<PAGE>
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
 
                            Washington, D.C. 20549
 
                                   FORM 10-Q
 
      (Mark One)
             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
 
                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
 
                                      OR
 
             [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
 
                   For the transition period from     to
 
<TABLE>
<CAPTION>
 COMMISSION
    FILE          REGISTRANT; STATE OF INCORPORATION;            IRS EMPLOYER
   NUMBER            ADDRESS; AND TELEPHONE NUMBER            IDENTIFICATION NO.
 ----------       -----------------------------------         ------------------
 <C>        <S>                                               <C>
 1-11375    UNICOM CORPORATION                                    36-3961038
            (an Illinois corporation)
            37th Floor, 10 South Dearborn Street
            Post Office Box A-3005
            Chicago, Illinois 60690-3005
            312/394-7399
 1-1839     COMMONWEALTH EDISON COMPANY                           36-0938600
            (an Illinois corporation)
            37th Floor, 10 South Dearborn Street
            Post Office Box 767
            Chicago, Illinois 60690-0767
            312/394-4321
</TABLE>
 
  Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) have been subject to such filing
requirements for the past 90 days.  Yes  [X]     No
 
Common Stock outstanding at April 30, 1997:
    Unicom Corporation                           216,285,469 shares
    Commonwealth Edison Company                  214,225,430 shares
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
 
                              UNICOM CORPORATION
                                      AND
                          COMMONWEALTH EDISON COMPANY
 
                        QUARTERLY REPORTS ON FORM 10-Q
                   TO THE SECURITIES AND EXCHANGE COMMISSION
                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
 
  This document contains the Quarterly Reports on Form 10-Q for the quarterly
period ended March 31, 1997 for each of Unicom Corporation and Commonwealth
Edison Company. Information contained herein relating to an individual
registrant is filed by such registrant on its own behalf. Accordingly, except
for its subsidiaries, Commonwealth Edison Company makes no representation as
to information relating to Unicom Corporation or to any other companies
affiliated with Unicom Corporation. In addition, several portions of these
Quarterly Reports contain forward looking statements; and reference is made to
page 60 for the location and character of such statements.
 
                                     INDEX
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          -----
<S>                                                                       <C>
Definitions..............................................................     3
PART I. FINANCIAL INFORMATION
Unicom Corporation and Subsidiary Companies:
  Financial Statements--
    Report of Independent Public Accountants.............................     4
    Statements of Consolidated Income for the three months and twelve
     months ended March 31, 1997 and 1996................................     5
    Consolidated Balance Sheets--March 31, 1997 and December 31, 1996....   6-7
    Statements of Consolidated Capitalization--March 31, 1997 and
     December 31, 1996 ..................................................     8
    Statements of Consolidated Retained Earnings for the three months and
     twelve months ended March 31, 1997 and 1996.........................     9
    Statements of Consolidated Cash Flows for the three months and twelve
     months ended March 31, 1997 and 1996................................    10
    Notes to Financial Statements........................................ 11-31
  Management's Discussion and Analysis of Financial Condition and Results
   of Operations......................................................... 32-45
Commonwealth Edison Company and Subsidiary Companies:
  Financial Statements--
    Report of Independent Public Accountants.............................    46
    Statements of Consolidated Income for the three months and twelve
     months ended March 31, 1997 and 1996................................    47
    Consolidated Balance Sheets--March 31, 1997 and December 31, 1996 ... 48-49
    Statements of Consolidated Capitalization--March 31, 1997 and
     December 31, 1996...................................................    50
    Statements of Consolidated Retained Earnings for the three months and
     twelve months ended March 31, 1997 and 1996.........................    51
    Statements of Consolidated Cash Flows for the three months and twelve
     months ended March 31, 1997 and 1996................................    52
    Notes to Financial Statements........................................ 53-57
  Management's Discussion and Analysis of Financial Condition and Results
   of Operations.........................................................    58
PART II. OTHER INFORMATION
  Item 1. Legal Proceedings.............................................. 59-60
  Item 6. Exhibits and Reports on Form 8-K...............................    60
SIGNATURES...............................................................    61
</TABLE>
 
                                       2
<PAGE>
 
                                  DEFINITIONS
 
  The following terms are used in this document with the following meanings:
 
<TABLE>
<CAPTION>
         TERM                                  MEANING
 -------------------- ---------------------------------------------------------
 <C>                  <S>
 AFUDC                Allowance for funds used during construction
 AMT                  Alternative minimum tax
 APB                  Accounting Principles Board
 CERCLA               Comprehensive Environmental Response, Compensation and
                       Liability Act of 1980, as amended
 CFC                  Chlorofluorocarbon
 Clean Air Amendments Clean Air Act Amendments of 1990
 ComEd                Commonwealth Edison Company
 Cotter               Cotter Corporation, which is a wholly-owned subsidiary of
                       ComEd.
 DOE                  U.S. Department of Energy
 EITF                 Emerging Issues Task Force of the FASB
 EMFs                 Electric and magnetic fields
 EPS                  Earnings per Share
 ESPP                 Employee stock purchase plan
 FASB                 Financial Accounting Standards Board
 FERC                 Federal Energy Regulatory Commission
 FERC Order           FERC Open Access Order No. 888 issued in April 1996
 GAAP                 Generally Accepted Accounting Principles
 ICC                  Illinois Commerce Commission
 Indiana Company      Commonwealth Edison Company of Indiana, Inc., which is a
                       wholly-owned subsidiary of ComEd.
 ISO                  Independent System Operator
 MGP                  Manufactured gas plant
 NEIL                 Nuclear Electric Insurance Limited
 NLRB                 National Labor Relations Board
 NML                  Nuclear Mutual Limited
 NPL                  National Priorities List
 NRC                  Nuclear Regulatory Commission
 Rate Order           ICC rate order issued in January 1995, as subsequently
                       modified
 Remand Order         ICC rate order issued in January 1993, as subsequently
                       modified
 RDI                  Resource Data International Inc., a consulting firm
 SEC                  Securities and Exchange Commission
 SFAS                 Statement of Financial Accounting Standards
 S&P                  Standard & Poor's
 Trusts               ComEd Financing I and ComEd Financing II, which are
                       wholly-owned subsidiary trusts of ComEd.
 Unicom               Unicom Corporation
 Unicom Enterprises   Unicom Enterprises Inc., which is a wholly-owned
                       subsidiary of Unicom.
 Unicom Thermal       Unicom Thermal Technologies Inc., which is a wholly-owned
                       subsidiary of Unicom Enterprises.
 Units                ComEd's nuclear generating units known as Byron Unit 2
                       and Braidwood Units 1 and 2
 U.S. EPA             U.S. Environmental Protection Agency
</TABLE>
 
                                       3
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Unicom Corporation:
 
  We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Unicom Corporation (an Illinois corporation)
and subsidiary companies as of March 31, 1997 and December 31, 1996, and the
related statements of consolidated income, retained earnings and cash flows
for the three-month and twelve-month periods ended March 31, 1997 and 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Unicom Corporation and
subsidiary companies as of March 31, 1997 and December 31, 1996, and the
results of their operations and their cash flows for the three-month and
twelve-month periods ended March 31, 1997 and 1996, in conformity with
generally accepted accounting principles.
 
 
 
                                            Arthur Andersen LLP
Chicago, Illinois
May 9, 1997
 
                                       4
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                       STATEMENTS OF CONSOLIDATED INCOME
 
  The following Statements of Consolidated Income for the three months and
twelve months ended March 31, 1997 and 1996 reflect the results of past
operations and are not intended as any representation as to results of
operations for any future period. Future operations will necessarily be
affected by various and diverse factors and developments, including changes in
electric rates, regulation, population, business activity, competition, taxes,
environmental control, energy use, fuel supply, cost of labor, purchased power
and other matters, the nature and effect of which cannot now be determined.
 
<TABLE>
<CAPTION>
                                  THREE MONTHS ENDED      TWELVE MONTHS ENDED
                                       MARCH 31                MARCH 31
                                 ----------------------  ----------------------
                                    1997        1996        1997        1996
                                 ----------  ----------  ----------  ----------
                                      (THOUSANDS EXCEPT PER SHARE DATA)
<S>                              <C>         <C>         <C>         <C>
Operating Revenues.............  $1,750,312  $1,683,929  $7,003,408  $7,015,837
                                 ----------  ----------  ----------  ----------
Operating Expenses and Taxes:
 Fuel..........................  $  309,068  $  283,975  $1,182,948  $1,101,590
 Purchased power...............      64,307      31,439     178,167      92,274
 Operation and maintenance.....     570,246     513,702   2,218,437   2,158,306
 Depreciation..................     249,860     230,925     972,636     903,854
 Recovery of regulatory
  assets.......................       3,818       3,818      15,272      15,272
 Taxes (except income).........     205,698     218,239     770,990     841,614
 Income taxes..................      94,853     111,472     472,927     556,208
 Investment tax credits
  deferred--net ...............      (7,897)     (7,167)    (34,109)    (28,697)
                                 ----------  ----------  ----------  ----------
                                 $1,489,953  $1,386,403  $5,777,268  $5,640,421
                                 ----------  ----------  ----------  ----------
Operating Income...............  $  260,359  $  297,526  $1,226,140  $1,375,416
                                 ----------  ----------  ----------  ----------
Other Income and (Deductions):
 Interest on long-term debt....  $ (126,968) $ (130,861) $ (511,392) $ (566,161)
 Interest on notes payable.....      (1,951)     (4,251)    (11,007)     (7,380)
 Allowance for funds used
  during construction--
   Borrowed funds..............       4,052       4,898      18,580      14,350
   Equity funds................       5,080       4,698      21,158      15,735
 Income taxes applicable to
  nonoperating activities......         366       4,276       3,902       9,094
 Provision for dividends--
   Preferred and preference
    stocks of ComEd............     (15,527)    (16,514)    (63,437)    (69,567)
   ComEd-obligated mandatorily
    redeemable preferred
    securities of subsidiary
    trusts.....................      (6,648)     (4,240)    (19,368)     (8,668)
 Miscellaneous--net............      (7,646)    (18,600)    (24,291)    (54,955)
                                 ----------  ----------  ----------  ----------
                                 $ (149,242) $ (160,594) $ (585,855) $ (667,552)
                                 ----------  ----------  ----------  ----------
Net Income Before Extraordinary
 Item..........................  $  111,117  $  136,932  $  640,285  $  707,864
Extraordinary Loss Related to
 Early Redemption of Long-Term
 Debt, Less Applicable Income
 Taxes.........................         --          --          --      (20,022)
                                 ----------  ----------  ----------  ----------
Net Income.....................  $  111,117  $  136,932  $  640,285  $  687,842
                                 ==========  ==========  ==========  ==========
Average Number of Common Shares
 Outstanding...................     216,053     215,248     215,701     214,897
Earnings per Common Share
 Before Extraordinary Item.....       $0.51       $0.64       $2.97       $3.29
Extraordinary Loss Related to
 Early Redemption of Long-Term
 Debt, Less Applicable Income
 Taxes.........................         --          --          --        (0.09)
                                 ----------  ----------  ----------  ----------
Earnings per Common Share......       $0.51       $0.64       $2.97       $3.20
                                 ==========  ==========  ==========  ==========
Cash Dividends Declared per
 Common Share..................       $0.40       $0.40       $1.60       $1.60
</TABLE>
 
  The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       5
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                        MARCH 31,  DECEMBER 31,
                        ASSETS                            1997         1996
                        ------                         ----------- ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                    <C>         <C>
Utility Plant:
  Plant and equipment, at original cost (includes con-
   struction work in progress of $1,181 million and
   $1,034 million, respectively)...................... $28,092,479 $27,900,632
  Less--Accumulated provision for depreciation........  11,705,039  11,479,991
                                                       ----------- -----------
                                                       $16,387,440 $16,420,641
  Nuclear fuel, at amortized cost.....................     810,347     805,623
                                                       ----------- -----------
                                                       $17,197,787 $17,226,264
                                                       ----------- -----------
Investments and Other Property:
  Nuclear decommissioning funds....................... $ 1,544,212 $ 1,456,360
  Subsidiary companies................................     114,086     113,888
  Other, at cost......................................     169,549     146,302
                                                       ----------- -----------
                                                       $ 1,827,847 $ 1,716,550
                                                       ----------- -----------
Current Assets:
  Cash................................................ $     5,605 $     8,727
  Temporary cash investments..........................      32,681      51,821
  Other cash investments..............................       7,888         --
  Special deposits....................................         349       1,610
  Receivables--
    Customers.........................................     585,667     568,155
    Other.............................................      68,735     109,835
    Provisions for uncollectible accounts.............    (13,272)     (12,893)
  Coal and fuel oil, at average cost..................     172,637     140,362
  Materials and supplies, at average cost.............     324,515     324,485
  Deferred unrecovered energy costs...................      96,168     104,651
  Deferred income taxes related to current assets and
   liabilities........................................     113,431     120,185
  Prepayments and other...............................      48,938      35,872
                                                       ----------- -----------
                                                       $ 1,443,342 $ 1,452,810
                                                       ----------- -----------
Deferred Charges and Other Noncurrent Assets:
  Regulatory assets................................... $ 2,588,889 $ 2,434,807
  Unrecovered energy costs............................     415,739     444,009
  Other...............................................     105,364     113,530
                                                       ----------- -----------
                                                       $ 3,109,992 $ 2,992,346
                                                       ----------- -----------
                                                       $23,578,968 $23,387,970
                                                       =========== ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       6
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                        MARCH 31,  DECEMBER 31,
            CAPITALIZATION AND LIABILITIES                1997         1996
            ------------------------------             ----------- ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                    <C>         <C>
Capitalization (see accompanying statements):
  Common stock equity................................. $ 6,132,448 $ 6,104,380
  Preferred and preference stocks of ComEd--
    Without mandatory redemption requirements.........     507,143     507,342
    Subject to mandatory redemption requirements......     217,901     217,901
  ComEd-obligated mandatorily redeemable preferred
   securities of subsidiary trusts*...................     350,000     200,000
  Long-term debt......................................   5,953,005   6,069,534
                                                       ----------- -----------
                                                       $13,160,497 $13,099,157
                                                       ----------- -----------
Current Liabilities:
  Notes payable--
    Commercial paper.................................. $   122,000 $   121,000
    Bank loans........................................       7,750       7,750
  Current portion of long-term debt, redeemable pref-
   erence stock and capitalized lease obligations of
   subsidiary companies...............................     621,071     745,665
  Accounts payable....................................     419,983     469,815
  Accrued interest....................................     141,977     168,750
  Accrued taxes.......................................     257,508     171,104
  Dividends payable...................................     104,418     101,850
  Customer deposits...................................      53,418      51,585
  Other...............................................      99,370      98,567
                                                       ----------- -----------
                                                       $ 1,827,495 $ 1,936,086
                                                       ----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
  Deferred income taxes............................... $ 4,583,293 $ 4,574,342
  Accumulated deferred investment tax credits.........     647,765     655,662
  Accrued spent nuclear fuel disposal fee and related
   interest...........................................     665,908     657,449
  Obligations under capital leases of subsidiary com-
   panies.............................................     512,681     476,668
  Regulatory liabilities..............................     728,922     668,301
  Other...............................................   1,452,407   1,320,305
                                                       ----------- -----------
                                                       $ 8,590,976 $ 8,352,727
                                                       ----------- -----------
Commitments and Contingent Liabilities (Note 20)
                                                       $23,578,968 $23,387,970
                                                       =========== ===========
</TABLE>
 
  *As described in Note 8 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of
ComEd, is $154.6 million principal amount of ComEd's 8.50% subordinated
deferrable interest debentures due January 15, 2027.
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       7
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   STATEMENTS OF CONSOLIDATED CAPITALIZATION
 
<TABLE>
<CAPTION>
                                                       MARCH 31,    DECEMBER
                                                         1997       31, 1996
                                                      -----------  -----------
                                                      (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Common Stock Equity:
  Common stock, without par value--
   Outstanding--216,213,087 shares and 215,954,625
    shares, respectively (excludes $7 million and $4
    million as of March 31, 1997 and December 31,
    1996, respectively, held by trustee for Unicom
    Stock Bonus Deferral Plan)....................... $ 4,933,343  $ 4,929,909
  Preference stock expense of ComEd..................      (3,526)      (3,526)
  Retained earnings..................................   1,202,631    1,177,997
                                                      -----------  -----------
                                                      $ 6,132,448  $ 6,104,380
                                                      -----------  -----------
Preferred and Preference Stocks of ComEd--
  Without Mandatory Redemption Requirements:
    Preference stock, cumulative, without par value--
     Outstanding--13,499,549 shares.................. $   504,957  $   504,957
    $1.425 convertible preferred stock, cumulative,
     without par value--
     Outstanding--68,741 shares and 75,003 shares,
      respectively...................................       2,186        2,385
    Prior preferred stock, cumulative, $100 par value
     per share--
     No shares outstanding...........................         --           --
                                                      -----------  -----------
                                                      $   507,143  $   507,342
                                                      -----------  -----------
  Subject to Mandatory Redemption Requirements:
    Preference stock, cumulative, without par value--
     Outstanding--2,496,775 shares................... $   248,589  $   248,589
    Current redemption requirements for preference
     stock included
     in current liabilities..........................     (30,688)     (30,688)
                                                      -----------  -----------
                                                      $   217,901  $   217,901
                                                      -----------  -----------
ComEd-Obligated Mandatorily Redeemable Preferred
 Securities of Subsidiary Trusts..................... $   350,000  $   200,000
                                                      -----------  -----------
Long-Term Debt:
  First mortgage bonds:
    Maturing 1997 through 2001--5 3/8% to 9 3/8%..... $   970,000  $ 1,120,000
    Maturing 2002 through 2011--3.45% to 8 3/8%......   1,640,400    1,640,400
    Maturing 2012 through 2021--5.85% to 9 7/8%......   1,191,000    1,391,000
    Maturing 2022 through 2023--7 3/4% to 8 5/8%.....   1,160,000    1,160,000
                                                      -----------  -----------
                                                      $ 4,961,400  $ 5,311,400
  Sinking fund debentures, due 1999 through 2011-- 
   2 3/4% to 7 5/8%..................................     103,273      105,164
  Pollution control obligations, due 2007 through
   2014--3.45% to 5 7/8%.............................     142,200      142,200
  Other long-term debt...............................   1,248,819    1,100,833
  Deposit for retirement of long-term debt...........      (2,331)         --
  Current maturities of long-term debt included in
   current liabilities...............................    (450,733)    (540,505)
  Unamortized net debt discount and premium..........     (49,623)     (49,558)
                                                      -----------  -----------
                                                      $ 5,953,005  $ 6,069,534
                                                      -----------  -----------
                                                      $13,160,497  $13,099,157
                                                      ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       8
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                  STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
 
<TABLE>
<CAPTION>
                                    THREE MONTHS ENDED    TWELVE MONTHS ENDED
                                         MARCH 31              MARCH 31
                                    -------------------- ---------------------
                                       1997       1996      1997       1996
                                    ----------  -------- ---------- ----------
                                             (THOUSANDS OF DOLLARS)
<S>                                 <C>         <C>      <C>        <C>
Balance at Beginning of Period..... $1,177,997  $856,893 $  907,723 $  563,761
Add--Net income....................    111,117   136,932    640,285    687,842
                                    ----------  -------- ---------- ----------
                                    $1,289,114  $993,825 $1,548,008 $1,251,603
                                    ----------  -------- ---------- ----------
Deduct--
   Cash dividends declared on com-
    mon stock...................... $   86,484  $ 86,102 $  345,274 $  343,909
   Other capital stock transac-
    tions--net.....................         (1)      --         103        (29)
                                    ----------  -------- ---------- ----------
                                    $   86,483  $ 86,102 $  345,377 $  343,880
                                    ----------  -------- ---------- ----------
Balance at End of Period........... $1,202,631  $907,723 $1,202,631 $  907,723
                                    ==========  ======== ========== ==========
</TABLE>
 
 
 
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       9
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                     STATEMENTS OF CONSOLIDATED CASH FLOWS
 
<TABLE>
<CAPTION>
                                 THREE MONTHS ENDED      TWELVE MONTHS ENDED
                                      MARCH 31                MARCH 31
                                 --------------------  ------------------------
                                   1997       1996        1997         1996
                                 ---------  ---------  -----------  -----------
                                           (THOUSANDS OF DOLLARS)
<S>                              <C>        <C>        <C>          <C>
Cash Flow from Operating Activ-
 ities:
 Net income....................  $ 111,117  $ 136,932  $   640,285  $   687,842
 Adjustments to reconcile net
  income to net cash provided
  by operating activities:
   Depreciation and amortiza-
    tion.......................    259,455    241,188    1,009,045      951,972
   Deferred income taxes and
    investment tax credits--
    net........................     21,628     16,260      135,065      163,063
   Extraordinary loss related
    to early redemption of
    long-term debt.............        --         --           --        33,158
   Equity component of
    allowance for funds used
    during construction........     (5,080)    (4,698)     (21,158)     (15,735)
   Recovery of regulatory as-
    sets.......................      3,818      3,818       15,272       15,272
   Provisions/(payments) for
    liability for separation
    costs--net.................       (626)   (32,303)       1,790       28,030
   Net effect on cash flows of
    changes in:
     Receivables...............     23,967    117,044      (23,371)     (62,838)
     Coal and fuel oil.........    (32,275)   (15,491)     (27,970)     (24,171)
     Materials and supplies....        (30)    (1,603)      10,627       35,863
     Accounts payable excluding
      nuclear fuel lease
      principal payments and
      separation costs--net....        899    (72,115)     179,449      374,172
     Accrued interest and tax-
      es.......................     59,631     41,230      (28,656)     (44,859)
     Other changes in certain
      current assets and
      liabilities..............     (7,895)     9,414       (3,460)      29,324
   Other--net..................     84,297      6,115      147,113       65,398
                                 ---------  ---------  -----------  -----------
                                 $ 518,906  $ 445,791  $ 2,034,031  $ 2,236,491
                                 ---------  ---------  -----------  -----------
Cash Flow from Investing Activ-
 ities:
 Construction expenditures.....  $(234,481) $(288,555) $  (928,199) $(1,009,619)
 Nuclear fuel expenditures.....    (48,773)   (34,419)    (296,187)    (284,680)
 Equity component of allowance
  for funds used during
  construction.................      5,080      4,698       21,158       15,735
 Contributions to nuclear
  decommissioning funds........    (80,181)   (83,178)    (116,284)    (119,602)
 Other investments and special
  deposits.....................    (29,939)      (298)     (31,756)       6,170
                                 ---------  ---------  -----------  -----------
                                 $(388,294) $(401,752) $(1,351,268) $(1,391,996)
                                 ---------  ---------  -----------  -----------
Cash Flow from Financing Activ-
 ities:
 Issuance of securities--
  Long-term debt...............  $ 297,663  $     --   $   549,565  $    42,000
  Preferred securities of sub-
   sidiary trusts..............    150,000        --       150,000      200,000
  Capital stock................      5,777        636       22,896       21,967
 Retirement and redemption of
  securities--
  Long-term debt...............   (503,883)    (1,140)    (935,827)  (1,108,775)
  Capital stock................       (199)       (25)     (44,687)     (17,927)
 Deposits and securities held
  for retirement and
  redemption of securities.....     (2,331)    (3,618)       1,287       (1,838)
 Premium paid on early redemp-
  tion of long-term debt.......     (9,500)       --        (9,500)     (25,823)
 Cash dividends paid on common
  stock........................    (86,321)   (85,983)    (344,892)    (343,619)
 Proceeds from sale/leaseback
  of nuclear fuel..............     44,470    124,213      236,875      202,088
 Nuclear fuel lease principal
  payments.....................    (49,550)   (56,051)    (205,241)    (231,111)
 Increase (Decrease) in short-
  term borrowings..............      1,000    (32,600)    (105,800)     228,400
                                 ---------  ---------  -----------  -----------
                                 $(152,874) $ (54,568) $  (685,324) $(1,034,638)
                                 ---------  ---------  -----------  -----------
Decrease in Cash and Temporary
 Cash Investments..............  $ (22,262) $ (10,529) $    (2,561) $  (190,143)
Cash and Temporary Cash
 Investments at Beginning of
 Period........................     60,548     51,376       40,847      230,990
                                 ---------  ---------  -----------  -----------
Cash and Temporary Cash Invest-
 ments at End of Period........  $  38,286  $  40,847  $    38,286  $    40,847
                                 =========  =========  ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       10
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                         NOTES TO FINANCIAL STATEMENTS
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
 
  Corporate Structure and Basis of Presentation. Unicom was incorporated in
January 1994 and became the parent holding company of ComEd and Unicom
Enterprises in a corporate restructuring that became effective on September 1,
1994. ComEd, an electric utility, is the principal subsidiary of Unicom.
Unicom Enterprises is an unregulated subsidiary of Unicom and is engaged,
through subsidiaries, in energy service activities. Unicom also has one other
subsidiary that was formed to engage in unregulated activities.
 
