<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 SEPTEMBER 30, 1998
 
                                      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 October 31, 1998:
    Unicom Corporation                           217,173,334 shares
    Commonwealth Edison Company                  214,236,138 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 SEPTEMBER 30, 1998
 
  This document contains the Quarterly Reports on Form 10-Q for the quarterly
period ended September 30, 1998 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 pages 58-59 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 Operations for the three months, nine
     months and twelve months ended September 30, 1998 and 1997..........     5
    Consolidated Balance Sheets--September 30, 1998 and December 31,
     1997................................................................   6-7
    Statements of Consolidated Capitalization--September 30, 1998 and 
     December 31, 1997...................................................     8
    Statements of Consolidated Retained Earnings (Deficit) for the three
     months, nine months and twelve months ended September 30, 1998 and
     1997................................................................     9
    Statements of Consolidated Cash Flows for the three months, nine
     months and twelve months ended September 30, 1998 and 1997..........    10
    Notes to Financial Statements........................................ 11-38
  Management's Discussion and Analysis of Financial Condition and Results
   of Operations......................................................... 39-59
Commonwealth Edison Company and Subsidiary Companies:
  Financial Statements--
    Report of Independent Public Accountants.............................    60
    Statements of Consolidated Operations for the three months, nine
     months and twelve months ended September 30, 1998 and 1997..........    61
    Consolidated Balance Sheets--September 30, 1998 and December 31,
     1997................................................................ 62-63
    Statements of Consolidated Capitalization--September 30, 1998 and 
     December 31, 1997...................................................    64
    Statements of Consolidated Retained Earnings (Deficit) for the three
     months, nine months and twelve months ended September 30, 1998 and
     1997................................................................    65
    Statements of Consolidated Cash Flows for the three months, nine
     months and twelve months ended September 30, 1998 and 1997..........    66
    Notes to Financial Statements........................................ 67-71
  Management's Discussion and Analysis of Financial Condition and Results
   of Operations.........................................................    72
PART II. OTHER INFORMATION
  Item 1. Legal Proceedings..............................................    73
  Item 6. Exhibits and Reports on Form 8-K...............................    74
SIGNATURES...............................................................    75
</TABLE>
 
                                       2
<PAGE>
 
                                  DEFINITIONS
 
  The following terms are used in this document with the following meanings:
 
<TABLE>
<CAPTION>
          TERM                                  MEANING
 ---------------------- -------------------------------------------------------
 <C>                    <S>
 1997 Act               Illinois Electric Service Customer Choice and Rate
                         Relief Law of 1997
 AFUDC                  Allowance for funds used during construction
 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, a ComEd subsidiary
 CTC                    Non-bypassable "competitive transition charge"
 DOE                    U.S. Department of Energy
 EEI                    Edison Electric Institute
 EPRI                   Electric Power Research Institute
 EPS                    Earnings (Loss) per Common Share
 ESPP                   Employee Stock Purchase Plan
 FAC                    Fuel adjustment clause
 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., a ComEd
                         subsidiary
 INPO                   Institute of Nuclear Power Operations
 ISO                    Independent System Operator
 MGP                    Manufactured gas plant
 NEIL                   Nuclear Electric Insurance Limited
 NERC                   North American Electric Reliability Council
 NML                    Nuclear Mutual Limited
 NPL                    National Priorities List
 NRC                    Nuclear Regulatory Commission
 O&M                    Operation and maintenance
 SEC                    Securities and Exchange Commission
 SFAS                   Statement of Financial Accounting Standards
 S&P                    Standard & Poor's
 Trusts                 ComEd Financing I and ComEd Financing II, ComEd
                         subsidiaries
 Trust Securities       ComEd-obligated mandatorily redeemable preferred
                         securities of subsidiary trusts holding solely ComEd's
                         subordinated debt securities
 Unicom                 Unicom Corporation
 Unicom Energy Services Unicom Energy Services Inc., a Unicom Enterprises
                         subsidiary
 Unicom Enterprises     Unicom Enterprises Inc., a Unicom subsidiary
 Unicom Thermal         Unicom Thermal Technologies Inc., a UT Holdings
                         subsidiary
 U.S. EPA               U.S. Environmental Protection Agency
 UT Holdings            UT Holdings Inc., a Unicom Enterprises subsidiary
</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 September 30, 1998 and December 31, 1997, and
the related statements of consolidated operations, retained earnings (deficit)
and cash flows for the three-month, nine-month and twelve-month periods ended
September 30, 1998 and 1997. 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 September 30, 1998 and December 31, 1997, and the
results of their operations and their cash flows for the three-month, nine-
month and twelve-month periods ended September 30, 1998 and 1997, in
conformity with generally accepted accounting principles.
 
  As discussed in Note 3, effective January 1, 1997, the Company changed its
method of accounting for revenue recognition.
 
 
 
                                            Arthur Andersen LLP
Chicago, Illinois
November 10, 1998
 
                                       4
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                     STATEMENTS OF CONSOLIDATED OPERATIONS
 
  The following Statements of Consolidated Operations for the three months,
nine months and twelve months ended September 30, 1998 and 1997 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 prices, 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       NINE MONTHS ENDED      TWELVE MONTHS ENDED
                                              SEPTEMBER 30            SEPTEMBER 30             SEPTEMBER 30
                                          ----------------------  ----------------------  -----------------------
                                             1998        1997        1998        1997        1998         1997
                                          ----------  ----------  ----------  ----------  -----------  ----------
                                                          (THOUSANDS EXCEPT PER SHARE DATA)
<S>                                       <C>         <C>         <C>         <C>         <C>          <C>
Operating Revenues......................  $2,095,699  $2,071,074  $5,587,080  $5,428,413  $ 7,242,698  $7,065,805
                                          ----------  ----------  ----------  ----------  -----------  ----------
Operating Expenses and Taxes:
 Fuel...................................  $  349,411  $  354,584  $  831,710  $  972,374  $ 1,098,773  $1,262,710
 Purchased power........................     193,637      95,762     693,726     279,402      814,380     311,952
 Operation and maintenance..............     568,344     576,483   1,693,912   1,789,089    2,344,471   2,364,527
 Depreciation and amortization..........     232,461     250,892     713,944     755,159      963,524     999,140
 Taxes (except income)..................     179,385     224,949     571,873     615,129      757,692     798,958
 Income taxes...........................     184,368     188,727     296,854     285,227      328,633     365,787
 Investment tax credits deferred--net...      (6,889)     (7,570)    (20,937)    (23,364)     (28,588)    (30,399)
                                          ----------  ----------  ----------  ----------  -----------  ----------
                                          $1,700,717  $1,683,827  $4,781,082  $4,673,016  $ 6,278,885  $6,072,675
                                          ----------  ----------  ----------  ----------  -----------  ----------
Operating Income........................  $  394,982  $  387,247  $  805,998  $  755,397  $   963,813  $  993,130
                                          ----------  ----------  ----------  ----------  -----------  ----------
Other Income and (Deductions):
 Interest on long-term debt, net of
  interest capitalized..................  $ (111,535) $ (120,136) $ (334,929) $ (368,056) $  (454,260) $ (494,321)
 Interest on notes payable..............      (6,170)     (3,254)    (15,186)     (8,503)     (15,817)     (9,459)
 Allowance for funds used during
  construction..........................       4,467      10,643      12,325      30,433       24,217      39,106
 Income taxes applicable to nonoperating
  activities............................      (1,748)      1,996       4,450       4,414       11,265      11,761
 Provisions for dividends--
  Preferred and preference stocks of
   ComEd................................     (14,053)    (14,902)    (43,062)    (45,914)     (57,635)    (61,467)
  ComEd-obligated mandatorily redeemable
   preferred securities of subsidiary
   trusts holding solely ComEd's
   subordinated debt securities.........      (7,428)     (7,357)    (22,283)    (21,433)     (29,710)    (25,673)
 Loss on nuclear plant closure..........         --          --          --          --      (885,611)        --
 Income tax effects of nuclear plant
  closure...............................         --          --          --          --       362,952         --
 Miscellaneous--net.....................       6,307     (13,941)     (8,318)    (34,827)     (70,945)    (47,691)
                                          ----------  ----------  ----------  ----------  -----------  ----------
                                          $ (130,160) $ (146,951) $ (407,003) $ (443,886) $(1,115,544) $ (587,744)
                                          ----------  ----------  ----------  ----------  -----------  ----------
Net Income (Loss) before Extraordinary
 Item and Cumulative Effect of Change in
 Accounting Principle...................  $  264,822  $  240,296  $  398,995  $  311,511  $  (151,731) $  405,386
Extraordinary Loss, less Applicable
 Income Taxes...........................         --          --          --          --      (810,335)        --
Cumulative Effect of Change in
 Accounting Principle...................         --          --          --      196,700          --      196,700
                                          ----------  ----------  ----------  ----------  -----------  ----------
Net Income (Loss).......................  $  264,822  $  240,296  $  398,995  $  508,211  $  (962,066) $  602,086
                                          ==========  ==========  ==========  ==========  ===========  ==========
Earnings (loss) per common share before
 extraordinary item and cumulative
 effect of change in accounting
 principle--
 Basic..................................  $     1.22  $     1.11  $     1.84  $     1.44  $     (0.69) $     1.88
 Diluted................................  $     1.22  $     1.11  $     1.83  $     1.44  $     (0.69) $     1.87
Extraordinary loss, less applicable
 income taxes (basic and diluted).......  $      --   $      --   $      --   $      --   $     (3.75) $      --
Cumulative effect of change in
 accounting principle (basic and
 diluted) ..............................  $      --   $      --   $      --   $     0.91  $       --   $     0.91
Earnings (loss) per common share--
 Basic..................................  $     1.22  $     1.11  $     1.84  $     2.35  $     (4.44) $     2.79
 Diluted................................  $     1.22  $     1.11  $     1.83  $     2.35  $     (4.44) $     2.78
Cash Dividends Declared per Common
 Share..................................  $     0.40  $     0.40  $     1.20  $     1.20  $      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>
                                                       SEPTEMBER
                                                          30,      DECEMBER 31,
                       ASSETS                            1998          1997
                       ------                         -----------  ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Utility Plant:
  Plant and equipment, at original cost (includes
   construction work in progress of $997 million and
   $1,131 million, respectively)..................... $27,622,915  $27,519,365
  Less--Accumulated provision for depreciation.......  14,977,452   11,645,985
                                                      -----------  -----------
                                                      $12,645,463  $15,873,380
  Nuclear fuel, at amortized cost....................     890,235      906,043
                                                      -----------  -----------
                                                      $13,535,698  $16,779,423
                                                      -----------  -----------
Investments and Other Property:
  Nuclear decommissioning funds...................... $ 2,026,648  $ 1,855,697
  Subsidiary companies...............................      41,365       41,830
  Other, at cost.....................................     247,404      216,243
                                                      -----------  -----------
                                                      $ 2,315,417  $ 2,113,770
                                                      -----------  -----------
Current Assets:
  Cash............................................... $    42,574  $    18,519
  Temporary cash investments.........................      85,489      102,702
  Special deposits...................................       1,245          271
  Receivables--
    Customers........................................   1,378,381      873,418
    Other............................................      66,014      132,449
    Provisions for uncollectible accounts............     (20,792)     (17,544)
  Coal and fuel oil, at average cost.................     152,324      120,664
  Materials and supplies, at average cost............     250,492      255,338
  Deferred income taxes related to current assets and
   liabilities.......................................      46,592      179,553
  Prepayments and other..............................     150,990      126,088
                                                      -----------  -----------
                                                      $ 2,153,309  $ 1,791,458
                                                      -----------  -----------
Deferred Charges and Other Noncurrent Assets:
  Regulatory assets.................................. $ 4,473,473  $ 1,685,235
  Coal reserves......................................     113,032      194,769
  Other..............................................      97,561      135,095
                                                      -----------  -----------
                                                      $ 4,684,066  $ 2,015,099
                                                      -----------  -----------
                                                      $22,688,490  $22,699,750
                                                      ===========  ===========
</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>
                                                        SEPTEMBER
                                                           30,     DECEMBER 31,
            CAPITALIZATION AND LIABILITIES                1998         1997
            ------------------------------             ----------- ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                    <C>         <C>
Capitalization (see accompanying statements):
  Common stock equity................................. $ 5,067,359 $ 4,918,687
  Preferred and preference stocks of ComEd--
    Without mandatory redemption requirements.........     506,808     507,053
    Subject to mandatory redemption requirements......     157,118     174,328
  ComEd-obligated mandatorily redeemable preferred
   securities of
   subsidiary trusts holding solely ComEd's
   subordinated debt securities*......................     350,000     350,000
  Long-term debt......................................   6,014,714   5,737,348
                                                       ----------- -----------
                                                       $12,095,999 $11,687,416
                                                       ----------- -----------
Current Liabilities:
  Notes payable ...................................... $   408,646 $   158,150
  Current portion of long-term debt, redeemable pref-
   erence stock and capitalized lease obligations of
   subsidiary companies...............................     281,184     775,296
  Accounts payable....................................     476,612     505,444
  Accrued interest....................................     150,998     169,559
  Accrued taxes.......................................     377,991     175,758
  Dividends payable...................................     103,369     107,001
  Customer deposits...................................      56,266      55,214
  Accrued plant closing costs.........................      96,134     135,000
  Other...............................................     129,136     165,177
                                                       ----------- -----------
                                                       $ 2,080,336 $ 2,246,599
                                                       ----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
  Deferred income taxes............................... $ 3,736,723 $ 3,850,308
  Nuclear decommissioning liability for retired
   plants.............................................   1,226,700   1,301,000
  Accumulated deferred investment tax credits.........     573,713     602,122
  Accrued spent nuclear fuel disposal fee and related
   interest...........................................     719,902     692,673
  Obligations under capital leases of subsidiary
   companies..........................................     401,288     437,950
  Regulatory liabilities..............................     622,758     698,750
  Other...............................................   1,231,071   1,182,932
                                                       ----------- -----------
                                                       $ 8,512,155 $ 8,765,735
                                                       ----------- -----------
Commitments and Contingent Liabilities (Note 22)
                                                       $22,688,490 $22,699,750
                                                       =========== ===========
</TABLE>
 
  *As described in Note 11 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>
                                                       
                                                     SEPTEMBER 30,  DECEMBER
                                                         1998       31, 1997
                                                     ------------  -----------
                                                      (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Common Stock Equity:
  Common stock, without par value--
   Outstanding--217,101,062 shares and 216,659,480
    shares, respectively (excludes $7 million as of
    September 30, 1998 and December 31, 1997 held by
    trustee for Unicom Stock Bonus Deferral Plan).... $ 4,953,467  $ 4,943,211
  Preference stock expense of ComEd..................      (3,217)      (3,340)
  Retained earnings (deficit)........................     117,109      (21,184)
                                                      -----------  -----------
                                                      $ 5,067,359  $ 4,918,687
                                                      -----------  -----------
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--58,211 shares
     and 65,912 shares, respectively.................       1,851        2,096
    Prior preferred stock, cumulative, $100 par value
     per share--
     No shares outstanding...........................         --           --
                                                      -----------  -----------
                                                      $   506,808  $   507,053
                                                      -----------  -----------
  Subject to Mandatory Redemption Requirements:
    Preference stock, cumulative, without par value--
     Outstanding--1,756,060 shares and 2,058,560
      shares, respectively........................... $   174,919  $   205,016
    Current redemption requirements for preference
     stock included
     in current liabilities..........................     (17,801)     (30,688)
                                                      -----------  -----------
                                                      $   157,118  $   174,328
                                                      -----------  -----------
ComEd-Obligated Mandatorily Redeemable Preferred
 Securities of Subsidiary Trusts Holding Solely
 ComEd's Subordinated Debt Securities................ $   350,000  $   350,000
                                                      -----------  -----------
Long-Term Debt:
  First mortgage bonds:
    Maturing 1998 through 2002--6.00% to 9 3/8%...... $   830,000  $ 1,060,000
    Maturing 2003 through 2012--3.70% to 8 3/8%......   1,440,400    1,440,400
    Maturing 2013 through 2022--5.85% to 9 7/8%......   1,791,000    1,791,000
    Maturing 2023--7 3/4% to 8 3/8%..................     560,000      560,000
                                                      -----------  -----------
                                                      $ 4,621,400  $ 4,851,400
  Sinking fund debentures, due 1999 through 2011--
   2 3/4% to 7 5/8%..................................      94,159      100,298
  Pollution control obligations, due 2007 through
   2014--3.60% to 5 7/8%.............................     140,700      142,200
  Other long-term debt...............................   1,290,811    1,193,818
  Current maturities of long-term debt included in
   current liabilities...............................     (85,879)    (503,909)
  Unamortized net debt discount and premium..........     (46,477)     (46,459)
                                                      -----------  -----------
                                                      $ 6,014,714  $ 5,737,348
                                                      -----------  -----------
                                                      $12,095,999  $11,687,416
                                                      ===========  ===========
</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 (DEFICIT)
 
<TABLE>
<CAPTION>
                              THREE MONTHS ENDED    NINE MONTHS ENDED    TWELVE MONTHS ENDED
                                 SEPTEMBER 30         SEPTEMBER 30          SEPTEMBER 30
                              -------------------- -------------------- ----------------------
                                1998       1997      1998       1997       1998        1997
                              --------  ---------- --------  ---------- ----------  ----------
                                                 (THOUSANDS OF DOLLARS)
<S>                           <C>       <C>        <C>       <C>        <C>         <C>
Balance at Beginning of
 Period...................... $(60,832) $1,272,858 $(21,184) $1,177,997 $1,426,479  $1,170,436
Add--Net income (loss).......  264,822     240,296  398,995     508,211   (962,066)    602,086
                              --------  ---------- --------  ---------- ----------  ----------
                              $203,990  $1,513,154 $377,811  $1,686,208 $  464,413  $1,772,522
                              --------  ---------- --------  ---------- ----------  ----------
Deduct--
   Cash dividends declared on
    common stock............. $ 86,842  $   86,567 $260,355  $  259,615 $  346,965  $  345,936
   Other capital stock trans-
    actions--net.............       39         108      347         114        339         107
                              --------  ---------- --------  ---------- ----------  ----------
                              $ 86,881  $   86,675 $260,702  $  259,729 $  347,304  $  346,043
                              --------  ---------- --------  ---------- ----------  ----------
Balance at End of Period
 (includes $470 million of
 appropriated retained
 earnings at September 30,
 1998)....................... $117,109  $1,426,479 $117,109  $1,426,479 $  117,109  $1,426,479
                              ========  ========== ========  ========== ==========  ==========
</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     NINE MONTHS ENDED      TWELVE MONTHS ENDED
                             SEPTEMBER 30           SEPTEMBER 30            SEPTEMBER 30
                          --------------------  ---------------------  -----------------------
                            1998       1997       1998        1997        1998        1997
                          ---------  ---------  ---------  ----------  ----------  -----------
                                              (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>        <C>         <C>         <C>
Cash Flow from Operating
 Activities:
 Net income (loss)......  $ 264,822  $ 240,296  $ 398,995  $  508,211  $ (962,066) $   602,086
 Adjustments to
  reconcile net income
  (loss) to net cash
  provided by operating
  activities:
   Depreciation and
    amortization........    246,815    264,059    755,593     788,381   1,018,754    1,041,989
   Deferred income taxes
    and investment tax
    credits--net........    (10,773)    (5,069)    (4,647)     (1,178)   (348,512)      13,981
   Extraordinary loss
    related to write-off
    of certain net
    regulatory assets...        --         --         --          --      810,335          --
   Cumulative effect of
    change in accounting
    principle...........        --         --         --     (196,700)        --      (196,700)
   Loss on nuclear plant
    closure.............        --         --         --          --      885,611          --
   Payments for revenue
    refunds.............        --         --     (45,470)        --          --           --
   Equity component of
    allowance for funds
    used during
    construction........     (1,814)    (5,772)    (5,358)    (16,558)    (12,570)     (21,614)
   Provisions/(payments)
    for liability for
    separation costs--
    net.................     (9,853)    24,146     (2,817)     24,948     (11,779)      23,919
   Net effect on cash
    flows of changes in:
     Receivables........   (292,026)     8,555   (435,280)     98,536    (509,733)     101,350
     Coal and fuel oil..     52,848     35,704    (31,660)     (4,084)     (7,878)       5,521
     Materials and
      supplies..........     13,452       (319)     1,559         222      42,996        6,303
     Accounts payable
      excluding
      separation costs--
      net...............   (124,957)   (42,163)   (23,915)    (86,923)     67,779       47,712
     Accrued interest
      and taxes.........    100,645    100,780    183,672     123,760      42,009       17,890
     Other changes in
      certain current
      assets and
      liabilities.......     29,731     92,201     83,382     192,450     188,004      237,557
   Other--net...........     31,410     10,596     76,249     139,635     104,423      172,214
                          ---------  ---------  ---------  ----------  ----------  -----------
                          $ 300,300  $ 723,014  $ 950,303  $1,570,700  $1,307,373  $ 2,052,208
                          ---------  ---------  ---------  ----------  ----------  -----------
Cash Flow from Investing
 Activities:
 Construction
  expenditures..........  $(202,930) $(233,612) $(635,668) $ (695,861) $ (983,117) $  (942,695)
 Nuclear fuel
  expenditures..........    (28,616)   (66,555)  (123,583)   (157,271)   (151,686)    (212,203)
 Sale of generating
  plants................        --         --     177,454         --      238,245          --
 Equity component of
  allowance for funds
  used during
  construction..........      1,814      5,772      5,358      16,558      12,570       21,614
 Contributions to
  nuclear
  decommissioning
  funds.................        --         --     (80,077)    (80,181)   (114,721)    (116,284)
 Other investments and
  special deposits......     (6,001)       688    (10,863)    (34,193)     10,083      (31,891)
                          ---------  ---------  ---------  ----------  ----------  -----------
                          $(235,733) $(293,707) $(667,379) $ (950,948) $ (988,626) $(1,281,459)
                          ---------  ---------  ---------  ----------  ----------  -----------
Cash Flow from Financing
 Activities:
 Issuance of
  securities--
   Long-term debt.......  $ 347,068  $  40,000  $ 382,068  $  357,663  $  387,068  $   367,663
   ComEd-obligated
    mandatorily
    redeemable preferred
    securities of
    subsidiary trusts
    holding solely
    ComEd's subordinated
    debt securities.....        --         --         --      150,000         --       150,000
   Capital stock........      4,141        127     10,908       9,440      17,246       17,191
 Retirement and
  redemption of
  securities--
   Long-term debt.......   (151,008)  (100,283)  (525,656)   (676,736)   (585,660)    (777,522)
   Capital stock........    (24,270)   (37,300)   (30,495)    (40,539)    (34,066)     (44,141)
 Deposits and
  securities held for
  retirement and
  redemption of
  securities............        995        229        --          --          --           --
 Premium paid on early
  redemption of long-
  term debt.............        --         --         --       (9,500)        --        (9,500)
 Cash dividends paid on
  common stock..........    (86,763)   (86,565)  (260,111)   (259,370)   (346,678)    (345,631)
 Proceeds from
  sale/leaseback of
  nuclear fuel..........     39,612     22,953    101,038     104,224     146,768      170,925
 Nuclear fuel lease
  principal payments....    (43,321)   (38,206)  (204,330)   (124,061)   (246,681)    (177,109)
 Increase/(decrease) in
  short-term
  borrowings............    (81,200)  (221,000)   250,496     (86,000)    365,896     (120,800)
                          ---------  ---------  ---------  ----------  ----------  -----------
                          $   5,254  $(420,045) $(276,082) $ (574,879) $ (296,107) $  (768,924)
                          ---------  ---------  ---------  ----------  ----------  -----------
Increase in Cash and
 Temporary Cash
 Investments............  $  69,821  $   9,262  $   6,842  $   44,873  $   22,640  $     1,825
Cash and Temporary Cash
 Investments at
 Beginning of Period....     58,242     96,161    121,221      60,550     105,423      103,598
                          ---------  ---------  ---------  ----------  ----------  -----------
Cash and Temporary Cash
 Investments at End of
 Period.................  $ 128,063  $ 105,423  $ 128,063  $  105,423  $  128,063  $   105,423
                          =========  =========  =========  ==========  ==========  ===========
</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 is the parent holding
company of ComEd and Unicom Enterprises. ComEd, a regulated electric utility,
is the principal subsidiary of Unicom. Unicom Enterprises is an unregulated
subsidiary of Unicom and is engaged, through its subsidiaries, in energy
service activities.
 
