electric energy equal to one
million watts) of which we own 65 MW). In making this decision the IURC found
that it needed additional information related to the project before issuing a
final decision. The issues raised were air quality, water supply, noise control,
landscaping, plant abandonment, and emergency services training. The IURC held a
hearing on this matter on November 17, 2000, and a favorable ruling was received
on April 23, 2001. The plant is expected to be fully operational by mid August
2001. With regard to this facility, we have entered into a contract with the
Wabash Valley Power Association, Inc. to provide 50 MW of capacity from the
facility for the next 20 years.

On June 4, 2001, CC&T
and Duke announced that they would dissolve their partnership with respect to
these three wholesale generating facilities and an exchange of these generating
assets would occur. Pursuant to the agreement we will own 100% of a 640 MW
wholesale generating facility located in Madison County, Ohio and 100% of the
129 MW wholesale generating facility located near Cadiz, Indiana. The agreement
is currently pending regulatory approval. In exchange for the Madison County,
Ohio and Cadiz, Indiana generating facilities, Duke will own 100% of the
Vermillion County, Indiana generating facility. The dissolution of the
partnership will increase Cinergyspeaking capacity by 70 MW and
further diversify our generation portfolio to 60 percent coal-fired base load
and 40 percent gas-fired peaking.

During the second quarter
2001, CC&T obtained permits for possible future construction of additional
natural gas-fired peaking plants in Ohio and Kentucky. These permits will allow
us the flexibility to increase our portfolio of gas fired peaking plants and
increase our overall capacity.

As stated in the 2000 Form
10-K, Cinergy has 9,764 MW of coal-fired generation and we consume
approximately 27 million tons of coal annually. Cinergy procures the
majority of its coal through long-term supply contracts. The remainder is
purchased in the open market, which recently has experienced significant price
increases. These price increases will have a direct effect upon
Cinergys cost to supply the electric commodity to our customers.

With the implementation of
electric deregulation in the State of Ohio and the associated termination of the
fuel cost recovery mechanism, CG&E may not fully recover its retail
related fuel costs.

Demand-side Actions

Cinergy recorded a
new peak demand on July 23, 2001 of 10,984 MW. Subsequently, this peak demand
was exceeded on August 8, 2001 and a new peak demand of 11,088 MW was recorded.
Cinergy met customer demands for both peaks with our own supply and
planned purchases from other regional electric suppliers.

#### Retail Market Developments

Federal Update

President Bush has
indicated that legislation addressing the energy security needs of America
deserves prompt consideration. He has appointed Vice President Cheney to head an
interagency-task force to recommend a course of action. In May 2001, the Vice
President and the National Energy Policy Development Group released the National
Energy Policy (Policy). Among other things, the Policy recommends increased
conservation of energy and calls for the increase of supplies of electricity,
oil and natural gas consistent with environmentally sound principles. Many of
these recommendations are being considered by Congress. Specific legislation for
restructuring of the electricity industry may be considered at a later date.

Ohio

As discussed in the 2000
Form 10-K, on July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute
Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to
electric deregulation and customer choice for the State of Ohio. The Electric
Restructuring Bill created a competitive electric retail service market
effective January 1, 2001. The legislation provided for a market development
period that began January 1, 2001, and ends no later than December 31, 2005.

On May 8, 2000,
CG&E reached a stipulated agreement with the Public Utilities
Commission of Ohio (PUCO) staff and various other interested parties with
respect to its proposal to implement electric customer choice in Ohio effective
January 1, 2001. On August 31, 2000, the PUCO approved CG&Es
stipulation agreement. Two parties filed applications for rehearing with the
PUCO. On October 18, 2000, the PUCO denied these applications. One of the
parties appealed to the Ohio Supreme Court in the fourth quarter of 2000 and
CG&E subsequently intervened in that case. On April 6, 2001,
CG&E filed for dismissal of this appeal. On July 25, 2001, the
Supreme Court of Ohio denied CG&Es motion to dismiss.
CG&E is unable to predict the outcome of this proceeding.

The August 31, 2000 order
authorizes CG&E to transfer its generation assets to one or more
non-regulated corporate subsidiary(ies). In addition to the regulatory approvals
received from the PUCO and the KPSC this transfer may require the approval or
consent of one or more of the following: the IURC, the Federal Energy Regulatory
Commission (FERC), the SEC under the PUHCA, and various third parties. As the
transfer is contingent upon CG&E receiving various consents and
approvals, the timing and receipt of which are unknown, the completion date of
the transfer of generation assets to the non-regulated subsidiary(ies) is
uncertain.