  The consolidated financial statements include the accounts of Unicom, ComEd,
the Indiana Company, ComEd Financing I, ComEd Financing II and Unicom's
unregulated subsidiaries. All significant intercompany transactions have been
eliminated. ComEd's investments in other subsidiary companies, which are not
material in relation to ComEd's financial position or results of operations,
are accounted for in accordance with the equity method of accounting.
 
  Use of Estimates. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
 
  Regulation. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd's accounting policies and
the accompanying consolidated financial statements conform to GAAP applicable
to rate-regulated enterprises and reflect the effects of the ratemaking
process in accordance with SFAS No. 71, Accounting for the Effects of Certain
Types of Regulation. Such effects concern mainly the time at which various
items enter into the determination of net income in order to follow the
principle of matching costs and revenues.
 
  Regulatory Assets and Liabilities. Regulatory assets are incurred costs
which have been deferred and are amortized for ratemaking and accounting
purposes. Regulatory liabilities represent amounts to be settled with
customers through future rates. Regulatory assets and liabilities reflected on
the Consolidated Balance Sheets at March 31, 1997 and December 31, 1996 were
as follows:
 
<TABLE>
<CAPTION>
                                                         MARCH 31,  DECEMBER 31,
                                                            1997        1996
                                                         ---------- ------------
                                                         (THOUSANDS OF DOLLARS)
<S>                                                      <C>        <C>
Regulatory assets:
  Deferred income taxes (1)............................. $1,696,031  $1,649,037
  Deferred carrying charges (2).........................    393,618     396,879
  Nuclear decommissioning costs--Dresden Unit 1 (3).....    278,777     174,621
  Unamortized loss on reacquired debt (4)...............    155,384     148,380
  Other.................................................     65,079      65,890
                                                         ----------  ----------
                                                         $2,588,889  $2,434,807
                                                         ==========  ==========
Regulatory liabilities:
  Deferred income taxes (1)............................. $  728,922  $  668,301
                                                         ==========  ==========
</TABLE>
--------
(1) Recorded in compliance with SFAS No. 109.
(2) Recorded as authorized in the Remand Order. The amortization period is
    over the remaining lives of the Units.
(3) Amortized over the remaining current NRC license life of Dresden station.
    See "Depreciation and Decommissioning" below for additional information.
(4) Amortized over the remaining lives of the long-term debt issued to finance
    the reacquisition. See "Loss on Reacquired Debt" below for additional
    information.
 
 
                                      11
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
See "Deferred Unrecovered Energy Costs" below regarding the fuel adjustment
clause, the DOE assessment and coal reserves.
 
  If a portion of ComEd's operations was no longer subject to the provisions
of SFAS No. 71 as a result of a change in regulation or the effects of
competition, ComEd would be required to write off the related regulatory
assets and liabilities. In addition, ComEd would be required to determine any
impairment to other assets and purchase contracts and write down such assets
or contracts to their fair value.
 
  SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which was adopted on January 1, 1996,
established accounting standards for the impairment of long-lived assets. The
SFAS also requires that regulatory assets, which are no longer probable of
recovery through future revenue, be charged to earnings. SFAS No. 121 did not
have an impact on ComEd's financial position or results of operations upon
adoption.
 
  Deferred Unrecovered Energy Costs. The fuel adjustment clause adopted by the
ICC provides for the recovery of changes in fossil and nuclear fuel costs and
the energy portion of purchased power costs as compared to the fuel and
purchased energy costs included in ComEd's base rates. As authorized by the
ICC, ComEd has recorded under or overrecoveries of allowable fuel and energy
costs which, under the clause, are recoverable or refundable in subsequent
months. Deferred unrecovered energy costs also include amounts to be recovered
through the fuel adjustment clause for assessments by the DOE to fund a
portion of the cost for the decontamination and decommissioning of uranium
enrichment facilities owned and previously operated by the DOE. As of March
31, 1997 and December 31, 1996, an asset related to the assessments of $164
million and $168 million, respectively, was recorded, of which the current
portion of $16 million was included in current assets as deferred unrecovered
energy costs on the Consolidated Balance Sheets. As of March 31, 1997 and
December 31, 1996, a corresponding liability of $157 million was recorded, of
which $16 million was recorded in other current liabilities on the
Consolidated Balance Sheets.
 
  At March 31, 1997 and December 31, 1996, ComEd had unrecovered fuel costs in
the form of coal reserves of $333 million and $364 million, respectively. In
prior years, ComEd's commitments for the purchase of coal exceeded its
requirements. Rather than take all the coal it was required to take, ComEd
agreed to purchase the coal in place in the form of coal reserves. ComEd has
been allowed to recover from its customers the costs of the coal reserves
through its fuel adjustment clause as coal is used for the generation of
electricity; however, ComEd is not earning a return on the expenditures for
coal reserves. Such fuel costs expected to be recovered within one year
amounting to $66 million and $73 million at March 31, 1997 and December 31,
1996, respectively, have been included on the Consolidated Balance Sheets in
current assets as deferred unrecovered energy costs. ComEd expects to fully
recover the costs of the coal reserves by the year 2000. See Note 20 for
additional information concerning ComEd's coal commitments.
 
  Customer Receivables and Revenues. ComEd is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of residential, commercial, industrial and wholesale customers.
ComEd's electric service territory has an area of approximately 11,300 square
miles and an estimated population of approximately eight million as of March
31, 1997. It includes the city of Chicago, an area of about 225 square miles
with an estimated population of approximately three million from which ComEd
derived approximately one-third of its ultimate consumer revenues in the
twelve months ended March 31, 1997. ComEd had approximately 3.4 million
electric customers at March 31, 1997.
 
                                      12
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  Depreciation and Decommissioning. ComEd's depreciation is provided on the
straight-line basis by amortizing the cost of depreciable plant and equipment
over estimated composite service lives. Non-nuclear plant and equipment is
depreciated at annual rates developed for each class of plant based on their
composite service lives. Provisions for depreciation were at average annual
rates of 3.34% and 3.31% for the three months and twelve months ended March
31, 1997, respectively, of average depreciable utility plant and equipment,
including the effects of additional depreciation on ComEd's nuclear generating
units. Provisions for depreciation were at average annual rates of 3.14% for
the three months and twelve months ended March 31, 1996 of average depreciable
utility plant and equipment. The annual rate for nuclear plant and equipment,
excluding separately collected decommissioning costs and additional
depreciation, is 2.88%. The additional depreciation on ComEd's nuclear
generating units includes depreciation related to its steam generators at
Byron 1 and Braidwood 1, which are expected to be replaced prior to year-end
1998, of $15 million for the three months and twelve months ended March 31,
1997. ComEd also recorded additional depreciation charges of $30 million on
its nuclear generating units in the last half of 1996. See Note 2 for
additional information.
 
  ComEd is currently evaluating the impact of the expected early retirement of
its Zion station, which has a net book value of approximately $700 million,
and other factors which may impact the composite nuclear depreciation rate,
and whether any required additional depreciation would be recoverable under
ComEd's rate cap initiative and the regulatory reform legislation currently
being considered in Illinois. Any unrecoverable plant costs will be recognized
as an expense when they are probable and estimable.
 
  Nuclear plant decommissioning costs are accrued over the current NRC license
lives of the related nuclear generating units. The accrual is based on an
annual levelized cost of the unrecovered portion of estimated decommissioning
costs, which are escalated for expected inflation to the expected time of
decommissioning and are net of expected earnings on the trust funds. See
"Decommissioning" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Results of Operations," for
a discussion of questions raised by the staff of the SEC and a FASB review
regarding the electric utility industry method of accounting for
decommissioning costs. Dismantling is expected to occur relatively soon after
the end of the current NRC license life of each related generating station.
The accrual for decommissioning is based on the prompt removal method
authorized by NRC guidelines. ComEd's twelve operating units have remaining
current NRC license lives ranging from 9 to 31 years. ComEd's first nuclear
unit, Dresden Unit 1, is retired and is expected to be dismantled at the end
of the current NRC license life of the last unit at that station, which is
consistent with the regulatory treatment for the related decommissioning
costs.
 
  Based on ComEd's most recent study, decommissioning costs, including the
cost of decontamination and dismantling, are estimated to aggregate $4.6
billion in current-year (1997) dollars including a contingency allowance.
ComEd estimates that it will expend approximately $12.3 billion, including a
contingency allowance, for decommissioning costs primarily during the period
from 2007 through 2032. Such costs are expected to be funded by the external
decommissioning trusts which ComEd established in compliance with Illinois law
and into which ComEd has been making annual contributions. Future
decommissioning cost estimates may be significantly affected by the adoption
of or changes to NRC regulations as well as changes in the assumptions used in
making such estimates, including changes in technology, available alternatives
for the disposal of nuclear waste and inflation.
 
  Pursuant to the Rate Order, beginning in 1995, ComEd collects
decommissioning costs from its ratepayers under a rider which allows annual
adjustments to decommissioning cost collections
 
                                      13
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
outside the context of a traditional rate proceeding. The current estimated
decommissioning costs include a contingency allowance. Contingency allowances
used in decommissioning cost estimates provide for currently unspecifiable
costs that are likely to occur after decommissioning begins and generally
range from 20% to 25% of the currently specifiable costs. Under its most
recent annual rider, filed with the ICC on February 28, 1997, ComEd has
proposed to decrease its estimated annual decommissioning cost accrual from
$108.8 million to $107.5 million. The reduction primarily reflects stronger
than expected after-tax returns on the external trust funds in 1996 and lower
expected escalation in low-level waste disposal costs, partially offset by the
higher current year cost estimates which include a contingency allowance.
 
  The proposed annual decommissioning cost accrual of $107.5 million was
determined using the following assumptions: the decommissioning cost estimate
of $4.6 billion in current-year (1997) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.30% and 6.26%,
respectively, as well as an escalation rate for future decommissioning costs
of 4.1%. The annual accrual of $107.5 million provided over the current NRC
license lives of the nuclear plants, coupled with the expected fund earnings
and amounts previously recovered in rates, is expected to aggregate
approximately $12.3 billion.
 
  For the twelve operating nuclear units, decommissioning costs are recorded
as portions of depreciation expense and accumulated provision for depreciation
on the Statements of Consolidated Income and the Consolidated Balance Sheets,
respectively. As of March 31, 1997, the total decommissioning costs included
in the accumulated provision for depreciation were $1,561 million. For ComEd's
retired nuclear unit, Dresden Unit 1, the total estimated liability at March
31, 1997 in current-year (1997) dollars of $382 million was recorded on the
Consolidated Balance Sheets as an other noncurrent liability and the
unrecovered portion of the liability of $279 million was recorded as a
regulatory asset. The increase from December 31, 1996 to March 31, 1997 in the
total estimated liability related to Dresden Unit 1, and the unrecovered
portion of that liability, is due to higher current year cost estimates which
include a contingency allowance.
 
   Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts; and, consequently, such collections do not add
to the cash flows available for general corporate purposes. The ICC has
approved ComEd's funding plan, which provides for annual contributions of
current accruals and ratable contributions of past accruals over the remaining
current NRC license lives of the nuclear plants. At March 31, 1997, the past
accruals that are required to be contributed to the external trusts aggregate
$120 million. The fair value of funds accumulated in the external trusts at
March 31, 1997 was $1,544 million, which includes pre-tax unrealized
appreciation of $216 million. The earnings on the external trusts accumulate
in the fund balance and accumulated provision for depreciation.
 
  Amortization of Nuclear Fuel. The cost of nuclear fuel is amortized to fuel
expense based on the quantity of heat produced using the unit of production
method. As authorized by the ICC, provisions for spent nuclear fuel disposal
costs have been recorded at a level required to recover the fee payable on
current nuclear-generated and sold electricity and the current interest
accrual on the one-time fee payable to the DOE for nuclear generation prior to
April 7, 1983. The one-time fee and interest thereon have been recovered and
the current fee and current interest on the one-time fee are currently being
recovered through the fuel adjustment clause. See Note 11 for further
information concerning the disposal of spent nuclear fuel, the one-time fee
and the interest accrual on the one-time fee. Nuclear fuel expenses, including
leased fuel costs and provisions for spent nuclear fuel disposal costs, were
$80 million and $96 million for the three months ended March 31, 1997 and
1996, respectively, and $338 million and $388 million for the twelve months
ended March 31, 1997 and 1996, respectively.
 
                                      14
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  Income Taxes. Deferred income taxes are provided for income and expense
items recognized for financial accounting purposes in periods that differ from
those for income tax purposes. Income taxes deferred in prior years are
charged or credited to income as the book/tax timing differences reverse.
Prior years' deferred investment tax credits are amortized through credits to
income generally over the lives of the related property. Income tax credits
resulting from interest charges applicable to nonoperating activities,
principally construction, are classified as other income.
 
  AFUDC. In accordance with the uniform systems of accounts prescribed by
regulatory authorities, ComEd capitalizes AFUDC, compounded semiannually,
which represents the estimated cost of funds used to finance its construction
program. The equity component of AFUDC is recorded on an after-tax basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates were 9.34% and 8.82% for the three months
ended March 31, 1997 and 1996, respectively, and 9.15% and 9.31% for the
twelve months ended March 31, 1997 and 1996, respectively. AFUDC does not
contribute to the current cash flow of Unicom or ComEd.
 
  Interest. Total interest costs incurred on debt, leases and other
obligations were $154 million and $159 million for the three months ended
March 31, 1997 and 1996, respectively, and $621 million and $677 million for
the twelve months ended March 31, 1997 and 1996, respectively.
 
  Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of ComEd are being amortized over the lives of the respective
issues.
 
  Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition in connection with refinancing of first mortgage
bonds, sinking fund debentures and pollution control obligations prior to
their scheduled maturity dates is deferred and amortized over the lives of the
long-term debt issued to finance the reacquisition.
 
  Earnings per Share. In February 1997, the FASB issued SFAS No. 128, Earnings
per Share. The standard simplifies the computation of EPS required by existing
rules. The new standard is effective for interim and annual periods ending
after December 15, 1997; early adoption is not permitted. Had SFAS No. 128
been effective at March 31, 1997, there would have been no impact on Unicom's
or ComEd's reported EPS.
 
  Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to
adopt SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure
purposes only. Unicom accounts for its stock option awards and its employee
stock purchase plan under APB Opinion No. 25, Accounting for Stock Issued to
Employees. See Note 5 for additional information.
 
  Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on net income.
 
  Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be
cash equivalents. Supplemental cash flow information for the three months and
twelve months ended March 31, 1997 and 1996 was as follows:
 
<TABLE>
<CAPTION>
                               THREE MONTHS ENDED  TWELVE MONTHS ENDED
                                    MARCH 31            MARCH 31
                               ------------------- -------------------
                                 1997      1996      1997      1996
                               --------- --------- --------- ---------
                                           (THOUSANDS OF DOLLARS)
<S>                            <C>       <C>       <C>       <C>      
Supplemental Cash Flow Infor-
 mation:
 Cash paid during the period
  for:
   Interest (net of amount
    capitalized).............. $ 160,928 $ 157,844  $541,435 $ 591,371
   Income taxes (net of re-
    funds).................... $   6,998 $     --  $ 241,741 $ 398,129
Supplemental Schedule of Non-
 Cash Investing and Financing
 Activities:
 Capital lease obligations
  incurred by subsidiary com-
  panies...................... $  46,397 $ 125,492 $ 241,879 $ 207,259
</TABLE>
 
                                      15
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  (2) RATE MATTERS. In January, 1995, the ICC issued its Rate Order in the
proceedings relating to ComEd's February 1994 rate increase request. The rates
provided in the Rate Order became effective on January 14, 1995; however, they
are being collected subject to refund as a result of subsequent judicial
action. As of March 31, 1997, electric operating revenues of approximately $754
million (excluding revenue taxes) are subject to refund. Intervenors and ComEd
have filed appeals of the Rate Order with the Illinois Appellate Court and oral
argument was heard on January 28, 1997.
 
  In December 1995, ComEd announced a series of customer initiatives as part of
its larger ongoing effort to address the need to give all customer classes the
opportunity to benefit from increased competition in the electric utility
business, while retaining the benefits (such as reliability) of current
regulation and ensuring utilities' cost recovery for commitments made under the
obligation to serve customers. The initiatives include a five-year cap on base
electric rates at current levels and various customer service and incentive
pricing programs designed to allow customers more choice and control over the
services they seek and the prices they pay. These initiatives are in addition
to previously implemented special discount contract rate programs for new or
existing industrial customers. ComEd anticipates the initiatives will be fully
implemented in 1997 and will reduce its revenues by approximately $40 million
annually (including the effects of previously implemented initiatives and
before income tax effects) primarily through changes in energy utilization.
Additionally, ComEd's costs increased by $30 million in 1996 (before income tax
effects), through the increase in depreciation charges on its nuclear
generating units related to ComEd's additional depreciation initiative for
1996. ComEd also continues to consider the possibility of additional
depreciation options. ComEd expects the effects of these initiatives will be
offset through increased revenues by growth in its sales. See Note 1 under
"Depreciation and Decommissioning" for information concerning additional
depreciation charges related to ComEd's steam generators at Byron Unit 1 and
Braidwood Unit 1 and ComEd's ongoing evaluation of the impact of the expected
early retirement of Zion.
 
  Under ComEd's initiatives, the five-year base rate cap at current levels
became effective in December 1995 and will extend until January 1, 2001. The
rate cap does not affect ComEd's fuel cost or nuclear decommissioning cost
recovery provisions. ComEd's fuel cost variances will continue to be collected
through its fuel adjustment clause, and such collections will continue to be
subject to annual reconciliation proceedings before the ICC. Likewise, nuclear
decommissioning costs will continue to be collected as described in Note 1
under "Depreciation and Decommissioning."
 
  See "Changes in the Electric Utility Industry" under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for information
regarding the legislative proposal supported by ComEd.
 
  (3) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At March 31, 1997,
Unicom's authorized shares consisted of 400,000,000 shares of common stock. The
authorized shares of ComEd preferred and preference stocks at March 31, 1997
were: preference stock--22,806,775 shares; $1.425 convertible preferred stock--
68,741 shares; and prior preferred stock--850,000 shares. The preference and
prior preferred stocks are issuable in series and may be issued with or without
mandatory redemption requirements. Holders of outstanding Unicom shares are
entitled to one vote for each share held on each matter submitted to a vote of
such shareholders; and holders of outstanding ComEd shares are entitled to one
vote for each share held on each matter submitted to a vote of such
shareholders. All such shares have the right to cumulate votes in elections for
the directors of the corporation which issued the shares.
 
 
                                       16
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
  (4) COMMON STOCK. At March 31, 1997, shares of Unicom common stock were
reserved for the following purposes:
 
<TABLE>
      <S>                                                              <C>
      Long-Term Incentive Plan........................................ 3,340,526
      Employee Stock Purchase Plan....................................   703,570
      Employee Savings and Investment Plan............................    83,203
      Exchange for ComEd common stock not held by Unicom..............   103,654
      1996 Directors' Fee Plan........................................   190,939
                                                                       ---------
                                                                       4,421,892
                                                                       =========
</TABLE>
 
  Common stock for the three months and twelve months ended March 31, 1997 and
1996 was issued as follows:
<TABLE>
<CAPTION>
                                    THREE MONTHS ENDED    TWELVE MONTHS ENDED
                                         MARCH 31              MARCH 31
                                    --------------------  --------------------
                                      1997       1996       1997       1996
                                    ---------  ---------  ---------  ---------
<S>                                 <C>        <C>        <C>        <C>
 Shares of Common Stock Issued:
   Long-Term Incentive Plan........    45,144    (22,804)   200,527    276,065
   Employee Stock Purchase Plan....       --         --     196,513    217,080
   Employee Savings and Investment
    Plan...........................   202,700     45,100    496,700    262,200
   Exchange for ComEd common stock
    not held by Unicom.............     6,669        --      31,992        --
   1996 Directors' Fee Plan........     3,949        --       9,061        --
                                    ---------  ---------  ---------  ---------
                                      258,462     22,296    934,793    755,345
                                    =========  =========  =========  =========
<CAPTION>
                                            (THOUSANDS OF DOLLARS)
<S>                                 <C>        <C>        <C>        <C>
 Amount of Common Stock Issued:
   Total issued.................... $   5,726  $     611    $22,848  $  21,865
   Held by trustee for Unicom Stock
    Bonus Deferral Plan............    (2,343)    (4,203)    (2,440)    (4,203)
   Other...........................        51         25         64        104
                                    ---------  ---------  ---------  ---------
                                    $   3,434  $  (3,567) $  20,472  $  17,766
                                    =========  =========  =========  =========
</TABLE>
 
  At March 31, 1997 and December 31, 1996, 77,494 and 78,045 ComEd common
stock purchase warrants, respectively, were outstanding. The warrants entitle
the holders to convert such warrants into common stock of ComEd at a
conversion rate of one share of common stock for three warrants.
 