  The consolidated financial statements include the accounts of Unicom, ComEd,
the Indiana Company, the Trusts and Unicom's unregulated subsidiaries. All
significant intercompany transactions have been eliminated. ComEd's
investments in other subsidiary companies, which are not material in relation
to ComEd's financial position or results of operations, are accounted for in
accordance with the equity method of accounting.
 
  USE OF ESTIMATES. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
 
  REGULATION. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd's accounting policies and
the accompanying consolidated financial statements conform to GAAP applicable
to rate-regulated enterprises for the non-generation portion of its business,
including the effects of the ratemaking process in accordance with SFAS No.
71, Accounting for the Effects of Certain Types of Regulation. Such effects on
the non-generation portion of its business concern mainly the time at which
various items enter into the determination of operating results in order to
follow the principle of matching costs with the applicable revenues collected
from or returned to customers through future rates. See Note 2 for information
regarding the write-off of generation-related regulatory assets and
liabilities in December 1997.
 
  ComEd's investment in generation-related net utility plant, including
construction work in progress and nuclear fuel and excluding the
decommissioning costs included in the accumulated provision for depreciation,
not subject to cost-based rate regulation, was $9.2 billion and $12.4 billion
at September 30, 1998 and December 31, 1997, respectively. See Note 2
regarding the plant impairment recorded by ComEd in the second quarter of
1998.
 
                                      11
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  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 September 30, 1998 and December 31, 1997
were as follows:
 
<TABLE>
<CAPTION>
                                                     SEPTEMBER 30, DECEMBER 31,
                                                         1998          1997
                                                     ------------- ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                  <C>           <C>
Regulatory assets:
  Impaired production plant (1).....................  $2,987,647    $      --
  Deferred income taxes (2).........................     702,824       785,354
  Nuclear decommissioning costs--Dresden Unit 1 (3).     264,532       268,369
  Nuclear decommissioning costs--Zion Units 1 and 2
   (4)..............................................     470,488       579,777
  Unamortized loss on reacquired debt (5)...........      47,982        51,735
                                                      ----------    ----------
                                                      $4,473,473    $1,685,235
                                                      ==========    ==========
Regulatory liabilities:
  Deferred income taxes (2).........................  $  622,758    $  698,750
                                                      ==========    ==========
</TABLE>
--------
(1) Amortized over a transition period which is expected to end by 2006, but
    may be extended to 2008 with ICC approval. See Note 2 for additional
    information.
(2) Recorded in compliance with SFAS No. 109, Accounting For Income Taxes, for
    non-generation related timing differences.
(3) Amortized over the period 1998 to 2011. See "Depreciation, Amortization of
    Regulatory Assets and Decommissioning" below for additional information.
(4) Amortized over the period 1998 to 2013. See "Depreciation, Amortization of
    Regulatory Assets and Decommissioning" below for additional information.
(5) Amortized over the remaining lives of the non-generation related long-term
    debt issued to finance the reacquisition. See "Loss on Reacquired Debt"
    below for additional information.
 
  FUEL ADJUSTMENT CLAUSE. Pursuant to an option contained in the 1997 Act,
ComEd filed a tariff on December 16, 1997 to eliminate its FAC as of January
1, 1997. The FAC provided 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 had recorded under or overrecoveries of allowable fuel and
energy costs which, under the FAC, were recoverable or refundable in
subsequent months. See Note 2 for additional information regarding the effects
of eliminating the FAC. See Note 4 for information concerning FAC
reconciliation proceedings for the years 1994 and 1996.
 
  NUCLEAR FUEL. The cost of nuclear fuel is amortized to fuel expense based on
the quantity of heat produced using the unit of production method. As
authorized by the ICC, provisions for spent nuclear fuel disposal costs have
been recorded at a level required to recover the fee payable on the current
nuclear-generated and sold electricity and the current interest accrual on the
one-time fee payable to the DOE for nuclear generation prior to April 7, 1983.
The one-time fee and interest thereon have been recovered and the current fee
and interest on the one-time fee are presently being recovered through base
rates. See Note 14 for additional information concerning the disposal of spent
nuclear fuel, one-time fee and interest accrual on the one-time fee. Nuclear
fuel expenses, including leased fuel costs and provisions for spent nuclear
fuel disposal costs, were $92 million and $87 million for the three months
ended September 30, 1998 and 1997, respectively, $233 million and $230 million
for the nine months ended September 30, 1998 and 1997, respectively, and $301
million and $315 million for the twelve months ended September 30, 1998 and
1997, respectively.
 
  The balance of nuclear fuel, at amortized cost, on the Consolidated Balance
Sheets includes amounts to be recovered 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
September 30, 1998 and December 31, 1997, an asset related to the
 
                                      12
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
assessments of $144 million and $156 million, respectively, was recorded. As
of September 30, 1998 and December 31, 1997, a corresponding liability of $144
million was recorded, of which $16 million was included in other current
liabilities on the Consolidated Balance Sheets for each period.
 
  COAL RESERVES. At September 30, 1998 and December 31, 1997, ComEd had coal
reserves of $221 million and $282 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 expects to recover from its
customers the costs of the coal reserves, as coal is used for the generation
of electricity, through base rates. Such fuel costs expected to be recovered
within one year amounting to $108 million and $87 million at September 30,
1998 and December 31, 1997, respectively, have been included in current assets
as prepayments and other on the Consolidated Balance Sheets. ComEd expects to
recover fully the costs of the coal reserves before the year 2001. See Note 22
for additional information regarding 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
September 30, 1998. 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 September 30, 1998. ComEd had 3.4 million electric
customers at September 30, 1998. See Notes 4 and 19 for additional
information.
 
  DEPRECIATION, AMORTIZATION OF REGULATORY ASSETS AND DECOMMISSIONING.
Depreciation, decommissioning and amortization of regulatory assets for the
three months, nine months and twelve months ended September 30, 1998 and 1997
were as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED  NINE MONTHS ENDED TWELVE MONTHS ENDED
                             SEPTEMBER 30       SEPTEMBER 30       SEPTEMBER 30
                          ------------------- ----------------- -------------------
                            1998      1997      1998     1997     1998      1997
                          --------- --------- -------- -------- --------- ---------
                                           (THOUSANDS OF DOLLARS)
<S>                       <C>       <C>       <C>      <C>      <C>       <C>
Depreciation expense....  $ 178,788 $ 219,918 $612,161 $662,239 $ 830,767 $ 875,247
Decommissioning expense.     20,955    27,156   69,065   81,466    96,221   108,621
Amortization of
 regulatory assets......     32,718     3,818   32,718   11,454    36,536    15,272
                          --------- --------- -------- -------- --------- ---------
                          $ 232,461 $ 250,892 $713,944 $755,159 $ 963,524 $ 999,140
                          ========= ========= ======== ======== ========= =========
</TABLE>
 
  ComEd's depreciation is provided on the straight-line basis by amortizing
the cost of depreciable plant and equipment over estimated service lives for
each class of plant. Provisions for depreciation, including nuclear plant,
were at average annual rates of 2.74%, 3.12% and 3.18% for the three months,
nine months and twelve months ended September 30, 1998, respectively, of
average depreciable utility plant and equipment. Provisions for depreciation,
including nuclear plant, were at average annual rates of 3.35% for the three
months and nine months ended September 30, 1997 and 3.33% for the twelve
months ended September 30, 1997 of average depreciable utility plant and
equipment. The decrease for the recent periods ended September 30, 1998 in the
average depreciation rates relates primarily to a reduction in nuclear
depreciation rates due to the partial impairment of production plant, which
was recorded as a component of accumulated depreciation, partially offset by
shortened depreciable lives for certain nuclear stations. The annual rate for
nuclear plant and equipment, excluding separately collected decommissioning
costs and depreciation
 
                                      13
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

related to the replacement of the steam generators, was 2.88% for periods
ending prior to July 1, 1998. The nuclear depreciation rate applied to gross
depreciable nuclear plant, beginning July 1, 1998, is 2.16% reflecting the
partial impairment of production plant and shortened depreciable lives for
certain nuclear stations. See Note 2 for additional information on the partial
impairment of production plant.
 
  The regulatory asset for impaired production plant is being amortized as it
is recovered through regulated cash flows over a transition period which is
expected to end by 2006, but may be extended to 2008 with ICC approval.
Recovery of the regulatory asset will be realized through future regulatory
revenues, including CTC revenues, and potential gains on generation asset
sales, and will vary from year to year.
 
  Nuclear plant decommissioning costs generally 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 "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Results of Operations--Decommissioning,"
for a discussion of questions raised by the staff of the SEC and a FASB review
regarding the electric utility industry's method of accounting for
decommissioning costs. Dismantling is expected to occur relatively soon after
the end of the current NRC license life of each generating station currently
operating. The accrual for decommissioning is based on the prompt removal
method authorized by NRC guidelines. ComEd's ten operating units have
remaining current NRC license lives ranging from 7 to 29 years. ComEd's Zion
Station and its first nuclear unit, Dresden Unit 1, are retired and are
expected to be dismantled beginning in the years 2014 and 2012, respectively,
which is consistent with the regulatory treatment for the related
decommissioning costs.
 
  Based on ComEd's most recent study approved by the ICC, decommissioning
costs, including the cost of decontamination and dismantling, are estimated to
aggregate $4.4 billion in current-year (1998) dollars, including a contingency
allowance. ComEd estimates that it will expend approximately $11.6 billion,
including a contingency allowance, for decommissioning costs primarily during
the period from 2007 through 2034. Additionally, ComEd estimates that it will
expend an aggregate of approximately $217 million in current-year (1998)
dollars during the period 2000 through 2014 to maintain Zion Station in a
secured mode until decommissioning begins. All 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.
 
  Since 1995, ComEd has collected decommissioning costs from its ratepayers in
conjunction with a rider to its tariffs. The rider allows annual adjustments
to decommissioning cost collections outside the context of a traditional rate
proceeding and will continue under the 1997 Act. The current estimated
decommissioning costs include a contingency allowance, but, except at Dresden
Unit 1, exclude amounts for spent fuel storage installations, which may be
necessary to store spent fuel during the period beginning at the end of the
NRC license life of the plants to the date when the DOE accepts the spent fuel
for permanent storage. 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.
 
                                      14
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  In February 1998, the ICC authorized a reduction in the annual
decommissioning cost accrual from $109 million to $84 million. The reduction
primarily reflects stronger than expected after-tax returns on the external
trust funds in 1996 and lower than expected escalation in low-level waste
disposal costs, partially offset by the higher current-year cost estimates,
including a contingency allowance.
 
  The approved annual decommissioning cost accrual of $84 million was
determined using the following assumptions: the decommissioning cost estimate
of $4.4 billion in current-year (1998) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.30% and 6.26%,
respectively, and an escalation rate for future decommissioning costs of 4.1%.
The annual accrual of $84 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 to approximately $11.6
billion.
 
  For the ten operating nuclear units, decommissioning cost accruals are
recorded as portions of depreciation expense and accumulated provision for
depreciation on the Statements of Consolidated Operations and the Consolidated
Balance Sheets, respectively, as such costs are recovered through rates. As of
September 30, 1998, the total decommissioning costs included in the
accumulated provision for depreciation were $1,691 million.
 
  For ComEd's retired nuclear units, the total estimated liability for nuclear
decommissioning in current-year (1998) dollars is recorded as a liability. The
unrecovered portion of the liability was also recorded as a regulatory asset.
The nuclear decommissioning liability for retired plants as of September 30,
1998 was as follows:
 
<TABLE>
<CAPTION>
                                                               ZION
                                                    DRESDEN   UNITS
                                                     UNIT 1  1 AND 2    TOTAL
                                                    -------- -------- ----------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                 <C>      <C>      <C>
Amounts recovered through rates and investment
 fund earnings....................................  $111,668 $380,012 $  491,680
Unrecovered portion of the liability..............   264,532  470,488    735,020
                                                    -------- -------- ----------
 Nuclear decommissioning liability for retired
  plants..........................................  $376,200 $850,500 $1,226,700
                                                    ======== ======== ==========
</TABLE>
 
  The total estimated liability related to Zion Units 1 and 2, and the
unrecovered portion of that liability, decreased from December 31, 1997 to
September 30, 1998 due to the exclusion of estimated dry cask storage costs.
 
  Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts. 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. The fair value of funds accumulated
in the external trusts at September 30, 1998 was $2,027 million, which
includes pre-tax unrealized appreciation of $431 million. The earnings on the
external trusts for operating plants accumulate in the fund balance and
accumulated provision for depreciation. Nuclear decommissioning funding as of
September 30, 1998 was as follows:
 
<TABLE>
<CAPTION>
                                                          (THOUSANDS OF DOLLARS)
<S>                                                       <C>
Amounts recovered through rates and investment fund
 earnings for operating plants (included in the accumu-
 lated provision for depreciation)......................        $1,690,842
Amounts recovered through rates and investment fund
 earnings for retired plants............................           491,680
Less past accruals not yet contributed to the trusts....          (155,874)
                                                                ----------
 Fair value of external trust funds.....................        $2,026,648
                                                                ==========
</TABLE>
 
                                      15
<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 AND INTEREST CAPITALIZED. 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 for the non-generation portion of its
business. 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 8.18% and 9.22% for the three months
ended September 30, 1998 and 1997, respectively, 8.41% and 9.24% for the nine
months ended September 30, 1998 and 1997, respectively, and 8.76% and 9.33%
for the twelve months ended September 30, 1998 and 1997, respectively. ComEd
discontinued SFAS No. 71 regulatory accounting practices in December 1997 for
the generation portion of its business. As a result, beginning in 1998, ComEd
is capitalizing interest costs on its generation-related construction work in
progress and nuclear fuel in process. Interest costs capitalized were $6
million for the three months and $14 million for the nine months and twelve
months ended September 30, 1998. AFUDC and interest capitalized do not
contribute to the current cash flow of Unicom or ComEd.
 
  INTEREST. Total interest costs incurred on debt, leases and other
obligations were $135 million and $150 million for the three months ended
September 30, 1998 and 1997, respectively, $412 million and $453 million for
the nine months ended September 30, 1998 and 1997, respectively, and $557
million and $605 million for the twelve months ended September 30, 1998 and
1997, respectively.
 
  DEBT DISCOUNT, PREMIUM AND EXPENSE. Discount, premium and expense on long-
term debt of ComEd are being amortized over the lives of the respective
issues.
 
  LOSS ON REACQUIRED DEBT. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition in connection with the refinancing of first
mortgage bonds, sinking fund debentures and pollution control obligations
prior to their scheduled maturity dates is deferred and amortized over the
lives of the long-term debt issued to finance the reacquisition for non-
generation related financings. See "Regulatory Assets and Liabilities" above
and Note 2 for additional information.
 
  STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN. Unicom has elected to
adopt SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure
purposes only. Unicom accounts for its stock option awards and ESPP under APB
Opinion No. 25, Accounting for Stock Issued to Employees. See Note 8 for
additional information.
 
                                      16
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  AVERAGE COMMON SHARES OUTSTANDING. The number of average outstanding common
shares used to compute basic and diluted EPS for the three months, nine months
and twelve months ended September 30, 1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED  NINE MONTHS ENDED TWELVE MONTHS ENDED
                             SEPTEMBER 30       SEPTEMBER 30       SEPTEMBER 30
                          ------------------- ----------------- -------------------
                            1998      1997      1998     1997     1998      1997
                          --------- --------- -------- -------- --------- ---------
                                            (THOUSANDS OF SHARES)
<S>                       <C>       <C>       <C>      <C>      <C>       <C>
Average Number of Common
 Shares Outstanding:
 Average Number of Com-
  mon Shares--Basic.....    217,024   216,409  216,876  216,277   216,779   216,144
 Potentially Dilutive
  Common Shares--Trea-
  sury Method:
  Stock Options.........        647       --       583      --        529       --
  Other Convertible Se-
   curities.............         90        98       90       98        90        98
                          --------- --------- -------- -------- --------- ---------
 Average Number of Com-
  mon Shares--Diluted...    217,761   216,507  217,549  216,375   217,398   216,242
                          ========= ========= ======== ======== ========= =========
</TABLE>
 
  ENERGY RISK MANAGEMENT CONTRACTS. In the normal course of business, ComEd
utilizes contracts for the forward sale and purchase of energy to manage
effectively the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. As
ComEd does not currently utilize financial or commodity instruments for
trading or speculative purposes, any gains or losses on forward commodity
contracts are recognized when the underlying transactions affect earnings.
Revenues and expenses associated with market price risk management contracts
are amortized over the terms of such contracts.
 
  In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded on the
Consolidated Balance Sheets as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value
be recognized currently in earnings, unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item on the Statements of
Consolidated Operations, and requires Unicom and ComEd to formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
 
  SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
SFAS No. 133 may be implemented prior to June 15, 1999, but such
implementation cannot be applied retroactively. SFAS No. 133 must be applied
to (i) derivative instruments and (ii) certain derivative instruments embedded
in hybrid contracts that were issued, acquired, or substantively modified
after December 31, 1997 (and, at the company's election, before January 1,
1998).
 
  Unicom and ComEd have not yet quantified the effects of adopting SFAS No.
133 on their financial statements and have not determined the timing or method
of their adoption of SFAS No. 133. However, adoption of SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
 
  RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on results of operations. See Note 3 for information regarding the
restatement of 1997 interim financial statements for a change in accounting
principle.
 