### Midwest
Independent Transmission System Operator, Inc. (Midwest ISO)

As discussed in the 2000
Form 10-K, in the fall of 2000, three transmission owners (Departing Companies)
announced their intent to leave the Midwest ISO and join the proposed Alliance
Regional Transmission Organization (Alliance) by the end of 2001. On December
13, 2000, six additional transmission owners, including Cinergy,
announced a plan for conditional withdrawal from the Midwest ISO if the
Departing Companies left the organization.

On January 24, 2001, the
FERC issued an order providing 30 days of confidential settlement talks between
the Alliance and the Midwest ISO and its stakeholders, in an effort to resolve
issues related to such withdrawals. Cinergy actively participated in the
settlement process. On February 23, 2001, the settlement judge reported to the
FERC that settlement talks produced a unanimous comprehensive settlement between
all related parties. The settlement includes three major components:

- a commitment by the Midwest ISO and the Alliance to establish compatible/common operating
              practices and protocols to promote a seamless market within the Midwest;
- a commitment by the three Departing Companies to pay the Midwest ISO $60 million
as their share of the Midwest ISOs startup costs as well as other
commercial considerations; and
- agreement upon a methodology to establish a single within rate for
energy transactions that take place entirely within the Midwest ISO-Alliance
Super Region, and a commitment by the Midwest ISO, Alliance, and PJM
Interconnection, L.L.C. to establish a single through and out rate
for transactions among the three regional transmission organizations.

The settlement, which was
signed by Cinergy, was approved by the FERC on May 8, 2001. Under terms
of the settlement, the Departing Companies will be permitted to leave the
Midwest ISO, and the other transmission owner members of the Midwest ISO,
including Cinergy, will remain as members of the Midwest ISO until at
least December 31, 2002. Also, as part of the settlement, both organizations
have committed to begin operations by the end of 2001.

On June 20, 2001,
Cinergy and various other Indiana Midwest ISO transmission owners made a
joint filing with the IURC seeking permission to transfer functional control of
their transmission facilities to the Midwest ISO.

At the FERCs July 10,
2001 meeting, a number of Regional Transmission Organization (RTO) related
orders were approved, but in approving these orders the FERC suggested that they
had an interest in limiting the number of RTOs nationally. At the current
time it is unclear if these suggestions will have any effect on the operations
of the Midwest ISO.

#### Repeal of PUHCA

In March 2001, H.R. 1101, a bill to repeal the PUHCA, was introduced in the U.S. House of
Representatives as a companion piece of legislation to S. 206.  It has been referred to the House
Committee on Energy and Commerce for action.

President Bush has
identified the need for the repeal of the PUHCA as a priority of federal energy
legislation. The National Energy Policy recommends PUHCA repeal as part of a
broader restructuring of the electricity industry. We support the repeal of the
PUHCA either as part of broader restructuring of the electricity industry or as
separate legislation.

#### Significant
Rate Developments

#### Purchased Power Tracker

As discussed in the 2000
Form 10-K, in May 1999, PSIfiled a petition with the IURC seeking
approval of a purchased power tracking mechanism (Tracker). This request was
designed to provide for the recovery of costs related to purchases of power
necessary to meet native load requirements to the extent such costs are not
sought through the existing fuel adjustment clause.

In March 2001, the IURC
held a hearing to review PSIs2000 purchases and rule on its
associated request for recovery of costs. On May 16, 2001, the IURC issued an
order approving the recovery of PSIs summer 2000 purchased power
costs ($18.5 million) via the Tracker (net of a mitigation credit and net of the
displaced energy amount recovered through the fuel adjustment charge process).

A hearing was held before
the IURC on February 15, 2001 to determine whether it was appropriate for PSIto continue the Tracker for future periods. On April 11, 2001, a favorable
order was received. The Tracker was extended for two years, through the summer
of 2002. PSI is authorized to recover 90% of its purchased power expenses
through the Tracker (net of the displaced energy portion recovered through the
fuel recovery process and net of the mitigation credit portions), with the
remaining 10% deferred for subsequent recovery in PSIsnext general
rate case (subject to a showing of prudence).

#### Termination of Operating Agreement

Upon consummation of the
merger between CG&Eand PSI Resources Inc. in 1994, an operating
agreement entered into between CG&E, PSI, and Services was
filed with and approved by the FERC. This agreement was established to provide
for the coordinated planning and operation of the two regulated entities
generation and transmission systems, and addressed issues such as the joint
transmission system.