  (5) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN. Unicom has a
nonqualified stock option awards program under its Long-Term Incentive Plan
and ESPP. The stock option awards program was adopted by Unicom in July 1996
to reward valued employees responsible for, or contributing to, the
management, growth and profitability of Unicom and its subsidiaries. As of
March 31, 1997, 1,205,500 options have been granted, primarily to employees of
ComEd and its subsidiaries. Of this amount, 31,500 options have been canceled
and 1,174,000 are outstanding. The weighted average exercise price for the
outstanding stock options is $25.50. The stock options, all granted in 1996,
will expire ten years from their grant date. One-third of the shares subject
to the options vest on each of the next three anniversaries of the option
grant date. In addition, the stock options will become fully vested
immediately if the holder dies, retires, is terminated other than for cause or
qualifies for long-term disability, and will also vest in full upon a change
in control of Unicom. As of March 31, 1997, 8,750 of the granted stock options
are exercisable and none of the stock options have been exercised.
 
                                      17
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  The estimated fair market value for each of the stock options granted in
1996 was $3.74. The fair value of each stock option granted was estimated as
of the date of grant using the Black-Scholes option-pricing model. Assumptions
used to determine the estimated fair market value of the stock options include
(i) dividend yield of 6.30%, (ii) expected volatility of 20.98%, (iii) risk-
free interest rate of 6.64% and (iv) expected life of 7 years.
 
  The ESPP allows employees to purchase Unicom common stock at a 10% discount
from market value. The stock is purchased in six month intervals, April and
October of each year. Substantially all of the employees of Unicom, ComEd and
certain subsidiaries are eligible to participate in the ESPP. Unicom issued
196,513 shares and 217,080 shares of common stock for the twelve months ended
March 31, 1997 and 1996, respectively, under the ESPP at an average annual
purchase price of $23.51 and $25.34, respectively.
 
  Unicom has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. For financial reporting purposes,
Unicom has adopted APB No. 25, Accounting for Stock Issued to Employees, and
thus no compensation cost has been recognized for the stock option awards
program or ESPP. If Unicom had recorded compensation expense for the stock
options granted and the shares of common stock issued under the ESPP in
accordance with SFAS No. 123 using the fair value based method of accounting,
the resulting effect on net income and earnings per share would have been de
minimis.
 
  (6) COMED PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS. No shares of ComEd preferred or preference stocks without
mandatory redemption requirements were issued or redeemed during the twelve
months ended March 31, 1997 and 1996. The series of ComEd preference stock
without mandatory redemption requirements outstanding at March 31, 1997 are
summarized as follows:
 
<TABLE>
<CAPTION>
                                                                        INVOLUNTARY
                    SHARES           AGGREGATE         REDEMPTION       LIQUIDATION
      SERIES      OUTSTANDING       STATED VALUE        PRICE(1)         PRICE(1)
      ------      -----------       ------------       ----------       -----------
                                 (THOUSANDS
                                 OF DOLLARS)
      <S>         <C>               <C>                <C>              <C>
      $1.90        4,249,549          $106,239          $ 25.25           $25.00
      $2.00        2,000,000            51,560          $ 26.04           $25.00
      $1.96        2,000,000            52,440          $ 27.11           $25.00
      $7.24          750,000            74,340          $101.00           $99.12
      $8.40          750,000            74,175          $101.00           $98.90
      $8.38          750,000            73,566          $100.16           $98.09
      $2.425       3,000,000            72,637          $ 25.00           $25.00
                  ----------          --------
                  13,499,549          $504,957
                  ==========          ========
</TABLE>
     --------
     (1) Per share plus accrued and unpaid dividends, if any.
 
  The outstanding shares of ComEd's $1.425 convertible preferred stock are
convertible at the option of the holders thereof, at any time, into common
stock of ComEd at the rate of 1.02 shares of common stock for each share of
convertible preferred stock, subject to future adjustment. The convertible
preferred stock may be redeemed by ComEd at $42 per share, plus accrued and
unpaid dividends, if any. The involuntary liquidation price of the $1.425
convertible preferred stock is $31.80 per share, plus accrued and unpaid
dividends, if any.
 
                                      18
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  (7) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS.
During the twelve months ended March 31, 1997 and 1996, no shares of ComEd
preference stock subject to mandatory redemption requirements were issued. The
series of ComEd preference stock subject to mandatory redemption requirements
outstanding at March 31, 1997 are summarized as follows:
 
<TABLE>
<CAPTION>
                  SHARES     AGGREGATE
    SERIES      OUTSTANDING STATED VALUE            OPTIONAL REDEMPTION PRICE(1)
--------------  ----------- ------------ --------------------------------------------------
                             (THOUSANDS
                            OF DOLLARS)
<S>             <C>         <C>          <C>
$8.20              214,275    $ 21,428   $103 through October 31, 1997; and $101 thereafter
$8.40 Series B     330,000      32,778   $101
$8.85              262,500      26,250   $103 through July 31, 1998; and $101 thereafter
$9.25              600,000      60,000   $103 through July 31, 1999; and $101 thereafter
$9.00              390,000      38,659   Non-callable
$6.875             700,000      69,474   Non-callable
                 ---------    --------
                 2,496,775    $248,589
                 =========    ========
</TABLE>
--------
(1) Per share plus accrued and unpaid dividends, if any.
 
  The annual sinking fund requirements and sinking fund and involuntary
liquidation prices per share of the outstanding series of ComEd preference
stock subject to mandatory redemption requirements are summarized as follows:
 
<TABLE>
<CAPTION>
                                              SINKING
                         ANNUAL SINKING         FUND           INVOLUNTARY
          SERIES        FUND REQUIREMENT      PRICE(1)     LIQUIDATION PRICE(1)
      --------------    -----------------     --------     --------------------
      <S>               <C>                   <C>          <C>
      $8.20              35,715 shares          $100             $100.00
      $8.40 Series B     30,000 shares(2)       $100             $ 99.326
      $8.85              37,500 shares          $100             $100.00
      $9.25              75,000 shares          $100             $100.00
      $9.00             130,000 shares(2)       $100             $ 99.125
      $6.875                   (3)              $100             $ 99.25
</TABLE>
     --------
     (1) Per share plus accrued and unpaid dividends, if any.
     (2) ComEd has a non-cumulative option to increase the annual
         sinking fund payment on each sinking fund redemption date
         to retire an additional number of shares, not in excess of
         the sinking fund requirement, at the applicable redemption
         price.
     (3) All shares are required to be redeemed on May 1, 2000.
 
  Annual remaining sinking fund requirements through 2001 on ComEd preference
stock outstanding at March 31, 1997 will aggregate $31 million in each of
1997, 1998 and 1999, $88 million in 2000 and $18 million in 2001. During the
twelve months ended March 31, 1997 and 1996, 438,215 shares and 178,215
shares, respectively, of ComEd preference stock subject to mandatory
redemption requirements were reacquired to meet sinking fund requirements.
 
  Sinking fund requirements due within one year are included in current
liabilities.
 
  (8) COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS. In September 1995, ComEd Financing I, a wholly-owned
subsidiary trust of ComEd, issued 8,000,000 of its 8.48% ComEd-obligated
mandatorily redeemable preferred securities. The sole asset of ComEd Financing
I is $206.2 million principal amount of ComEd's 8.48% subordinated deferrable
interest notes due September 30, 2035. In January 1997, ComEd Financing II, a
wholly-owned subsidiary trust of ComEd, issued 150,000 of its 8.50% ComEd-
obligated mandatorily redeemable capital securities. The sole asset of ComEd
Financing II is $154.6 million principal amount of ComEd's 8.50%
 
                                      19
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
subordinated deferrable interest debentures due January 15, 2027. There is a
full and unconditional guarantee by ComEd of the Trusts' obligations under the
securities issued by the Trusts. However, ComEd's obligations are subordinate
and junior in right of payment to certain other indebtedness of ComEd. ComEd
has the right to defer payments of interest on the subordinated deferrable
interest notes by extending the interest payment period, at any time, for up
to 20 consecutive quarters. Similarly, ComEd has the right to defer payments
of interest on the subordinated deferrable interest debentures by extending
the interest payment period, at any time, for up to 10 consecutive semi-annual
periods. If interest payments on the subordinated deferrable interest notes or
debentures are so deferred, distributions on the preferred securities will
also be deferred. During any deferral, distributions will continue to accrue
with interest thereon. In addition, during any such deferral, ComEd may not
declare or pay any dividend or other distribution on, or redeem or purchase,
any of its capital stock.
 
  The subordinated deferrable interest notes are redeemable by ComEd, in whole
or in part, from time to time, on or after September 30, 2000, and with
respect to the subordinated deferrable interest debentures, on or after
January 15, 2007, or at any time in the event of certain income tax
circumstances. If the subordinated deferrable interest notes or debentures are
redeemed, the Trusts must redeem preferred securities having an aggregate
liquidation amount equal to the aggregate principal amount of the subordinated
deferrable interest notes or debentures so redeemed. In the event of the
dissolution, winding up or termination of the Trusts, the holders of the
preferred securities will be entitled to receive, for each preferred security,
a liquidation amount of $25 for the securities of ComEd Financing I and $1,000
for the securities of ComEd Financing II, plus accrued and unpaid
distributions thereon, including interest thereon, to the date of payment,
unless in connection with the dissolution, the subordinated deferrable
interest notes or debentures are distributed to the holders of the preferred
securities.
 
  (9) LONG-TERM DEBT. Sinking fund requirements and scheduled maturities
remaining through 2001 for ComEd's first mortgage bonds, sinking fund
debentures and other long-term debt outstanding at March 31, 1997, after
deducting deposits made for retirement of sinking fund debentures and sinking
fund debentures reacquired for satisfaction of future sinking fund
requirements, are summarized as follows: 1997--$284 million; 1998--$447
million; 1999--$150 million; 2000--$462 million; and 2001--$108 million.
Unicom Enterprises' note payable to bank of $95 million will mature in 1999.
 
  At March 31, 1997, ComEd's outstanding first mortgage bonds maturing through
2001 were as follows:
 
<TABLE>
<CAPTION>
                                                             PRINCIPAL AMOUNT
               SERIES                                     ----------------------
                                                          (THOUSANDS OF DOLLARS)
      <S>                                                 <C>
      5 3/8% due April 1, 1997...........................        $ 50,000
      6 1/4% due October 1, 1997.........................          60,000
      6 1/4% due February 1, 1998........................          50,000
      6% due March 15, 1998..............................         130,000
      6 3/4% due July 1, 1998............................          50,000
      6 3/8% due October 1, 1998.........................          75,000
      9 3/8% due February 15, 2000.......................         125,000
      6 1/2% due April 15, 2000..........................         230,000
      6 3/8% due July 15, 2000...........................         100,000
      7 1/2% due January 1, 2001.........................         100,000
                                                                 --------
                                                                 $970,000
                                                                 ========
</TABLE>
 
                                      20
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  Other long-term debt outstanding at March 31, 1997 is summarized as follows:
 
<TABLE>
<CAPTION>
                                 PRINCIPAL
         DEBT SECURITY             AMOUNT                      INTEREST RATE
-------------------------------  ---------- ---------------------------------------------------
                                 (THOUSANDS
                                     OF
                                  DOLLARS)
<S>                              <C>        <C>
Unicom--
 Loans Payable:
 Loan due January 1, 2003        $    7,978 Interest rate of 8.31%
 Loan due January 1, 2004             8,951 Interest rate of 8.44%
                                 ----------
                                 $   16,929
                                 ----------
ComEd--
 Notes:
 Medium Term Notes, Series 1N
  due various dates through
  April 1, 1998                  $   35,500 Interest rates ranging from 9.52% to 9.65%
 Medium Term Notes, Series 3N
  due various dates through
  October 15, 2004                  296,000 Interest rates ranging from 9.00% to 9.20%
 Medium Term Notes, Series 4N
  due May 15, 1997                   20,000 Interest rate of 8.875%
 Notes due July 15, 1997            100,000 Interest rate of 6.50%
 Notes due October 15, 2005         235,000 Interest rate of 6.40%
 Notes due January 15, 2004         150,000 Interest rate of 7.375%
 Notes due January 15, 2007         150,000 Interest rate of 7.625%
                                 ----------
                                 $  986,500
                                 ----------
 Long-Term Note Payable to Bank
 due June 1, 1998                $  150,000 Prevailing interest rate of 6.08% at March 31, 1997
                                 ----------
 Purchase Contract Obligation
 due April 30, 2005              $      390 Interest rate of 3.00%
                                 ----------
Total ComEd                      $1,136,890
                                 ----------
Unicom Enterprises--
 Long-Term Note Payable to Bank
 due November 15, 1999           $   95,000 Prevailing interest rate of 6.39% at March 31, 1997
                                 ----------
Total Unicom                     $1,248,819
                                 ==========
</TABLE>
 
  Long-term debt maturing within one year has been included in current
liabilities.
 
  ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.
 
  ComEd recorded an extraordinary loss of $33 million in the fourth quarter of
1995 related to the early redemption of $645 million of long-term debt which
reduced net income by $20 million (after reflecting income tax effects of $13
million) or $0.09 per common share.
 
  (10) LINES OF CREDIT. ComEd had total bank lines of credit of $905 million
and unused bank lines of credit of $897 million at March 31, 1997. Of that
amount, $897 million (of which $175 million expires on September 29, 1997, $54
million expires in equal quarterly installments commencing on June 30, 1997
and ending on September 30, 1998 and $668 million expires in equal quarterly
installments commencing on December 31, 1997 and ending on September 30, 1999)
may be borrowed on
 
                                      21
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
secured or unsecured notes of ComEd at various interest rates. The interest
rate is set at the time of a borrowing and is based on several floating rate
bank indices plus a spread which is dependent upon the credit rating of
ComEd's outstanding first mortgage bonds or on a prime interest rate. Amounts
under the remaining lines of credit may be borrowed at prevailing prime
interest rates on unsecured notes of ComEd. Collateral, if required for the
borrowings, would consist of first mortgage bonds issued under and in
accordance with the provisions of ComEd's mortgage. ComEd is obligated to pay
commitment fees with respect to the unused portion of such lines of credit.
 
  Unicom Enterprises has a $200 million credit facility which will expire in
1999, of which $105 million was unused as of March 31, 1997. The credit
facility can be used by Unicom Enterprises to finance investments in
unregulated businesses and projects, including Unicom Thermal, and for general
corporate purposes. The credit facility is guaranteed by Unicom and includes
certain covenants with respect to Unicom's and Unicom Enterprises' operations.
Such covenants include, among other things, (i) a requirement that Unicom and
its consolidated subsidiaries maintain a tangible net worth at least $10
million over that of ComEd and its consolidated subsidiaries, (ii) a
requirement that Unicom's consolidated debt to consolidated capitalization not
exceed 0.65 to 1, (iii) restrictions on the indebtedness for borrowed money
that Unicom (excluding ComEd) and Unicom Enterprises may incur, and (iv) a
requirement that Unicom own 100% of the outstanding stock of Unicom
Enterprises and at least 80% of the outstanding stock of ComEd; and provide
that Unicom may not declare or pay dividends during the continuance of an
event of default. Interest rates for borrowings under the credit facility are
set at the time of a borrowing and are based on either a prime interest rate
or a floating rate bank index plus a spread which varies with the credit
rating of ComEd's outstanding first mortgage bonds. Unicom Enterprises is
obligated to pay commitment fees with respect to the unused portion of such
lines of credit.
 
  (11) DISPOSAL OF SPENT NUCLEAR FUEL. Under the Nuclear Waste Policy Act of
1982, the DOE is responsible for the selection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive waste.
ComEd, as required by that Act, has signed a contract with the DOE to provide
for the disposal of spent nuclear fuel and high-level radioactive waste from
ComEd's nuclear generating stations beginning not later than January 1998. The
DOE advised ComEd in December 1996 that it anticipates it will be unable to
begin acceptance of spent nuclear fuel by January 1998. It is expected this
delivery schedule will be delayed significantly. Extended delays in spent
nuclear fuel acceptance by the DOE would lead to ComEd's consideration of
costly storage alternatives. The contract with the DOE requires ComEd to pay
the DOE a one-time fee applicable to nuclear generation through April 6, 1983
of $277 million, with interest to date of payment, and a fee payable quarterly
equal to one mill per kilowatthour of nuclear-generated and sold electricity
after April 6, 1983. As provided for under the contract, ComEd has elected to
pay the one-time fee, with interest, just prior to the first delivery of spent
nuclear fuel to the DOE. The liability for the one-time fee and the related
interest is reflected on the Consolidated Balance Sheets.
 
  (12) FAIR VALUE OF FINANCIAL INSTRUMENTS. The following methods and
assumptions were used to estimate the fair value of financial instruments
either held or issued and outstanding. The disclosure of such information does
not purport to be a market valuation of Unicom and subsidiary companies as a
whole. The impact of any realized or unrealized gains or losses related to
such financial instruments on the financial position or results of operations
of Unicom and subsidiary companies is primarily dependent on the treatment
authorized under future ComEd ratemaking proceedings.
 
                                      22
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  Investments. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by
the trustee and based on published market data, as of March 31, 1997 and
December 31, 1996, was as follows:
 
<TABLE>
<CAPTION>
                                   MARCH 31, 1997                 DECEMBER 31, 1996
                          -------------------------------- --------------------------------
                                     UNREALIZED                       UNREALIZED
                                       GAINS                            GAINS
                          COST BASIS  (LOSSES)  FAIR VALUE COST BASIS  (LOSSES)  FAIR VALUE
                          ---------- ---------- ---------- ---------- ---------- ----------
                                               (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>        <C>        <C>        <C>
 Short-term investments.  $   41,734  $     12  $   41,746 $   29,848  $     17  $   29,865
 U.S. Government and
  Agency issues.........     223,472      (883)    222,589    253,491     6,889     260,380
 Municipal bonds........     296,587     9,998     306,585    333,369    18,002     351,371
 Corporate bonds........     139,915    (2,831)    137,084     54,584      (800)     53,784
 Common stock...........     615,859   199,193     815,052    539,392   201,304     740,696
 Other..................      10,309    10,847      21,156     15,283     4,981      20,264
                          ----------  --------  ---------- ----------  --------  ----------
                          $1,327,876  $216,336  $1,544,212 $1,225,967  $230,393  $1,456,360
                          ==========  ========  ========== ==========  ========  ==========
</TABLE>
 
  At March 31, 1997, the debt securities held by the nuclear decommissioning
funds had the following maturities:
 
<TABLE>
<CAPTION>
                                                         COST BASIS  FAIR VALUE
                                                         ----------- -----------
                                                         (THOUSANDS OF DOLLARS)
      <S>                                                <C>         <C>
      Within 1 year..................................... $    44,631 $    44,655
      1 through 5 years.................................     163,808     163,912
      5 through 10 years................................     222,668     226,177
      Over 10 years.....................................     274,679     277,093
</TABLE>
 
  The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the three months
and twelve months ended March 31, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                                THREE MONTHS ENDED      TWELVE MONTHS ENDED
                                     MARCH 31                MARCH 31
                                --------------------  ------------------------
                                  1997       1996        1997         1996
                                ---------  ---------  -----------  -----------
                                          (THOUSANDS OF DOLLARS)
<S>                             <C>        <C>        <C>          <C>
Gross proceeds from sales of
 securities.................... $ 570,769  $ 617,871  $ 2,288,872  $ 2,598,154
Less cost based on specific
 identification................  (557,508)  (603,496)  (2,254,050)  (2,566,556)
                                ---------  ---------  -----------  -----------
Realized gains on sales of se-
 curities...................... $  13,261  $  14,375  $    34,822  $    31,598
Other realized fund earnings
 net of expenses...............     8,467      6,721       34,754       41,681
                                ---------  ---------  -----------  -----------
Total realized net earnings of
 the funds..................... $  21,728  $  21,096  $    69,576  $    73,279
Unrealized gains (losses)......   (14,057)   (11,922)      63,381      101,085
                                ---------  ---------  -----------  -----------
 Total net earnings of the
  funds........................ $   7,671  $   9,174  $   132,957  $   174,364
                                =========  =========  ===========  ===========
</TABLE>
 
  Current Assets. Cash, temporary cash investments and other cash investments,
which include U.S. Government Obligations and other short-term marketable
securities, and special deposits, which primarily includes cash deposited for
the redemption, refund or discharge of debt securities, are stated at cost,
which approximates their fair value because of the short maturity of these
instruments. The securities included in these categories have been classified
as "available for sale" securities.
 
                                      23
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  Capitalization. The estimated fair values of ComEd preferred and preference
stocks, ComEd- obligated mandatorily redeemable preferred securities of the
Trusts and long-term debt were obtained from an independent consultant. The
estimated fair values, which include the current portions of redeemable
preference stock and long-term debt but exclude accrued interest and
dividends, as of March 31, 1997 and December 31, 1996 were as follows:
 
<TABLE>
<CAPTION>
                                  MARCH 31, 1997                 DECEMBER 31, 1996
                         -------------------------------- --------------------------------
                                    UNREALIZED
                          CARRYING   (GAINS)               CARRYING  UNREALIZED
                           VALUE      LOSSES   FAIR VALUE   VALUE      LOSSES   FAIR VALUE
                         ---------- ---------- ---------- ---------- ---------- ----------
                                              (THOUSANDS OF DOLLARS)
<S>                      <C>        <C>        <C>        <C>        <C>        <C>
  ComEd preferred and
   preference stocks.... $  755,732  $(1,643)  $  754,089 $  755,931  $  3,948  $  759,879
  ComEd-obligated
   mandatorily
   redeemable preferred
   securities of the
   Trusts............... $  350,000  $(7,988)  $  342,012 $  200,000  $  1,000  $  201,000
  Long-term debt........ $6,143,762  $61,889   $6,205,651 $6,345,533  $159,818  $6,505,351
</TABLE>
 
  Long-term notes payable, which are not included in the above table, amounted
to $262 million and $264 million at March 31, 1997 and December 31, 1996,
respectively. Such notes, for which interest is paid at fixed and prevailing
rates, are included in the consolidated financial statements at cost, which
approximates their fair value.
 