 
                                      17
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

  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,
nine months and twelve months ended September 30, 1998 and 1997 was as
follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED   NINE  MONTHS ENDED  TWELVE  MONTHS ENDED
                              SEPTEMBER 30        SEPTEMBER 30         SEPTEMBER 30
                          -------------------- ------------------- ---------------------
                            1998       1997      1998      1997       1998       1997
                          --------- ---------- --------- --------- ---------- ----------
                                              (THOUSANDS OF DOLLARS)
<S>                       <C>       <C>        <C>       <C>       <C>        <C>
Supplemental Cash Flow
 Information:
 Cash paid during the
  period for:
   Interest (net of
    amount capitalized).    $98,722 $  153,487 $ 352,057 $ 413,080 $  451,027 $  524,649
   Income taxes (net of
    refunds)............  $  23,040 $   27,183 $  23,546 $  82,684 $  206,663 $  260,230
Supplemental Schedule of
 Non-Cash Investing and
 Financing Activities:
 Capital lease obliga-
  tions incurred by
  subsidiary companies..  $  40,954 $   24,760 $ 104,933 $ 110,533 $  152,812 $  178,161
</TABLE>
 
  (2) ACCOUNTING EFFECTS RELATED TO THE 1997 ACT. On December 16, 1997, the
Governor of Illinois signed into law the 1997 Act, which established a phased
process to introduce competition into the electric industry in Illinois under
a less regulated structure. Major provisions of the 1997 Act applicable to
ComEd include a 15% residential base rate reduction which became effective
August 1, 1998, an additional 5% residential base rate reduction commencing on
May 1, 2002, and gradual customer access to other electric suppliers. Access
for commercial and industrial customers will occur over a period from October
1999 to December 2000, and access for residential customers will occur after
May 1, 2002. ComEd expects that the 15% residential base rate reduction will
reduce ComEd's operating revenues by approximately $170 million and $390
million in 1998 and 1999, respectively, compared to 1997 rate levels.
Operating revenues were reduced by approximately $80 million for the third
quarter of 1998 due to the rate reduction. ComEd is engaged in certain pricing
experiments contemplated by the 1997 Act, which are expected to reduce ComEd's
operating revenues by approximately $30 million and $55 million in 1998 and
1999, respectively, compared to 1997 rate levels; however, such reductions are
expected to be offset by the effects of customer growth.
 
  The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval. The
CTC will be established in accordance with a formula defined in the 1997 Act.
The CTC, which will be applied on a cents per kilowatthour basis, considers
the revenue which would have been collected from a customer under tariffed
rates, reduced by the revenue the utility will receive for providing delivery
services to the customer, the market price for electricity and a defined
mitigation factor, which represents the utility's opportunity to develop new
revenue sources and achieve cost savings.
 
  Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period, utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC regulatory review. Under the earnings
provision of the 1997 Act, if the earned return on common equity of a utility
during this period exceeds an established threshold, one-half of the excess
earnings must be refunded to customers. A utility may request a rate increase
during the rate freeze period only when necessary to ensure the utility's
financial viability, but not before January 1, 2000.
 
 
                                      18
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
  Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based,
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the leveling of certain regulatory
requirements to permit operational flexibility, the leveling of certain
regulatory and tax provisions as applied to various electric suppliers and a
new, more stringent, liability standard applicable to ComEd in the event of a
major outage.
 
  The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a
special purpose financing entity. The proceeds from such securities issuances
must be used to refinance outstanding debt or equity or for certain other
limited purposes. The total amount of such securities that may be issued is
approximately $6.8 billion; approximately one-half of that amount can be
issued in the twelve-month period which commenced on August 1, 1998. On July
21, 1998, the ICC issued an order under the 1997 Act approving the issuance of
up to $3.4 billion of such securities. ComEd anticipates the issuance will
occur sometime in the fourth quarter of 1998, subject to market conditions.
ComEd plans to use the proceeds of such securities issuance to refinance its
debt and equity, including using between $750 million and $1.14 billion to
repurchase shares of ComEd common stock held by Unicom. Unicom in turn will
use the funds it receives from ComEd's share repurchase to repurchase publicly
held shares of Unicom's common stock. At current market prices, this
repurchase would involve 9 to 14 percent of Unicom's outstanding common stock.
The Boards of Directors of Unicom and ComEd have each approved the repurchase
of up to 33 million shares of common stock. ComEd plans to use the remaining
proceeds from the issuance of such securities, net of transaction costs, to
redeem preference stock and debt. On October 27, 1998, Unicom announced that
up to $200 million in funds obtained from operations or other sources may be
used to repurchase shares of common stock before or after the receipt of
proceeds from such securities issuances. The proceeds from such securities
issuances are expected to be the ultimate source of funding for the common
stock repurchases.
 
  As a result of the 1997 Act, prices for the supply of electric energy are
expected to change from cost-based, regulated rates to rates determined by
competitive market forces. The CTC allows ComEd to recover some of its costs
which might otherwise be unrecoverable under market-based rates. Nonetheless,
ComEd will need to take steps to address the portion of such costs which are
not recoverable through the CTC. Such steps may include cost control efforts,
developing new sources of revenue and potential asset dispositions.
 
  Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd evaluated the regulatory assets and liabilities related to the
generation portion of its business and determined that it was not probable
that such costs would be recovered through the cash flows from the regulated
portion of its business. Accordingly, the generation-related regulatory assets
and liabilities were written off in the fourth quarter of 1997, resulting in
an extraordinary charge of $810 million (after-tax), or $3.75 per common share
(basic). These write-offs related principally to previously incurred costs
originally expected to be collected through future revenues, including income
tax benefits previously flowed through to customers, deferred carrying charges
on the Byron Unit 2 and Braidwood Units 1 and 2 nuclear generating plants,
generation-related unamortized loss on reacquired debt and other miscellaneous
 
                                      19
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED

generation-related costs. The regulatory asset for the unrecovered nuclear
decommissioning costs of currently retired nuclear plants was not written off,
as the 1997 Act provides for the ongoing recovery of decommissioning costs
through regulated rates. See "Regulatory Assets and Liabilities" and
"Depreciation, Amortization of Regulatory Assets and Decommissioning" in Note
1 for additional information.
 
  Pursuant to an option contained in the 1997 Act, ComEd filed a tariff on
December 16, 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
regulated rates, the FAC provided 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. Elimination of the FAC required ComEd to refund to customers the net
FAC charges billed during the calendar year 1997 of $25 million (after-tax),
or $0.12 per common share (basic). These costs, as well as deferred
underrecovered energy costs of $19 million (after-tax), or $0.08 per common
share (basic), which ComEd would have been entitled to recover if the FAC had
remained in effect, were recorded as a charge to operating results in the
fourth quarter of 1997.
 
  Additionally, elimination of the FAC and a transition to market-based
pricing for generation-related costs required ComEd to write down its
investment in uranium-related properties. Projections of the market price for
uranium indicate that the expected incremental costs of mining and milling
uranium at such properties would exceed the expected market price for uranium.
Such costs are not expected to be recoverable in a competitive market. A write
down of ComEd's investment in uranium-related properties to realizable value
resulted in a charge of $60 million (after-tax), or $0.28 per common share
(basic), in December 1997.
 
  The staff of the SEC issued interpretive guidance in the second quarter of
1998 regarding the application of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, when a
regulated enterprise such as an electric utility discontinues regulatory
accounting practices for separable portions of its operations and assets.
Under SFAS No. 121, an asset is considered impaired, and should be written
down to fair value, if its future cash flows are insufficient to recover the
carrying value of the asset. The interpretive guidance concludes that for
purposes of applying SFAS No. 121, supplemental regulated cash flows, such as
a CTC, should be excluded from the cash flows of assets in the portion of the
business not subject to regulatory accounting practices. If such assets are
determined to be impaired, a regulatory asset should be established if such
costs are recoverable through regulated cash flows. The guidance also
addresses the extent to which assets should be grouped to determine
impairment.
 
  ComEd discontinued the application of regulatory accounting principles in
December 1997 for the generation portion of its business and performed a SFAS
No. 121 impairment analysis that concluded that future revenues, including the
collection of the CTC, expected to be recovered from electric supply services
would be sufficient to cover the costs of its generating assets. However,
reflecting the SEC's interpretive guidance, ComEd's revised impairment
evaluation resulted in a plant impairment of $3 billion. Because future CTC
revenues collected through regulated cash flows are expected to provide
recovery of the impaired plant assets, a regulatory asset was recorded for the
same amount. Accordingly, the impairment, recorded in the second quarter of
1998, had no effect on results of operations.The regulatory asset is being
amortized as it is recovered through regulated cash flows over a transition
period that ends in 2006, but may be extended to 2008 with ICC approval.
Recovery of the regulatory asset will be realized through future regulatory
revenues, including CTC revenues, and potential gains on generation asset
sales, and will vary from year to year.
 
 
                                      20
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED

  (3) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE. In the fourth
quarter of 1997, ComEd changed its accounting method for revenue recognition
to record revenues associated with service which has been provided to
customers but has not yet been billed at the end of each accounting period,
retroactive to January 1, 1997. This change in accounting method increased
operating results for the nine months and twelve months ended September 30,
1997 to reflect the one-time cumulative effect of the change for years prior
to 1997 of $197 million (after-tax), or $0.91 per common share (basic). The
results per common share (basic) for the first, second, third and fourth
quarters of 1997, reflecting the results of restatement for the effect of the
change in accounting principle, were $1.21, $0.03, $1.11 and $(6.29),
respectively. If the new accounting method had been in effect for the full
twelve months ended September 30, 1997, the pro forma unaudited operating
result would have been $446,491,000, or $2.07 per common share (basic),
excluding the cumulative effect of a change in accounting principle.
 
  (4) RATE MATTERS. Final ICC orders have been issued in fuel reconciliation
proceedings related to ComEd's FAC collections for years prior to 1994 and for
the year 1995. On November 5, 1998, the ICC issued an order in the proceeding
for the year 1994 providing for a refund of approximately $3 million related
to nuclear station performance. The ICC order is subject to appeal. In the
fuel reconciliation proceeding for 1996, an intervenor and the ICC staff have
filed testimony seeking a refund of approximately $78 million and $104
million, respectively, relating to nuclear station performance. The 1997 Act
provides that the fuel reconciliation proceeding for 1996 must be concluded by
the end of 1998. The 1997 Act also provides that, because ComEd eliminated its
FAC effective January 1, 1997, the ICC shall not conduct a fuel reconciliation
proceeding for the year 1997 or any subsequent years. See Note 2 for
information regarding the 1997 Act and the elimination of ComEd's FAC.
 
  In February 1995, two of ComEd's wholesale municipal customers filed a
complaint and request for refund with the FERC, alleging that ComEd failed to
properly adjust their rates, as provided for under the terms of their electric
service contracts, to track certain refunds made to ComEd's retail customers
in the years 1992 through 1994. In the third quarter of 1998, the FERC granted
the complaint and directed that refunds be made, with interest. ComEd has
filed a request for rehearing with the FERC and such request is currently
pending.
 
  ComEd's management believes adequate reserves have been established in
connection with the cases discussed above.
 
  (5) CLOSURE AND SALE OF PLANTS. On January 14, 1998, the Boards of Directors
of Unicom and ComEd authorized the permanent cessation of nuclear generation
operations and retirement of facilities at ComEd's 2,080 megawatt Zion nuclear
generating station. Such retirement resulted in a charge in the fourth quarter
of 1997 of $523 million (after-tax), or $2.42 per common share (basic). The
decision to close Zion Station was a result of ComEd's ongoing analysis of the
economic value of its generating assets in light of the expected changes in
the manner in which electric energy is marketed and sold. The passage of the
1997 Act provided a clearer basis for evaluating the costs and benefits of
alternative courses of action. In reaching the decision to cease nuclear
generation operations at Zion Station, the Boards also considered the
significant uncertainty associated with continued operation of the station due
to the degradation of the steam generators and the expected operating costs
associated with continued station operation.
 
  ComEd's fourth quarter 1997 financial results reflect a charge of $406
million (after-tax), representing the undepreciated costs of Zion Station
(excluding the portion which will remain in use to provide voltage support),
materials and supplies inventories, and nuclear fuel inventories. In
 
                                      21
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

addition, as required by GAAP, a liability for future closing costs associated
with the retirement of Zion Station, excluding severance costs, was recorded
resulting in a charge of $117 million (after-tax) in the fourth quarter of
1997. ComEd recorded a reduction to the liability for future closing costs of
$15 million in the third quarter of 1998 to reflect lower than expected
closing costs. See Note 17 for information regarding costs of voluntary
employee separation plans.
 
  ComEd completed the sale of two of its coal-fired generating stations,
representing 1,598 megawatts of generating capacity, and has exclusive 15-year
purchased power agreements for the output of the stations. The sales of State
Line and Kincaid Stations were completed in December 1997 and February 1998,
respectively. The net proceeds of the sales, after income tax effects and
closing costs, were approximately $190 million. The proceeds were used to
retire or redeem existing debt in the first quarter of 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Response to Regulatory Changes," for information regarding ComEd's
coal-fired generating plants being offered for sale.
 
  (6) AUTHORIZED SHARES AND VOTING RIGHTS AND STOCK RIGHTS OF CAPITAL STOCK.
At September 30, 1998, Unicom's authorized shares consisted of 400,000,000
shares of common stock. The authorized shares of ComEd preferred and preference
stocks at September 30, 1998 were: preference stock--22,066,060 shares; $1.425
convertible preferred stock--58,211 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.
 
  Pursuant to a plan adopted by Unicom's Board of Directors on February 2,
1998, each share of Unicom's common stock carries the right (referred to
herein as a "Right") to purchase one-thousandth of one share of Unicom's
common stock at a purchase price of $100 per whole share of common stock,
subject to adjustment. The Rights are tradable only with Unicom's common stock
until they become exercisable. The Rights become exercisable upon the earlier
of ten days following a public announcement that a person (an "Acquiring
Person") has acquired 15% or more of Unicom's outstanding common stock or ten
business days (or such later date as may be determined by action of Unicom's
Board of Directors) following the commencement of a tender or exchange offer
which, if consummated, would result in a person or group becoming an Acquiring
Person. The Rights are subject to redemption by Unicom at a price of $0.01 per
Right, subject to certain limitations, and will expire on February 2, 2008. If
a person or group becomes an Acquiring Person, each holder of a Right will
thereafter have the right to receive, upon exercise, Unicom common stock at a
50% discount from the then current market price. If Unicom is acquired in a
merger or other business combination transaction in which Unicom is not the
survivor, or 50% or more of Unicom's assets or earning power is sold or
transferred, each holder of a Right shall then have the right to receive, upon
exercise, common stock of the acquiring company at a 50% discount from the
then current market price of such common stock. Rights held by an Acquiring
Person become void upon the occurrence of such events.
 
  See Note 2 regarding the ICC's order approving ComEd's proposed issuance of
up to $3.4 billion of securities and the planned use of the proceeds to
refinance debt and equity, as permitted under the 1997 Act.
 
 
                                      22
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED

  (7) COMMON EQUITY. At September 30, 1998, shares of Unicom common stock were
reserved for the following purposes:
 
<TABLE>
      <S>                                                              <C>
      Long-Term Incentive Plan........................................ 2,805,928
      Employee Stock Purchase Plan....................................   455,055
      Shareholder Rights Plan.........................................   400,000
      Exchange for ComEd common stock not held by Unicom..............    90,253
      1996 Directors' Fee Plan........................................   170,981
                                                                       ---------
                                                                       3,922,217
                                                                       =========
</TABLE>
 
  Common stock issued during the three months, nine months and twelve months
ended September 30, 1998 and 1997 was as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED    NINE MONTHS ENDED   TWELVE MONTHS ENDED
                             SEPTEMBER 30         SEPTEMBER 30         SEPTEMBER 30
                          --------------------- ------------------  --------------------
                             1998       1997      1998      1997      1998       1997
                          ----------  --------- --------  --------  ---------  ---------
<S>                       <C>         <C>       <C>       <C>       <C>        <C>
Shares of Common Stock
 Issued:
 Long-Term Incentive
  Plan..................     167,847       --    371,638    45,144    534,598    204,083
 Employee Stock Purchase
  Plan..................         --        --     52,512   114,964    133,551    213,589
 Employee Savings and
  Investment Plan.......         --        --        --    274,203        --     316,703
 Exchange for ComEd com-
  mon stock not held by
  Unicom................       1,160     1,569     7,700    12,254      7,816     16,790
 1996 Directors' Fee
  Plan..................       3,055     3,243     9,732    10,823     13,084     13,245
                          ----------  --------  --------  --------  ---------  ---------
                             172,062     4,812   441,582   457,388    689,049    764,410
                          ==========  ========  ========  ========  =========  =========
<CAPTION>
                                           (THOUSANDS OF DOLLARS)
<S>                       <C>         <C>       <C>       <C>       <C>        <C>
Amount of Common Stock
 Issued:
 Total issued...........  $    4,162  $    114  $ 10,918  $  9,426  $  17,260  $  17,298
 Held by trustee for
  Unicom Stock Bonus De-
  ferral Plan...........       1,295       (44)     (652)   (2,431)      (697)    (2,463)
 Other..................         (22)       12       (10)       14        (14)       (90)
                          ----------  --------  --------  --------  ---------  ---------
                          $    5,435  $     82  $ 10,256  $  7,009  $  16,549  $  14,745
                          ==========  ========  ========  ========  =========  =========
</TABLE>
 
  At September 30, 1998 and December 31, 1997, 76,276 and 76,868, respectively,
of ComEd common stock purchase warrants 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.
 
  Unicom's retained earnings account had a deficit balance of $21 million at
 December 31, 1997. As of September 30, 1998 and December 31, 1997, $470
million and $331 million, respectively, of retained earnings had been
appropriated for future dividend payments.
 
  See Note 2 regarding the ICC's order approving ComEd's proposed issuance of
up to $3.4 billion of securities and the planned use of the proceeds to
refinance debt and equity, as permitted under the 1997 Act.
 
  (8) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN. Unicom has a
nonqualified stock option awards program under its Long-Term Incentive Plan.
The stock option awards program was adopted by Unicom in 1996 to reward valued
employees responsible for, or contributing to, the management, growth and
profitability of Unicom and its subsidiaries. The stock options granted will
expire ten years from their grant date. One-third of the shares subject to the
options vest on each of the first three anniversaries of the option grant date.
In addition, the stock options become fully vested immediately if the holder
dies, retires, is terminated by the Company other than for cause or qualifies
for long-term disability and will also vest in full upon a change in control.
 
                                       23
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  Stock options transactions through September 30, 1998 are summarized as
follows:
 
<TABLE>
<CAPTION>
                                                     NUMBER OF  WEIGHTED AVERAGE
                                                      OPTIONS    EXERCISE PRICE
                                                     ---------  ----------------
<S>                                                  <C>        <C>
Outstanding at the beginning of 1996...............        --       $   --
Granted during the year............................  1,205,500       25.500
Expired/cancelled during the year..................    (17,500)      25.500
                                                     ---------
Outstanding as of December 31, 1996................  1,188,000       25.500
Granted during the year............................  1,339,350       22.313
Exercised during the year..........................    (23,423)      25.500
Expired/cancelled during the year..................   (212,549)      23.632
                                                     ---------
Outstanding as of December 31, 1997................  2,291,378       23.810
Granted during the nine months ended September 30,
 1998..............................................  1,379,525       35.234
Exercised during the nine months ended September
 30, 1998..........................................   (361,512)      24.190
Expired/cancelled during the nine months ended Sep-
 tember 30, 1998...................................    (95,427)      24.741
                                                     ---------
Outstanding as of September 30, 1998...............  3,213,964       28.643
                                                     =========
</TABLE>
 
  Of the stock options outstanding at September 30, 1998, 977,223 have vested
with a weighted average exercise price of $24.277.
 
  The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
 
<TABLE>
<CAPTION>
                                                         STOCK OPTION GRANT DATE
                                                         -----------------------
                                                          1998    1997    1996
                                                         ------- ------- -------
<S>                                                      <C>     <C>     <C>
  Expected option life.................................. 7 years 7 years 7 years
  Dividend yield........................................   4.54%   7.20%   6.30%
  Expected volatility...................................  21.95%  22.29%  20.98%
  Risk-free interest rate...............................   5.58%   6.25%   6.64%
</TABLE>
 
  The estimated weighted average fair value for each stock option granted in
1998, 1997 and 1996 was $6.62, $2.79 and $3.74, respectively.
 
  The ESPP allows employees to purchase Unicom common stock at a 10% discount
from market value. Substantially all of the employees of Unicom, ComEd and
certain subsidiaries are eligible to participate in the ESPP. Unicom issued
133,551 shares and 213,589 shares of common stock for the twelve months ended
September 30, 1998 and 1997, respectively, under the ESPP at a weighted
average annual purchase price of $25.55 and $19.65, respectively.
 
  Unicom has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, Unicom has adopted APB No. 25 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
additional charge to operations would have been $2 million (after-tax), or
$0.01 per common share (basic), and $1 million (after-tax), or $0.01 per
common share (basic), for the twelve months ended September 30, 1998 and 1997,
respectively.
 
                                      24
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

  (9) 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 September 30, 1998 and 1997. The series of ComEd preference stock
without mandatory redemption requirements outstanding at September 30, 1998
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.
 
  (10) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS.
During the twelve months ended September 30, 1998 and 1997, 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 September 30, 1998 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              178,560    $ 17,856   $101
$8.40 Series B     240,000      23,838   $101
$8.85              187,500      18,750   $101
$9.25              450,000      45,000   $103 through July 31, 1999; and $101 thereafter
$6.875             700,000      69,475   Non-callable
                 ---------    --------
                 1,756,060    $174,919
                 =========    ========
</TABLE>
--------
(1) Per share plus accrued and unpaid dividends, if any.
 