In October 2000,
CG&E, PSI, and Services filed a notice of termination of the
operating agreement with the FERC. The reason for the termination filing is
that, with the introduction of deregulation in the State of Ohio, the companies
no longer share the common characteristics that formed the basis for the
operating agreement. On December 22, 2000, the FERC ruled that the companies
have the contractual right to terminate the operating agreement. Additionally,
the FERC established a termination effective date of May 22, 2001, and set a May
1, 2001, hearing date on the issue of the reasonableness of termination.

Certain parties appealed
the FERCs December 22, 2000 decision. Additionally, on March 14, 2001, the
IURC initiated an investigation into the termination of the operating agreement.
Subsequently, the parties to the FERC proceeding reached a settlement resolving
termination issues and certain compensation and damage issues. This settlement,
which was approved by the FERC on June 13, 2001, extends the termination of the
existing operating agreement until a new successor agreement has been allowed to
become effective by the FERC. The settlement also provides that the parties will
engage in negotiations concerning a successor agreement and that PSI will
file a proposed successor agreement with the IURC in the IURC investigation
proceeding. As of October 16, 2001, pursuant to the settlement, Cinergy
has the right to file the proposed successor agreement with the FERC for
approval. The parties would then be free to contest the new agreement at the
FERC. Also as part of the settlement, the parties agreed to ultimately dismiss
the appeals of the December 2000 FERC decision, with prejudice, after holding
such appeals in abeyance pending Cinergys compliance with the terms
of the settlement. On June 22, 2001, in the IURC investigation proceeding,
PSI filed its case-in-chief testimony, including proposed successor
agreements. Evidentiary hearings in the IURC investigation proceeding are
scheduled for September 2001. At this time, we cannot predict the outcome of
either the IURC investigation proceeding or the FERC proceedings concerning any
proposed successor agreements.

#### PSI Fuel Adjustment Charge

As discussed in the 2000
Form 10-K, PSI defers fuel costs that are recoverable in future periods
subject to IURC approval under a fuel recovery mechanism. On June 6, 2001, the
IURC issued an order in a PSI fuel recovery proceeding, disallowing
approximately $14 million of deferred costs. On June 26, 2001, PSI
formally requested that the IURC reconsider its disallowance decision. PSIbelieves ithas strong legal and factual arguments in its favor and
that it will ultimately be permitted to recover these costs. However, PSI
cannot definitively predict the ultimate outcome of either the petition for IURC
reconsideration or any possible appeal of this matter.

#### Market Risk
Sensitive Instruments and Positions

We market and trade
electricity, natural gas, and other energy-related products. We use
over-the-counter forward and option contracts for the purchase and sale of
electricity and also trade exchange-traded futures contracts.

As stated in our 2000 Form
10-K, in 2000 the Western U.S., primarily California, began experiencing
unprecedented price levels and volatility for wholesale electricity. Because of
the nature of deregulation in California, Californias two largest
utilities have accumulated significant unpaid obligations, are having difficulty
obtaining capital, and one of these utilities has declared bankruptcy. We
continue to maintain a balanced Western U.S. portfolio and have no unrealized
gain positions directly with these utilities. A portion of our Energy risk
management assets and Energy risk management liabilities-current are
with counterparties in the Western U.S. Although prices dropped significantly in
the second quarter of 2001, the volatility of prices, the possibility of certain
utilities defaulting on their unpaid obligations, and the potential for further
FERC-ordered wholesale electric refunds could result in credit failures by power
marketers. Given these issues, the fair values of our positions in the Western
U.S. continue to reflect an elevated level of credit discount. Nonperformance by
any of the Western U.S. counterparties could have a material effect on the
operating results of Cinergy, CG&E, and PSI.

Our natural gas trading
volumes have increased substantially during 2001. Because of this volume change
and the increasing volatility of gas prices, our risk exposure to these markets
has increased. However, we continue to employ value-at-risk analysis and other
methodologies to mitigate our risks in all trading operations, including natural
gas trading.

From time to time, we may
utilize foreign exchange forward contracts and currency swaps to hedge certain
of our net investments in foreign operations.

Our net exposure to changes
in interest rates primarily consists of debt instruments with floating interest
rates that are benchmarked to various market indices. To manage the exposure to
fluctuations in interest rates and to lower funding costs, we evaluate the use
of, and have entered into, interest rate swaps.