  Current Liabilities. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the
fair value because of the short maturity of these instruments. See
"Capitalization" above for a discussion of the fair value of the current
portion of long-term debt and redeemable preference stock.
 
  Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
March 31, 1997 and December 31, 1996; therefore, the carrying value is equal
to the fair value.
 
  (13) PENSION BENEFITS. ComEd and the Indiana Company have qualified non-
contributory defined benefit pension plans which cover all regular employees.
Benefits under these plans reflect each employee's compensation, years of
service and age at retirement. During 1995, these plans were amended to more
closely base retirement benefits on final pay. Funding is based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution required under
the Employee Retirement Income Security Act of 1974, as amended. The March 31,
1997 and December 31, 1996 pension liabilities and related data were estimated
pending completion of the January 1, 1997 actuarial valuation. Additionally,
ComEd maintains a nonqualified supplemental retirement plan which covers any
excess pension benefits that would be payable to management employees under
the qualified plan but which are limited by the Internal Revenue Code.
 
                                      24
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  The funded status of these plans, including the supplemental plan, at March
31, 1997 and December 31, 1996 was as follows:
 
<TABLE>
<CAPTION>
                                                       MARCH 31,   DECEMBER 31,
                                                         1997          1996
                                                      -----------  ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Actuarial present value of accumulated pension plan
 benefits:
 Vested benefit obligation..........................  $(3,068,000) $(3,034,000)
 Nonvested benefit obligation.......................     (135,000)    (134,000)
                                                      -----------  -----------
 Accumulated benefit obligation.....................  $(3,203,000) $(3,168,000)
 Effect of projected future compensation levels.....     (376,000)    (372,000)
                                                      -----------  -----------
 Projected benefit obligation.......................  $(3,579,000) $(3,540,000)
Fair value of plan assets, invested primarily in
 U.S. Government, government-sponsored corporation
 and agency securities, fixed income funds,
 registered investment companies, equity index funds
 and other equity and fixed income funds............    3,250,000    3,281,000
                                                      -----------  -----------
Plan assets less than projected benefit obligation..  $  (329,000) $  (259,000)
Unrecognized prior service cost.....................      (68,000)     (69,000)
Unrecognized transition asset.......................     (126,000)    (130,000)
Unrecognized net loss...............................      131,000       74,000
                                                      -----------  -----------
 Accrued pension liability..........................  $  (392,000) $  (384,000)
                                                      ===========  ===========
</TABLE>
 
  The fair value of plan assets excludes $15 million held in grantor trust as
of March 31, 1997 for payment of benefits under the supplemental plan.
 
  The assumed discount rate was 7.5% at March 31, 1997 and December 31, 1996,
and the assumed annual rate of increase in future compensation levels was
4.0%. These rates were used in determining the projected benefit obligations,
the accumulated benefit obligations and the vested benefit obligations.
 
  Pension costs were determined using the projected unit credit actuarial cost
method and the following actuarial assumptions for periods during 1997, 1996
and 1995:
 
<TABLE>
<CAPTION>
                                                               1997  1996  1995
                                                               ----- ----- -----
<S>                                                            <C>   <C>   <C>
Annual discount rate.......................................... 7.50% 7.50% 8.00%
Annual rate of increase in future compensation levels......... 4.00% 4.00% 4.00%
Annual long-term rate of return on plan assets................ 9.75% 9.75% 9.75%
</TABLE>
 
  The components of pension costs, portions of which were recorded as
components of construction costs, for the three months and twelve months ended
March 31, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                                    THREE MONTHS ENDED    TWELVE MONTHS ENDED
                                         MARCH 31              MARCH 31
                                    --------------------  --------------------
                                      1997       1996       1997       1996
                                    ---------  ---------  ---------  ---------
                                            (THOUSANDS OF DOLLARS)
<S>                                 <C>        <C>        <C>        <C>
Service cost....................... $  25,000  $  25,000  $  93,000  $  92,000
Interest cost on projected benefit
 obligation........................    65,000     63,000    250,000    231,000
Actual return on plan assets.......   (20,000)   (70,000)  (371,000)  (584,000)
Net amortization and deferral......   (62,000)    (7,000)    61,000    308,000
                                    ---------  ---------  ---------  ---------
                                    $   8,000  $  11,000  $  33,000  $  47,000
                                    =========  =========  =========  =========
</TABLE>
 
  In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its and Unicom's subsidiaries.
Under the plan each participating employee may contribute up to 20% of such
employee's base pay and the participating companies match the
 
                                      25
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
first 6% of such contribution equal to 100% of the first 2% of contributed base
salary, 70% of the next 3% of contributed base salary and 25% of the next 1% of
contributed base salary. The participating companies' contributions were $8
million for the three months ended March 31, 1997 and 1996, and $30 million and
$26 million for the twelve months ended March 31, 1997 and 1996, respectively.
 
  (14) POSTRETIREMENT BENEFITS. ComEd and the Indiana Company provide certain
postretirement health care, dental care, vision care and life insurance for
retirees and their dependents and for the surviving dependents of eligible
employees and retirees. The employees become eligible for postretirement
benefits when they reach age 55 with 10 years of service. The liability for
postretirement benefits is funded through trust funds based upon actuarially
determined contributions that take into account the amount deductible for
income tax purposes. The plan is contributory, funded jointly by the companies
and the participating employees. The March 31, 1997 and December 31, 1996
postretirement benefit liabilities and related data were estimated pending
completion of the January 1, 1997 actuarial valuations.
 
  Postretirement health care costs in the twelve months ended March 31, 1997
and 1996 included $5 million and $25 million, respectively, related to a
voluntary separation offer for union employees who accepted and left ComEd's
employ combined with separation offers to selected groups of non-union
employees.
 
  The funded status of the plan at March 31, 1997 and December 31, 1996 was as
follows:
 
<TABLE>
<CAPTION>
                                                       MARCH 31,   DECEMBER 31,
                                                         1997          1996
                                                      -----------  ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Actuarial present value of accumulated
 postretirement benefit obligation:
 Retirees...........................................  $  (624,000) $  (615,000)
 Active fully eligible participants.................      (23,000)     (23,000)
 Other participants.................................     (447,000)    (439,000)
                                                      -----------  -----------
 Accumulated benefit obligation.....................  $(1,094,000) $(1,077,000)
Fair value of plan assets, invested primarily in S&P
 500 common stocks, registered investment companies
 and U.S. Government, government agency, municipal
 and listed corporate obligations...................      664,000      665,000
                                                      -----------  -----------
Plan assets less than accumulated postretirement
 benefit obligation.................................  $  (430,000) $  (412,000)
Unrecognized transition obligation..................      364,000      370,000
Unrecognized prior service cost.....................       45,000       45,000
Unrecognized net gain...............................     (263,000)    (270,000)
                                                      -----------  -----------
Accrued liability for postretirement benefits.......  $  (284,000) $  (267,000)
                                                      ===========  ===========
</TABLE>
 
  Different health care cost trends are used for pre-Medicare and post-Medicare
expenses. The pre-Medicare trend rate was 9.0% at December 31, 1996, grading
down in 0.5% annual increments and leveling off at 5.0%. The post-Medicare
trend rate was 7.0% at December 31, 1996, grading down in 0.5% annual
increments to 5.0%. The assumed discount rate was 7.5% at December 31, 1996.
That rate was used to determine the accumulated benefit obligations. The effect
of a 1% increase in the health care cost trend rate for each future year would
increase the accumulated postretirement health care obligations by
approximately $158 million.
 
                                       26
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  The components of postretirement health care costs, portions of which were
recorded as components of construction costs, for the three months and twelve
months ended March 31, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED      TWELVE MONTHS
                                           MARCH 31           ENDED MARCH 31
                                      --------------------  -------------------
                                        1997       1996       1997      1996
                                      ---------  ---------  --------  ---------
                                              (THOUSANDS OF DOLLARS)
<S>                                   <C>        <C>        <C>       <C>
Service cost........................  $   9,000  $   8,000  $ 33,000  $  28,000
Interest cost on accumulated benefit
 obligation.........................     20,000     17,000    76,000     65,000
Actual return on plan assets........    (10,000)   (24,000)  (76,000)  (126,000)
Amortization of transition obliga-
 tion...............................      6,000      6,000    22,000     22,000
Severance plan cost.................        --         --      4,000     25,000
Other...............................     (7,000)     7,000    15,000     66,000
                                      ---------  ---------  --------  ---------
                                      $  18,000  $  14,000  $ 74,000  $  80,000
                                      =========  =========  ========  =========
</TABLE>
 
  Postretirement benefit costs were determined using the projected unit credit
actuarial cost method. The discount rates used were 7.5%, 7.5% and 8.0%,
respectively, for the 1997, 1996 and 1995 periods and the estimated long-term
rate of return of fund assets, net of income tax effects, were 9.40%, 9.38% and
9.32%, respectively, for the 1997, 1996 and 1995 periods. Pre-Medicare health
care cost trend rates were 13.5% for the first three months of 1995 and 10% for
the remainder of the year, grading down in 0.5% annual increments to 5.0%.
Post-Medicare health care cost trend rates were 11% for the first three months
of 1995 and 8% for the remainder of the year, grading down in 0.5% annual
increments to 5.0%. The effect of a 1% increase in the health care cost trend
rate for each future year would increase the aggregate of the service and
interest cost components of postretirement benefit costs by approximately $21
million for the twelve months ended March 31, 1997.
 
  (15) SEPARATION PLAN COSTS. Operation and maintenance expenses included $18
and $97 million for the twelve months ended March 31, 1997 and 1996,
respectively, related to a voluntary separation offer for union employees who
accepted and left ComEd's employ combined with separation plans offered to
selected groups of non-union employees. These employee separation plans reduced
net income by $11 million or $0.05 per common share and $59 million or $0.27
per common share for the twelve months ended March 31, 1997 and 1996,
respectively.
 
  (16) INCOME TAXES. The components of the net deferred income tax liability at
March 31, 1997 and December 31 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                        MARCH 31,   DECEMBER 31,
                                                           1997         1996
                                                        ----------  ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                     <C>         <C>
Deferred income tax liabilities:
 Accelerated cost recovery and liberalized deprecia-
  tion, net of removal costs..........................  $3,517,926   $3,514,300
 Overheads capitalized................................     257,237      261,437
 Repair allowance.....................................     225,543      228,426
 Regulatory assets recoverable through future rates...   1,696,031    1,649,037
Deferred income tax assets:
 Postretirement benefits..............................    (278,992)    (269,179)
 Unbilled revenues....................................    (128,026)    (136,406)
 Alternative minimum tax..............................     (44,448)     (80,159)
 Unamortized investment tax credits to be settled
  through future rates................................    (425,112)    (430,297)
 Other regulatory liabilities to be settled through
  future rates........................................    (303,810)    (238,004)
 Other--net...........................................     (46,487)     (44,998)
                                                        ----------   ----------
Net deferred income tax liability.....................  $4,469,862   $4,454,157
                                                        ==========   ==========
</TABLE>
 
                                       27
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  The $16 million increase in the net deferred income tax liability from
December 31, 1996 to March 31, 1997 is comprised of a $30 million increase in
deferred income tax expense and a $14 million decrease in regulatory assets
net of regulatory liabilities pertaining to income taxes for the period. The
amount of regulatory assets included in deferred income tax liabilities
primarily relates to the equity component of AFUDC which is recorded on an
after-tax basis, the borrowed funds component of AFUDC which was previously
recorded net of tax and other temporary differences for which the related tax
effects were not previously recorded. The amount of other regulatory
liabilities included in deferred income tax assets primarily relates to
deferred income taxes provided at rates in excess of the current statutory
rate.
 
  The effects of an income tax refund related to prior years increased net
income by $26 million or $0.12 per common share for the twelve months ended
March 31, 1997.
 
  The components of net income tax expense charged to continuing operations
for the three months and twelve months ended March 31, 1997 and 1996 were as
follows:
 
<TABLE>
<CAPTION>
                                     THREE MONTHS ENDED   TWELVE MONTHS ENDED
                                          MARCH 31             MARCH 31
                                     -------------------  --------------------
                                       1997      1996       1997       1996
                                     --------- ---------  ---------  ---------
                                             (THOUSANDS OF DOLLARS)
<S>                                  <C>       <C>        <C>        <C>
Operating income:
 Current income taxes..............  $ 65,265   $ 87,342   $306,366   $362,349
 Deferred income taxes.............    29,588     24,130    166,561    193,859
 Investment tax credits deferred--
  net..............................    (7,897)    (7,167)   (34,109)   (28,697)
Other (income) and deductions......      (283)    (4,126)    (3,543)   (11,584)
                                     --------  ---------  ---------  ---------
Net income taxes charged to
 continuing operations.............  $ 86,673   $100,179   $435,275   $515,927
                                     ========  =========  =========  =========
</TABLE>
 
  Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the three months and twelve months ended March 31, 1997
and 1996:
 
<TABLE>
<CAPTION>
                                       THREE MONTHS       TWELVE MONTHS ENDED
                                      ENDED MARCH 31           MARCH 31
                                     ------------------  ----------------------
                                       1997      1996       1997        1996
                                     --------  --------  ----------  ----------
                                             (THOUSANDS OF DOLLARS)
<S>                                  <C>       <C>       <C>         <C>
Net income before extraordinary
 item..............................  $111,117  $136,932  $  640,285  $  707,864
Net income taxes charged to
 continuing operations.............    86,673   100,179     435,275     515,927
Provision for dividends on ComEd
 preferred and preference stocks...    15,527    16,514      63,437      69,567
                                     --------  --------  ----------  ----------
Pre-tax income before provision for
 dividends.........................  $213,317  $253,625  $1,138,997  $1,293,358
                                     ========  ========  ==========  ==========
Effective income tax rate..........      40.6%     39.5%       38.2%       39.9%
                                     ========  ========  ==========  ==========
</TABLE>
 
  The principal differences between net income taxes charged to continuing
operations and the amounts computed at the federal statutory rate of 35% for
the three months and twelve months ended March 31, 1997 and 1996 were as
follows:
 
<TABLE>
<CAPTION>
                                          THREE MONTHS     TWELVE MONTHS ENDED
                                         ENDED MARCH 31         MARCH 31
                                        -----------------  --------------------
                                         1997      1996      1997       1996
                                        -------  --------  ---------  ---------
                                               (THOUSANDS OF DOLLARS)
<S>                                     <C>      <C>       <C>        <C>
Federal income taxes computed at
 statutory rate.......................  $74,661  $ 88,769  $ 398,649   $452,675
Equity component of AFUDC which was
 excluded from taxable income.........   (1,778)   (1,644)    (7,405)    (5,507)
Amortization of investment tax
 credits..............................   (7,897)   (7,167)   (34,109)   (28,697)
State income taxes, net of federal
 income taxes.........................   11,647    13,402     56,632     68,978
Differences between book and tax
 accounting, primarily
 property-related deductions..........   10,297     5,882     18,592     45,148
Other--net............................     (257)      937      2,916    (16,670)
                                        -------  --------  ---------  ---------
Net income taxes charged to continuing
 operations...........................  $86,673  $100,179  $ 435,275   $515,927
                                        =======  ========  =========  =========
</TABLE>
 
                                      28
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  Current federal income tax liabilities which were recorded prior to 1995
included excess amounts of AMT over the regular federal income tax, which
amounts were also recorded as decreases to deferred federal income taxes. The
excess amounts of AMT were carried forward and portions were applied as credits
against the post-1994 regular federal income tax liabilities. The remaining
excess amounts of AMT can be carried forward indefinitely as credits against
future periods' regular federal income tax liabilities.
 
  (17) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months and twelve months ended March 31, 1997 and 1996 were as
follows:
 
<TABLE>
<CAPTION>
                                         THREE MONTHS ENDED  TWELVE MONTHS ENDED
                                              MARCH 31            MARCH 31
                                         ------------------- -------------------
                                           1997      1996      1997      1996
                                         --------- --------- --------- ---------
                                                 (THOUSANDS OF DOLLARS)
<S>                                      <C>       <C>       <C>       <C>
Illinois public utility revenue......... $  54,255 $  58,511 $ 222,806 $ 231,879
Illinois invested capital...............    26,190    26,154   104,699   105,688
Municipal utility gross receipts........    42,503    41,579   169,640   171,292
Real estate.............................    39,168    45,128   123,810   174,691
Municipal compensation..................    19,710    19,095    79,159    79,907
Other--net..............................    23,872    27,772    70,876    78,157
                                         --------- --------- --------- ---------
                                         $ 205,698 $ 218,239 $ 770,990 $ 841,614
                                         ========= ========= ========= =========
</TABLE>
 
  The reduction in ComEd's real estate taxes for the twelve months ended March
31, 1997 primarily results from ongoing challenges by ComEd of the methodology
used by local taxing authorities to assess the value of ComEd's nuclear
generating stations. Approximately half of the reduction in ComEd's real estate
taxes in the recent twelve-month period is related to the year 1995.
 
  (18) LEASE OBLIGATIONS OF SUBSIDIARY COMPANIES. Under its nuclear fuel lease
arrangement, ComEd may sell and lease back nuclear fuel from a lessor who may
borrow an aggregate of $700 million, consisting of $300 million of commercial
paper or bank borrowings and $400 million of intermediate term notes, to
finance the transactions. With respect to the commercial paper/bank borrowing
portion, $100 million will expire on November 23, 1998 and $200 million will
expire on November 23, 1999. With respect to the intermediate term notes, a
portion expires in November 1997, and each November thereafter, through
November 2001 and in November 2003. At March 31, 1997, ComEd's obligation to
the lessor for leased nuclear fuel amounted to approximately $683 million.
ComEd has agreed to make lease payments which cover the amortization of the
nuclear fuel used in ComEd's reactors plus the lessor's related financing
costs. ComEd has an obligation for spent nuclear fuel disposal costs of leased
nuclear fuel.
 
  Future minimum rental payments, net of executory costs, at March 31, 1997 for
capital leases are estimated to aggregate $791 million, including $139 million
in 1997, $232 million in 1998, $179 million in 1999, $107 million in 2000, $65
million in 2001 and $69 million in 2002-2043. The estimated interest component
of such rental payments aggregates $109 million. The estimated portions of
obligations due within one year under capital leases of $140 million and $174
million at March 31, 1997 and December 31, 1996, respectively, were included in
current liabilities on the Consolidated Balance Sheets.
 
  Future minimum rental payments at March 31, 1997 for operating leases are
estimated to aggregate $174 million, including $13 million in 1997, $17 million
in 1998, $15 million in 1999, $12 million in 2000, $10 million in 2001 and $107
million in 2002-2024.
 
  (19) JOINT PLANT OWNERSHIP. ComEd has a 75% undivided ownership interest in
the Quad Cities nuclear generating station. Further, ComEd is responsible for
75% of all costs which are charged to
 
                                       29
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
appropriate investment, operation or maintenance accounts and provides its own
financing. At March 31, 1997, for its share of ownership in the station, ComEd
had an investment of $651 million in production and transmission plant in
service (before reduction of $201 million for the related accumulated
provision for depreciation) and $20 million in construction work in progress.
 
  (20) COMMITMENTS AND CONTINGENT LIABILITIES. Purchase commitments,
principally related to construction and nuclear fuel, approximated $842
million at March 31, 1997, comprised of approximately $791 million for ComEd
and the Indiana Company and approximately $51 million for Unicom Thermal. In
addition, ComEd has substantial commitments for the purchase of coal. ComEd's
coal costs are high compared to those of other utilities. ComEd's western coal
contracts and its rail contracts for delivery of the western coal provide for
the purchase of certain coal at prices substantially above currently
prevailing market prices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," subcaption "Liquidity and
Capital Resources," for additional information regarding ComEd's purchase
commitments.
 
  ComEd is a member of NML, established to provide insurance coverage against
property damage to members' nuclear generating facilities. The members are
subject to a retrospective premium adjustment in the event losses exceed
accumulated reserve funds. Capital has been accumulated in the reserve funds
of NML to the extent that ComEd would not be liable for a retrospective
premium adjustment in the event of a single incident. However, ComEd could be
subject to a maximum assessment of approximately $53 million in any policy
year, in the event losses exceed accumulated reserve funds.
 
  ComEd also is a member of NEIL, which provides insurance coverage against
the cost of replacement power obtained during certain prolonged accidental
outages of nuclear generating units and coverage for property losses in excess
of $500 million occurring at nuclear stations. All companies insured with NEIL
are subject to retrospective premium adjustments if losses exceed accumulated
reserve funds. Capital has been accumulated in the reserve funds of NEIL to
the extent that ComEd would not be liable for a retrospective premium
adjustment in the event of a single incident under the replacement power
coverage and the property damage coverage. However, ComEd could be subject to
maximum assessments, in any policy year, of approximately $21 million and $73
million in the event losses exceed accumulated reserve funds under the
replacement power and property damage coverages, respectively.
 
  The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessed in the event of nuclear
incidents. Based on the number of nuclear reactors with operating licenses,
ComEd would currently be subject to a maximum assessment of $991 million in
the event of an incident, limited to a maximum of $125 million in any calendar
year.
 
  In addition, ComEd participates in the American Nuclear Insurers and Mutual
Atomic Energy Liability Underwriters Master Worker Program which provides
coverage for worker tort claims filed for bodily injury caused by the nuclear
energy hazard. The coverage applies to workers whose "nuclear related
employment" began after January 1, 1988. ComEd would currently be subject to a
maximum assessment of approximately $36 million in the event losses exceed
accumulated reserve funds.
 