                                      25
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  The annual sinking fund requirements and sinking fund and involuntary
liquidation prices per share of the outstanding series of ComEd preference
stock subject to mandatory redemption requirements are summarized as follows:
 
<TABLE>
<CAPTION>
                                              SINKING
                     ANNUAL SINKING             FUND               INVOLUNTARY
    SERIES          FUND REQUIREMENT          PRICE(1)         LIQUIDATION PRICE(1)
--------------      -----------------         -------          -------------------
<S>                 <C>                       <C>              <C>
$8.20                35,715 shares             $100                 $100.00
$8.40 Series B       30,000 shares(2)          $100                 $ 99.326
$8.85                37,500 shares             $100                 $100.00
$9.25                75,000 shares             $100                 $100.00
$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 2002 on ComEd preference
stock outstanding at September 30, 1998 will aggregate to $4 million in 1998,
$18 million in 1999, $88 million in 2000 and $18 million in each year 2001 and
2002. During each of the twelve months ended September 30, 1998 and 1997,
338,215 shares and 438,215 shares, respectively, of ComEd preference stock
subject to mandatory redemption requirements were reacquired to meet sinking
fund requirements plus any optional additional sinking fund payments.
 
  Sinking fund requirements due within one year are included in current
liabilities.
 
  (11) COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY COMED'S SUBORDINATED DEBT SECURITIES. In
September 1995, ComEd Financing I, a wholly-owned subsidiary trust of ComEd,
issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable preferred
securities. The sole asset of ComEd Financing I is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. In January 1997, ComEd Financing II, a wholly-owned subsidiary trust
of ComEd, issued 150,000 of its 8.50% ComEd-obligated mandatorily redeemable
capital securities. The sole asset of ComEd Financing II is $154.6 million
principal amount of ComEd's 8.50% subordinated deferrable interest debentures
due January 15, 2027. There is a full and unconditional guarantee by ComEd of
the Trusts' obligations under the securities issued by the Trusts. However,
ComEd's obligations are subordinate and junior in right of payment to certain
other indebtedness of ComEd. ComEd has the right to defer payments of interest
on the subordinated deferrable interest notes by extending the interest
payment period, at any time, for up to 20 consecutive quarters. Similarly,
ComEd has the right to defer payments of interest on the subordinated
deferrable interest debentures by extending the interest payment period, at
any time, for up to ten 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 subordinate 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
 
                                      26
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

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.
 
  (12) LONG-TERM DEBT. Sinking fund requirements and scheduled maturities
remaining through 2002 for ComEd's first mortgage bonds, sinking fund
debentures and other long-term debt outstanding at September 30, 1998 are
summarized as follows: 1998--$80 million; 1999--$150 million; 2000--$462
million; 2001--$108 million; and 2002--$305 million. Unicom Enterprises' note
payable to bank of $100 million will mature in 1999.
 
  At September 30, 1998, ComEd's outstanding first mortgage bonds maturing
through 2002 were as follows:
 
<TABLE>
<CAPTION>
                  SERIES                                     PRINCIPAL AMOUNT
      -----------------------------                       ----------------------
                                                          (THOUSANDS OF DOLLARS)
      <S>                                                 <C>
      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
      7 3/8% due September 15, 2002 .....................         200,000
                                                                 --------
                                                                 $830,000
                                                                 ========
</TABLE>
 
                                      27
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  Other long-term debt outstanding at September 30, 1998 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  $    6,775 Interest rate of 8.31%
 Loan due January 1, 2004       7,690 Interest rate of 8.44%
                           ----------
                           $   14,465
                           ----------
ComEd--
 Notes:
 Medium Term Notes, Se-
  ries 3N due various
  dates through October
  15, 2004                 $  296,000 Interest rates ranging from 9.00% to 9.20%
 Notes due January 15,
  2004                        150,000 Interest rate of 7.375%
 Notes due October 15,
  2005                        235,000 Interest rate of 6.40%
 Notes due January 15,
  2007                        150,000 Interest rate of 7.625%
 Notes due July 15, 2018      225,000 Interest rate of 6.95%
                           ----------
                           $1,056,000
                           ----------
 Purchase Contract Obli-
 gation
 due April 30, 2005        $      346 Interest rate of 3.00%
                           ----------
Total ComEd                $1,056,346
                           ----------
Unicom Enterprises--
 Long-Term Note Payable
 to Bank
 due November 15, 1999     $  100,000 Prevailing interest rate of 6.45% at September 30, 1998
                           ----------
Unicom Thermal--
 Guaranteed Senior Note
 due May 30, 2012          $  120,000 Interest rate of 7.38%
                           ----------
Total Unicom               $1,290,811
                           ==========
</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.
 
  In July 1998, Unicom Thermal issued $120 million of guaranteed senior
unsecured 7.38% Notes due in May 2012, the proceeds of which were used to
refinance existing debt. The Notes are guaranteed by Unicom and include
certain covenants with respect to Unicom and Unicom Thermal's 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
Thermal may incur, and (iv) a requirement that Unicom own, directly or
indirectly, 51% of the outstanding stock of Unicom Thermal and at least 80% of
the outstanding stock of ComEd.
 
  See Note 2 regarding the ICC's order approving the proposed issuance of up
to $3.4 billion of securities and the planned use of the proceeds to refinance
debt and equity, as permitted under the 1997 Act.
 
                                      28
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  (13) LINES OF CREDIT. ComEd had total bank lines of credit of $342 million
and unused bank lines of credit of $334 million at September 30, 1998. On
October 8, 1998, ComEd terminated the then existing $342 million lines of
credit and entered into new lines of credit totaling $1 billion. Of that
amount, $500 million expires on October 7, 1999 and $500 million expires on
October 8, 2003. 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. 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 on
November 15, 1999, of which $100 million was unused as of September 30, 1998.
The credit facility can be used by Unicom Enterprises to finance investments
in unregulated businesses and projects, including UT Holdings and Unicom
Energy Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom and
Unicom Enterprises' operations. Such covenants include, among other things,
(i) a requirement that Unicom and its consolidated subsidiaries maintain a
tangible net worth at least $10 million over that of ComEd and its
consolidated subsidiaries, (ii) a requirement that Unicom's consolidated debt
to consolidated capitalization not exceed 0.65 to 1, (iii) restrictions on the
indebtedness for borrowed money that Unicom (excluding ComEd) and Unicom
Enterprises may incur, and (iv) a requirement that Unicom own 100% of the
outstanding stock of Unicom Enterprises and at least 80% of the outstanding
stock of ComEd; and provide that Unicom may not declare or pay dividends
during the continuance of an event of default. Interest rates for borrowings
under the credit facility are set at the time of a borrowing and are based on
either a prime interest rate or a floating rate bank index plus a spread which
varies with the credit rating of ComEd's outstanding first mortgage bonds.
Unicom Enterprises is obligated to pay commitment fees with respect to the
unused portion of such lines of credit.
 
  (14) 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. That contract provided for acceptance by
the DOE of such materials to begin in January 1998; however, that date was not
met by the DOE and is expected to be delayed significantly. The DOE's current
estimate for opening a facility to accept such waste is 2010. Extended delays
in spent nuclear fuel acceptance by the DOE would lead to ComEd's
consideration of costly storage alternatives. On July 30, 1998, ComEd filed a
complaint against the United States in the United States Court of Federal
Claims seeking to recover damages caused by the DOE's failure to honor its
contractual obligation to begin disposing of spent nuclear fuel in January
1998. See "Depreciation, Amortization of Regulatory Assets and
Decommissioning" under Note 1 for additional information. 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. Pursuant to the
contract, ComEd 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.
 
  (15) 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
 
                                      29
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
instruments on the financial position or results of operations of Unicom and
subsidiary companies is primarily dependent on the treatment authorized under
future ComEd ratemaking proceedings.
 
  INVESTMENTS. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by
the trustee and based on published market data, as of September 30, 1998 and
December 31, 1997, was as follows:
 
<TABLE>
<CAPTION>
                                SEPTEMBER 30, 1998               DECEMBER 31, 1997
                         -------------------------------- --------------------------------
                                    UNREALIZED                       UNREALIZED
                         COST BASIS   GAINS    FAIR VALUE COST BASIS   GAINS    FAIR VALUE
                         ---------- ---------- ---------- ---------- ---------- ----------
                                              (THOUSANDS OF DOLLARS)
<S>                      <C>        <C>        <C>        <C>        <C>        <C>
  Short-term
   investments.......... $   38,297  $     16  $   38,313 $   33,524  $      2  $   33,526
  U.S. Government and
   Agency issues........    199,319    30,928     230,247    170,240    15,882     186,122
  Municipal bonds.......    396,947    27,730     424,677    306,104    20,598     326,702
  Corporate bonds.......    246,431    11,440     257,871    231,738     4,293     236,031
  Common stock..........    710,867   355,086   1,065,953    667,657   385,851   1,053,508
  Other.................      3,769     5,818       9,587     17,300     2,508      19,808
                         ----------  --------  ---------- ----------  --------  ----------
                         $1,595,630  $431,018  $2,026,648 $1,426,563  $429,134  $1,855,697
                         ==========  ========  ========== ==========  ========  ==========
</TABLE>
 
  At September 30, 1998, 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.......................................  $ 28,154   $ 28,168
      1 through 5 years...................................   198,856    207,009
      5 through 10 years..................................   235,404    256,659
      Over 10 years.......................................   408,393    449,622
</TABLE>
 
  The net earnings (losses) of the nuclear decommissioning funds, which are
recorded as increases (decreases) to the accumulated provision for
depreciation, for the three months, nine months and twelve months ended
September 30, 1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED       NINE MONTHS ENDED        TWELVE MONTHS ENDED
                             SEPTEMBER 30            SEPTEMBER 30              SEPTEMBER 30
                          --------------------  ------------------------  ------------------------
                            1998       1997        1998         1997         1998         1997
                          ---------  ---------  -----------  -----------  -----------  -----------
                                                (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>          <C>          <C>          <C>
Gross proceeds from
 sales of securities....  $ 451,896  $ 549,296  $ 1,400,360  $ 1,671,773  $ 1,892,110  $ 2,123,301
Less cost based on spe-
 cific identification...   (441,379)  (520,940)  (1,334,763)  (1,620,713)  (1,802,350)  (2,063,003)
                          ---------  ---------  -----------  -----------  -----------  -----------
Realized gains on sales
 of securities..........  $  10,517  $  28,356  $    65,597  $    51,060  $    89,760  $    60,298
Other realized fund
 earnings net of
 expenses...............     10,545      9,479       23,393       32,260       30,255       41,228
                          ---------  ---------  -----------  -----------  -----------  -----------
Total realized net earn-
 ings of the funds......  $  21,062  $  37,835  $    88,990  $    83,320  $   120,015  $   101,526
Unrealized gains (loss-
 es)....................   (112,678)    71,308        1,884      201,747       (1,122)     252,757
                          ---------  ---------  -----------  -----------  -----------  -----------
 Total net earnings
  (losses) of the funds.  $ (91,616) $ 109,143  $    90,874  $   285,067  $   118,893  $   354,283
                          =========  =========  ===========  ===========  ===========  ===========
</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.
 
  CAPITALIZATION. The estimated fair values of ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely ComEd's
 
                                      30
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
subordinated debt securities 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 September 30, 1998 and December 31, 1997 were as
follows:
 
<TABLE>
<CAPTION>
                                SEPTEMBER 30, 1998               DECEMBER 31, 1997
                         -------------------------------- --------------------------------
                          CARRYING  UNREALIZED             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.... $  681,727  $ 13,983  $  695,710 $  712,069  $ 11,970  $  724,039
  ComEd-obligated
   mandatorily
   redeemable preferred
   securities of
   subsidiary trusts
   holding solely
   ComEd's subordinated
   debt securities...... $  350,000  $ 21,305  $  371,305 $  350,000  $ 21,701  $  371,701
  Long-term debt........ $5,865,782  $472,569  $6,338,351 $5,913,942  $380,890  $6,294,832
</TABLE>
 
  Long-term notes payable and a guaranteed senior note, which are not included
in the above table, amounted to $235 million and $327 million at September 30,
1998 and December 31, 1997, 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
portions 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
September 30, 1998 and December 31, 1997; therefore, the carrying value is
equal to the fair value.
 
  (16) PENSION AND POSTRETIREMENT BENEFITS. As of September 30, 1998, ComEd
had a qualified non-contributory defined benefit pension plan which covers all
regular employees. Benefits under this plan reflect each employee's
compensation, years of service and age at retirement. 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 September
30, 1998 and December 31, 1997 pension liabilities and related data were
determined using 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. On January
19, 1998, the qualified defined benefit plan of the Indiana Company was merged
into the ComEd pension plan as a result of the sale of the Indiana Company's
State Line Station and the transfer of its remaining employees to ComEd.
 
  ComEd and the Indiana Company provide certain postretirement medical 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 ten 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 health care
plans are contributory, funded jointly by the companies and the participating
retirees. The September 30, 1998 and December 31, 1997 postretirement benefit
liabilities and related data were determined using the January 1, 1997
actuarial valuations.
 
                                      31
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  Reconciliations of the beginning and ending balances of the projected
pension benefit obligation and the accumulated postretirement benefit
obligation and the funded status of these plans for the nine months ended
September 30, 1998 and the twelve months ended December 31, 1997 are as
follows:
 
<TABLE>
<CAPTION>
                              NINE MONTHS ENDED         TWELVE MONTHS ENDED
                             SEPTEMBER 30, 1998          DECEMBER 31, 1997
                          -------------------------- --------------------------
                                          OTHER                      OTHER
                           PENSION    POSTRETIREMENT  PENSION    POSTRETIREMENT
                           BENEFITS      BENEFITS     BENEFITS      BENEFITS
                          ----------  -------------- ----------  --------------
                                        (THOUSANDS OF DOLLARS)
CHANGE IN BENEFIT
OBLIGATION
-----------------
<S>                       <C>         <C>            <C>         <C>
Benefit obligation at
 beginning of period....  $4,074,000    $1,084,000   $3,579,000    $1,035,000
Service cost............      93,000        27,000      100,000        34,000
Interest cost...........     208,000        56,000      261,000        76,000
Plan participants' con-
 tributions.............         --          2,000          --          3,000
Curtailment gain........         --            --        (5,000)          --
Actuarial loss (gain)...      20,000           --       346,000       (23,000)
Benefits paid...........    (174,000)      (33,000)    (207,000)      (41,000)
                          ----------    ----------   ----------    ----------
 Benefit obligation at
  end of period.........  $4,221,000    $1,136,000   $4,074,000    $1,084,000
                          ----------    ----------   ----------    ----------
<CAPTION>
CHANGE IN PLAN ASSETS
---------------------
<S>                       <C>         <C>            <C>         <C>
Fair value of plan as-
 sets at beginning of
 period.................  $3,706,000    $  768,000   $3,281,000    $  665,000
Actual return on plan
 assets.................     103,000        35,000      631,000       130,000
Employer contribution...      10,000           --         1,000        11,000
Plan participants' con-
 tributions.............         --          2,000          --          3,000
Benefits paid...........    (174,000)      (33,000)    (207,000)      (41,000)
                          ----------    ----------   ----------    ----------
 Fair value of plan as-
  sets at end of period.  $3,645,000    $  772,000   $3,706,000    $  768,000
                          ----------    ----------   ----------    ----------
Plan assets less than
 benefit obligation.....  $ (576,000)   $ (364,000)  $ (368,000)   $ (316,000)
Unrecognized net actuar-
 ial loss (gain)........     303,000      (377,000)     132,000      (406,000)
Unrecognized prior serv-
 ice cost (asset).......     (61,000)       49,000      (64,000)       52,000
Unrecognized transition
 obligation (asset).....    (104,000)      328,000     (114,000)      345,000
                          ----------    ----------   ----------    ----------
 Accrued liability for
  benefits..............  $ (438,000)   $ (364,000)  $ (414,000)   $ (325,000)
                          ==========    ==========   ==========    ==========
</TABLE>
 
  The fair value of pension plan assets excludes $18 million and $17 million
held in grantor trust as of September 30, 1998 and December 31, 1997,
respectively, for payment of benefits under the supplemental plan.
 
  In accounting for the pension costs and other postretirement benefit costs
under the plans, the following weighted average actuarial assumptions were
used for the periods during 1998, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                                 OTHER
                                      PENSION BENEFITS  POSTRETIREMENT BENEFITS
                                      ----------------- -----------------------
                                      1998  1997  1996   1998    1997    1996
                                      ----- ----- ----- ------- ------- -------
<S>                                   <C>   <C>   <C>   <C>     <C>     <C>
Annual discount rate................. 7.00% 7.50% 7.50%   7.00%   7.50%   7.50%
Annual long-term rate of return on
 plan assets......................... 9.50% 9.75% 9.75%   9.20%   9.40%   9.38%
Annual rate of increase in future
 compensation levels................. 4.00% 4.00% 4.00%     --      --      --
</TABLE>
 
                                      32
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  The components of pension and other postretirement benefit costs, portions
of which were recorded as components of construction costs, for the three
months, nine months and twelve months ended September 30, 1998 and 1997 were
as follows:
 
<TABLE>
<CAPTION>
                           THREE MONTHS ENDED     NINE MONTHS ENDED    TWELVE MONTHS ENDED
                              SEPTEMBER 30          SEPTEMBER 30          SEPTEMBER 30
                           --------------------  --------------------  --------------------
                             1998       1997       1998       1997       1998       1997
PENSION COSTS              ---------  ---------  ---------  ---------  ---------  ---------
-------------                                (THOUSANDS OF DOLLARS)
<S>                        <C>        <C>        <C>        <C>        <C>        <C>        
Service cost.............  $  31,000  $  25,000  $  93,000  $  75,000  $ 118,000  $  94,000
Interest cost on pro-
 jected benefit
 obligation..............     69,000     66,000    208,000    195,000    274,000    258,000
Expected return on plan
 assets..................    (86,000)   (76,000)  (257,000)  (232,000)  (335,000)  (305,000)
Amortization of transi-
 tion asset..............     (3,000)    (3,000)    (9,000)    (9,000)   (13,000)   (13,000)
Amortization of prior
 service asset...........     (1,000)    (1,000)    (3,000)    (3,000)    (4,000)    (4,000)
Recognized loss..........      1,000      1,000      1,000      1,000      2,000      2,000
Curtailment gain.........        --         --         --         --      (5,000)       --
                           ---------  ---------  ---------  ---------  ---------  ---------
 Net periodic benefit
  cost...................  $  11,000  $  12,000  $  33,000  $  27,000  $  37,000  $  32,000
                           =========  =========  =========  =========  =========  =========
<CAPTION>
OTHER POSTRETIREMENT
BENEFIT COSTS
--------------------
<S>                        <C>        <C>        <C>        <C>        <C>        <C>       
Service cost.............  $   9,000  $   8,000  $  27,000  $  25,000  $  36,000  $  34,000
Interest cost on accumu-
 lated benefit
 obligation..............     19,000     17,000     56,000     57,000     75,000     77,000
Expected return on plan
 assets..................    (18,000)   (14,000)   (52,000)   (45,000)   (68,000)   (58,000)
Amortization of transi-
 tion obligation.........      6,000      6,000     17,000     17,000     22,000     22,000
Amortization of prior
 service cost............      1,000      1,000      3,000      3,000      4,000      5,000
Recognized gain..........     (5,000)    (6,000)   (14,000)   (10,000)   (17,000)   (10,000)
Severance plan cost......        --       4,000      2,000      6,000      4,000      7,000
                           ---------  ---------  ---------  ---------  ---------  ---------
 Net periodic benefit
  cost...................  $  12,000  $  16,000  $  39,000  $  53,000  $  56,000  $  77,000
                           =========  =========  =========  =========  =========  =========
</TABLE>
 
  The pension curtailment gain in December 1997 represents the recognition of
prior service costs, the transition asset and the decrease in the projected
benefit obligation related to the reduction in the number of employees due to
the sale of State Line Station by the Indiana Company.
 
  Postretirement health care costs for the twelve months ended September 30,
1998 and 1997 included $4 million and $7 million, respectively, related to
voluntary separation offers to certain employees of ComEd and the Indiana
Company.
 
  The health care cost trend rates used to measure the expected cost of the
postretirement medical benefits are assumed to be 8.5% for pre-Medicare
recipients and 6.5% for Medicare recipients for 1998. Those rates are assumed
to decrease in 0.5% annual increments to 5% for the years 2005 and 2001,
respectively, and to remain level thereafter. Assumed health care cost trend
rates have a significant effect on the amounts reported for the health care
plans. A one percentage point change in the assumed health care cost trend
rates would have the following effects:
 
<TABLE>
<CAPTION>
                                                   1 PERCENTAGE   1 PERCENTAGE
                                                  POINT INCREASE POINT DECREASE
                                                  -------------- --------------
                                                     (THOUSANDS OF DOLLARS)
<S>                                               <C>            <C>
Effect on total annual service and interest cost
 components......................................    $ 21,000      $ (16,000)
Effect on postretirement benefit obligation......     187,000       (151,000)
</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
 
                                      33
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
may contribute up to 20% of such employee's base pay. The participating
companies match the 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 $9 million and $8 million for the three months
ended September 30, 1998 and 1997, respectively, $24 million for each of the
nine months ended September 30, 1998 and 1997 and $33 million and $31 million
for the twelve months ended September 30, 1998 and 1997, respectively.
 