See Notes 1(b) and (c) of
the Notes to Financial Statements in Part I. Financial
Information for our accounting policies for certain derivative
instruments. Our market risks have not changed materially from the market risks
reported in the 2000 Form 10-K.

#### Gas Industry

#### ULH&P Gas Rate Case

On May 4, 2001,
ULH&P filed a retail gas rate case with the KPSC seeking to increase
base rates for natural gas distribution services by approximately $7 million
annually, or 8% overall. A hearing in this matter has been scheduled for
November 27, 2001. We expect that any rate change as a result of this filing
will be effective in the first quarter of 2002. Simultaneously, ULH&Pannounced a major gas main replacement program with a capital cost of
approximately $112 million over the next ten years. ULH&P has
requested recovery of the costs of this program through a tracking mechanism.

#### CG&E Gas Rate Case

On July 31, 2001,
CG&E filed a retail gas rate case with the PUCO seeking to increase
base rates for natural gas distribution services by approximately $25 million or
5% overall. We expect that any rate change as a result of this filing will be
effective in the second quarter of 2002. Simultaneously, CG&Eannounced an accelerated cast iron/bare steel pipe replacement program with
a capital cost of approximately $716 million over the next ten years.
CG&E has requested recovery of the costs of this program through a
tracking mechanism.

#### Gas Customer Choice

In January 2000,
Investments sold Cinergy Resources, Inc. (CRI), a former subsidiary, to Licking
Rural Electrification, Inc. doing business as The Energy Cooperative (Energy
Cooperative). In February 2001, Cinergy, CG&E, and CRI were
named as defendants in three class actions lawsuits. These lawsuits are in
connection with Energy Cooperatives removal from the Ohio Gas Customer
Choice program and the failure to deliver gas to customers. Subsequently, these
class action suits were amended and consolidated into one suit. CG&E
has been dismissed as a defendant in the consolidated suit. On March 30, 2001,
Cinergy, CG&E, and Investments were named as defendants in a
lawsuit filed by both Energy Cooperative and CRI. This lawsuit concerns any
obligations or liability Investments may have to Energy Cooperative following
its sale of CRI. We intend to vigorously defend these lawsuits. At the present
time, Cinergy cannot predict the outcome of these suits.

#### Accounting
Changes

On July 20, 2001, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 141, Business Combinations (Statement 141), and
No. 142, Goodwill and Other Intangible Assets (Statement 142). Statement
141 requires all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method. With the adoption of Statement 142,
goodwill and other intangibles with indefinite lives will no longer be subject
to amortization. Goodwill will be initially assessed for impairment shortly
after adoption and at least annually thereafter by applying a fair-value-based
test, as opposed to the undiscounted cash flow test applied under current
accounting standards. This test must be applied at the reporting
unit level, which will be defined within Cinergy after further
review and will be a level no broader than the current business segments
discussed in Note 5 of the Notes to Financial Statements in
Part I. Financial Information. Under Statement 142, an acquired
intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirers intent to do so. We will begin applying
Statement 141 in the third quarter of 2001 and adopt Statement 142 in the first
quarter of 2002. Until we adopt Statement 142, goodwill will continue to be
amortized. We do not believe that the discontinuance of amortization of goodwill
will be material to our 2002 results of operations. We are analyzing the impact
of the initial impairment test, and are unable to predict, at this time, whether
the implementation of these accounting standards will be material to our
financial position or results of operations.

During 1998, FASB issued
Statement 133. This standard was effective for calendar year-end companies
beginning in 2001, and requires companies to record derivative instruments which
are not exempt under certain provisions of Statement 133 as assets or
liabilities, measured at fair value (i.e., marked-to-market). Our financial
statements reflect the adoption of Statement 133 in January 2001. Since many of
our derivatives were previously required to use mark-to-market accounting, the
effects of implementation were immaterial.

Our adoption did not
reflect the potential impact of applying mark-to-market accounting to selected
call options and forwards. We had not historically marked these instruments to
market because they are intended as either hedges of peak period exposure or
sales contracts served with physical generation, neither of which were
considered trading activities. At adoption, we classified these contracts as
normal purchases or sales based on our interpretation of Statement 133 and in
the absence of definitive guidance on such contracts. In June 2001, the
FASB-sponsored Derivatives Implementation Group issued final guidance on the
application of the normal purchases and sales exemption to electricity contracts
structured as options or forwards. While much of the criteria that this guidance
requires is consistent with the existing guidance in Statement 133, some
criteria were added. We will adopt the new guidance in the third quarter of
2001, and preliminary estimates indicate that the effects of implementation for
these contracts will not be material. We will continue to apply this guidance to
any new electricity contracts that meet the definition of a derivative.