  During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that Cotter has permitted radioactive and other
hazardous material to be released from its mill into areas
 
                                      30
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONCLUDED
 
owned or occupied by the plaintiffs resulting in property damage and potential
adverse health effects. In February 1994, a federal jury returned nominal
dollar verdicts on eight bellwether plaintiffs' claims in these cases, which
verdicts were upheld on appeal. The remaining claims in the 1989 actions are
the subject of a settlement agreement entered into by counsel for the
plaintiffs and Cotter. If the settlement agreement is implemented, the 1989
actions will be dismissed. Although the remaining cases will necessarily
involve the resolution of numerous contested issues of fact and law, Unicom and
ComEd's determination is that these actions will not have a material impact on
their financial position or results of operations.
 
  ComEd is involved in administrative and legal proceedings concerning air
quality, water quality and other matters. The outcome of these proceedings may
require increases in future construction expenditures and operating expenses
and changes in operating procedures. ComEd and its subsidiaries are or are
likely to become parties to proceedings initiated by the U.S. EPA, state
agencies and/or other responsible parties under CERCLA with respect to a number
of sites, including MGP sites, or may voluntarily undertake to investigate and
remediate sites for which they may be liable under CERCLA.
 
  ComEd generally did not operate MGPs as a corporate entity but did, however,
acquire MGP sites as part of the absorption of smaller utilities. Approximately
half of these sites were transferred to Northern Illinois Gas Company as part
of a general conveyance in 1954. ComEd also acquired former MGP sites as vacant
real estate on which ComEd facilities have been constructed. To date, ComEd has
identified 44 former MGP sites for which it may be liable for remediation.
ComEd presently estimates that its costs of former MGP site investigation and
remediation will aggregate from $25 million to $150 million in current-year
(1997) dollars. It is expected that the costs associated with investigation and
remediation of former MGP sites will be incurred over a period not to exceed
thirty years. Because ComEd is not able to determine the most probable
liability for such MGP costs, in accordance with accounting standards, a
reserve of $25 million has been included in other noncurrent liabilities on the
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996, which
reflects the low end of the range of ComEd's estimate of the liability
associated with former MGP sites. In addition, as of March 31, 1997 and
December 31, 1996, a reserve of $8 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets, representing ComEd's
estimate of the liability associated with cleanup costs of remediation sites
other than former MGP sites. Approximately half of this reserve relates to
anticipated cleanup costs associated with a property formerly used as a tannery
which was purchased by ComEd in 1973. Unicom and ComEd presently estimate that
ComEd's costs of investigating and remediating the former MGP and other
remediation sites, pursuant to CERCLA and state environmental laws, will not
have a material impact on the financial position or results of operations of
Unicom or ComEd. These cost estimates are based on currently available
information regarding the responsible parties likely to share in the costs of
responding to site contamination, the extent of contamination at sites for
which the investigation has not yet been completed and the cleanup levels to
which sites are expected to have to be remediated.
 
                                       31
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
CHANGES IN THE ELECTRIC UTILITY INDUSTRY
 
  Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change in the
manner in which customers obtain, and energy suppliers provide, energy
services. These changes are attributable to changes in technology, the
relaxation of regulatory barriers to utilities' respective service territories
as well as to efforts to change the manner in which electric utilities are
regulated. Federal law and regulations have been amended to provide for open
transmission system access, and various states are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers in addition to the local utility.
 
  ComEd and other energy suppliers, energy customers and other interested
parties have been active participants in discussions related to the economic
and technical issues associated with deregulation. These issues include the
desire to provide customers with the perceived benefits of a market-based
system of pricing while at the same time maintaining the reliability of the
electric distribution system and providing for an orderly transition from a
highly regulated structure to a less regulated structure. As a result of these
efforts, various legislative proposals have been introduced and are being
actively considered by the Illinois legislature. In addition, the Governor of
Illinois has formed a three-person advisory committee to advise with respect
to electric utility deregulation issues. The legislative proposals seek to
address the timing of customer access to electric energy suppliers in addition
to the local utility, the recovery by utilities of invested costs that might
not otherwise be recoverable in charges for electric service in a less
regulated market, the leveling of regulatory and tax provisions as applied to
various electric service providers and the timing of rate adjustments. ComEd-
supported legislation would provide for a phase-in of customer access to other
electric energy suppliers, so as to allow both utilities and customers to
develop experience with the effects of such access; an opportunity to recover
invested costs that might not otherwise be recoverable in rates; and annual
base rate decreases of 1.5 percent, starting in 2000 and continuing through
2004. Other legislative proposals provide for more immediate access, reduced
opportunities to recover such invested costs, and more immediate and larger
rate reductions. As explained below, the timing of such access and the impact
on prevailing rates can have a significant impact upon the recoverability of a
utility's invested costs and, consequently, the amount at which such costs are
reflected in its financial statements. Given the number of parties involved in
the legislative process and the number of considerations involved in the
legislative proposals, it is not possible to predict the outcome of the
legislative debates, when any legislation may be passed or its impact on
ComEd.
 
  In response to changes in the industry, ComEd has implemented certain
customer initiatives designed to improve and strengthen customer relationships
and is undertaking an evaluation of its operations and assets, particularly
generating assets, with a view toward positioning itself for market and
industry changes. As discussed below, ComEd's actions to date have included a
five-year base rate cap, efforts to control expenditure growth through
personnel reductions, operational efficiencies and sales of generating plants.
Although ComEd's operating results and financial condition have historically
been affected by various rate proceedings, ComEd expects that these industry
changes, and ComEd's activities anticipating or responding to them, will
directly impact its operating results and financial condition over the next
several years.
 
  Electric Utility Industry. The electric utility industry has historically
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serving customers within relatively
defined service territories; and operating under extensive regulation with
 
                                      32
<PAGE>
 
respect to rates, operations and other matters. Utilities operated under a
regulatory compact with the state, with a statutory obligation to serve all of
the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs of
its customers. In view of this obligation, regulation has focused on investment
and operating costs, and rates have been based on a recovery of some or all of
such prudently incurred costs plus a return on invested capital. Such rate
regulation, and the ability of utilities to recover investment and other costs
through rates, has provided the basis for recording certain costs as regulatory
assets. These assets represent
costs which are allocated over future periods reflecting related regulatory
treatment, rather than expensed in the current period.
 
  As noted previously, the United States electric utility industry is in a
process of fundamental change as state legislators and regulators re-examine
their approach to regulation and its objectives and consider a transition to a
competitive or market-based system of pricing for electric energy. Although the
process and approach have varied from state to state in terms of the elements
and timing of implementation, it is evident that the question is no longer if,
but rather how and when there will be a more competitive electricity market.
The Federal Energy Policy Act of 1992, among other things, empowered FERC to
introduce a greater level of competition into the wholesale marketplace for
electric energy. In April 1996, the FERC Order was issued requiring utilities
to file open access tariffs with regard to their transmission systems. These
tariffs set forth the terms, including prices, under which other parties and
the utility's wholesale marketing function may use the utility's transmission
system. ComEd has filed an open access tariff with the FERC. The FERC Order
requires the separation of the transmission operations and wholesale marketing
functions so as to ensure that unaffiliated third parties have access to the
same information as to system availability and other requirements. The FERC
Order further requires utilities to operate an electronic bulletin board to
make transmission price and access data available to all potential users. A key
feature of the FERC Order is that it contemplates full recovery of a utility's
costs "stranded" by competition. These costs are "stranded" or "strandable" to
the extent market-based rates would be insufficient to allow for their full
recovery. To recover stranded costs, the utility must show that it had a
reasonable expectation that it would continue to serve the customer in question
under its regulatory compact.
 
  An important element of reform proposals under consideration is the ability
of other suppliers to provide energy in competition with a utility within its
service territory. This element generally has included consideration of some
future form of "retail wheeling," whereby a utility's transmission and
distribution system is made available to other energy suppliers for delivery of
their services to retail customers. Some of ComEd's customers are presently
seeking some form of "retail wheeling." In addition, some governmental
entities, such as cities, may elect to "municipalize" a utility's distribution
facilities through condemnation proceedings. Such municipalities would then be
able to purchase electric power on a wholesale basis and resell it to customers
over the newly acquired facilities. The FERC Order provides for the recovery of
a utility's investment stranded by municipalization. While municipalization is
possible under the present regulatory system, ComEd is not required to grant
alternative electric suppliers access to its distribution system through any
type of "retail wheeling."
 
  Presumably, under such a modified regulatory structure, customers will base
energy purchase decisions on a combination of factors, including price,
reliability and service. In addition to the potential effects on revenues and
marketing and sales efforts, such changes can raise the question as to whether
an affected utility's rates are based on cost-based regulation, allowing
recovery of incurred costs, or are based on something else, i.e., the
marketplace. Under GAAP, the latter determination would require the write off
of regulatory assets and liabilities and would require an examination as to the
recoverability in revenues of other incurred costs, with any portion determined
to be unrecoverable being subject to write off. Various approaches have been
proposed to deal with such strandable costs, from full recovery, as provided in
the FERC Order, to no recovery, as
 
                                       33
<PAGE>
 
proposed by at least some of the participants in virtually all legislative
debates on regulatory reform proposals. In addition, the EITF of the FASB
currently is considering the accounting treatment for costs related to a
portion of a utility's business which are being recovered during a regulator
required period of transition from cost based to market based pricing. Such
consideration involves whether these costs should be expensed currently
despite their expected recovery in future periods or alternatively, recognized
in expense during the recovery periods. If the EITF determines that these
costs should be expensed currently, and such a transition occurs in Illinois,
it would have a material impact on Unicom's and ComEd's financial position and
results of operations. For additional information, see "Regulatory Assets and
Liabilities" in Note 1 of Notes to Financial Statements.
 
  Retail wheeling and municipalization are significant issues for electric
utility companies, including ComEd, because of their potential to strand a
utility's costs. Any calculation of potentially strandable costs requires that
a set of assumptions be made, including the timing of open access (customer
choice), the extent of open access allowed, potential market prices over time,
sales and load growth forecasts, operating performance over time, allowed
rates over time, cost structure over time, mitigation opportunities and
strandable cost recoveries. The calculation of strandable costs is extremely
sensitive to the assumptions made, and the resulting estimates are potentially
misleading if removed from the context in which they were calculated. In
connection with the debates in Illinois regarding deregulation legislation,
RDI, a consulting firm, estimated that ComEd's strandable costs are
approximately $9.9 billion. That estimate was based on RDI's evaluation and
quantification of the amount of ComEd's costs (including generating assets,
regulatory assets and fuel supply agreements) that might not be recoverable
under assumed future prevailing market rates for electric energy. Although
ComEd does not agree with some of the assumptions used by RDI in computing its
number, the number is a reasonable estimate of ComEd's potentially strandable
costs assuming no mitigation or replacement revenues and no stranded cost
recovery. Most deregulation proposals anticipating increased competition,
including the proposal supported by ComEd, include some form of stranded cost
recovery. ComEd is taking steps, such as cost-control measures, improving
generating station reliability and additional depreciation, to minimize its
potential stranded investment. As indicated above and in Note 1 of Notes to
Financial Statements, the impact of stranded costs on the financial statements
is dependent upon the continued applicability of SFAS No. 71 (Accounting for
the Effects of Certain Types of Regulation) and the amount of stranded cost
recovery that is allowed. See Notes 1 and 2 of Notes to Financial Statements
for additional information.
 
  ComEd. ComEd is responding, and is undertaking a significant planning effort
with respect to further responses, to the developments within the utility
industry. During the past several years, such efforts have focused on cost
reductions, including personnel reductions, efficiencies in purchasing and
inventory management, and an incentive compensation system keyed to cost
reduction and control. Notwithstanding these efforts, ComEd's costs remain
high in comparison to its neighboring utilities.
 
  ComEd is examining its assets, particularly generating assets, with a view
toward rationalizing their investment and operating costs against their
ability to contribute to the revenues of ComEd under various market scenarios.
Such an assessment involves the consideration of numerous factors, including
revenue contribution, operating costs, impacts on ComEd's service obligations,
purchase commitments and remaining assets, and the impact of various options.
Such options include continued operation, indefinite suspension from
operation, sale to a third party and retirement or closure. If ComEd retired
or closed a generating plant, particularly a nuclear plant, without regulatory
or legislative provision for continued recovery of its investment, such
retirement could have a material impact on Unicom's and ComEd's financial
position and results of operations. See "Liquidity and Capital Resources--
Utility Operations" subcaption "Construction Program" regarding ComEd's
ongoing evaluation of the impact of the expected early retirement of Zion.
 
  On April 17, 1996, ComEd announced that it had finalized agreements to sell
two of its coal-fired generating stations, representing approximately 1,600
megawatts of generating capacity. Under the
 
                                      34
<PAGE>
 
agreements, State Line and Kincaid stations would be sold for a total of $250
million, which approximates the book value of the stations. The net proceeds,
after income tax effects, would be approximately $200 million, which would be
used to retire or redeem existing debt. Under the terms of the sales, ComEd
would enter into exclusive 15-year purchased power agreements for the output of
the plants. On March 31, 1997, the ICC issued an order approving the
agreements; however, the order has been appealed to the Illinois Appellate
Court. ComEd's principal union filed a lawsuit in state court alleging that the
labor provisions of the Kincaid agreement are violative of state law and are
seeking to enjoin the ICC proceedings. ComEd had previously filed an action in
federal court seeking confirmation that the state law is preempted by federal
labor law. These actions involving the union were consolidated in federal
court, which has since ruled in favor of ComEd. The union has appealed and also
has filed a grievance under its collective bargaining agreement with ComEd
claiming that ComEd is required by that agreement to require the Kincaid
purchaser to assume the terms of that agreement. The union has also filed an
unfair labor practice charge with the NLRB against the Kincaid purchaser
regarding the purchaser's alleged failure to bargain in good faith with the
union. The State Line and Kincaid agreements give the purchasers the right to
terminate the agreements if a closing has not occurred prior to December 31,
1996 for State Line and June 30, 1997 for Kincaid. Such closings have not
occurred as of May 9, 1997.
 
  With respect to its transmission assets, ComEd is participating with
approximately 20 other electric utility companies in an effort to form an ISO
for the midwest United States. Under the structure currently contemplated, the
ISO would set standard transmission rates and facilitate compliance with the
FERC Order. In addition, while individual utility companies would continue to
own their transmission lines, the ISO would oversee regional planning to avoid
transmission constraints. Creation of the ISO will be subject to further
negotiations among the parties as well as federal and state regulatory
approval.
 
  ComEd is also taking actions to strengthen its relationship with its
customers. In December 1995, ComEd instituted a five-year base rate cap for all
of its customers. The base rate cap does not affect ComEd's fuel cost or
nuclear decommissioning cost recovery provisions. See Note 2 of Notes to
Financial Statements for additional information about ComEd's base rate cap and
other initiatives intended to give customers more choice and control over the
services they seek and the price they pay.
 
LIQUIDITY AND CAPITAL RESOURCES
 
                              UTILITY OPERATIONS
 
  Construction Program. ComEd and the Indiana Company have a construction
program for the year 1997, which consists principally of improvements to their
existing nuclear and other electric production, transmission and distribution
facilities. It does not include funds to add new generating capacity to ComEd's
system. The program, as currently approved by ComEd, calls for electric plant
and equipment expenditures of approximately $982 million (excluding nuclear
fuel expenditures of approximately $322 million). It is estimated that such
construction expenditures will be as follows:
 
<TABLE>
<CAPTION>
                                                      1997
                                                      ----
                                              (MILLIONS OF DOLLARS)
   <S>                                        <C>                  
   Production................................         $420
   Transmission and Distribution.............          421
   General...................................          141
                                                      ----
      Total..................................         $982
                                                      ====         
</TABLE>
 
  Such construction program includes $130 million toward the replacement by
year-end 1998 of the steam generators at ComEd's Braidwood Unit 1 and Byron
Unit 1 nuclear generating units. The total replacement cost is estimated to be
$460 million, of which approximately $190 million has been
 
                                       35
<PAGE>
 
incurred through March 31, 1997. On April 17, 1997, ComEd decided not to invest
in the replacement of the steam generators at its Zion nuclear generating
station. In absence of replacing the steam generators, Zion would be retired
substantially earlier than the end of its licensed life in 2013, and most
probably prior to 2005. ComEd is currently evaluating the impact of the
expected early retirement of its Zion station, which has a net book value of
approximately $700 million, and whether any required additional depreciation
would be recoverable under ComEd's rate cap initiative and the regulatory
reform legislation currently being considered in Illinois. Any unrecoverable
plant costs will be recognized as an expense when they are probable and
estimable.
 
  ComEd's forecasts of peak load indicate a need for additional resources to
meet demand, either through generating capacity, equivalent purchased power or
the development of additional demand-side management resources, in 1998 and
each year thereafter. However, it believes that adequate resources, including
cost-effective demand-side management resources, non-utility generation
resources and other-utility power purchases, could be obtained in sufficient
quantities to meet such forecasted needs. If ComEd instead were to build
additional capacity to meet its needs, it would need to make additional capital
expenditures during 1997. See "Regulation" subcaption "Nuclear Matters" below
for additional information relating to ComEd's evaluation of the need to make
additional expenditures to supplement generating capacity in light of
generating outages expected in the midwestern power grid during 1997.
 
  Purchase commitments for ComEd and the Indiana Company, principally related
to construction and nuclear fuel, approximated $791 million at March 31, 1997.
In addition, ComEd's estimated commitments for the purchase of coal are
indicated in the following table.
 
<TABLE>
<CAPTION>
      CONTRACT                                            PERIOD   COMMITMENT(1)
      --------                                           --------- -------------
      <S>                                                <C>       <C>
      Black Butte Coal Co. ............................. 1997-2000     $774
      Decker Coal Co. .................................. 1997-2014     $560
      Other commitments ................................ 1997-1998     $ 43
</TABLE>
     --------
     (1) In millions of dollars, excluding transportation costs. No
         estimate of future cost escalation has been made.
 
For additional information concerning these coal contracts and ComEd's fuel
supply, see "Results of Operations" below and Notes 1 and 20 of Notes to
Financial Statements.
 
  The foregoing paragraphs in this "Construction Program" section and the
"Construction Program" section below under "Unregulated Operations" include
forward-looking statements with respect to the future levels of capital
expenditures which are necessarily based upon assumptions regarding estimated
costs and availability of materials and services as well as contingencies.
Unforeseen events or conditions may require changes in the scope of work with
consequent changes in the timing and level of the projected expenditures. In
addition, changes in laws and regulations, or their interpretation and
enforcement, can affect the scope of certain projects, the manner in which they
are undertaken and the costs associated therewith. While ComEd and Unicom
Thermal give consideration to such factors in developing their respective
budgets, such consideration cannot predict the course of future events or
anticipate the interaction of multiple factors beyond management's control upon
project timing and cost. Consequently, actual results could differ materially
from those described.
 
  Capital Resources. ComEd forecasts that internal sources will provide more
than three-fourths of the funds required for ComEd's construction program and
other capital requirements, including nuclear fuel expenditures, contributions
to nuclear decommissioning funds, sinking fund obligations and refinancing of
scheduled debt maturities. See Notes 7 and 9 of Notes to Financial Statements
for the summaries of the annual sinking fund requirements and scheduled
maturities for ComEd
 
                                       36
<PAGE>
 
preference stock and long-term debt, respectively. The forecast assumes the
rate levels reflected in the Rate Order, which is the subject of a pending
appeal before the Illinois Appellate Court, remain in effect. See "Regulation,"
subcaption "Rate Matters" below for additional information.
 
  The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of ComEd at the time of such
financing. A portion of ComEd's financing is expected to be provided through
the continued sale and leaseback of nuclear fuel through ComEd's existing
nuclear fuel lease facility. See Note 18 of Notes to Financial Statements for
more information concerning ComEd's nuclear fuel lease facility. ComEd has $897
million of unused bank lines of credit at March 31, 1997, which may be borrowed
at various interest rates and which may be secured or unsecured. The interest
rate is set at the time of a borrowing and is based on several floating rate
bank indices plus a spread which is dependent upon the credit ratings of
ComEd's outstanding first mortgage bonds or on a prime interest rate.
Collateral, if required for the borrowings, would consist of first mortgage
bonds issued under and in accordance with the provisions of ComEd's mortgage.
See Note 10 of Notes to Financial Statements for information concerning lines
of credit. See the Statements of Consolidated Cash Flows for the construction
expenditures and cash flow from operating activities for the three months and
twelve months ended March 31, 1997 and 1996.
 
  During the first three months of 1997, ComEd sold and leased back
approximately $44 million of nuclear fuel through its existing nuclear fuel
lease facility. In January 1997, ComEd issued $150 million principal amount of
7.375% Notes due January 15, 2004, $150 million principal amount of 7.625%
Notes due January 15, 2007 and $150 million principal amount of 8.50% Company-
obligated preferred securities of subsidiary trust due January 15, 2027, the
proceeds of which were used to discharge current maturities of long-term debt
and to redeem on March 11, 1997 $200 million principal amount of 9 1/2% First
Mortgage Bonds, Series 57, due May 1, 2016. See the Statements of Consolidated
Cash Flows and Note 4 of Notes to Financial Statements for information
regarding common stock activity.
 
  As of May 9, 1997, ComEd has an effective "shelf" registration statement with
the SEC for the future sale of up to an additional $505 million of debt
securities and cumulative preference stock for general corporate purposes of
ComEd, including the discharge or refund of other outstanding securities.
 
  ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
 
<TABLE>
<CAPTION>
                                                                STANDARD DUFF &
                                                        MOODY'S & POOR'S PHELPS
                                                        ------- -------- ------
      <S>                                               <C>     <C>      <C>
      First mortgage and secured pollution control
       bonds...........................................  Baa2     BBB     BBB
      Publicly-held debentures and unsecured pollution
       control obligations.............................  Baa3     BBB-    BBB-
      Convertible preferred stock......................  baa3     BBB-    BBB-
      Preference stock.................................  baa3     BBB-    BBB-
      ComEd-obligated mandatorily redeemable preferred
       securities
       of subsidiary trusts............................  baa3     BBB-    BBB-
      Commercial paper.................................  P-2      A-2     D-2
</TABLE>
 
  In January 1997, Moody's changed the rating outlook on ComEd's securities
from "stable" to "negative" and Duff & Phelps added ComEd's securities to
"Rating Watch-Down." As of April 1997, S&P's rating outlook on ComEd remained
"stable."
 
  See "Part II, Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters" in Unicom's and ComEd's Annual Reports on Form 10-K for
the year ended December 31, 1996, for additional information regarding ComEd's
securities ratings.
 