  (17) SEPARATION PLAN COSTS. O&M expenses included $9 million and $26 million
for the three months ended September 30, 1998 and 1997, respectively, $33
million for each of the nine months ended September 30, 1998 and 1997 and $38
million for each of the twelve months ended September 30, 1998 and 1997 for
costs related to voluntary separation offers to certain employees of ComEd and
the Indiana Company, as well as certain one-time, employee-related costs. Such
costs resulted in charges of $6 million (after-tax), or $0.03 per common share
(basic), and $16 million (after-tax), or $0.07 per common share (basic), for
the three months ended September 30, 1998 and 1997, respectively, $20 million
(after-tax), or $0.09 per common share (basic), for each of the nine months
ended September 30, 1998 and 1997 and $23 million (after-tax), or $0.11 per
common share (basic), for each of the twelve months ended September 30, 1998
and 1997.
 
  (18) INCOME TAXES. The components of the net deferred income tax liability
at September 30, 1998 and December 31, 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                      SEPTEMBER 30, DECEMBER 31,
                                                          1998          1997
                                                      ------------- ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                   <C>           <C>
Deferred income tax liabilities:
 Accelerated cost recovery and liberalized deprecia-
  tion, net of removal costs........................   $3,995,241    $4,062,801
 Overheads capitalized..............................      128,894       131,509
 Repair allowance...................................      222,769       231,697
 Regulatory assets recoverable through future rates.      702,824       785,354
Deferred income tax assets:
 Postretirement benefits............................     (329,809)     (305,242)
 Unamortized investment tax credits.................     (195,620)     (206,112)
 Regulatory liabilities to be settled through future
  rates.............................................     (622,758)     (698,750)
 Nuclear plant closure..............................      (52,450)     (194,244)
 Other--net.........................................     (158,960)     (136,258)
                                                       ----------    ----------
Net deferred income tax liability...................   $3,690,131    $3,670,755
                                                       ==========    ==========
</TABLE>
 
  The $19 million increase in the net deferred income tax liability from
December 31, 1997 to September 30, 1998 is comprised of an increase of $25
million in deferred income tax expense and a $6 million decrease in regulatory
assets net of regulatory liabilities pertaining to income taxes for the
period. The amount of accelerated cost recovery and liberalized depreciation
included in deferred income tax liabilities as of September 30, 1998, includes
amounts related to the regulatory asset for impaired production plant. 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.
 
                                      34
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  The components of net income tax expense charged (credited) to continuing
operations for the three months, nine months and twelve months ended September
30, 1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                            THREE MONTHS                            TWELVE MONTHS
                                ENDED         NINE MONTHS ENDED         ENDED
                            SEPTEMBER 30        SEPTEMBER 30         SEPTEMBER 30
                          ------------------  ------------------  -------------------
                            1998      1997      1998      1997      1998       1997
                          --------  --------  --------  --------  ---------  --------
                                          (THOUSANDS OF DOLLARS)
<S>                       <C>       <C>       <C>       <C>       <C>        <C>
Operating income:
 Current income taxes...  $188,579  $186,368  $320,887  $262,445  $ 305,729  $320,424
 Deferred income taxes..    (4,211)    2,359   (24,033)   22,782     22,904    45,363
 Investment tax credits
  deferred--net.........    (6,889)   (7,570)  (20,937)  (23,364)   (28,588)  (30,399)
Other (income) and de-
 ductions, primarily de-
 ferred income taxes ...     1,981    (1,974)  (11,556)   (4,092)  (415,089)  (11,322)
                          --------  --------  --------  --------  ---------  --------
Net income taxes charged
 (credited) to continu-
 ing operations.........  $179,460  $179,183  $264,361  $257,771  $(115,044) $324,066
                          ========  ========  ========  ========  =========  ========
</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, nine months and twelve months ended
September 30, 1998 and 1997:
 
<TABLE>
<CAPTION>
                            THREE MONTHS                            TWELVE MONTHS
                                ENDED         NINE MONTHS ENDED         ENDED
                            SEPTEMBER 30        SEPTEMBER 30         SEPTEMBER 30
                          ------------------  ------------------  -------------------
                            1998      1997      1998      1997      1998       1997
                          --------  --------  --------  --------  ---------  --------
                                          (THOUSANDS OF DOLLARS)
<S>                       <C>       <C>       <C>       <C>       <C>        <C>
Net income (loss) before
 extraordinary item and
 cumulative effect of
 change in accounting
 principle..............  $264,822  $240,296  $398,995  $311,511  $(151,731) $405,386
Net income taxes charged
 (credited) to
 continuing operations..   179,460   179,183   264,361   257,771   (115,044)  324,066
Provision for dividends
  on ComEd preferred and
  preference stocks.....    14,053    14,902    43,062    45,914     57,635    61,467
                          --------  --------  --------  --------  ---------  --------
Pre-tax income (loss)
 before extraordinary
 item, cumulative effect
 and provision for
 dividends..............  $458,335  $434,381  $706,418  $615,196  $(209,140) $790,919
                          ========  ========  ========  ========  =========  ========
Effective income tax
 rate...................      39.2%     41.3%     37.4%     41.9%      55.0%     41.0%
                          ========  ========  ========  ========  =========  ========
</TABLE>
 
  The principal differences between net income taxes charged (credited) to
continuing operations and the amounts computed at the federal statutory rate
of 35% for the three months, nine months and twelve months ended September 30,
1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                            THREE MONTHS                            TWELVE MONTHS
                                ENDED         NINE MONTHS ENDED         ENDED
                            SEPTEMBER 30        SEPTEMBER 30         SEPTEMBER 30
                          ------------------  ------------------  -------------------
                            1998      1997      1998      1997      1998       1997
                          --------  --------  --------  --------  ---------  --------
                                          (THOUSANDS OF DOLLARS)
<S>                       <C>       <C>       <C>       <C>       <C>        <C>
Federal income taxes
 computed at statutory
 rate...................  $160,417  $167,048  $247,246  $243,214  $ (73,199) $304,717
Equity component of
 AFUDC which was ex-
 cluded from taxable
 income.................      (102)   (2,020)     (300)   (5,795)    (2,824)   (7,565)
Amortization of invest-
 ment tax credits, net
 of deferred income tax-
 es.....................    (4,517)   (7,570)  (18,246)  (23,364)   (40,221)  (30,399)
State income taxes, net
 of federal income tax-
 es.....................    21,040    25,286    33,693    39,737     (3,510)   47,150
Differences between book
 and tax accounting,
 primarily property-
 related deductions.....     2,622    (3,561)    1,968     3,979      4,710    10,163
                          --------  --------  --------  --------  ---------  --------
Net income taxes charged
 (credited) to continu-
 ing operations.........  $179,460  $179,183  $264,361  $257,771  $(115,044) $324,066
                          ========  ========  ========  ========  =========  ========
</TABLE>
 
                                      35
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
 
  (19) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months, nine months and twelve months ended September 30, 1998
and 1997 were as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED  NINE MONTHS ENDED TWELVE MONTHS ENDED
                             SEPTEMBER 30       SEPTEMBER 30       SEPTEMBER 30
                          ------------------- ----------------- -------------------
                            1998      1997      1998     1997     1998      1997
                          --------- --------- -------- -------- --------- ---------
                                           (THOUSANDS OF DOLLARS)
<S>                       <C>       <C>       <C>      <C>      <C>       <C>
Illinois electricity ex-
 cise tax...............  $  17,483 $  67,595 $119,411 $175,005 $ 172,757 $ 228,175
Illinois invested capi-
 tal....................        --     26,258      --    78,275    21,229   104,172
Illinois electricity
 distribution tax.......     29,950       --    81,580      --     81,580       --
Municipal utility gross
 receipts...............     53,001    51,626  134,108  130,696   171,506   170,502
Real estate.............     34,559    37,466   99,638  110,746   140,401   146,811
Municipal compensation..     15,319    23,884   59,404   60,808    76,882    79,343
Other--net..............     29,073    18,120   77,732   59,599    93,337    69,955
                          --------- --------- -------- -------- --------- ---------
                          $ 179,385 $ 224,949 $571,873 $615,129 $ 757,692 $ 798,958
                          ========= ========= ======== ======== ========= =========
</TABLE>
 
  Effective January 1, 1998, the Illinois invested capital tax was repealed
and the Illinois electricity distribution tax was enacted as a replacement.
The new tax is based on the kilowatthours delivered to ultimate consumers.
 
  Effective August 1, 1998, as provided for by the 1997 Act, the Illinois
electricity excise tax and certain municipal utility taxes are recorded as
liabilities. Previously, similar taxes were presented on the Statements of
Consolidated Operations as revenue and expense. The reduction in operating
revenues and taxes (except income taxes) due to the change in presentation for
such taxes was approximately $50 million for the three months, nine months and
twelve months ended September 30, 1998. This change in the presentation for
such taxes did not have an effect on results of operations.
 
  (20) 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/bank borrowings and $400 million of intermediate term notes, to finance
the transactions. With respect to the commercial paper/bank borrowing portion,
$300 million will expire on November 23, 1999. With respect to the
intermediate term notes, $74 million expires on November 23, 1998, and an
additional portion each November 23 thereafter through November 23, 2003. At
September 30, 1998, ComEd's obligation to the lessor for leased nuclear fuel
amounted to approximately $579 million. As a result of the cessation of
nuclear generation operations at Zion Station, ComEd repurchased approximately
$100 million of nuclear fuel assemblies held under the nuclear fuel lease
arrangements at Zion Station in June 1998. See Note 5 for additional
information regarding the cessation of nuclear generation operations at Zion
Station. 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, including the repurchase of Zion Station
nuclear fuel assemblies discussed above and net of executory costs, at
September 30, 1998 for capital leases are estimated to aggregate $662 million,
including $54 million in 1998, $197 million in 1999, $151 million in 2000,
$103 million in 2001, $67 million in 2002 and $90 million in 2003-2006. The
estimated interest component of such rental payments aggregates $86 million.
The estimated portions of obligations due within one year under capital leases
of $178 million and $241 million at September 30, 1998 and December 31, 1997,
respectively, were included in current liabilities on the Consolidated Balance
Sheets.
 
                                      36
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  Future minimum rental payments at September 30, 1998 for operating leases
are estimated to aggregate $340 million, including $10 million in 1998, $41
million in 1999, $39 million in 2000, $32 million in 2001, $28 million in 2002
and $190 million in 2003-2043.
 
  (21) 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 appropriate investment and O&M accounts,
and provides its own financing. ComEd's net plant investment, including
construction work in progress, in Quad Cities Station on the Consolidated
Balance Sheets was $2 million at September 30, 1998, after reflecting the
accounting impairment recorded in the second quarter of 1998. See Note 2 for
additional information.
 
  (22) COMMITMENTS AND CONTINGENT LIABILITIES. Purchase commitments,
principally related to construction and nuclear fuel, approximated $309
million at September 30, 1998, comprised of $268 million for ComEd, $35
million for UT Holdings and $6 million for Unicom Energy Services. 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. See "Coal Reserves" in Note 1 for additional information
regarding ComEd's coal reserves.
 
  ComEd is a member of NEIL which provides insurance coverage against property
damage and associated replacement power costs occurring at members' nuclear
generating facilities. 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 such that ComEd would not be
liable for any single incident. However, ComEd could be subject to assessments
in any policy year for each of three types of coverage provided. The maximum
assessments are approximately $53 million for primary property damage, $73
million for excess property damage and $22 million for replacement power.
Prior to January 1, 1998, the primary property damage coverage described was
provided by NML, another mutual insurance company which merged into NEIL. The
merger did not affect ComEd's obligations or coverage.
 
  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 $1,030 million in
the event of an incident, limited to a maximum of $130 million in any calendar
year.
 
  In addition, ComEd participates in the American Nuclear Insurers Masters
Worker Program, which provides coverage for worker tort claims filed for
bodily injury caused by the nuclear energy hazard. This program was modified,
effective January 1, 1998, to provide coverage to all workers whose "nuclear-
related employment" began on or after the commencement date of reactor
operations. ComEd will not be liable for a retrospective assessment under this
new policy. However, ComEd is still subject to a maximum retroactive
assessment of up to $36 million in the event losses incurred under the small
number of policies in the old program exceed accumulated reserves.
 
  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
 
                                      37
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONCLUDED
Cotter has permitted radioactive and other hazardous material to be released
from its mill into areas owned or occupied by the plaintiffs resulting in
property damage and potential adverse health effects. ComEd was dismissed as a
defendant in both actions. With respect to Cotter, in 1994 a federal jury
returned nominal dollar verdicts against Cotter on eight bellwether
plaintiffs' claims in the 1989 cases, which verdicts were upheld on appeal.
The remaining claims in the 1989 actions have been settled and dismissed. On
July 15, 1998, a jury verdict was rendered in Dodge v. Cotter (United States
District Court for the District of Colorado, Civil Action No. 91-Z-1861), a
case relating to 14 of the plaintiffs in the 1991 cases. The verdict against
Cotter included compensatory and punitive damages totaling approximately $3
million (not including prejudgment interest, which has not yet been
calculated, and which Cotter anticipates may bring the total award to under $6
million), together with medical monitoring. The matter is currently on appeal.
Although the other 1991 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 (1998) dollars. It is expected that the costs
associated with investigation and remediation of former MGP sites will be
incurred over a period not to exceed 30 years. Because ComEd is not able to
determine the most probable liability for such MGP costs, in accordance with
accounting standards, a reserve of $25 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997, which reflects the low end of the range of ComEd's
estimate of the liability associated with former MGP sites. In addition, as of
September 30, 1998 and December 31, 1997, 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.
 
                                      38
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
CHANGES IN THE ELECTRIC UTILITY INDUSTRY
 
  Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change. These
changes are attributable to changes in technology and changes in regulation.
Federal law and regulations have been amended to provide for open transmission
system access, and various states, including Illinois, 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.
 
  ELECTRIC UTILITY INDUSTRY. The electric utility industry historically has
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all of such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have 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.
 
  THE 1997 ACT. On December 16, 1997, the Governor of Illinois signed into law
the 1997 Act, which established a phased process to introduce competition into
the electric industry in Illinois under a less regulated structure. Major
provisions of the 1997 Act applicable to ComEd include a 15% residential base
rate reduction which became effective August 1, 1998, an additional 5%
residential base rate reduction commencing on May 1, 2002, and gradual
customer access to other electric suppliers. Access for commercial and
industrial customers will occur over a period from October 1999 to December
2000, and access for residential customers will occur after May 1, 2002. ComEd
expects that the 15% residential base rate reduction will reduce ComEd's
operating revenues by approximately $170 million and $390 million in 1998 and
1999, respectively, compared to 1997 rate levels. Operating revenues were
reduced by approximately $80 million for the third quarter 1998 due to the
rate reduction. ComEd is engaged in certain pricing experiments contemplated
by the 1997 Act, which are expected to reduce ComEd's operating revenues by
approximately $30 million and $55 million in 1998 and 1999, respectively,
compared to 1997 rate levels; however, such reductions are expected to be
offset by the effects of customer growth.
 
  The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval. The
CTC will be established in accordance with a formula defined in the 1997 Act.
The CTC, which will be applied on a cents per kilowatthour basis, considers
the revenue which would have been collected from a customer under tariffed
rates, reduced by the revenue the utility will receive for providing delivery
services to the customer, the market price for electricity and a defined
mitigation factor, which represents the utility's opportunity to develop new
revenue sources and achieve cost savings.
 
                                      39
<PAGE>
 
  Notwithstanding these rate reductions, and subject to certain earnings tests,
a rate freeze will generally be in effect until at least January 1, 2005.
During this period, utilities may reorganize, sell or assign assets, retire or
remove plants from service, and accelerate depreciation or amortization of
assets with limited ICC regulatory review. Under the earnings provision of the
1997 Act, if the earned return on common equity of a utility during this period
exceeds an established threshold, one-half of the excess earnings must be
refunded to customers. A utility may request a rate increase during the rate
freeze period only when necessary to ensure the utility's financial viability,
but not before January 1, 2000.
 
  Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based,
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the leveling of certain regulatory
requirements to permit operational flexibility, the leveling of certain
regulatory and tax provisions as applied to various electric suppliers and a
new, more stringent, liability standard applicable to ComEd in the event of a
major outage.
 
  The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a special
purpose financing entity. The proceeds from such securities issuances must be
used to refinance outstanding debt or equity or for certain other limited
purposes. The total amount of such securities that may be issued is
approximately $6.8 billion; approximately one-half of that amount can be issued
in the twelve-month period which commenced on August 1, 1998. On July 21, 1998,
the ICC issued an order under the 1997 Act approving the issuance of up to $3.4
billion of such securities. ComEd anticipates the issuance will occur sometime
in the fourth quarter of 1998, subject to market conditions. ComEd plans to use
the proceeds of such securities issuance to refinance its debt and equity,
including using between $750 million and $1.14 billion to repurchase shares of
ComEd common stock held by Unicom. Unicom in turn will use the funds it
receives from ComEd's share repurchase to repurchase publicly held shares of
Unicom's common stock. At current market prices, this repurchase would involve
9 to 14 percent of Unicom's outstanding common stock. The Boards of Directors
of Unicom and ComEd have each approved the repurchase of up to 33 million
shares of common stock. ComEd plans to use the remaining proceeds from the
issuance of such securities, net of transaction costs, to redeem preference
stock and debt. On October 27, 1998, Unicom announced that up to $200 million
in funds obtained from operations or other sources may be used to repurchase
shares of common stock before or after the receipt of proceeds from such
securities issuances. The proceeds from such securities issuances are expected
to be the ultimate source of funding for the common stock repurchases.
 
  As a result of the 1997 Act, prices for the supply of electric energy are
expected to change from cost-based, regulated rates to rates determined by
competitive market forces. The CTC allows ComEd to recover some of its costs
which might otherwise be unrecoverable under market-based rates. Nonetheless,
ComEd will need to take steps to address the portion of such costs which are
not recoverable through the CTC. Such steps may include cost control efforts,
developing new sources of revenue and potential asset dispositions. See
"Response to Regulatory Changes" below for additional information.
 
  See Note 2 of Notes to Financial Statements for the accounting effects
related to the 1997 Act.
 
  FEDERAL REGULATION. 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. Under the FERC Order, utilities are
required 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 an approved 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
 
                                       40
<PAGE>
 
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.
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.
 
  RESPONSE TO REGULATORY CHANGES. Unicom has announced several business and
operational objectives designed to focus efforts in responding to the energy
market changes that are expected to develop from the 1997 Act. These
objectives contemplate that ComEd will seek additional improvements in its
transmission and distribution operations in order to meet customers'
expectations for reliable delivery and will seek to refocus its generation
activities, with a concentration on improved nuclear generation, and that
Unicom and ComEd will seek to expand their offerings of energy-related
products and services. See Unicom and ComEd's Current Report on Form 8-K dated
July 6, 1998 for more information regarding the objectives announced by
Unicom.
 
  Under the 1997 Act, the role of electric utilities in the supply and
delivery of energy is expected to change. Utilities, such as ComEd,
traditionally have been responsible for providing both adequate supply and
reliable delivery of electricity to customers within their service areas. In
the future, ComEd will continue to be obligated to provide a reliable delivery
system. However, ComEd will be obligated to supply electricity only to those
customers that it continues to serve under tariffs for electricity, but not
for those customers who choose to rely on the marketplace. Nonetheless, during
the transition period to a competitive supply marketplace, ComEd must provide
both an adequate supply and reliable delivery. Given the tight capacity
situation in ComEd's market, ComEd will continue working to restore and
maintain its available capacity as well as working to assist in the
development of a competitive supply marketplace in Illinois.
 
  ComEd has a large commitment to, and investment in, nuclear generating
capacity. ComEd has installed a new management team responsible for improving
nuclear operations. Such improvements will be aimed at increasing levels of
energy generation, or capacity factors, at ComEd's nuclear generating units
while simultaneously improving ComEd's record of meeting NRC requirements and
INPO performance standards. Increased capacity factors generally result in
lower unit production costs and an improved opportunity to generate and sell
electricity in a competitive marketplace. Efforts will also be made to control
capital and operating costs through increased efficiencies, such as the
reduction of downtime and expense associated with generating unit maintenance
and refueling outages.
 
  ComEd has also evaluated the recoverability of its generating plant
investment as a result of the 1997 Act. This evaluation, based upon
interpretative guidance issued by the SEC, resulted in a conclusion that the
investment had been impaired and should be reduced. See Note 2 of Notes to
Financial Statements for additional information. Notwithstanding these
efforts, there will continue to be an ongoing analysis of the ability of
ComEd's various nuclear plants to generate and deliver electric energy safely
at competitive prices in the competitive market for energy. Although short-
term system reliability and capacity constraints are likely to support the
continued operations of ComEd's nuclear units in the near term, expected
longer term developments are likely to make decision-making a function of
economic considerations. In the absence of the short-term reliability and
capacity constraints, if a generating plant cannot produce power safely at a
cost below the competitive market price, it will be disposed of or closed.
Plant impairment adjustments have reduced the carrying value of nuclear plants
and depreciation rates reflecting shortened estimated useful lives for certain
stations
 
                                      41
<PAGE>
 
will reduce the carrying value further during the next several years. However,
closure of a plant could involve additional charges associated with the write-
off of its then current carrying value. In January 1998, Unicom and ComEd
decided to cease nuclear generating operations at ComEd's Zion Station. The
related retirement resulted in a charge in the fourth quarter of 1997 of $523
million (after-tax), or $2.42 per common share (basic), reflecting both a
write down of the plant's carrying value, as well as a liability for future
closing costs. A portion of Zion Station is used to provide voltage support in
the transmission system that serves ComEd's northern region. See Note 5 of
Notes to Financial Statements for additional information.
 