### Item 3. Quantitative and Qualitative Disclosures About Market Risk

This information is
provided in, and incorporated by reference from, the Market Risk Sensitive
Instruments and Positions section in Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations
in Part I. Financial Information and Notes 1(b) and (c) and Note 8
of the Notes to Financial Statements in Part I. Financial
Information.

### PART II.
OTHER INFORMATION

### ITEM 1.
LEGAL PROCEEDINGS

### NEW SOURCE
REVIEW AND NOTICES OF VIOLATION

See Notes 4(b), (c), and
(d) of the Notes to Financial Statements in Part I. Financial
Information for a discussion of the lawsuit and notices of violation filed
by the U.S. Environmental Protection Agency (EPA) against Cinergy,
CG&E, and PSI.

### MANUFACTURED
GAS PLANT SITES

See Notes 4(e) of the
Notes to Financial Statements in Part I. Financial
Information for a discussion of manufactured gas plant sites as they
relate to our operating companies.

### M METALS
SUPERFUND SITE

On July 6, 2000, the EPA
identified PSI and Indianapolis Power and Light Company (IPL) as
Potentially Responsible Parties for the release of hazardous substances at the M
Metals Superfund Site (Site) located in Indianapolis, Indiana. The EPA advised
that it had taken response actions relating to the Site and had incurred costs
of approximately $500,000. The EPA has demanded reimbursement of these costs
incurred related to the Site and has encouraged PSI and IPL to work out
an allocation between themselves for the payment of the costs. On April 19,
2001, PSI reached an agreement in principle with the EPA. Specific
details of the settlement are still being negotiated.

### GAS CUSTOMER
CHOICE

See Note 4(f) of the "Notes to Financial Statements" in "Part I.  Financial Information" for
discussion of customer choice litigation.

### ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K

(a)
The documents listed below are being filed or have previously been filed on
behalf of Cinergy Corp., CG&E, PSI, and
ULH&P and are incorporated herein by reference from the documents
indicated and made a part hereof. Exhibits not identified as previously filed
are filed herewith:

---

`Previously Filed
    Exhibit Designation     Registrant              Nature of Exhibit               as Exhibit to:
    -------------------     ----------              -----------------               --------------

  Instruments defining
  the rights of holders,
  including Indentures
                                            Fifty-third Supplemental Indenture
                           Cinergy Corp.    between PSI and LaSalle National Bank
            4a             PSI              dated June 15, 2001.

         Material
         Contracts
                                            Amendment to Cinergy Corp. Union
                                            Employees' 401 (k) Plan, adopted
                                            January 1, 1998, effective January 1,
            10a            Cinergy Corp.    2001.

                                            Cinergy Corp. Non-Union Employees'
                                            Severance Opportunity Plan as amended
                                            and restated effective June 1, 2001,
            10b            Cinergy Corp.    adopted May 30, 2001.

                                            Employment Agreement dated May 15,
                           Cinergy Corp.    2001, among Cinergy Corp. and CG&E and
            10c            CG&E             J. Joseph Hale, Jr.

                                            Employment Agreement dated May 15,
                                            2001, among Cinergy Corp. and M.
            10d            Cinergy Corp.    Stephen Harkness.

                           Cinergy Corp.    Employment Agreement dated May 15,
                           CG&E             2001, among Cinergy Corp., CG&E and
            10e            PSI              PSI and Bernard F. Roberts.

                           Cinergy Corp.    Employment Agreement dated March 9,
                           CG&E             2001, among Cinergy Corp., CG&E and
            10f            PSI              PSI and Lisa D. Gamblin.

                                            Employment Agreement dated March 9,
                                            2001, among Cinergy Corp. and Timothy
            10g            Cinergy Corp.    J. Verhagen.`

---

### SIGNATURES

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

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

| | CINERGY CORP.                          
| | ---------------------------------------
| | The Cincinnati Gas & Electric Company  
| | PSI Energy, Inc.                       
| | The Union Light, Heat and Power Company
| | Registrants                            

|Date:     August 13, 2001 |  | /s/    Bernard F. Roberts
|------------------------- |  | -------------------------
|                          |  | Bernard F. Roberts       
|                          |  | Duly Authorized Officer  
|                          |  | and                      
|                          |  | Chief Accounting Officer