                                       37
<PAGE>
 
  Capital Structure. ComEd's ratio of long-term debt to total capitalization
has decreased to 45.0% at March 31, 1997 from 46.1% at December 31, 1996. This
decrease is related primarily to the retirement of long-term debt and the
issuance of ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trust (which are treated as equity for purposes of the calculation
of the ratio).
 
                            UNREGULATED OPERATIONS
 
  Unicom Enterprises is engaged, through its subsidiaries, in energy service
activities which are not subject to utility regulation by state or federal
agencies. Its principal subsidiary, Unicom Thermal, currently provides district
cooling services to office and other buildings in the city of Chicago under a
non-exclusive use agreement with Chicago for an initial term expiring in 2014.
District cooling involves, in essence, the production of chilled water at a
central location(s) and its circulation to customers' buildings through a
closed circuit of supply and return piping. Such water is circulated through
customers' premises primarily for air conditioning. This process is used in
lieu of self-generated cooling. As a result of the Clean Air Amendments, the
manufacture of CFCs has been curtailed, commencing in January 1996, thereby
creating an excellent marketing opportunity for non-CFC based systems, such as
Unicom Thermal's district cooling. Unicom Thermal is involved in district
cooling projects in other cities, including a project in Boston with Boston
Edison, a project in Windsor, Ontario, Canada with Ontario Hydro and a project
in Houston, Texas with Houston Light and Power Energy Services Company. Unicom
Thermal is considering a project in Las Vegas, Nevada with Nevada Power Co.
 
  Construction Program. Unicom has approved capital expenditures for 1997 of
approximately $56 million for Unicom Thermal, primarily representing the
construction costs of its district cooling facilities in Chicago and its share
of construction costs in Boston and Windsor. Unicom Thermal's first two
district cooling facilities in Chicago began serving customers in May 1995 and
July 1996, respectively. Its third district cooling facility in Chicago is
scheduled to be completed in 1997. As of March 31, 1997, Unicom Thermal's
purchase commitments, principally related to construction, were approximately
$51 million.
 
  Capital Resources. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from dividends received on its ComEd
common stock and from bank borrowings. The availability of ComEd's dividends to
Unicom is dependent on ComEd's financial performance and cash position. Other
forms of financing by ComEd to Unicom or the unregulated subsidiaries of
Unicom, such as loans or additional equity investments, none of which is
expected, would be subject to prior approval by the ICC.
 
  Unicom Enterprises has a $200 million credit facility which will expire in
1999, of which $105 million was unused as of March 31, 1997. The credit
facility can be used by Unicom Enterprises to finance investments in
unregulated businesses and projects, including Unicom Thermal, and for general
corporate purposes. The credit facility is guaranteed by Unicom and includes
certain covenants with respect to Unicom's and Unicom Enterprises' operations.
Interest rates for borrowings under the credit facility are set at the time of
a borrowing and are based on either a prime interest rate or a floating rate
bank index plus a spread which varies with the credit rating of ComEd's
outstanding first mortgage bonds. See Note 10 of Notes to Financial Statements
for additional information regarding certain covenants with respect to Unicom's
and Unicom Enterprises' operations.
 
REGULATION
 
  ComEd and the Indiana Company are subject to state and federal regulation in
the conduct of their respective businesses, including the operations of Cotter.
Such regulation includes rates,
 
                                       38
<PAGE>
 
securities issuance, nuclear operations, environmental and other matters.
Particularly in the cases of nuclear operations and environmental matters,
such regulation can and does affect operational and capital expenditures.
 
  Rate Matters. In January 1995, the ICC issued its Rate Order in the
proceedings relating to ComEd's February 1994 rate increase request. The rates
provided in the Rate Order became effective on January 14, 1995; however, they
are being collected subject to refund as a result of subsequent judicial
action. As of March 31, 1997, electric operating revenues of approximately
$754 million (excluding revenue taxes) are subject to refund. Intervenors and
ComEd have filed appeals of the Rate Order with the Illinois Appellate Court,
and oral argument was heard on January 28, 1997. See Note 2 of Notes to
Financial Statements for additional information.
 
  Nuclear Matters. Nuclear operations have been, and remain, an important
focus of ComEd--given the impact of such operations on overall operation and
maintenance expenditures and the ability of nuclear power plants to produce
electric energy at a relatively low marginal cost. ComEd operates a large
number of nuclear plants, ranging from the older Zion, Dresden and Quad Cities
stations to the more recently completed LaSalle, Byron and Braidwood stations,
and is intent upon safe, reliable and efficient operation. These plants were
constructed over a period of time in which technology, construction procedures
and regulatory initiatives and oversight have evolved, with the result that
older plants generally require greater attention and resources to meet
regulatory requirements and expectations as well as to maintain operational
reliability.
 
  On January 29, 1997, the NRC determined that ComEd's Dresden nuclear
generating station should remain on the NRC's list of plants to be monitored
closely, where it has been since being placed on that list in 1992. The NRC
also determined that ComEd's LaSalle and Zion nuclear generating stations
should be added to that list. Although in each case the NRC recognized that
ComEd had undertaken significant management changes and had accomplished a
number of performance improvements, it expressed concern with specific issues
at each station and expressed a general concern with the sustainability of
improvements as the basis for its determination. The listing of the plants
does not prevent ComEd from operating the generating units; however, it does
mean that the NRC will devote additional resources to monitoring ComEd's
operating performance and that ComEd will need to work to demonstrate to the
NRC the sustainability of improvements which it believes it has undertaken and
is continuing to implement. In addition, an operational event occurred in the
Zion station control room during February 1997. As a result, the NRC Regional
staff has issued a letter confirming ComEd's commitment to conduct a
comprehensive assessment of the event and to develop and implement a program
to ensure adequate personnel performance in the future, including upgraded
operator training. ComEd must brief the staff on the results of its
investigation, its proposed corrective actions and other matters prior to
restarting either Zion unit, both of which are currently out of service.
 
  In late January 1997, the NRC also took the unusual additional step of
requiring ComEd to submit information to allow the NRC to determine what
actions, if any, should be taken to assure that ComEd can safely operate its
six nuclear generating stations while sustaining performance improvement at
each site. The request also required ComEd to submit information regarding the
criteria that it has established, or plans to establish, to measure
performance and to explain ComEd's proposed actions if the criteria are not
met. The request stated the NRC staff's concerns with the "cyclical safety
performance of ComEd nuclear stations," noting the presence on the list of
plants to be monitored closely of Dresden, LaSalle and Zion stations at
various times during the past ten years. It also noted concerns regarding
"ComEd's ability to establish lasting and effective programs that result in
sustained performance improvement." The request did acknowledge the management
and organizational changes implemented by ComEd, including the "additional
focus placed on management and leadership, accountability, the problem
identification and corrective action processes, material condition
improvement, work control, and radiation protection." It also
 
                                      39
<PAGE>
 
acknowledged improvements seen at Dresden and Quad Cities stations; but
indicated at the same time performance declines were observed at both LaSalle
and Zion stations. The problems identified by the NRC are consistent with
weaknesses that had been identified in station self-assessments initiated by
ComEd; and management had already undertaken to develop and implement programs
designed to address these issues. ComEd submitted a response to the NRC on
March 28, 1997; and the NRC indicated in an April 25, 1997 public meeting with
representatives of ComEd management that ComEd's response was generally
adequate to demonstrate ComEd's ability to operate its nuclear generating
stations while sustaining performance improvements. The NRC and
representatives of ComEd's management will meet periodically in the future to
follow-up on these matters.
 
  ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. Over the
past several years, it has increased and reinforced station management with
managers drawn from other utilities which have resolved similar operational
and performance issues. It has also sought to identify, anticipate and address
operating and performance issues in a safe, cost-effective manner while
seeking to improve the availability and capacity factors of its nuclear
generating units.
 
  ComEd's activities with respect to its nuclear generating stations have
included improvements in operating and personnel procedures and repair and
replacement of equipment and can result in longer unit outages. In this
regard, ComEd's management decided to continue the present unit outages at its
LaSalle station until the identified performance issues have been
appropriately addressed. Zion Station is also presently out of service. ComEd
presently expects the LaSalle outage to extend into the spring of 1998.
Similarly, the current Zion Unit 2 outage is expected to extend into and
likely beyond the summer of 1997, and Zion Unit 1 is expected to be out of
service until early 1998. As noted above, the Company must brief the NRC
regional staff as to certain matters before restarting either Zion unit.
 
  The LaSalle and Zion outages are part of several outages of nuclear and
fossil generating stations that several utilities operating in the Midwestern
power grid (including ComEd) are expecting during 1997. ComEd is working to
increase the availability of generating capacity and to reinforce transmission
capacity and is negotiating the purchase of power and related transmission
service from third parties in light of these regional circumstances. These
activities are estimated to result in additional expenditures of approximately
$50 million, a portion of which is capital. Such expenditures could include
demand charges for purchased power, which are not recoverable through the fuel
adjustment clause under these circumstances, but do not reflect the related
energy costs for such purchased power. ComEd is also considering additional
methods of managing customer demand for power. Despite these efforts by ComEd
and other Midwestern utilities, the North American Electric Reliability
Council has forecast the possibility of electric energy shortages during
summer peak demand periods due to generating station outages in the Midwestern
power grid and transmission limitations on delivering power from neighboring
systems.
 
  Generating station availability and performance during a year may be issues
in fuel reconciliation proceedings in assessing the prudence of fuel and power
purchases during such year. Final ICC orders have been issued in fuel
reconciliation proceedings for years prior to 1994 and for the year 1995. In
1996, an intervenor filed testimony in the fuel reconciliation proceeding for
1994 seeking a refund of approximately $90 million relating to nuclear station
performance.
 
  Based on ComEd's most recent study, decommissioning costs, including the
cost of decontamination and dismantling, are estimated to aggregate $4.6
billion in current-year (1997) dollars including a contingency allowance.
ComEd estimates that it will expend approximately $12.3 billion, including a
contingency allowance, for decommissioning costs primarily during the period
from 2007 through 2032. Such costs are expected to be funded by external
decommissioning trusts which ComEd established in compliance with Illinois law
and into which ComEd has been making
 
                                      40
<PAGE>
 
annual contributions. Future decommissioning cost estimates may be
significantly affected by the adoption of or changes to NRC regulations as well
as changes in the assumptions used in making such estimates, including changes
in technology, available alternatives for the disposal of nuclear waste, and
inflation. See Note 1 of Notes to Financial Statements under "Depreciation and
Decommissioning" for additional information regarding decommissioning costs.
 
  Environmental Matters. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The
outcome of these proceedings may require increases in future construction
expenditures and operating expenses and changes in operating procedures. See
Note 20 of Notes to Financial Statements and "Part II. Other Information, Item
1. Legal Proceedings."
 
RESULTS OF OPERATIONS
 
  Unicom's earnings per common share were $0.51 for the three months ended
March 31, 1997 compared to $0.64 for the three months ended March 31, 1996, and
$2.97 for the twelve months ended March 31, 1997 compared to $3.20 for the
twelve months ended March 31, 1996. Substantially all of the results of
operations for Unicom are the results of operations for ComEd. The results of
Unicom's unregulated subsidiaries are not material to the results of Unicom and
subsidiary companies as a whole. As such, the following section discusses the
results of operations for ComEd alone.
 
  Net Income. The decrease in ComEd's earnings in the recent three months ended
reflects, among other factors, an 11% increase in operation and maintenance
expenses, discussed below, and an 8% increase in depreciation expense, compared
to the three months ended March 31, 1996. Depreciation expense for the three
months ended March 31, 1997 included $15 million for additional depreciation
related to ComEd's nuclear generating units. Partially offsetting the decrease
in earnings was a 4% increase in operating revenues in the three months ended
March 31, 1997 compared to the same period in the prior year, discussed below.
 
  The decrease in ComEd's earnings in the recent twelve months ended reflects,
among other factors, a 3% increase in overall operation and maintenance
expenses compared to the twelve months ended March 31, 1996, discussed below.
The earnings for the twelve months ended March 31, 1997 include charges for
additional depreciation related to ComEd's nuclear generating units of $45
million. The decrease in earnings was partially offset by the positive effects
of an income tax refund related to prior years (net income effect of $26
million or $0.12 per common share) and a reduction in real estate taxes (net
income effect of $30 million or $0.14 per common share). Approximately half of
the reduction in real estate taxes is a one-time benefit related to the year
1995. The real estate tax reduction results primarily from ongoing challenges
by ComEd of the methodology used by local taxing authorities to assess the
value of ComEd's nuclear generating stations. In the fourth quarter of 1995,
ComEd recorded an after-tax charge of $20 million or $0.09 per common share
related to the early redemption of $645 million of long-term debt.
 
  Operating Revenues. ComEd's electric operating revenues reflect revenues from
sales to ultimate consumers (including residential, commercial and industrial
customers within its service territory), revenues from sales for resale (i.e.,
sales to wholesale customers, principally other electric utilities), and
revenues from collections under its fuel adjustment clause (which is intended
to recover ComEd's fuel cost for generating electric energy and the energy
portion of purchased power cost in relation to the amount included in ComEd's
base rates). Operating revenues are affected by kilowatthour sales, rates and
fuel adjustment clause recoveries. Kilowatthour sales, in turn, are affected by
weather, the level of economic activity within ComEd's service area, and off-
system or wholesale sales to other utilities. Off-system sales opportunities
are affected by a number of factors, including nuclear generating availability
and performance.
 
                                       41
<PAGE>
 
  Operating revenues increased $66 million in the three months ended March 31,
1997 compared to the three months ended March 31, 1996, reflecting a 6.7%
increase in total kilowatthour sales, including a 2.5% increase in sales to
ultimate consumers. The increase in kilowatthour sales to ultimate consumers is
primarily due to sales to commercial and industrial customers. Operating
revenues for the three months ended March 31, 1997 also include increased
collections under ComEd's fuel adjustment clause compared to the same period in
1996. Operating revenues decreased $15 million in the twelve months ended March
31, 1997 compared to the twelve months ended March 31, 1996, reflecting a 1.8%
decrease in sales to ultimate consumers. The decrease in kilowatthour sales to
ultimate consumers is primarily due to decreased sales to residential
customers. The decrease was partially offset by increased collections under
ComEd's fuel adjustment clause compared to the same period ended March 31,
1996.
 
  Fuel Costs. Changes in fuel expense for the three months and twelve months
ended March 31, 1997 as compared to the same periods ended March 31, 1996
primarily resulted from changes in the average cost of fuel consumed, changes
in the mix of fuel sources of electric energy generated and changes in net
generation of electric energy. Fuel mix is determined primarily by system load,
the costs of fuel consumed and the availability of nuclear generating units.
The cost of fuel consumed, net generation of electric energy and fuel sources
of kilowatthour generation were as follows:
 
<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED    TWELVE MONTHS ENDED
                                                        MARCH 31              MARCH 31
                                                   --------------------  --------------------
                                                     1997       1996       1997       1996
                                                   ---------  ---------  ---------  ---------
   <S>                                             <C>        <C>        <C>        <C>
   Cost of fuel consumed (per million Btu):
    Nuclear......................................      $0.55      $0.52      $0.54      $0.52
    Coal.........................................      $2.45      $2.44      $2.42      $2.43
    Oil..........................................      $3.66      $3.07      $3.68      $3.10
    Natural gas..................................      $2.98      $3.04      $2.77      $1.97
    Average all fuels............................      $1.30      $1.04      $1.24      $1.04
   Net generation of electric energy (millions of
    kilowatthours)...............................     22,319     23,493     91,875     95,904
   Fuel sources of kilowatthour generation:
    Nuclear......................................         62%        74%        64%        73%
    Coal.........................................         36         24         33         24
    Oil..........................................        --           1          1          1
    Natural gas..................................          2          1          2          2
                                                   ---------  ---------  ---------  ---------
                                                         100%       100%       100%       100%
                                                   =========  =========  =========  =========
</TABLE>
 
  The decrease in nuclear generation as a percentage of total generation for
the three months and twelve months ended March 31, 1997 compared to the prior
periods is primarily due to scheduled and non-scheduled outages at certain of
ComEd's nuclear generating stations. See "Regulation" subcaption "Nuclear
Matters" above for information regarding outages at certain of ComEd's nuclear
generating stations and outages expected in the midwestern power grid in 1997.
 
  Under the Energy Policy Act of 1992, investor-owned electric utilities that
have purchased enrichment services from the DOE are being assessed amounts to
fund a portion of the cost for the decontamination and decommissioning of
uranium enrichment facilities owned and previously operated by the DOE. ComEd's
portion of such assessments is estimated to be approximately $15 million per
year (to be adjusted annually for inflation) to 2007. The Act provides that
such assessments are to be treated as a cost of fuel. See Note 1 of Notes to
Financial Statements under "Deferred Unrecovered Energy Costs" for information
related to the accounting for such costs.
 
  Fuel Supply. Compared to other utilities, ComEd has relatively low average
fuel costs as a result of its reliance predominantly on lower cost nuclear
generation. ComEd's coal costs, however, are high compared to those of other
utilities. ComEd's western coal contracts and its rail contracts for delivery
of the western coal provide for the purchase of certain coal at prices
substantially above currently prevailing market prices, and ComEd has
significant purchase commitments under its contracts. In addition, as of March
31, 1997, ComEd had unrecovered fuel costs in the form of coal reserves of
 
                                       42
<PAGE>
 
$333 million. In prior years, ComEd's commitments for the purchase of coal
exceeded its requirements. Rather than take all the coal it was required to
take, ComEd agreed to purchase the coal in place in the form of coal reserves.
For additional information concerning ComEd's coal purchase commitments, fuel
reconciliation proceedings and coal reserves, see "Liquidity and Capital
Resources" above and "Deferred Unrecovered Energy Costs" in Note 1 of Notes to
Financial Statements.
 
  Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of ComEd and the Indiana Company's generating units and
the availability and cost of power from other utilities.
 
  The number and average cost of kilowatthours purchased were as follows:
 
<TABLE>
<CAPTION>
                                         THREE MONTHS
                                          ENDED MARCH    TWELVE MONTHS ENDED
                                              31              MARCH 31
                                         --------------  ---------------------
                                          1997    1996     1997        1996
                                         ------  ------  ---------   ---------
   <S>                                   <C>     <C>     <C>         <C>
   Kilowatthours (millions)............. 3,452   1,471       8,111       3,737
   Cost per kilowatthour................  1.86c   2.14c       2.20c       2.47c
</TABLE>
 
  Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for the
three months and twelve months ended March 31, 1997 and 1996 include the net
change in under or overrecovered allowable energy costs under ComEd's fuel
adjustment clause. See "Fuel Costs" and "Fuel Supply" above and Note 1 of Notes
to Financial Statements under "Deferred Unrecovered Energy Costs."
 
  Operation and Maintenance Expenses. Operation and maintenance expenses
include the expenses associated with operating and maintaining ComEd's
generation, transmission and distribution assets as well as administrative
overhead and support. Given the variety of expense categories covered, there
are a number of factors which affect the level of such expenses within any
given period. Two major components of such expenses, however, are the costs
associated with operating and maintaining ComEd's nuclear and fossil generating
facilities. Generating station expenses are affected by the cost of materials,
regulatory requirements and expectations, the age of facilities as well as cost
control efforts.
 
  During the three months and twelve months ended March 31, 1997, the aggregate
level of operation and maintenance expenses increased 11% and 3%, respectively,
compared to the same periods ended March 31, 1996. Both periods include
increases in the level of nuclear generating station expenses, as discussed
below. The twelve months ended March 31, 1996 reflects the impact of an early
separation program offered to ComEd's employees, which resulted in a $97
million charge related to the offered incentives. Additional factors in each
period also affected the level of operation and maintenance expenses.
 
  Operation and maintenance expenses associated with nuclear generating
stations increased $45 million and $140 million, respectively, during the three
months and twelve months ended March 31, 1997 compared to the same periods
ended March 31, 1996, as a result of activities associated with the repair,
replacement and improvement of nuclear generating facility equipment. Beginning
in 1995, ComEd increased the number and scope of maintenance activities
associated with its nuclear generating stations. Such efforts are the result of
station performance evaluations performed to identify the sources and causes of
unplanned equipment repairs. The goal of such efforts is to design and
implement cost effective repairs and improvements to increase station
availability. The efforts begun in 1995 continued into 1997 and are expected to
continue through 1998. During the three months and twelve months ended March
31, 1997, operation and maintenance expenses associated with fossil generating
stations decreased $14 million and $30 million, respectively, compared to the
same periods ended March 31, 1996. The decreases related to the fossil
generating stations are primarily due to reductions in plant refurbishment
costs and a reduction of personnel in the recent three months and twelve months
ended compared to the same periods ended March 31, 1996.
 
                                       43
<PAGE>
 
  The increase in operation and maintenance expenses associated with nuclear
generating stations has been driven by ComEd's objective to improve station
availability as well as to meet regulatory requirements and expectations. ComEd
is actively embarked upon a program to improve the quality of nuclear
operations, including safety and efficiency, which is also expected to achieve
a longer term goal of improved availability and to be positioned to take
advantage of opportunities in the wholesale market for revenue generation. Over
the past several years, ComEd has increased and reinforced station management
with managers drawn from other utilities which have resolved similar operating
issues. It has also sought to identify, anticipate and address nuclear station
operation and performance issues in a safe, cost-effective manner while seeking
to improve the availability and capacity factors of its nuclear generating
units. Such activities have included improvements in operating and personnel
procedures and repair and replacement of equipment, and can result in longer
unit outages. Such activities have involved increased maintenance and repair
expenses in recent years. ComEd expects 1997 overall operation and maintenance
expenses to increase by approximately $150 million over 1996 expenses.
Approximately $100 million of this increase is related to nuclear operations
and is intended to address previously identified operational issues (including
issues identified by the NRC in connection with its determination regarding the
plants to be monitored closely) and to achieve a longer term benefit of
improved capacity factors. ComEd expects this increased level of expenses to
continue through 1998.
 
  Operation and maintenance expenses associated with ComEd's transmission and
distribution system increased $7 million and $21 million in the three months
and twelve months ended March 31, 1997, respectively, compared to the same
periods ended March 31, 1996. The increases in the recent three months and
twelve months ended reflect higher maintenance costs, including tree trimming
and emergency restoration costs. Costs of customer-related activities,
including energy sales services and uncollectible accounts, increased $17
million in the twelve months ended March 31, 1997 compared to the same period
ended March 31, 1996.
 