  ComEd is also undertaking steps to offer for sale approximately 5,600
megawatts of coal-fired generating capacity, representing six generating
stations located in Illinois. Such plants have an aggregate book value of
approximately $1.1 billion. As a part of such sales, ComEd expects to enter
into short-term power purchase agreements with the purchasers in order to
assure the availability of power during the period that the wholesale power
market is developing in Illinois. Non-binding proposals from prospective
qualified buyers are due in late 1998, with final, binding proposals due mid-
February 1999. The closing of the sale is anticipated for the fourth quarter
of 1999. In addition, ComEd continues to examine its other operations and
assets with a view to rationalizing their investment and operating costs
against their ability to contribute to the revenues and profits of ComEd. As a
result of such evaluation, additional asset sales may be undertaken.
 
  In response to customer expectations and more stringent reliability
standards provided for by the 1997 Act, ComEd's management expects, subject to
approval by the Board of Directors of the complete capital budget, to increase
capital expenditures on its transmission and distribution systems by
approximately $307 million over the next three years. This amount is in
addition to the estimated $1.1 billion that is already planned to be spent on
the transmission and distribution systems over the same time period. A
significant portion of such additional expenditures is intended to increase
the reliability of ComEd's distribution system by replacing certain equipment
and increasing automation to identify distribution problems faster, and more
quickly restore power to customers. ComEd's management is currently reviewing
its construction program for 1999 and thereafter.
 
  ComEd joined with eight Midwestern utilities to form a regional Midwest ISO
in January 1998. To date, four other utilities have joined the Midwest ISO.
The Midwest ISO is a key element in accommodating the restructuring of the
electric industry and will promote enhanced reliability of the transmission
system, equal access to the transmission system and increased competition. The
Midwest ISO will establish an independent body that will ultimately direct the
planning and operation of the transmission system for the utilities involved.
The Midwest ISO will have operational control over the transmission system and
will have authority to require modification in the operation of generators
connected to that system during system emergencies. ComEd will retain
ownership of its transmission system. The formation of the Midwest ISO was
approved by FERC in September 1998. It is anticipated that the Midwest ISO
Board of Directors will be elected by the end of 1998.
 
LIQUIDITY AND CAPITAL RESOURCES
 
                              UTILITY OPERATIONS
 
  CONSTRUCTION PROGRAM. ComEd has a construction program for the year 1998,
which consists principally of improvements to its 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, includes the following estimated expenditures
(excluding nuclear fuel expenditures of approximately $160 million).
 
<TABLE>
<CAPTION>
                                                                   1998
                                                                   ----
                                                           (MILLIONS OF DOLLARS)
   <S>                                                     <C>
   Production.............................................         $425
   Transmission and Distribution..........................          415
   General................................................           90
                                                                   ----
                                                                   $930
                                                                   ====
</TABLE>
 
 
                                      42
<PAGE>
 
  Such estimated expenditures include $95 million toward the replacement of
the steam generators at ComEd's Byron Unit 1, which were replaced in February
1998, and Braidwood Unit 1, which are expected to be replaced prior to year-
end 1998, in addition to approximately $35 million for removal costs. The
total replacement cost is estimated to be $455 million, including
approximately $80 million of removal costs. ComEd's management is currently
reviewing its construction program for the years 1999 and thereafter. See
"Changes in the Electric Utility Industry," subcaption "Response to Regulatory
Changes" above, for information regarding capital spending for the
transmission and distribution systems.
 
  ComEd's forecasts of peak load indicate a need for additional resources to
meet demand, either through generating capacity, equivalent purchased power
and/or the development of additional demand-side management resources, in 1998
and each year thereafter for the foreseeable future. However, ComEd believes
that adequate resources, including cost-effective, demand-side management
resources, non-utility generation resources and other-utility power purchases,
can be obtained in sufficient quantities to meet such forecasted needs.
 
  Purchase commitments for ComEd, principally related to construction and
nuclear fuel, approximated $268 million at September 30, 1998. In addition,
ComEd's estimated commitments for the purchase of coal are as follows:
 
<TABLE>
<CAPTION>
      CONTRACT                                            PERIOD   COMMITMENT(1)
      --------                                           --------- -------------
      <S>                                                <C>       <C>
      Black Butte Coal Co. ............................. 1998-2000    $  488
      Decker Coal Co. .................................. 1998-2014       478
      Other commitments ................................ 1998-2000        53
                                                                      ------
                                                                      $1,019
                                                                      ======
</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," subcaption "Fuel Supply" below, and Notes
1 and 22 of Notes to Financial Statements.
 
  CAPITAL RESOURCES. ComEd forecasts that internal sources will provide
approximately three-fourths of the funds required for ComEd's 1998
construction program and other capital requirements, including nuclear fuel
expenditures, contributions to nuclear decommissioning funds, sinking fund
obligations and scheduled debt maturities. See Notes 10 and 12 of Notes to
Financial Statements for the summaries of the annual sinking fund requirements
and scheduled maturities for ComEd preference stock and long-term debt,
respectively. The forecast takes into consideration the effects of the 1997
Act, but does not take into consideration the proposed issuance by ComEd of up
to $3.4 billion of securities to refinance debt and equity, as permitted under
the 1997 Act. See "Changes in the Electric Utility Industry," subcaption "The
1997 Act" above, 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 may be provided through the
continued sale and leaseback of nuclear fuel through ComEd's existing nuclear
fuel lease facility. See Note 20 of Notes to Financial Statements for
additional information concerning ComEd's nuclear fuel lease facility. On
October 8, 1998, ComEd had $1 billion of unused bank lines of credit, which
may be borrowed at various interest rates. The interest rate is set at the
time of a borrowing and is based on 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. See Note 13 of Notes to Financial
Statements for information concerning lines of credit, including scheduled
commitment reductions. See the Statements of Consolidated Cash Flows for the
construction expenditures and cash flow from operating activities for the
three months, nine months and twelve months ended September 30, 1998. Cash
flow from operating activities decreased temporarily for the three months,
nine months and twelve months ended September 30, 1998, compared to the same
periods ended September 30, 1997, as a result of the transition to a new
customer information and billing system in the third quarter of 1998.
 
                                      43
<PAGE>
 
  During the first nine months of 1998, ComEd sold and leased back $101
million of nuclear fuel through its existing nuclear fuel lease facility. In
July 1998, ComEd issued $225 million principal amount of 6.95% Notes due July
15, 2018, the proceeds of which were used for general corporate purposes,
including the refinancing of existing debt. See the Statements of Consolidated
Cash Flows and Note 7 of Notes to Financial Statements for information
regarding common stock activity.
 
  As of November 10, 1998, ComEd has an effective "shelf" registration
statement with the SEC for the future sale of up to an additional $280 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-
      Trust Securities.................................  baa3     BBB-    BBB-
      Commercial paper.................................  P-2      A-2     D-2
</TABLE>
 
  As of October 1998, Moody's rating outlook on ComEd's securities is "Stable"
and S&P's rating outlook is "Positive." Duff & Phelps removed ComEd's
securities from "Rating Watch-Down" in September 1998.
 
  See "Part II, Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters" in Unicom and ComEd's Annual Reports on Form 10-K for the
year ended December 31, 1997 for additional information regarding ComEd's
securities ratings.
 
  See "Changes in the Electric Utility Industry," subcaption "The 1997 Act"
above, regarding the ICC's order approving ComEd's proposed issuance of up to
$3.4 billion of securities and the planned use of the proceeds to refinance
debt and equity, as permitted under the 1997 Act.
 
  CAPITAL STRUCTURE. ComEd's ratio of long-term debt to total capitalization
has increased slightly to 48.9% at September 30, 1998 from 48.5% at December
31, 1997. Unicom's retained earnings account had a deficit balance of $21
million at December 31, 1997. As of September 30, 1998 and December 31, 1997,
$470 million and $331 million, respectively, of retained earnings had been
appropriated for future dividend payments. ComEd's retained earnings account
had a deficit balance of $19 million at December 31, 1997. As of September 30,
1998 and December 31, 1997, $546 million and $384 million, respectively, of
retained earnings had been appropriated for future dividend payments.
 
  YEAR 2000 CONVERSION. Unicom, including ComEd, uses various software
applications and embedded systems throughout its businesses that will be
affected by so-called "Year 2000 issues." These issues may prevent an
application or system from correctly processing dates up to the year 2000 and
beyond. A failure to correct any critical Year 2000 processing problems prior
to January 1, 2000 could have material adverse operational and financial
consequences if the affected systems either cease to function or produce
erroneous data. At this time, Unicom believes the major risks associated with
the inability of systems and software to process Year 2000 data correctly are
a system failure or miscalculation causing disruption of operations, including
among other things, an inability to operate ComEd's nuclear or fossil
generating plants, disruption in the operation of its transmission and
distribution systems or an inability to access interconnections with the
systems of neighboring utilities. Such failures could materially and adversely
affect Unicom's results of operations, financial position and cash flows.
 
                                      44
<PAGE>
 
  Unicom management has established a Year 2000 project team, currently
composed of over 300 members, including members of Unicom's senior management,
to address Year 2000 issues. The team is focused on three elements that are
integral to the project: business continuity, project management and risk
management. Business continuity involves the continuation of reliable electric
supply and service in a safe and cost-effective manner. Project management
involves defining and meeting the project scope, schedule and budget. Risk
management involves customer management, contingency planning and legal
issues.
 
  In addition to its internal efforts, Unicom is working with various industry
groups, including NERC, EPRI and EEI to coordinate electric utility industry
Year 2000 efforts with the Clinton Administration's Year 2000 Conversion
Council, the DOE and Congress. The DOE has asked NERC to report on the
integrity of the transmission system for North America and to coordinate and
assess the preparation of the electric systems in North America for the Year
2000. NERC submitted its initial status report and coordination plan to the
DOE in September 1998, and a full status report is due by July 1999, as to the
measures that are being taken to prepare electric power supply and delivery
systems for transition into the Year 2000.
 
  Since July 1996, Unicom has been working to identify and address Year 2000
issues. Unicom's approach to identifying and addressing noncompliant software
applications and embedded systems consists of the following stages: inventory,
analysis, renovation, testing and deployment. In addition, Unicom is engaged
in contingency planning for Year 2000 problems. The first stage is to
inventory all applications and systems. The analysis stage involves assessing
whether software applications and embedded systems are Year 2000 compliant.
The renovation stage involves remediating or upgrading applications and
systems to make them Year 2000 ready. The testing stage determines whether the
renovated applications and systems are Year 2000 ready. The deployment stage
is when the tested applications and systems are implemented. Unicom also has
begun to develop contingency plans to address the possibility that the
applications and systems may not be Year 2000 ready at the end of this
process. An independent consultant has been engaged to assist Unicom in the
assessment of the process being used to address the Year 2000 issue.
 
  Unicom's Year 2000 project focuses on those facets of its business that are
required to deliver reliable electric service. The project encompasses the
computer systems that support core business functions such as customer
information and billing, finance, procurement, supply and personnel as well as
the components of metering, transmission, distribution and generation support.
The project also focuses on embedded systems, instrumentation and control
systems in facilities and plants. In accordance with business plans, Unicom
has replaced certain of its financial, human resources and customer service
and billing software, and is planning to replace its payroll system in early
1999, with new software that is Year 2000 compliant, and that addresses
Unicom's strategic needs as it enters a less regulated environment.
 
  The following table summarizes the status as of October 2, 1998 of Unicom's
progress toward achieving Year 2000 readiness. The figures set forth in the
table represent the estimated extent to which Unicom has completed each phase
of the Year 2000 project for software applications and embedded systems.
 
<TABLE>
<CAPTION>
                                                             SOFTWARE   EMBEDDED
                                                           APPLICATIONS SYSTEMS
                                                           ------------ --------
      <S>                                                  <C>          <C>
      Inventory...........................................      99%        97%
      Analysis............................................      58%        70%
      Renovation..........................................      47%         5%
      Testing.............................................      35%         7%
      Deployment..........................................      31%         4%
</TABLE>
 
                                      45
<PAGE>
 
  The following is a brief summary of estimates of progress of the Year 2000
project and certain projected completion dates in each of Unicom's four
critical business areas--nuclear generation, fossil generation, transmission
and distribution and corporate information services:
 
  . Nuclear Generation--Software applications inventory is 90% complete and
    analysis is underway. Embedded systems inventory is 100% complete and
    analysis is 84% complete. Eight of the ten operating nuclear units are
    expected to be Year 2000 ready in the first half of 1999. If Year 2000
    modifications are necessary, the two remaining units are expected to be
    made Year 2000 ready during refueling outages previously scheduled for
    the fourth quarter of 1999.
 
  . Fossil Generation--Software applications and embedded systems inventories
    are 100% complete. Analysis is 32% complete for software applications and
    56% complete for embedded systems. Deployment of software applications
    and embedded systems is expected to be completed by May 30, 1999.
 
  . Transmission and Distribution--Software applications and embedded systems
    inventories are 100% complete. Analysis is 33% complete for software
    applications and 56% complete for embedded systems. Testing and
    deployment are each 20% complete for software applications. Deployment of
    software applications and embedded systems is expected to be completed by
    May 30, 1999.
 
  . Corporate Information Services--Inventory is 100% complete. Analysis is
    93% complete. Renovation is 88% complete. Deployment is 57% complete.
    Deployment of software applications and embedded systems is expected to
    be completed by December 31, 1998.
 
  Unicom's current schedule is subject to change, depending on developments
that may arise through unforeseen business circumstances, and through
remediation and testing phases of its compliance effort. Unicom also depends
upon third parties, including customers, suppliers, government agencies and
financial institutions, to reliably deliver its products and services. Unicom
has begun implementing additional initiatives to assess the degree to which
third parties with whom it has business relationships are addressing Year 2000
issues. These initiatives include analysis of the Year 2000 compliance
programs of Unicom's critical vendors and obtaining Year 2000 warranties in
certain new contracts and licenses. Unicom also has introduced protocols for
assuring that software and embedded systems remain Year 2000 compliant on a
continuing basis. Unicom's contingency planning is addressing mechanisms for
preventing or mitigating interruption caused by its suppliers. Unicom also has
an outreach program in place for communicating Year 2000 project information
to residential and business customers.
 
  Unicom estimates that the total cost of remediating or upgrading software
which would not otherwise be replaced in accordance with its business plans is
approximately $20 million, and the total cost of remediating or upgrading
embedded systems is approximately $20-$40 million. Approximately $12.7 million
has been expended as of September 30, 1998 for external labor, hardware and
software costs, and for the costs of Unicom employees who are dedicated full-
time to the Year 2000 project. All of such costs are expensed as incurred. The
foregoing amounts do not include the cost of new software applications
installed as a result of strategic replacement projects described earlier.
Such replacement projects were not accelerated because of Year 2000 issues.
 
  The cost of the project and the dates on which Unicom plans to complete its
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third parties' Year 2000
readiness and other factors. Further, Unicom expects to incur additional costs
after 1999 to remediate and replace less critical software applications and
embedded systems.
 
  Unicom has existing contingency plans in place for events such as extreme
heat, storms, equipment failures and accidents. Unicom is preparing Year 2000
contingency plans based on the framework of existing emergency management
system preparation and scenario development.
 
                                      46
<PAGE>
 
  Unicom has begun the process of developing contingency plans to address the
most reasonably likely worst case scenarios that could occur in the event that
various Year 2000 issues are not resolved in a timely manner. Unicom expects
to submit the first draft of contingency plans to NERC by December 31, 1998,
as NERC has requested. Final plans are due to be submitted to NERC by June 30,
1999. Contingency planning is an ongoing process and will continue through the
fourth quarter of 1999.
 
  Unicom is using an approach in its contingency planning process that has
been recognized by NERC and EEI. The phases of the process include: business
impact analysis, contingency planning and testing. Unicom's business impact
analysis requires business unit personnel to evaluate the impact of mission-
critical systems failures on Unicom's core business operations, focusing on
specific failure scenarios and how they can be mitigated. The necessary
conditions for enacting the plans will be documented along with the
appropriate personnel responsible in each of the business units should a Year
2000 failure occur. Additionally, Unicom will participate in the NERC
industry-wide readiness drills scheduled for the spring and fall of 1999.
 
  Based on Unicom's current schedule for completion of Year 2000 tasks, it
believes that its planning is adequate to secure Year 2000 readiness of its
critical systems. Nevertheless, achieving Year 2000 readiness is subject to
various risks and uncertainties, many of which are described above. Unicom is
not able to predict all the factors that could cause actual results to differ
materially from its current expectations as to its Year 2000 readiness.
However, if Unicom, or third parties with whom it has significant business
relationships, fails to achieve Year 2000 readiness with respect to critical
systems, there could be a material adverse effect on Unicom's results of
operations, financial position and cash flows.
 
  MARKET RISKS. ComEd is exposed to market risk due to changes in interest
rates and changes in the market price for electricity. Exposure for interest
rate changes relates to its long-term debt and preferred equity obligations.
Exposure to electricity market price risk relates to forward activities taken
to manage effectively the supply of, and demand for, the electric generation
capability of ComEd's generating plants. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Liquidity and Capital Resources--Interest
Rate Exposure" and "--Market Price Exposure," in Unicom and ComEd's Current
Reports on Form 8-K dated January 30, 1998. There has not been a material
change in ComEd's exposure to interest rate risk or market price risk since
December 31, 1997. See "Energy Risk Management Contracts" in Note 1 of Notes
to Financial Statements regarding the accounting for energy risk management
contracts.
 
                            UNREGULATED OPERATIONS
 
  Unicom Enterprises is engaged, through subsidiaries, in energy service
activities which are not subject to utility regulation by federal or state
agencies. One of these subsidiaries, UT Holdings, provides district cooling,
heating and related services to offices and other buildings in the central
business district of the city of Chicago and in other cities in North America,
generally working with local utilities. District cooling involves, in essence,
the production of chilled water at one or more central locations and its
circulation to customers' buildings through a closed circuit of supply and
return piping. Such water is circulated through customers' premises primarily
for air conditioning. This process is used by customers in lieu of self-
generated cooling. As a result of the Clean Air Amendments, the manufacture of
CFCs has been curtailed since January 1996, thereby creating a marketing
opportunity for non-CFC based systems, such as UT Holdings' district cooling.
 
  Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services, including gas services, performance contracting,
distributed energy, active energy
 
                                      47
<PAGE>
 
management systems and energy infrastructure services. In 1997, Unicom Energy
Services entered into a joint venture with Sonat Marketing Company L.P. to
market natural gas and related services to larger gas purchasers within
ComEd's service area in Northern Illinois and other Midwestern areas. As an
entry into the distributed energy market, Unicom Energy Services also entered
into an alliance with AlliedSignal Power Systems, Inc., a subsidiary of
AlliedSignal Inc., to market, install and service an electric energy generator
developed by AlliedSignal, known as a TurboGenerator, in a 12-state region,
the province of Ontario, Canada and Puerto Rico. Unicom Energy Services
entered into an exclusive national distributorship agreement with Engage
Networks, Inc. to market active energy management software and related
hardware and services. As of September 30, 1998, Unicom Energy Services had
purchase commitments of approximately $6 million.
 
  CONSTRUCTION PROGRAM. Unicom has approved capital expenditures for 1998 of
approximately $92 million for UT Holdings, primarily related to an expansion
of two of its four Chicago district cooling facilities and the related
distribution piping and plants in other cities. As of September 30, 1998, UT
Holdings' purchase commitments, principally related to construction, were
approximately $35 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 borrowings. The availability of ComEd's dividends to
Unicom is dependent on ComEd's financial performance and cash position, as
well as legal restrictions on the payment of dividends by public utilities.
Other forms of financing by ComEd to Unicom or the unregulated subsidiaries of
Unicom, such as loans or additional equity investments, which are not
expected, would be subject to prior approval by the ICC.
 
  Unicom Enterprises has a $200 million credit facility which will expire on
November 15, 1999, of which $100 million was unused as of September 30, 1998.
The credit facility can be used by Unicom Enterprises to finance investments
in unregulated businesses and projects, including UT Holdings and Unicom
Energy Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom and
Unicom Enterprises' operations. Interest rates for borrowings under the credit
facility are set at the time of a borrowing and are based on either a prime
interest rate or a floating rate bank index plus a spread which varies with
the credit rating of ComEd's outstanding first mortgage bonds. See Note 13 of
Notes to Financial Statements for additional information regarding certain
covenants with respect to Unicom and Unicom Enterprises' operations.
 
  In July 1998, Unicom Thermal issued $120 million of guaranteed senior
unsecured 7.38% Notes due in May 2012, the proceeds of which were used to
refinance existing debt. The Notes are guaranteed by Unicom and include
certain covenants with respect to Unicom and Unicom Thermal's operations.
 
  On April 1, 1998, S&P issued a rating on Unicom's senior debt obligations of
BBB-. Ratings have not been obtained from Moody's or Duff & Phelps. See "Part
II, Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters" in Unicom and ComEd's Annual Reports on Form 10-K for the year ended
December 31, 1997 for additional information regarding securities ratings.
 