  Operation and maintenance expenses also include compensation and benefits
expenses. During the period from 1995 to 1996, ComEd undertook to reduce the
size of its workforce by offering incentives for employees to leave
voluntarily. Such incentives included both current payments and earlier
eligibility for post-retirement health care benefits, resulting in provisions
of $13 million for the payments and $5 million for the benefits incentives for
the twelve months ended March 31, 1997 and resulted in provisions of $72
million for payments and $25 million for benefits incentives for the twelve
months ended March 31, 1996. ComEd also recorded a reduction of $12 million in
the provision for pension costs for the twelve months ended March 31, 1997 as
compared to the twelve months ended March 31, 1996. Finally, operation and
maintenance expenses reflect $38 million and $65 million for employee incentive
compensation plan costs for the twelve months ended March 31, 1997 and 1996,
respectively. The payments, which were made partly in cash and partly in shares
of Unicom common stock, were made under Unicom's Long-Term Incentive Plan as
the result of the achievement during the years 1996 and 1995, respectively, of
specified financial performance, cost containment and operating performance
goals. The effects of inflation have also increased operation and maintenance
expenses during the periods and are reflected in the increases and decreases
discussed herein.
 
  Operation and maintenance expenses associated with certain administrative and
general costs increased $9 million and $16 million for the three months and
twelve months ended March 31, 1997, respectively, compared to the same periods
ended March 31, 1996. The increases in the recent three months and twelve
months ended were due to a variety of reasons.
 
  Depreciation. Depreciation expense for the three months and twelve months
ended March 31, 1997 increased over the same periods a year ago as a result of
additional nuclear depreciation and additions to plant in service. The
additional depreciation on ComEd's nuclear generating units includes
depreciation recorded on a straight line basis related to its steam generators
at Byron 1 and
 
                                       44
<PAGE>
 
Braidwood 1, which are expected to be replaced prior to year-end 1998. Use of
the straight line methodology for these components resulted in $15 million of
additional depreciation expense for the three months and twelve months ended
March 31, 1997. ComEd also recorded additional depreciation charges of $30
million on its nuclear generating units in 1996. ComEd also continues to
consider the possibility of additional depreciation options. See "Depreciation
and Decommissioning" in Note 1 and Note 2 of Notes to Financial Statements.
 
  Interest on Debt. Changes in interest on long-term debt and notes payable
for the three months and twelve months ended March 31, 1997 compared to the
same periods ended March 31, 1996 were due to changes in average interest
rates and in the amounts of long-term debt and notes payable outstanding.
Changes in interest on ComEd's long-term debt also reflected new issues of
debt, the retirement and early redemption of debt, and the retirement and
redemption of issues which were refinanced at generally lower rates of
interest. The average amounts of ComEd's long-term debt and notes payable
outstanding and average interest rates thereon were as follows:
 
<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED    TWELVE MONTHS ENDED
                                           MARCH 31              MARCH 31
                                     --------------------- ---------------------
                                        1997       1996       1997       1996
                                     ---------- ---------- ---------- ----------
      <S>                            <C>        <C>        <C>        <C>
      Long-term debt outstanding:
       Average amount (millions)...    $6,519     $6,724     $6,599     $7,269
       Average interest rate.......      7.68%      7.72%      7.66%      7.75%
      Notes payable outstanding:
       Average amount (millions)...    $  138     $  289     $  192     $  121
       Average interest rate.......      5.74%      5.91%      5.72%      6.09%
</TABLE>
 
  Decommissioning. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including ComEd,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in financial statements of electric
utilities. In response to these questions, the FASB is reviewing the
accounting for nuclear decommissioning costs and issued an exposure draft in
February 1996 requesting written comment. If current electric utility industry
accounting practices for such decommissioning costs are changed, annual
provisions for decommissioning could increase and the estimated cost for
decommissioning could be recorded as a liability rather than as accumulated
depreciation. Unicom does not believe that such changes, if required, would
have an adverse effect on the results of operations due to ComEd's ability to
recover decommissioning costs through rates.
 
  Other Items. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates as discussed in Note 1 under "AFUDC" in Notes to Financial Statements.
AFUDC does not contribute to the current cash flow of Unicom or ComEd.
 
  ComEd's ratios of earnings to fixed charges for the twelve months ended
March 31, 1997 and December 31, 1996 were 2.84 and 2.90, respectively. ComEd's
ratios of earnings to fixed charges and preferred and preference stock
dividend requirements for the twelve months ended March 31, 1997 and December
31, 1996 were 2.43 and 2.48, respectively.
 
  Business corporations, in general, have been adversely affected by inflation
because amounts retained after the payment of all costs have been inadequate
to replace, at increased costs, the productive assets consumed. Electric
utilities in particular have been especially affected as a result of their
capital intensive nature and regulation which limits capital recovery and
prescribes installation or modification of facilities to comply with
increasingly stringent safety and environmental requirements. Because the
regulatory process limits the amount of depreciation expense included in
ComEd's revenue allowance to the original cost of utility plant investment,
the resulting cash flows are inadequate to provide for replacement of that
investment in future years or preserve the purchasing power of common equity
capital previously invested.
 
                                      45
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
 
To Commonwealth Edison Company:
 
  We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Commonwealth Edison Company (an Illinois
corporation) and subsidiary companies as of March 31, 1997 and December 31,
1996, and the related statements of consolidated income, retained earnings and
cash flows for the three-month and twelve-month periods ended March 31, 1997
and 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Commonwealth Edison
Company and subsidiary companies as of March 31, 1997 and December 31, 1996,
and the results of their operations and their cash flows for the three-month
and twelve-month periods ended March 31, 1997 and 1996, in conformity with
generally accepted accounting principles.
 
 
                                            Arthur Andersen LLP
Chicago, Illinois
May 9, 1997
 
                                      46
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                       STATEMENTS OF CONSOLIDATED INCOME
 
  The following Statements of Consolidated Income for the three months and
twelve months ended March 31, 1997 and 1996 reflect the results of past
operations and are not intended as any representation as to results of
operations for any future period. Future operations will necessarily be
affected by various and diverse factors and developments, including changes in
electric rates, regulation, population, business activity, competition, taxes,
environmental control, energy use, fuel, cost of labor, purchased power and
other matters, the nature and effect of which cannot now be determined.
 
<TABLE>
<CAPTION>
                           THREE MONTHS ENDED      TWELVE MONTHS ENDED
                                MARCH 31                MARCH 31
                          ----------------------  ----------------------
                             1997        1996        1997        1996
                          ----------  ----------  ----------  ----------
                                   (THOUSANDS EXCEPT PER SHARE DATA)
<S>                       <C>         <C>         <C>         <C>
Electric Operating Reve-
 nue....................  $1,749,085  $1,683,489  $7,000,143  $7,015,139
                          ----------  ----------  ----------  ----------
Electric Operating Ex-
 penses and Taxes:
 Fuel...................  $  307,795  $  260,972  $1,213,862  $1,077,956
 Purchased power........      64,307      31,439     178,167      92,274
 Deferred
  (under)/overrecovered
  energy costs--net.....       1,273      23,003     (30,914)     23,634
 Operation..............     400,210     347,446   1,548,940   1,561,665
 Maintenance............     168,424     163,547     657,373     584,970
 Depreciation...........     249,120     230,611     970,373     902,828
 Recovery of regulatory
  assets................       3,818       3,818      15,272      15,272
 Taxes (except income)..     205,601     218,130     770,138     840,400
 Income taxes--
   Current--Federal.....      50,707      67,712     248,320     271,207
   --State..............      18,043      21,189      71,046      96,587
   Deferred--Federal--
    net.................      27,813      23,871     144,064     183,695
   --State--net.........         114         207      16,048      11,322
 Investment tax credits
  deferred--net.........      (7,897)     (7,167)    (34,109)    (28,697)
                          ----------  ----------  ----------  ----------
                          $1,489,328  $1,384,778  $5,768,580  $5,633,113
                          ----------  ----------  ----------  ----------
Electric Operating In-
 come...................  $  259,757  $  298,711  $1,231,563  $1,382,026
                          ----------  ----------  ----------  ----------
Other Income and (Deduc-
 tions):
 Interest on long-term
  debt..................  $ (125,109) $ (129,730) $ (505,277) $ (563,338)
 Interest on notes pay-
  able..................      (1,951)     (4,251)    (11,007)     (7,380)
 Allowance for funds
  used during construc-
  tion--
   Borrowed funds.......       4,052       4,898      18,580      14,350
   Equity funds.........       5,080       4,698      21,158      15,735
 Income taxes applicable
  to nonoperating
  activities............         366       4,276       3,902       9,094
 Provision for dividends
  on company-obligated
  mandatorily redeemable
  preferred securities
  of subsidiary trusts..      (6,648)     (4,240)    (19,368)     (8,668)
 Miscellaneous--net.....      (8,872)    (18,471)    (25,399)    (55,797)
                          ----------  ----------  ----------  ----------
                          $ (133,082) $ (142,820) $ (517,411) $ (596,004)
                          ----------  ----------  ----------  ----------
Net Income Before Ex-
 traordinary Item.......  $  126,675  $  155,891  $  714,152  $  786,022
Extraordinary Loss
 Related to Early
 Redemption of Long-Term
 Debt, Less Applicable
 Income Taxes...........         --          --          --      (20,022)
                          ----------  ----------  ----------  ----------
Net Income..............  $  126,675  $  155,891  $  714,152  $  766,000
Provision for Dividends
 on Preferred and
 Preference Stocks......      15,527      16,514      63,437      69,567
                          ----------  ----------  ----------  ----------
Net Income on Common
 Stock..................  $  111,148  $  139,377  $  650,715  $  696,433
                          ==========  ==========  ==========  ==========
Average Number of Common
 Shares Outstanding.....     214,220     214,195     214,211     214,194
Earnings per Common
 Share Before
 Extraordinary Item.....       $0.52       $0.65       $3.04       $3.34
Extraordinary Loss
 Related to Early
 Redemption of Long-Term
 Debt, Less Applicable
 Income Taxes...........         --          --          --        (0.09)
                          ----------  ----------  ----------  ----------
Earnings per Common
 Share..................       $0.52       $0.65       $3.04       $3.25
                          ==========  ==========  ==========  ==========
</TABLE>
 
  The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                      47
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                       MARCH 31,   DECEMBER 31,
                       ASSETS                            1997          1996
                       ------                         -----------  ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Utility Plant:
  Plant and equipment, at original cost (includes
   construction work in progress of $1,181 million
   and $1,034 million, respectively)................. $28,092,479  $27,900,632
  Less--Accumulated provision for depreciation.......  11,705,039   11,479,991
                                                      -----------  -----------
                                                      $16,387,440  $16,420,641
  Nuclear fuel, at amortized cost....................     810,347      805,623
                                                      -----------  -----------
                                                      $17,197,787  $17,226,264
                                                      -----------  -----------
Investments:
  Nuclear decommissioning funds...................... $ 1,544,212  $ 1,456,360
  Subsidiary companies...............................     120,729      118,188
  Other investments, at cost.........................      36,207       14,903
                                                      -----------  -----------
                                                      $ 1,701,148  $ 1,589,451
                                                      -----------  -----------
Current Assets:
  Cash............................................... $       --   $        89
  Temporary cash investments.........................      19,274       28,801
  Other cash investments.............................       2,950          --
  Special deposits...................................         349        1,610
  Receivables--
    Customers........................................     585,708      568,155
    Other............................................      62,577      103,243
    Provisions for uncollectible accounts............     (13,272)     (12,893)
  Coal and fuel oil, at average cost.................     172,637      140,362
  Materials and supplies, at average cost............     324,515      324,485
  Deferred unrecovered energy costs..................      96,168      104,651
  Deferred income taxes related to current assets and
   liabilities.......................................     113,372      119,917
  Prepayments and other..............................      48,583       35,315
                                                      -----------  -----------
                                                      $ 1,412,861  $ 1,413,735
                                                      -----------  -----------
Deferred Charges and Other Noncurrent Assets:
  Regulatory assets.................................. $ 2,588,889  $ 2,434,807
  Unrecovered energy costs...........................     415,739      444,009
  Other..............................................      98,849      108,834
                                                      -----------  -----------
                                                      $ 3,103,477  $ 2,987,650
                                                      -----------  -----------
                                                      $23,415,273  $23,217,100
                                                      ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       48
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                        MARCH 31,  DECEMBER 31,
            CAPITALIZATION AND LIABILITIES                1997         1996
            ------------------------------             ----------- ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                    <C>         <C>
Capitalization (see accompanying statements):
  Common stock equity................................. $ 6,068,750 $ 6,043,093
  Preferred and preference stocks without mandatory
   redemption requirements............................     507,143     507,342
  Preference stock subject to mandatory redemption re-
   quirements.........................................     217,901     217,901
  Company-obligated mandatorily redeemable preferred
   securities of subsidiary trusts*...................     350,000     200,000
  Long-term debt......................................   5,843,540   5,957,604
                                                       ----------- -----------
                                                       $12,987,334 $12,925,940
                                                       ----------- -----------
Current Liabilities:
  Notes payable--
    Commercial paper.................................. $   122,000 $   121,000
    Bank loans........................................       7,750       7,750
  Current portion of long-term debt, redeemable pref-
   erence stock and capitalized lease obligations.....     618,441     743,528
  Accounts payable....................................     433,725     478,876
  Accrued interest....................................     141,383     166,862
  Accrued taxes.......................................     273,737     182,366
  Dividends payable...................................     103,625     101,216
  Customer deposits...................................      53,418      51,585
  Other...............................................      99,196      98,444
                                                       ----------- -----------
                                                       $ 1,853,275 $ 1,951,627
                                                       ----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
  Deferred income taxes............................... $ 4,576,523 $ 4,568,832
  Accumulated deferred investment tax credits.........     647,765     655,662
  Accrued spent nuclear fuel disposal fee and related
   interest...........................................     665,908     657,449
  Obligations under capital leases....................     510,854     474,841
  Regulatory liabilities..............................     728,922     668,301
  Other...............................................   1,444,692   1,314,448
                                                       ----------- -----------
                                                       $ 8,574,664 $ 8,339,533
                                                       ----------- -----------
Commitments and Contingent Liabilities (Note 20)
                                                       $23,415,273 $23,217,100
                                                       =========== ===========
</TABLE>
 
  *As described in Note 8 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of
ComEd, is $154.6 million principle amount of ComEd's 8.50% subordinated
deferrable interest debentures due January 15, 2027.
 
  The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                      49
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                   STATEMENTS OF CONSOLIDATED CAPITALIZATION
 
<TABLE>
<CAPTION>
                                                       MARCH 31,   DECEMBER 31,
                                                         1997          1996
                                                      -----------  ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Common Stock Equity:
  Common stock, $12.50 par value per share--
   Outstanding--214,225,017 shares and 214,218,454
    shares, respectively............................. $ 2,677,813  $ 2,677,731
  Premium on common stock and other paid-in capital..   2,223,513    2,223,396
  Capital stock and warrant expense..................     (15,990)     (15,990)
  Retained earnings..................................   1,183,414    1,157,956
                                                      -----------  -----------
                                                      $ 6,068,750  $ 6,043,093
                                                      -----------  -----------
Preferred and Preference Stocks Without Mandatory
 Redemption Requirements:
  Preference stock, cumulative, without par value--
   Outstanding--13,499,549 shares ................... $   504,957  $   504,957
  $1.425 convertible preferred stock, cumulative,
   without par value--
   Outstanding--68,741 shares and 75,003 shares, re-
    spectively.......................................       2,186        2,385
  Prior preferred stock, cumulative, $100 par value
   per share--
   No shares outstanding.............................         --           --
                                                      -----------  -----------
                                                      $   507,143  $   507,342
                                                      -----------  -----------
Preference Stock Subject to Mandatory Redemption Re-
 quirements:
  Preference stock, cumulative, without par value--
   Outstanding--2,496,775 shares..................... $   248,589  $   248,589
  Current redemption requirements for preference
   stock included in current liabilities.............     (30,688)     (30,688)
                                                      -----------  -----------
                                                      $   217,901  $   217,901
                                                      -----------  -----------
Company-Obligated Mandatorily Redeemable Preferred
 Securities of Subsidiary Trusts..................... $   350,000  $   200,000
                                                      -----------  -----------
Long-Term Debt:
  First mortgage bonds:
    Maturing 1997 through 2001--5 3/8% to 9 3/8%..... $   970,000  $ 1,120,000
    Maturing 2002 through 2011--3.45% to 8 3/8%......   1,640,400    1,640,400
    Maturing 2012 through 2021--5.85% to 9 7/8%......   1,191,000    1,391,000
    Maturing 2022 through 2023--7 3/4% to 8 5/8%.....   1,160,000    1,160,000
                                                      -----------  -----------
                                                      $ 4,961,400  $ 5,311,400
  Sinking fund debentures, due 1999 through 2011--
   2 3/4% to 7 5/8%..................................     103,273      105,164
  Pollution control obligations, due 2007 through
   2014--3.45% to 5 7/8%.............................     142,200      142,200
  Other long-term debt...............................   1,136,890      986,932
  Deposit for retirement of long-term debt...........      (2,331)         --
  Current maturities of long-term debt included in
   current liabilities...............................    (448,269)    (538,534)
  Unamortized net debt discount and premium..........     (49,623)     (49,558)
                                                      -----------  -----------
                                                      $ 5,843,540  $ 5,957,604
                                                      -----------  -----------
                                                      $12,987,334  $12,925,940
                                                      ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       50
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                  STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
 
<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED   TWELVE MONTHS ENDED
                                           MARCH 31             MARCH 31
                                      ------------------- ---------------------
                                         1997      1996      1997       1996
                                      ---------- -------- ---------- ----------
                                               (THOUSANDS OF DOLLARS)
<S>                                   <C>        <C>      <C>        <C>
Balance at Beginning of Period....... $1,157,956 $821,848 $  875,547 $  521,795
Add--Net income......................    126,675  155,891    714,152    766,000
                                      ---------- -------- ---------- ----------
                                      $1,284,631 $977,739 $1,589,699 $1,287,795
                                      ---------- -------- ---------- ----------
Deduct--
   Dividends declared on--
    Common stock..................... $   85,690 $ 85,678 $  342,744 $  342,711
    Preferred and preference stocks..     15,527   16,514     63,108     66,461
   Other capital stock transactions--
    net..............................        --       --         433      3,076
                                      ---------- -------- ---------- ----------
                                      $  101,217 $102,192 $  406,285 $  412,248
                                      ---------- -------- ---------- ----------
Balance at End of Period............. $1,183,414 $875,547 $1,183,414 $  875,547
                                      ========== ======== ========== ==========
</TABLE>
 
 
 
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       51
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                     STATEMENTS OF CONSOLIDATED CASH FLOWS
 
<TABLE>
<CAPTION>
                                 THREE MONTHS ENDED      TWELVE MONTHS ENDED
                                      MARCH 31                MARCH 31
                                 --------------------  ------------------------
                                   1997       1996        1997         1996
                                 ---------  ---------  -----------  -----------
                                           (THOUSANDS OF DOLLARS)
<S>                              <C>        <C>        <C>          <C>
Cash Flow from Operating Activ-
 ities:
 Net income....................  $ 126,675  $ 155,891  $   714,152  $   766,000
 Adjustments to reconcile net
  income to net cash provided
  by operating activities:
   Depreciation and amortiza-
    tion.......................    258,714    240,874    1,006,783      950,946
   Deferred income taxes and
    investment tax credits--
    net........................     19,967     16,208      128,616      164,222
   Extraordinary loss related
    to early redemption of
    long-term debt.............        --         --           --        33,158
   Equity component of
    allowance for funds used
    during construction........     (5,080)    (4,698)     (21,158)     (15,735)
   Recovery of regulatory as-
    sets.......................      3,818      3,818       15,272       15,272
   Provisions/(payments) for
    liability for separation
    costs--net.................       (626)   (32,303)       1,790       28,030
   Net effect on cash flows of
    changes in:
     Receivables...............     23,492    110,684      (19,304)     (60,547)
     Coal and fuel oil.........    (32,275)   (15,491)     (27,970)     (24,171)
     Materials and supplies....        (30)    (1,603)      10,627       35,863
     Accounts payable excluding
      nuclear fuel lease
      principal payments and
      separation costs--net....      5,580    (65,812)     181,829      382,437
     Accrued interest and tax-
      es.......................     65,892     49,644      (20,773)     (39,139)
     Other changes in certain
      current assets and
      liabilities..............     (8,148)     9,271       (3,654)      29,266
   Other--net..................     65,902      3,491      167,955       65,526
                                 ---------  ---------  -----------  -----------
                                 $ 523,881  $ 469,974  $ 2,134,165  $ 2,331,128
                                 ---------  ---------  -----------  -----------
Cash Flow from Investing Activ-
 ities:
 Construction expenditures.....  $(209,706) $(280,834) $  (878,744) $  (979,182)
 Nuclear fuel expenditures.....    (48,773)   (34,419)    (296,187)    (284,680)
 Equity component of allowance
  for funds used during
  construction.................      5,080      4,698       21,158       15,735
 Contributions to nuclear
  decommissioning funds........    (80,181)   (83,178)    (116,284)    (119,602)
 Other investments and special
  deposits.....................    (24,302)       (48)     (24,307)      27,619
                                 ---------  ---------  -----------  -----------
                                 $(357,882) $(393,781) $(1,294,364) $(1,340,110)
                                 ---------  ---------  -----------  -----------
Cash Flow from Financing Activ-
 ities:
 Issuance of securities--
  Long-term debt...............  $ 297,663  $     --   $   496,565  $       --
  Preferred securities of sub-
   sidiary trusts..............    150,000        --       150,000      200,000
  Capital stock................        199         25          843          104
 Retirement and redemption of
  securities--
  Long-term debt...............   (501,911)       (41)    (933,855)  (1,107,677)
  Capital stock................       (199)       (25)     (44,687)     (17,927)
 Deposits and securities held
  for retirement and
  redemption of securities.....     (2,331)    (3,618)       1,287       (1,838)
 Premium paid on early redemp-
  tion of long-term debt.......     (9,500)       --        (9,500)     (25,823)
 Cash dividends paid on capi-
  tal stock....................   (105,456)  (102,192)    (428,028)    (413,993)
 Proceeds from sale/leaseback
  of nuclear fuel..............     44,470    124,213      236,875      202,088
 Nuclear fuel lease principal
  payments.....................    (49,550)   (56,051)    (205,241)    (231,111)
 Increase (Decrease) in short-
  term borrowings..............      1,000    (32,600)    (105,800)     228,400
                                 ---------  ---------  -----------  -----------
                                 $(175,615) $ (70,289) $  (841,541) $(1,167,777)
                                 ---------  ---------  -----------  -----------
Increase (Decrease) in Cash and
 Temporary Cash Investments....  $  (9,616) $   5,904  $    (1,740) $  (176,759)
Cash and Temporary Cash
 Investments at Beginning of
 Period........................     28,890     15,110       21,014      197,773
                                 ---------  ---------  -----------  -----------
Cash and Temporary Cash Invest-
 ments at End of Period........  $  19,274  $  21,014  $    19,274  $    21,014
                                 =========  =========  ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       52
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                         NOTES TO FINANCIAL STATEMENTS
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
 
  See Unicom's Note 1 of Notes to Financial Statements for a discussion of
significant accounting policies, except for the following specific policies
discussed below.
 
  Income Taxes. ComEd is included in the consolidated federal and state income
tax returns filed by Unicom. Current and deferred income taxes of the
consolidated group are allocated to ComEd as if ComEd filed separate tax
returns. Deferred income taxes are provided for income and expense items
recognized for financial accounting purposes in periods that differ from those
for income tax purposes. Income taxes deferred in prior years are charged or
credited to income as the book/tax timing differences reverse. Prior years'
deferred investment tax credits are amortized through credits to income
generally over the lives of the related property. Income tax credits resulting
from interest charges applicable to nonoperating activities, principally
construction, are classified as other income.
 
  Interest. Total interest costs incurred on debt, leases and other
obligations were $152 million and $158 million for the three months ended
March 31, 1997 and 1996, respectively, and $614 million and $674 million for
the twelve months ended March 31, 1997 and 1996, respectively.
 
  Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be
cash equivalents. Supplemental cash flow information for the three months and
twelve months ended March 31, 1997 and 1996 was as follows:
 
<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED  TWELVE MONTHS ENDED
                                            MARCH 31            MARCH 31
                                       ------------------- -------------------
                                         1997      1996      1997      1996
                                       --------- --------- --------- ---------
                                               (THOUSANDS OF DOLLARS)
<S>                                    <C>       <C>       <C>       <C>
Supplemental Cash Flow Information:
 Cash paid during the period for:
   Interest (net of amount capital-
    ized)............................. $ 157,735 $ 156,610 $ 534,623 $ 589,557
   Income taxes (net of refunds)...... $  6,998  $     --  $ 245,918 $ 399,263
Supplemental Schedule of Non-Cash
 Investing and Financing Activities:
 Capital lease obligations incurred... $  46,397 $ 125,492 $ 241,879 $ 207,259
</TABLE>
 
  (2) RATE MATTERS. See Unicom's Note 2 of Notes to Financial Statements.
 
  (3) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At March 31, 1997
the authorized shares of capital stock were: common stock--250,000,000 shares;
preference stock--22,806,775 shares; $1.425 convertible preferred stock--
68,741 shares; and prior preferred stock--850,000 shares. The preference and
prior preferred stocks are issuable in series and may be issued with or
without mandatory redemption requirements. Holders of shares at any time
outstanding, regardless of class, are entitled to one vote for each share held
on each matter submitted to a vote at a meeting of shareholders, with the
right to cumulate votes in all elections for directors.
 
  (4) COMMON STOCK. At March 31, 1997, shares of common stock were reserved
for the following purposes:
 
<TABLE>
      <S>                                                                 <C>
      Conversion of $1.425 convertible preferred stock................... 70,115
      Conversion of warrants............................................. 25,831
                                                                          ------
                                                                          95,946
                                                                          ======
</TABLE>
 
                                      53
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  During the three months and twelve months ended March 31, 1997 and 1996,
shares of common stock were issued as follows:
 
<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED   TWELVE MONTHS ENDED
                                            MARCH 31              MARCH 31
                                       -------------------- --------------------
                                         1997       1996       1997      1996
                                       ---------- --------- ---------- ---------
<S>                                    <C>        <C>       <C>        <C>
Conversion of $1.425 convertible
 preferred stock......................      6,382      801      27,727     3,361
Conversion of warrants................        181       63       1,476       232
                                       ---------- --------  ---------- ---------
                                            6,563      864      29,203     3,593
                                       ========== ========  ========== =========
</TABLE>
 
  At March 31, 1997 and December 31, 1996, 77,494 and 78,045 common stock
purchase warrants, respectively, were outstanding. The warrants entitle the
holders to convert such warrants into common stock at a conversion rate of one
share of common stock for three warrants.
 
  (5) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN. See Unicom's Note 5 of
Notes to Financial Statements.
 
  (6) PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS. See Unicom's Note 6 of Notes to Financial Statements.
 
  (7) PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS. See
Unicom's Note 7 of Notes to Financial Statements.
 
  (8) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS. See Unicom's Note 8 of Notes to Financial Statements.
 
  (9) LONG-TERM DEBT. See Unicom's Note 9 of Notes to Financial Statements.
 
  (10) LINES OF CREDIT. See the first paragraph of Unicom's Note 10 of Notes
to Financial Statements.
 
  (11) DISPOSAL OF SPENT NUCLEAR FUEL. See Unicom's Note 11 of Notes to
Financial Statements.
 
  (12) FAIR VALUE OF FINANCIAL INSTRUMENTS. See Unicom's Note 12 of Notes to
Financial Statements.
 
  (13) PENSION BENEFITS. See Unicom's Note 13 of Notes to Financial
Statements.
 
  (14) POSTRETIREMENT BENEFITS. See Unicom's Note 14 of Notes to Financial
Statements.
 
  (15) SEPARATION PLAN COSTS. See Unicom's Note 15 of Notes to Financial
Statements.
 
  (16) INCOME TAXES. The components of the net deferred income tax liability
at March 31, 1997 and December 31, 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                        MARCH 31,   DECEMBER 31,
                                                           1997         1996
                                                        ----------  ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                     <C>         <C>
Deferred income tax liabilities:
 Accelerated cost recovery and liberalized
  depreciation, net of removal costs..................  $3,510,137   $3,507,916
 Overheads capitalized................................     257,237      261,437
 Repair allowance.....................................     225,543      228,426
 Regulatory assets recoverable through future rates...   1,696,031    1,649,037
Deferred income tax assets:
 Postretirement benefits..............................    (278,966)    (269,153)
 Unbilled revenues....................................    (128,026)    (136,406)
 Alternative minimum tax..............................     (44,448)     (80,159)
 Unamortized investment tax credits to be settled
  through future rates................................    (425,112)    (430,297)
 Other regulatory liabilities to be settled through
  future rates........................................    (303,810)    (238,004)
 Other--net...........................................     (45,435)     (43,882)
                                                        ----------   ----------
Net deferred income tax liability.....................  $4,463,151   $4,448,915
                                                        ==========   ==========
</TABLE>
 
                                      54
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  The $14 million increase in the net deferred income tax liability from
December 31, 1996 to March 31, 1997 is comprised of a $28 million increase in
deferred income tax expense and a $14 million decrease in regulatory assets
net of regulatory liabilities pertaining to income taxes for the period. The
amount of regulatory assets included in deferred income tax liabilities
primarily relates to the equity component of AFUDC which is recorded on an
after-tax basis, the borrowed funds component of AFUDC which was previously
recorded net of tax and other temporary differences for which the related tax
effects were not previously recorded. The amount of other regulatory
liabilities included in deferred income tax assets primarily relates to
deferred income taxes provided at rates in excess of the current statutory
rate.
 
  The effects of an income tax refund related to prior years increased net
income by $26 million or $0.12 per common share for the twelve months ended
March 31, 1997.
 
  The components of net income tax expense charged to continuing operations
for the three months and twelve months ended March 31, 1997 and 1996 were as
follows:
 
<TABLE>
<CAPTION>
                                           THREE MONTHS       TWELVE MONTHS
                                              ENDED               ENDED
                                             MARCH 31           MARCH 31
                                         -----------------  ------------------
                                          1997      1996      1997      1996
                                         -------  --------  --------  --------
                                               (THOUSANDS OF DOLLARS)
<S>                                      <C>      <C>       <C>       <C>
Electric operating income:
 Current income taxes..................  $68,750  $ 88,901  $319,366  $367,794
 Deferred income taxes.................   27,927    24,078   160,112   195,017
 Investment tax credits deferred--net..   (7,897)   (7,167)  (34,109)  (28,697)
Other (income) and deductions..........     (283)   (4,126)   (3,543)  (11,584)
                                         -------  --------  --------  --------
Net income taxes charged to continuing
 operations............................  $88,497  $101,686  $441,826  $522,530
                                         =======  ========  ========  ========
</TABLE>
 
  Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the three months and twelve months ended March 31, 1997
and 1996:
 
<TABLE>
<CAPTION>
                                   THREE MONTHS ENDED     TWELVE MONTHS ENDED
                                        MARCH 31               MARCH 31
                                   --------------------  ----------------------
                                     1997       1996        1997        1996
                                   ---------  ---------  ----------  ----------
<S>                                <C>        <C>        <C>         <C>
Pre-tax book income (thousands)... $ 215,172  $ 257,577  $1,155,978  $1,308,552
Effective income tax rate.........      41.1%      39.5%       38.2%       39.9%
</TABLE>
 
  The principal differences between net income taxes charged to continuing
operations and the amounts computed at the federal statutory rate of 35% for
the three months and twelve months ended March 31, 1997 and 1996 were as
follows:
 
<TABLE>
<CAPTION>
                                           THREE MONTHS       TWELVE MONTHS
                                              ENDED               ENDED
                                             MARCH 31           MARCH 31
                                         -----------------  ------------------
                                          1997      1996      1997      1996
                                         -------  --------  --------  --------
                                               (THOUSANDS OF DOLLARS)
<S>                                      <C>      <C>       <C>       <C>
Federal income taxes computed at
 statutory rate......................... $75,310  $ 90,152  $404,592  $457,993
Equity component of AFUDC which was
 excluded from taxable income...........  (1,778)   (1,644)   (7,405)   (5,507)
Amortization of investment tax credits..  (7,897)   (7,167)  (34,109)  (28,697)
State income taxes, net of federal
 income taxes...........................  11,647    13,402    56,625    68,978
Differences between book and tax
 accounting, primarily property-related
 deductions.............................  10,297     5,882    18,592    45,148
Other--net..............................     918     1,061     3,531   (15,385)
                                         -------  --------  --------  --------
Net income taxes charged to continuing
 operations............................. $88,497  $101,686  $441,826  $522,530
                                         =======  ========  ========  ========
</TABLE>
 
                                      55
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  Current federal income tax liabilities which were recorded prior to 1995
included excess amounts of AMT over the regular federal income tax, which
amounts were also recorded as decreases to deferred federal income taxes. The
excess amounts of AMT were carried forward and portions were applied as
credits against the post-1994 regular federal income tax liabilities. The
remaining excess amounts of AMT can be carried forward indefinitely as credits
against future periods' regular federal income tax liabilities.
 
  (17) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months and twelve months ended March 31, 1997 and 1996 were as
follows:
 
<TABLE>
<CAPTION>
                                                                 TWELVE MONTHS
                                           THREE MONTHS ENDED        ENDED
                                                MARCH 31           MARCH 31
                                           ------------------- -----------------
                                             1997      1996      1997     1996
                                           --------- --------- -------- --------
                                                  (THOUSANDS OF DOLLARS)
<S>                                        <C>       <C>       <C>      <C>
Illinois public utility revenue........... $  54,255 $  58,511 $222,806 $231,879
Illinois invested capital.................    26,190    26,154  104,699  105,688
Municipal utility gross receipts..........    42,503    41,579  169,640  171,292
Real estate...............................    39,168    45,128  124,025  174,043
Municipal compensation....................    19,710    19,095   79,159   79,907
Other--net................................    23,775    27,663   69,809   77,591
                                           --------- --------- -------- --------
                                           $ 205,601 $ 218,130 $770,138 $840,400
                                           ========= ========= ======== ========
</TABLE>
 
  The reduction in ComEd's real estate taxes for the twelve months ended March
31, 1997 primarily results from ongoing challenges by ComEd of the methodology
used by local taxing authorities to assess the value of ComEd's nuclear
generating stations. Approximately half of the reduction in ComEd's real
estate taxes in the recent twelve-month period is related to the year 1995.
 
  (18) LEASE OBLIGATIONS. Under its nuclear fuel lease arrangement, ComEd may
sell and lease back nuclear fuel from a lessor who may borrow an aggregate of
$700 million, consisting of $300 million of commercial paper or bank
borrowings and $400 million of intermediate term notes, to finance the
transactions. With respect to the commercial paper/bank borrowing portion,
$100 million will expire on November 23, 1998 and $200 million will expire on
November 23, 1999. With respect to the intermediate term notes, a portion
expires in November 1997, and each November thereafter, through November 2001
and in November 2003. At March 31, 1997, ComEd's obligation to the lessor for
leased nuclear fuel amounted to approximately $683 million. ComEd has agreed
to make lease payments which cover the amortization of the nuclear fuel used
in ComEd's reactors plus the lessor's related financing costs. ComEd has an
obligation for spent nuclear fuel disposal costs of leased nuclear fuel.
 
  Future minimum rental payments, net of executory costs, at March 31, 1997
for capital leases are estimated to aggregate $779 million, including $139
million in 1997, $232 million in 1998, $179 million in 1999, $107 million in
2000, $64 million in 2001 and $58 million in 2002-2005. The estimated interest
component of such rental payments aggregates $97 million. The estimated
portions of obligations due within one year under capital leases of $139
million and $174 million at March 31, 1997 and December 31, 1996,
respectively, were included in current liabilities on the Consolidated Balance
Sheets.
 
  Future minimum rental payments at March 31, 1997 for operating leases are
estimated to aggregate $153 million, including $12 million in 1997, $16
million in 1998, $14 million in 1999, $11 million in 2000, $9 million in 2001
and $91 million in 2002-2024.
 
 
                                      56
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONCLUDED
  (19) JOINT PLANT OWNERSHIP. See Unicom's Note 19 of Notes to Financial
Statements.
 
  (20) COMMITMENTS AND CONTINGENT LIABILITIES. See Unicom's Note 20 of Notes
to Financial Statements.
 
                                      57
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
  CHANGES IN THE ELECTRIC UTILITY INDUSTRY. See Unicom's "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Changes in the Electric Utility Industry," which is incorporated
herein by this reference.
 
  LIQUIDITY AND CAPITAL RESOURCES. See Unicom's "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Liquidity and Capital Resources--UTILITY OPERATIONS," which is incorporated
herein by this reference.
 
  REGULATION. See Unicom's "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Regulation," which is
incorporated herein by this reference.
 
  RESULTS OF OPERATIONS. See Unicom's "Management's Discussion and Analysis of
Financial Condition and Results of Operations," subcaption "Results of
Operations" (other than the first paragraph thereof), which is incorporated
herein by this reference.
 
 
 
 
 
 
                                      58
<PAGE>
 
                          PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.
 
 
  Since January 1, 1997, civil penalties were imposed on ComEd on three
occasions for violations of NRC regulations in amounts aggregating $850,000.
To ComEd's knowledge, there are five current enforcement issues outstanding
and under review by the NRC.
 
  As described under "Part I, Item 3. Legal Proceedings" in Unicom's and
ComEd's Annual Report on Form 10-K for the year ended December 31, 1996,
certain Ogle County taxing bodies appealed certain decisions which led to a
lower property tax assessment for ComEd's Byron nuclear generating station.
The Illinois Appellate Court affirmed the decisions; however, on April 2,
1997, the Illinois Supreme Court accepted an appeal by the taxing bodies from
the Illinois Appellate Court decision.
 
  CERCLA provides for immediate response and removal actions coordinated by
the U.S. EPA to releases of hazardous substances into the environment and
authorizes the U.S. Government either to clean up sites at which hazardous
substances have created actual or potential environmental hazards or to order
persons responsible for the situation to do so. Under CERCLA, generators and
transporters of hazardous substances, as well as past and present owners and
operators of hazardous waste sites, are made strictly, jointly and severally
liable for the cleanup costs of waste at sites, most of which are listed by
the U.S. EPA on the NPL. These responsible parties can be ordered to perform a
cleanup, can be sued for costs associated with a U.S. EPA directed cleanup,
may voluntarily settle with the U.S. Government concerning their liability for
cleanup costs, or may voluntarily begin a site investigation and site
remediation prior to listing on the NPL under state oversight. Various states,
including Illinois, have enacted statutes which contain provisions
substantially similar to CERCLA. ComEd and its subsidiaries are or are likely
to become parties to proceedings initiated by the U.S. EPA, state agencies
and/or other responsible parties under CERCLA with respect to a number of
sites, including MGP sites, or may voluntarily undertake to investigate and
remediate sites for which they may be liable under CERCLA. See Note 20 of
Notes to Financial Statements for information regarding costs associated with
investigating and remediating former MGP sites.
 
  An unresolved issue is whether exposure to EMFs may result in adverse health
effects or damage to the environment. EMFs are produced by virtually all
devices carrying or utilizing electricity, including transmission and
distribution lines as well as home appliances. If regulations are adopted
related to EMFs, they could affect the construction and operation of
electrical equipment, including transmission and distribution lines and the
cost of such equipment. ComEd cannot predict the effect on the cost of such
equipment or operations if new regulations related to EMFs are adopted. In the
absence of such regulations, EMFs have nonetheless become an issue in siting
facilities and in other land use contexts. Litigation has been filed in a
variety of locations against a variety of defendants (including ComEd)
alleging that the presence or use of electrical equipment has had an adverse
effect on the health of persons or has caused a diminution in property values
of land adjacent to these facilities. If plaintiffs are successful in
litigation of this type and it becomes widespread, the impact on ComEd and on
the electric utility industry is not predictable, but could be severe.
 
  From time to time, Unicom and its subsidiaries are, or are claimed to be, in
violation of or in default under orders, statutes, rules or regulations
relating to environmental controls and other matters, compliance plans imposed
upon or agreed to by them or permits issued by various state and federal
agencies for the construction or operation of their facilities. Unicom and
ComEd do not believe, so far as they now foresee, that such violations or
defaults will have a material adverse effect on their future business and
operating results, except for events otherwise described in Unicom and ComEd's
Annual Reports on Form 10-K for the year ended December 31, 1996 or in these
Quarterly Reports on Form 10-Q for the quarterly period ended March 31, 1997,
which could have such an effect.
 
                                      59
<PAGE>
 
  FORWARD LOOKING INFORMATION. Certain portions of these Quarterly Reports
contain forward looking statements with respect to the consequences of future
events, including estimates of costs associated with certain actions and
outcomes. Unforeseen events or conditions may require changes in the factors
affecting such estimates and the projected results thereof. Consequently,
actual results could differ materially from the estimates presented. See
"Liquidity and Capital Resources--Construction Program" in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
additional information regarding certain caveats affecting forward looking
statements. Forward looking information is contained in various sections of
these reports, including, without limitation, (i) Note 1 of Notes to Financial
Statements, under "Depreciation and Decommissioning Costs" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
subcaption "Regulation--Nuclear Matters" with respect to the estimated costs of
decommissioning nuclear generating stations, (ii) "Management's Discussion and
Analysis of Financial Condition and Results of Operations" subcaption
"Liquidity and Capital Resources--Construction Program," regarding ComEd's
construction program budget and the early retirement of ComEd's Zion nuclear
generating station and (iii) "Part II. Other Information, Item 1. Legal
Proceedings" and Note 20 of Notes to Financial Statements, regarding cleanup
costs associated with MGP and other remediation sites.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
 
  (a) Exhibits
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                        DESCRIPTION OF EXHIBIT
     ------- ------------------------------------------------------------------
     <C>     <S>
     (12)    Statement computing Commonwealth Edison Company ratios of earnings
             to fixed charges and ratios of earnings to fixed charges and
             preferred and preference stock dividend requirements.
     (23)-1  Consent of independent public accountants applicable to Unicom
             Corporation.
     (23)-2  Consent of independent public accountants applicable to
             Commonwealth Edison Company.
     (27)-1  Financial data schedule of Unicom Corporation.
     (27)-2  Financial data schedule of Commonwealth Edison Company.
</TABLE>
 
  (b) Reports on Form 8-K
 
    A current Report on Form 8-K dated January 29, 1997 was filed by Unicom
  and ComEd describing the NRC's determination that Dresden nuclear
  generating station should remain on the NRC's list of plants to be
  monitored closely and that LaSalle and Zion should be added to that list.
 
    A Current Report on Form 8-K dated January 31, 1997 was filed containing
  Unicom's consolidated financial statements as of, and for the year ended,
  December 31, 1996.
 
    A Current Report on Form 8-K dated January 31, 1997 was filed containing
  ComEd's consolidated financial statements as of, and for the year ended,
  December 31, 1996.
 
                                       60
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 9th day of May, 1997. The
signature for each undersigned company shall be deemed to relate only to
matters having reference to such company and its subsidiaries thereof.
 
                                                   Unicom Corporation
                                                       Registrant
 
                                                      Roger F. Kovack
                                          By __________________________________
                                                      Roger F. Kovack
                                                        Comptroller
                                               (Chief accounting officer and
                                            officer duly authorized to sign on
                                                 behalf of the registrant)
 
 
                                               Commonwealth Edison Company
                                                       Registrant
 
                                                      Roger F. Kovack
                                          By __________________________________
                                                      Roger F. Kovack
                                                        Comptroller
                                               (Chief accounting officer and
                                            officer duly authorized to sign on
                                                 behalf of the registrant)
 
                                       61
<PAGE>
 

                                 EXHIBIT INDEX


     Exhibits filed with or incorporated by reference in Form 10-Q for the 
quarterly period ended March 31, 1997:

<TABLE> 
<CAPTION> 
EXHIBIT   
NUMBER    DESCRIPTION OF EXHIBIT
-------   ---------------------------------------------------------------------
<C>       <S> 
(12)      Statement computing Commonwealth Edison Company ratios of earnings to
          fixed charges and ratios of earnings to fixed charges and preferred
          and preference stock dividend requirements.
(23)-1    Consent of independent public accountants applicable to Unicom
          Corporation.
(23)-2    Consent of independent public accountants applicable to Commonwealth
          Edison Company.
(27)-1    Financial data schedule of Unicom Corporation.
(27)-2    Financial data schedule of Commonwealth Edison Company.
</TABLE>