REGULATION
 
  ComEd and the Indiana Company are subject to federal and state regulation in
the conduct of their respective businesses, including the operations of
Cotter. Such regulation includes rates, securities issuance, nuclear
operations, environmental and other matters. Particularly in the cases of
nuclear operations and environmental matters, such regulation can and does
affect operational and capital expenditures.
 
  RATE MATTERS. See "Changes in the Electric Utility Industry," subcaption
"The 1997 Act" above, for information regarding the effect of the 1997 Act on
rate matters. See "Nuclear Matters" below for information regarding fuel
reconciliation proceedings for the years 1994 and 1996.
 
                                      48
<PAGE>
 
  NUCLEAR MATTERS. Nuclear operations have been, and remain, an important
focus of ComEd--given the impact of such operations on overall O&M expenses
and the ability of nuclear power plants to produce electric energy at a
relatively low marginal cost. ComEd operates five nuclear plants, ranging from
the older Dresden and Quad Cities Stations to the more recently completed
LaSalle, Byron and Braidwood Stations, and is intent upon safe, reliable and
efficient operation. See "Changes in the Electric Utility Industry,"
subcaption "Response to Regulatory Changes" above, for information regarding
ComEd's cessation of nuclear generation operations at its Zion Station.
 
  ComEd's LaSalle Station is currently on the NRC's list of plants that
require increased regulatory scrutiny by the NRC. Dresden Station had been
included on the list since 1992 and LaSalle and Zion Stations were added in
January 1997. On July 29, 1998, the NRC removed Dresden Station from the list
because of improved performance at the station, and also administratively
removed Zion Station from the list because of ComEd's decision to cease
further nuclear operations at the plant. The listing of LaSalle Station 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 January 1998, the NRC noted a declining
performance trend at Quad Cities Station. In March 1998, the NRC stated that
weaknesses were observed with respect to certain operations, maintenance and
engineering activities at Quad Cities Station. On July 29, 1998, the NRC
stated that there has not been sufficient operational data to enable it to
assess Quad Cities Station performance. The NRC has indicated that it is
monitoring ComEd's ability to manage its nuclear operations in their entirety
and that the performance at any one facility will be viewed by the NRC in
context with the performance of ComEd's nuclear generating group as a whole.
 
  In January 1997, the NRC also took the unusual 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 nuclear generating
stations while sustaining performance improvement at each site. 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 that require
increased regulatory scrutiny by the NRC 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 NRC and representatives of ComEd's
management have met, and will continue to meet periodically in the future, to
discuss the status of recovery and restart efforts and overall performance of
the ComEd nuclear program.
 
  ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. In recent
years, it has increased and reinforced the Nuclear Generation Group executive
leadership and station management with executives and managers drawn from
other utilities which have resolved similar operational and performance
issues. These efforts include the appointment of a new Chief Nuclear Officer
in late 1997. ComEd 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. Although performing such improvements can result in
longer unit outages, the improvements are expected to result in improved
operational performance when completed. LaSalle Units 1 and 2 were shut down
for extensive improvement work in September 1996. LaSalle Unit 1 was returned
to service in August 1998 after the NRC determined that ComEd had made
sufficient improvements at LaSalle Unit 1 for the unit to resume operations.
LaSalle Unit 2 is expected to restart during the second quarter of 1999. The
restart of LaSalle Unit 2 requires the resolution of material condition issues
similar to those of LaSalle Unit 1.
 
                                      49
<PAGE>
 
  The NERC forecasted the possibility of electric energy shortages in the
summer of 1998 in light of continued outages at nuclear plants operated by
ComEd and other utilities in the Midwest power grid. ComEd took numerous steps
to support the reliability of its system during the summer of 1998. Such steps
included maximizing available on-system generating capacity during periods of
peak demand, arrangements to purchase power from other utilities,
reinforcements to the transmission systems of ComEd and neighboring utilities
to increase capacity and to provide voltage support, and working with
customers to manage the use of and demand for power. As a result of a unique
combination of heat, storms and equipment problems affecting utilities
throughout the Midwest region, on June 25, 1998, ComEd declared a NERC
generation deficiency alert Level 3, which is a statement that firm load loss
is possible. As of November 10, 1998, a firm load loss had not been
experienced. See "Results of Operations," subcaption "Purchased Power" below,
regarding the increased purchased power expense in 1998.
 
  Generating station availability and performance during a year have been
issues in fuel reconciliation proceedings in assessing the prudence of fuel
and purchased power costs during such year. Final ICC orders have been issued
in fuel reconciliation proceedings related to ComEd's FAC collections for
years prior to 1994 and for the year 1995. On November 5, 1998, the ICC issued
an order in the proceeding for the year 1994 providing for a refund of
approximately $3 million related to nuclear station performance. The ICC order
is subject to appeal. In the fuel reconciliation proceeding for 1996, an
intervenor and the ICC staff have filed testimony seeking a refund of
approximately $78 million and $104 million, respectively, relating to nuclear
station performance. The 1997 Act provides that the fuel reconciliation
proceeding for 1996 must be concluded by the end of 1998. The 1997 Act also
provides that, because ComEd eliminated its FAC effective January 1, 1997, the
ICC shall not conduct a fuel reconciliation proceeding for the year 1997 or
any subsequent years. ComEd's management believes adequate reserves have been
established in connection with the FAC cases discussed above.
 
  Based on ComEd's most recent study approved by the ICC, decommissioning
costs, including the cost of decontamination and dismantling, are estimated to
aggregate $4.4 billion in current-year (1998) dollars, including a contingency
allowance. ComEd estimates that it will expend approximately $11.6 billion,
including a contingency allowance, for decommissioning costs primarily during
the period from 2007 through 2034. Additionally, ComEd estimates that it will
expend an aggregate of approximately $217 million in current-year (1998)
dollars during the period 2000 through 2014 to maintain Zion Station in a
secured mode until decommissioning begins. All such costs are expected to be
funded by external decommissioning trusts, which ComEd established in
compliance with Illinois law and into which ComEd has been making annual
contributions. Future decommissioning cost estimates may be significantly
affected by the adoption of or changes to NRC regulations, as well as changes
in the assumptions used in making such estimates, including changes in
technology, available alternatives for the disposal of nuclear waste and
inflation. See Note 1 of Notes to Financial Statements, under "Depreciation,
Amortization of Regulatory Assets 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 22 of Notes to Financial Statements and "Part II. Other Information, Item
1. Legal Proceedings."
 
 
                                      50
<PAGE>
 
RESULTS OF OPERATIONS
 
  Unicom's basic and diluted earnings (loss) per common share for the three
months, nine months and twelve months ended September 30, 1998 and 1997 were
as follows:
 
<TABLE>
<CAPTION>
                         THREE MONTHS ENDED  NINE MONTHS ENDED TWELVE MONTHS ENDED
                            SEPTEMBER 30       SEPTEMBER 30        SEPTEMBER 30
                         ------------------- ----------------- ---------------------
                           1998      1997      1998     1997      1998       1997
                         --------- --------- -------- -------- ----------  ---------
<S>                      <C>       <C>       <C>      <C>      <C>         <C>
Basic Earnings (Loss)
 per Common Share.......     $1.22     $1.11    $1.84    $2.35     $(4.44)     $2.79
                         ========= ========= ======== ======== ==========  =========
Diluted Earnings (Loss)
 per Common Share.......     $1.22     $1.11    $1.83    $2.35     $(4.44)     $2.78
                         ========= ========= ======== ======== ==========  =========
</TABLE>
 
  The earnings for the nine months and twelve months ended September 30, 1997
also include the one-time positive impact of a change in accounting principle
of $197 million (after-tax), or $0.91 per common share (basic). Restated basic
earnings per common share, excluding the one-time positive effect of the
change in accounting principle, were $1.11, $1.44 and $1.88 for the three
months, nine months and twelve months ended September 30, 1997, respectively.
Substantially all of the results of operations for Unicom are the results of
operations for ComEd. The results of Unicom's unregulated subsidiaries
currently are not material to the results of Unicom and subsidiary companies
as a whole. As such, the following section discusses the effect of ComEd's
operations on Unicom's financial results. All EPS computations shown below
reflect the impact on Unicom's basic EPS.
 
  NET INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998. The increase in
ComEd's net income in the recent three-month period reflects, among other
factors, increased kilowatthour sales which increased both operating revenues
and energy costs, compared to the same period in 1997. Also contributing to
the increase in net income were reduced O&M expenses and lower depreciation
and amortization expense.
 
  Kilowatthour sales increased 4% for the three months ended September 30,
1998, compared to the same period in 1997, driven largely by increased sales
to retail customers due to warmer weather experienced during the recent
period, as well as continued economic growth in ComEd's service territory.
Operating revenues increased 1% during the recent three-month period, compared
to the same period in 1997. See "Operating Revenues" below for additional
information.
 
  Fuel and purchased power costs increased 21% in the third quarter of 1998,
compared to the third quarter of 1997, reflecting increased demand for
electricity, as well as the effects of higher purchased power prices. See
"Purchased Power" below for additional information.
 
  O&M expenses decreased 2% for the third quarter of 1998, compared to the
same period in 1997, as discussed in "Operation and Maintenance Expenses"
below.
 
  The third quarter of 1998 includes an 8% decrease in depreciation and
amortization expense, as discussed in "Depreciation and Amortization" below,
and a $9 million (after-tax) reduction to the estimated liability for closing
costs related to the Zion nuclear generating station, both of which increased
operating results.
 
 
                                      51
<PAGE>
 
  NET INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998. The decrease in
ComEd's net income in the recent nine-month period reflects, among other
factors, the one-time positive impact of a change in accounting principle of
$197 (after-tax), reflected in the September 30, 1997 results, and increased
fuel and purchased power costs, partially offset by increased kilowatthour
sales, decreased O&M expenses and lower depreciation and amortization expense,
compared to the same period last year.
 
  Kilowatthour sales increased 3% for the nine months ended September 30,
1998, compared to the same period in 1997, reflecting increased sales to
retail customers due to warmer summer weather experienced during the recent
period, as well as continued economic growth in ComEd's service territory.
Operating revenues increased 3% during the recent nine-month period, compared
to the same period in 1997. See "Operating Revenues" below for additional
information.
 
  Fuel and purchased power costs increased 22% during the nine months ended
September 30, 1998, compared to the same period in 1997, reflecting the
increase in purchased power price levels and increased purchases from other
utilities. See "Purchased Power" below for additional information.
 
  O&M expenses decreased 6% for the nine months ended September 30, 1998,
compared to the same period in 1997, as discussed in "Operation and
Maintenance Expenses" below.
 
  The recent nine months ended also includes a 6% decrease in depreciation and
amortization expense, as discussed in "Depreciation and Amortization" below,
and a $9 million (after-tax) reduction to the estimated liability for closing
costs related to the Zion nuclear generating station, both of which increased
operating results.
 
  In the fourth quarter of 1997, ComEd changed its accounting method for
revenue recognition to record ComEd's revenues associated with service which
has been provided to customers but has not yet been billed at the end of each
accounting period, retroactive to January 1, 1997. This change in accounting
method, included in restated nine months and twelve months ended September 30,
1997 results, had a cumulative one-time positive impact for years prior to
1997 of $197 million (after-tax), or $0.91 per common share.
 
  NET INCOME (LOSS) FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998. The
decrease in ComEd's net income (loss) in the recent twelve-month period was
primarily due to ComEd's discontinuation of regulatory accounting practices
for the generation portion of its business and other charges recorded in
response to the enactment of the 1997 Act. The results for the twelve months
ended September 30, 1998 also included a write-off in connection with the
closure of Zion Station.
 
  ComEd discontinued regulatory accounting practices for the generation
portion of its business in the fourth quarter of 1997 due to the expected
transition of electric generation services to market-based pricing as a result
of the 1997 Act. Accordingly, ComEd's generation-related net regulatory assets
(which represent assets and liabilities properly recorded under regulatory
accounting practices but which would not be recorded under GAAP for non-
regulated entities) were written off, resulting in an extraordinary charge in
the fourth quarter of 1997 of $810 million (after-tax), or $3.75 per common
share.
 
  In addition, as permitted under the 1997 Act, ComEd elected to eliminate its
FAC in December 1997, which resulted in a charge in the fourth quarter of 1997
of $44 million (after-tax), or $0.20 per common share. The reduction includes
$25 million (after-tax), or $0.12 per common share, in net FAC charges billed
to its customers in 1997, which was refunded to customers during the first six
months of 1998. The reduction also includes a write-off of $19 million (after-
tax), or $0.08 per common share, in underrecovered energy costs that ComEd
would have been entitled to recover if the FAC had remained in effect.
 
 
                                      52
<PAGE>
 
  Also, the results for the twelve months ended September 30, 1998 included
the write down of ComEd's investment in uranium-related properties to reflect
costs which are not expected to be recovered in a competitive market. The
write down resulted in a charge of $60 million (after-tax), or $0.28 per
common share, in the fourth quarter of 1997.
 
  In the fourth quarter of 1997, ComEd changed its accounting method for
revenue recognition to record ComEd's revenues associated with service which
has been provided to customers but has not yet been billed at the end of each
accounting period, retroactive to January 1, 1997. This change in accounting
method, included in restated nine months and twelve months ended September 30,
1997 results, had a cumulative one-time positive impact for years prior to
1997 of $197 million (after-tax), or $0.91 per common share.
 
  The fourth quarter of 1997 also included a charge of $523 million (after-
tax), or $2.42 per common share, reflecting the write-off of the unrecoverable
portion of the cost of ComEd's Zion Station plant and inventories and a
liability for future closing costs, resulting from the decision in January
1998 to cease nuclear generation operations at Zion Station.
 
  ComEd's kilowatthour sales increased 4% in the twelve months ended September
30, 1998, compared to the same period last year, driven largely by increased
sales to retail customers due to warmer summer weather experienced during the
recent twelve-month period, as well as continued economic growth in ComEd's
service territory. Operating revenues increased 2% in the recent twelve-month
period. See "Operating Revenues" below for additional information.
 
  Also reducing operating results for the recent twelve-month period was a 21%
increase in fuel and purchased power costs. See "Purchased Power" below for
additional information.
 
  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 FAC for years prior to
1997 (which were intended to recover variations in ComEd's fuel cost for
generating electric energy and the energy portion of purchased power cost in
relation to the amount included in ComEd's base rates). Operating revenues are
affected by kilowatthour sales and rate levels. 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
are affected by a number of factors, including nuclear generating availability
and performance.
 
  Operating revenues increased $22 million, $153 million and $167 million for
the three months, nine months and twelve months ended September 30, 1998,
respectively, compared to the same periods ended September 30, 1997. The
increase was primarily due to an increase in kilowatthour sales to retail
customers of 4%, 3% and 4% for the three months, nine months and twelve months
ended September 30, 1998, respectively, compared to the same periods last
year. The increase in operating revenues was partially offset by approximately
$80 million for a 15% residential base rate reduction which became effective
on August 1, 1998. The increase in kilowatthour sales to retail customers
during the recent periods was primarily due to warmer summer weather in the
recent periods, compared to the same periods last year, as well as continued
economic growth in ComEd's service territory. Operating revenues were reduced
in the third quarter of 1998 due to a change in the presentation for certain
state and municipal taxes on the Statements of Consolidated Operations and
reserves for various federal and state litigation matters. See Note 19 of
Notes to Financial Statements for additional information regarding the change
in presentation for certain taxes on the Statements of Consolidated
Operations.
 
 
                                      53
<PAGE>
 
  FUEL COSTS. Changes in fuel expense for the three months, nine months and
twelve months ended September 30, 1998, compared to the same periods ended
September 30, 1997, 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    NINE MONTHS ENDED   TWELVE MONTHS ENDED
                                                      SEPTEMBER 30         SEPTEMBER 30         SEPTEMBER 30
                                                   --------------------  ------------------  --------------------
                                                     1998       1997       1998      1997      1998       1997
                                                   ---------  ---------  --------  --------  ---------  ---------
   <S>                                             <C>        <C>        <C>       <C>       <C>        <C>
   Cost of fuel consumed (per million Btu):
     Nuclear.....................................  $    0.54  $    0.54  $   0.58  $   0.56  $    0.59  $    0.56
     Coal........................................  $    2.59  $    2.19  $   2.35  $   2.33  $    2.28  $    2.32
     Oil.........................................  $    3.71  $    4.57  $   3.49  $   4.03  $    3.56  $    3.77
     Natural gas.................................  $    2.27  $    2.47  $   2.38  $   2.53  $    2.53  $    2.56
     Average all fuels...........................  $    1.29  $    1.21  $   1.28  $   1.31  $    1.31  $    1.28
   Net generation of electric energy (millions of
    kilowatthours)...............................     25,110     24,610    60,600    65,690     80,770     88,859
   Fuel sources of kilowatthour generation:
     Nuclear.....................................         63%        61%       62%       59%        59%        60%
     Coal........................................         31         35        31        38         34         37
     Oil.........................................        --         --          1       --           1        --
     Natural gas.................................          6          4         6         3          6          3
                                                   ---------  ---------  --------  --------  ---------  ---------
                                                         100%       100%      100%      100%       100%       100%
                                                   =========  =========  ========  ========  =========  =========
</TABLE>
 
  The decreases in the net generation of electric energy for the nine months
and twelve months ended September 30, 1998, compared to the same periods ended
September 30, 1997, are primarily due to the sales of State Line and Kincaid
Stations in December 1997 and February 1998, respectively, and lower nuclear
plant availability. See "Regulation," subcaption "Nuclear Matters" above, for
information regarding outages at certain of ComEd's nuclear generating
stations.
 
  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
September 30, 1998, ComEd had coal reserves of $221 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 see "Liquidity and Capital
Resources" above and for information concerning ComEd's fuel reconciliation
proceedings see "Regulation," subcaption "Nuclear Matters" above. Also see
Note 1 of Notes to Financial Statements, under "Coal Reserves" and "Fuel
Adjustment Clause," concerning ComEd's coal reserves and FAC, respectively.
 
  PURCHASED POWER. Amounts of purchased power are primarily affected by system
load, the availability of ComEd's generating units, and the availability and
cost of power from other utilities. Purchased power costs increased $98
million, $414 million and $502 million for the three months, nine months and
twelve months ended September 30, 1998, respectively, compared to the same
periods ended September 30, 1997. Such increases include $45 million for the
three months and $120 million for the nine months and twelve months ended
September 30, 1998 for the agreements entered into in connection with the
sales of State Line and Kincaid Stations in December 1997 and February 1998,
respectively. The increases in purchased power costs in the recent nine-month
and twelve-month periods also reflect the effects of an extraordinary
combination of heat, storms and equipment problems experienced throughout the
Midwest in late June 1998 which resulted in unprecedented purchased power
price levels. In addition, the increases for the nine months and twelve months
 
                                      54
<PAGE>
 
ended September 30, 1998 reflect 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.
 
  The number and average cost of kilowatthours purchased were as follows:
 
<TABLE>
<CAPTION>
                            THREE MONTHS
                                ENDED       NINE MONTHS ENDED   TWELVE MONTHS ENDED
                            SEPTEMBER 30      SEPTEMBER 30         SEPTEMBER 30
                            --------------  ------------------  --------------------
                             1998    1997     1998      1997      1998       1997
                            ------  ------  --------  --------  ---------  ---------
   <S>                      <C>     <C>     <C>       <C>       <C>        <C>
   Kilowatthours
    (millions)............. 4,025   3,005     18,474    11,987     23,158     13,508
   Cost per kilowatthour...  4.81c   3.19c      3.76c     2.33c      3.52c      2.31c
</TABLE>
 
  Purchased power costs increased significantly in the year 1998, compared to
the year 1997, due to higher costs for power purchased from other utilities,
purchase power agreements entered into in connection with the sales of State
Line and Kincaid Stations in December 1997 and February 1998, respectively,
and increased kilowatthour sales. The market price for electricity is subject
to price volatility associated with changes in supply and demand in the
electric supply markets. ComEd utilizes energy put and call option contracts
and energy swap arrangements to limit market price risk associated with
forward commodity contracts.
 
  OPERATION AND MAINTENANCE EXPENSES. O&M expenses include the expenses
associated with operating and maintaining ComEd's generation, transmission and
distribution assets, as well as administrative overhead and support. Given the
variety of expense categories covered, there are a number of factors which
affect the level of such expenses within any given period. Two major
components of such expenses, however, are the costs associated with operating
and maintaining ComEd's nuclear and fossil generating facilities. Generating
station expenses are affected by the cost of materials, regulatory
requirements and expectations, the age of facilities, as well as cost control
efforts.
 
  During the three months, nine months and twelve months ended September 30,
1998, the aggregate level of O&M expenses decreased 2%, 6% and 2%,
respectively, compared to the same periods ended September 30, 1997.
 
  O&M expenses associated with nuclear generating stations decreased $31
million, $163 million and $154 million during the three months, nine months
and twelve months ended September 30, 1998, respectively, compared to the same
periods ended September 30, 1997, principally due to the permanent cessation
of nuclear generation operations at Zion Station. 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. See "Changes in the Electric Utility Industry," subcaption
"Response to Regulatory Changes" above, regarding the permanent cessation of
nuclear operations at Zion Station.
 
  O&M expenses associated with nuclear generating stations have been driven by
ComEd's objective to improve station availability, as well as to meet
regulatory requirements and expectations. ComEd is pursuing a program to
improve the quality of nuclear operations, including safety and efficiency,
which is also expected to achieve a longer term goal of improved availability
and to be positioned to take advantage of opportunities in a more competitive
market. Over the past several years, ComEd has increased and reinforced
station management with managers drawn from other utilities which have
resolved similar operating issues. It has also sought to identify, anticipate
and address nuclear station operation and performance issues in a safe, cost-
effective manner while seeking to improve the availability and capacity
factors of its nuclear generating units. Such activities
 
                                      55
<PAGE>
 
have included improvements in operating and personnel procedures and repair
and replacement of equipment, and can result in longer unit outages. Such
activities have involved increased maintenance and repair expenses in recent
years.
 
  During the three months, nine months and twelve months ended September 30,
1998, O&M expenses associated with fossil generating stations decreased $12
million and increased $2 million and $10 million, respectively, compared to
the same periods ended September 30, 1997. The decrease related to fossil
generating stations for the recent three months ended September 30, 1998 is
primarily due to lower plant refurbishment costs. The increases related to
fossil generating stations for the recent nine months and twelve months ended
September 30, 1998 is primarily due to increases in plant refurbishment costs,
partially offset by the sales of State Line and Kincaid Stations in December
1997 and February 1998, respectively.
 
  O&M expenses associated with ComEd's transmission and distribution system
increased $5 million, $13 million and $12 million for the three months, nine
months and twelve months ended September 30, 1998, respectively, compared to
the same periods ended September 30, 1997. The increases in the recent three-
month, nine-month and twelve-month periods are primarily due to higher
maintenance costs, including costs associated with storm damage. O&M expenses
associated with customer-related activities increased $4 million, $15 million
and $24 million for the three months, nine months and twelve months ended
September 30, 1998, compared to the same periods ended September 30, 1997,
primarily due to increased marketing initiatives and customer service
personnel costs.
 
  O&M expenses also include employee benefits expenses. Since 1995, ComEd has
reduced the size of its workforce by offering incentives for employees to
leave the company voluntarily. Such incentives included both current payments
and earlier eligibility for post-retirement health care benefits, in addition
to certain other one-time, employee-related costs, resulting in charges of $9
million and $26 million for the three months ended September 30, 1998 and
1997, respectively, $33 million for each of the nine months ended September
30, 1998 and 1997 and $38 million for each of the twelve months ended
September 1998 and 1997.
 
  Other employee-related expenses, excluding the effects of employee
separation plans and certain other one-time, employee-related costs, increased
$31 million, $35 million and $24 million for the three months, nine months and
twelve months ended September 30, 1998, respectively, compared to the same
periods last year. The increases for the recent periods are primarily due to
accruals for estimated incentive compensation recorded in the second and third
quarters of 1998. In 1997, employee incentive compensation was recorded in the
fourth quarter.
 
  O&M expenses for the twelve months ended September 30, 1998 also include $25
million for the additional write-off of obsolete materials and supplies
recorded in the fourth quarter of 1997. O&M expenses associated with certain
administrative and general costs increased $10 million, decreased $4 million
and increased $17 million for the three months, nine months and twelve months
ended September 30, 1998, respectively, compared to the same periods ended
September 30, 1997. The increase in the recent twelve-month period is due to a
variety of reasons including an increase in the provision for vacation pay,
and costs associated with legal services and supply management. The effects of
inflation have also increased O&M expenses during the years and are also
reflected in the increases and decreases discussed herein.
 
  DEPRECIATION AND AMORTIZATION. Depreciation expense decreased for the three
months, nine months and twelve months ended September 30, 1998, compared to
the same periods ended September 30, 1997. The decreases in the recent three-
month, nine-month and twelve-month periods reflect the retirement of Zion
Station and the plant impairment recorded by ComEd in the second quarter of
1998, partially offset by plant additions and shortened depreciable lives for
certain
 
                                      56
<PAGE>
 
nuclear stations. The decreases in the recent three-month, nine-month and
twelve-month periods also reflect the sales of State Line and Kincaid Stations
in December 1997 and February 1998, respectively. Depreciation expense
includes depreciation related to the replacement of the steam generators at
Byron Unit 1 and Braidwood Unit 1 of $6 million and $15 million for the three
months ended September 30, 1998 and 1997, respectively, $29 million and $44
million for the nine months ended September 30, 1998 and 1997, respectively,
and $44 million and $52 million for the twelve months ended September 30, 1998
and 1997, respectively.
 
  The amortization of the regulatory asset, principally related to impaired
production plant recorded by ComEd in the second quarter of 1998, partially
offset the reductions in depreciation expense. Such amortization was $33
million for the three months and nine months ended September 30, 1998 and $37
million for the twelve months ended September 30, 1998. See Note 1 of Notes to
Financial Statements, under "Depreciation, Amortization of Regulatory Assets
and Decommissioning," for additional information.
 
  INTEREST ON DEBT. Changes in interest on long-term debt and notes payable
for the three months, nine months and twelve months ended September 30, 1998,
compared to the same periods ended September 30, 1997, 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     NINE MONTHS ENDED    TWELVE MONTHS ENDED
                                    SEPTEMBER 30          SEPTEMBER 30          SEPTEMBER 30
                                --------------------- --------------------- ---------------------
                                   1998       1997       1998       1997       1998       1997
                                ---------- ---------- ---------- ---------- ---------- ----------
      <S>                       <C>        <C>        <C>        <C>        <C>        <C>
      Long-term debt outstand-
       ing:
       Average amount (mil-
        lions)................    $5,823     $6,148     $5,852     $6,313     $5,906     $6,375
       Average interest rate..      7.37%      7.65%      7.40%      7.65%      7.47%      7.64%
      Notes payable outstand-
       ing:
       Average amount (mil-
        lions)................    $  412     $  216     $  343     $  192     $  266     $  160
       Average interest rate..      5.94%      5.96%      5.92%      5.91%      5.94%      5.91%
</TABLE>
 
  DECOMMISSIONING. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including ComEd,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in financial statements of electric
utilities. In response to these questions, the FASB is reviewing the
accounting for nuclear decommissioning costs. 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. Decommissioning costs of currently retired nuclear
plants are recorded as a liability. Unicom and ComEd do not believe that such
changes, if required, would have an adverse effect on the results of
operations due to ComEd's ability to recover decommissioning costs through
rates.
 
  OTHER ITEMS. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates as discussed in Note 1 of Notes to Financial Statements, under "AFUDC
and Interest Capitalized." ComEd discontinued SFAS No. 71 regulatory
accounting practices in December 1997 for the generation portion of its
business. As a result, beginning in 1998, ComEd is capitalizing interest costs
on its generation-related construction work in progress and nuclear fuel in
process. Interest costs capitalized were $6 million for the three months and
$14 million for the nine months and twelve months ended September 30, 1998.
AFUDC and interest capitalized do not contribute to the current cash flow of
Unicom or ComEd.
 
  ComEd's ratios of earnings to fixed charges for the twelve months ended
September 30, 1998 and December 31, 1997 were 0.75 and 0.58, respectively.
ComEd's ratios of earnings to fixed
 
                                      57
<PAGE>
 
charges and preferred and preference stock dividend requirements for the
twelve months ended September 30, 1998 and December 31, 1997 were 0.64 and
0.49, respectively. Earnings for the twelve months ended September 30, 1998
and December 31, 1997 were inadequate to cover fixed charges by approximately
$143 million and $259 million, respectively, and fixed charges and preferred
and preference stock dividend requirements by approximately $238 million and
$359 million, respectively. The deficiency is principally attributable to the
earnings impact of the closure of Zion Station.
 
  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.
 
  FORWARD-LOOKING INFORMATION. Except for historical data, the information
contained herein constitutes forward-looking statements. Forward-looking
statements are inherently uncertain and subject to risks. Such statements
should be viewed with caution. Actual results or experience could differ
materially from the forward-looking statements as a result of many factors.
Forward-looking statements in this report include, but are not limited to: (1)
statements regarding expectations of revenue reductions and collections of
future CTC revenues as a result of the 1997 Act in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," subcaption
"Changes in the Electric Utility Industry--The 1997 Act," and in Note 2 of
Notes to Financial Statements, (2) statements regarding estimated capital
expenditures in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," subcaptions "Liquidity and Capital Resources--
UTILITY OPERATIONS--Construction Program," "Liquidity and Capital Resources--
UNREGULATED OPERATIONS--Construction Program" and "Changes in the Electric
Utility Industry--Response to Regulatory Changes," (3) statements regarding
the estimated return to service of certain nuclear generating units in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Regulation--Nuclear Matters," (4) statements
regarding the costs of decommissioning nuclear generating stations in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Regulation--Nuclear Matters," and in Note 1 of Notes
of Financial Statements, under "Depreciation, Amortization of Regulatory
Assets and Decommissioning," (5) statements regarding cleanup costs associated
with MGPs and other remediation sites in Note 22 of Notes to Financial
Statements, and (6) statements regarding the risks and uncertainties relating
to Year 2000 issues set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," subcaption "Liquidity and
Capital Resources--Year 2000 Conversion," including the projected completion
dates in each of Unicom's four critical business areas, Unicom's dependence
upon the Year 2000 readiness of third parties with whom it has significant
business relationships, the estimated costs of remediating or upgrading
embedded systems and software that would not otherwise be replaced in
accordance with Unicom's business plans and Unicom's Year 2000 contingency
planning process. Management cannot predict the course of future events or
anticipate the interaction of multiple factors beyond management's control and
their effect on revenues, project timing and costs. The statements regarding
revenue reductions and collections of future CTC revenues are subject to
unforeseen developments in the market for electricity in Illinois resulting
from regulatory changes. The statements regarding estimated capital
expenditures, estimated return to service of nuclear generation units,
decommissioning costs, cleanup costs and Year 2000 conversion costs are
subject to changes in the
 
                                      58
<PAGE>
 
scope of work and manner in which the work is performed and consequent changes
in the timing and level of the projected expenditure, and are also subject to
changes in laws and regulations or their interpretation or enforcement. The
statements regarding the estimated return to service of nuclear generating
units are subject to the concurrence of the NRC with proceeding to power
operations. The statements regarding expectations for Year 2000 readiness and
Unicom's Year 2000 contingency planning process are subject to the risk that
Year 2000 remediation efforts of Unicom and other parties with whom it has
significant business relationships are not successful. Unicom and ComEd make
no commitment to disclose any revisions to the forward-looking statements, or
any facts, events or circumstances after the date hereof that may bear upon
forward-looking statements.
 
 
 
 
 
 
 
                                      59
<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 September 30, 1998 and December
31, 1997, and the related statements of consolidated operations, retained
earnings (deficit) and cash flows for the three-month, nine-month and twelve-
month periods ended September 30, 1998 and 1997. 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 September 30, 1998 and December 31,
1997, and the results of their operations and their cash flows for the three-
month, nine-month and twelve-month periods ended September 30, 1998 and 1997,
in conformity with generally accepted accounting principles.
 
  As discussed in Note 3, effective January 1, 1997, the Company changed its
method of accounting for revenue recognition.
 
                                            Arthur Andersen LLP
Chicago, Illinois
November 10, 1998
 
                                      60
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                     STATEMENTS OF CONSOLIDATED OPERATIONS
 
  The following Statements of Consolidated Operations for the three months,
nine months and twelve months ended September 30, 1998 and 1997 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 prices, 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       NINE MONTHS ENDED      TWELVE MONTHS ENDED
                              SEPTEMBER 30            SEPTEMBER 30             SEPTEMBER 30
                          ----------------------  ----------------------  -----------------------
                             1998        1997        1998        1997        1998         1997
                          ----------  ----------  ----------  ----------  -----------  ----------
                                                (THOUSANDS OF DOLLARS)
<S>                       <C>         <C>         <C>         <C>         <C>          <C>
Electric Operating Reve-
 nues...................  $2,089,547  $2,068,044  $5,576,132  $5,422,786  $ 7,226,434  $7,059,237
                          ----------  ----------  ----------  ----------  -----------  ----------
Electric Operating Ex-
 penses and Taxes:
 Fuel...................  $  349,411  $  354,584  $  831,710  $  972,374  $ 1,098,773  $1,262,710
 Purchased power........     193,637      95,762     693,726     279,402      814,380     311,952
 Operation..............     387,887     424,165   1,068,114   1,252,986    1,529,588   1,648,966
 Maintenance............     169,536     143,261     603,666     520,758      772,637     695,682
 Depreciation and amor-
  tization..............     231,008     249,801     709,774     752,523      958,400     995,926
 Taxes (except income)..     178,800     224,467     570,365     613,717      755,814     796,760
 Income taxes--
   Current--Federal.....     168,239     150,583     287,417     213,260      288,506     273,358
   --State..............      28,995      41,151      53,863      63,191       55,958      64,165
   Deferred--Federal--
    net.................     (10,920)      6,328     (29,937)     24,851        1,325      34,954
   --State--net.........       4,134      (5,082)      1,543      (6,687)      10,774       4,110
 Investment tax credits
  deferred--net.........      (6,889)     (7,570)    (20,937)    (23,364)     (28,588)    (30,399)
                          ----------  ----------  ----------  ----------  -----------  ----------
                          $1,693,838  $1,677,450  $4,769,304  $4,663,011  $ 6,257,567  $6,058,184
                          ----------  ----------  ----------  ----------  -----------  ----------
Electric Operating In-
 come...................  $  395,709  $  390,594  $  806,828  $  759,775  $   968,867  $1,001,053
                          ----------  ----------  ----------  ----------  -----------  ----------
Other Income and (Deduc-
 tions):
 Interest on long-term
  debt, net of interest
  capitalized...........  $ (107,356) $ (117,572) $ (324,693) $ (362,044) $  (441,178) $ (487,107)
 Interest on notes pay-
  able..................      (6,170)     (3,254)    (15,186)     (8,503)     (15,817)     (9,459)
 Allowance for funds
  used during construc-
  tion--
   Borrowed funds.......       2,653       4,871       6,967      13,875       11,647      17,492
   Equity funds.........       1,814       5,772       5,358      16,558       12,570      21,614
 Income taxes
  applicable to
  nonoperating
  activities............      (1,748)      1,996       4,450       4,414       11,265      11,761
 Provision for
  dividends on company-
  obligated mandatorily
  redeemable preferred
  securities of
  subsidiary trusts
  holding solely the
  Company's
  subordinated debt
  securities............      (7,428)     (7,357)    (22,283)    (21,433)     (29,710)    (25,673)
 Loss on nuclear plant
  closure...............         --          --          --          --      (885,611)        --
 Income tax effect of
  nuclear plant
  closure...............         --          --          --          --       362,952         --
 Miscellaneous--net.....       8,597     (14,101)        916     (35,351)     (60,056)    (47,508)
                          ----------  ----------  ----------  ----------  -----------  ----------
                          $ (109,638) $ (129,645) $ (344,471) $ (392,484) $(1,033,938) $ (518,880)
                          ----------  ----------  ----------  ----------  -----------  ----------
Net Income (Loss) before
 Extraordinary Item and
 Cumulative Effect of
 Change in Accounting
 Principle..............  $  286,071  $  260,949  $  462,357  $  367,291  $   (65,071) $  482,173
Extraordinary Loss, less
 Applicable Income
 Taxes..................         --          --          --          --      (810,335)        --
Cumulative Effect of
 Change in Accounting
 Principle..............         --          --          --      196,700          --      196,700
                          ----------  ----------  ----------  ----------  -----------  ----------
Net Income (Loss).......  $  286,071  $  260,949  $  462,357  $  563,991  $  (875,406) $  678,873
Provision for Dividends
 on Preferred and
 Preference Stocks......      14,053      14,902      43,062      45,914       57,635      61,467
                          ----------  ----------  ----------  ----------  -----------  ----------
Net Income (Loss) on
 Common Stock...........  $  272,018  $  246,047  $  419,295  $  518,077  $  (933,041) $  617,406
                          ==========  ==========  ==========  ==========  ===========  ==========
</TABLE>
 
  The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                      61
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                     SEPTEMBER 30, DECEMBER 31,
                       ASSETS                            1998          1997
                       ------                        ------------- ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                  <C>           <C>
Utility Plant:
  Plant and equipment, at original cost (includes
   construction work in progress of $997 million and
   $1,131 million, respectively)....................  $27,622,915  $27,519,365
  Less--Accumulated provision for depreciation......   14,977,452   11,645,985
                                                      -----------  -----------
                                                      $12,645,463  $15,873,380
  Nuclear fuel, at amortized cost...................      890,235      906,043
                                                      -----------  -----------
                                                      $13,535,698  $16,779,423
                                                      -----------  -----------
Investments:
  Nuclear decommissioning funds.....................  $ 2,026,648  $ 1,855,697
  Subsidiary companies..............................       48,793       48,605
  Other investments, at cost........................       39,725       39,002
                                                      -----------  -----------
                                                      $ 2,115,166  $ 1,943,304
                                                      -----------  -----------
Current Assets:
  Cash..............................................  $    20,338  $       --
  Temporary cash investments........................       73,513       72,634
  Special deposits..................................        1,245          271
  Receivables--
    Customers.......................................    1,375,098      873,418
    Other...........................................       62,588      130,537
    Provisions for uncollectible accounts...........      (20,722)     (17,544)
  Coal and fuel oil, at average cost................      152,108      120,664
  Materials and supplies, at average cost...........      244,365      255,338
  Deferred income taxes related to current assets
   and liabilities..................................       51,774      179,493
  Prepayments and other.............................      146,973      125,507
                                                      -----------  -----------
                                                      $ 2,107,280  $ 1,740,318
                                                      -----------  -----------
Deferred Charges and Other Noncurrent Assets:
  Regulatory assets.................................  $ 4,473,473  $ 1,685,235
  Coal reserves.....................................      113,032      194,769
  Other.............................................       84,001      115,354
                                                      -----------  -----------
                                                      $ 4,670,506  $ 1,995,358
                                                      -----------  -----------
                                                      $22,428,650  $22,458,403
                                                      ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       62
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                     SEPTEMBER 30, DECEMBER 31,
           CAPITALIZATION AND LIABILITIES                1998          1997
           ------------------------------            ------------- ------------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                  <C>           <C>
Capitalization (see accompanying statements):
  Common stock equity...............................  $ 5,028,967  $ 4,866,438
  Preferred and preference stocks without mandatory
   redemption requirements..........................      506,808      507,053
  Preference stock subject to mandatory redemption
   requirements.....................................      157,118      174,328
  Company-obligated mandatorily redeemable preferred
   securities of subsidiary trusts holding solely
   the Company's subordinated debt securities*......      350,000      350,000
  Long-term debt....................................    5,782,824    5,562,883
                                                      -----------  -----------
                                                      $11,825,717  $11,460,702
                                                      -----------  -----------
Current Liabilities:
  Notes payable.....................................  $   408,646  $   158,150
  Current portion of long-term debt, redeemable
   preference stock and capitalized lease
   obligations......................................      278,609      772,831
  Accounts payable..................................      470,101      490,124
  Accrued interest..................................      147,951      167,807
  Accrued taxes.....................................      423,588      198,556
  Dividends payable.................................      102,221      106,083
  Customer deposits.................................       56,266       55,214
  Accrued plant closing costs.......................       96,134      135,000
  Other.............................................      125,506      164,897
                                                      -----------  -----------
                                                      $ 2,109,022  $ 2,248,662
                                                      -----------  -----------
Deferred Credits and Other Noncurrent Liabilities:
  Deferred income taxes.............................  $ 3,724,750  $ 3,839,607
  Nuclear decommissioning liability for retired
   plants...........................................    1,226,700    1,301,000
  Accumulated deferred investment tax credits.......      573,713      602,122
  Accrued spent nuclear fuel disposal fee and re-
   lated interest...................................      719,902      692,673
  Obligations under capital leases..................      401,288      437,950
  Regulatory liabilities............................      622,758      698,750
  Other.............................................    1,224,800    1,176,937
                                                      -----------  -----------
                                                      $ 8,493,911  $ 8,749,039
                                                      -----------  -----------
Commitments and Contingent Liabilities (Note 22)
                                                      $22,428,650  $22,458,403
                                                      ===========  ===========
</TABLE>
 
  *As described in Note 11 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.
 
                                      63
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                   STATEMENTS OF CONSOLIDATED CAPITALIZATION
 
<TABLE>
<CAPTION>
                                                     SEPTEMBER 30,    DECEMBER 31,
                                                         1998            1997
                                                     -------------    ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                   <C>              <C>
Common Stock Equity:
  Common stock, $12.50 par value per share--
   Outstanding--214,236,101 shares and 214,228,077
    shares, respectively............................   $ 2,677,951     $ 2,677,851
  Premium on common stock and other paid-in capital.     2,223,708       2,223,564
  Capital stock and warrant expense.................       (15,681)        (15,805)
  Retained earnings (deficit).......................       142,989         (19,172)
                                                       -----------     -----------
                                                       $ 5,028,967     $ 4,866,438
                                                       -----------     -----------
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--58,211 shares and 65,912 shares, re-
    spectively......................................         1,851           2,096
  Prior preferred stock, cumulative, $100 par value
   per share--
   No shares outstanding............................           --              --
                                                       -----------     -----------
                                                       $   506,808     $   507,053
                                                       -----------     -----------
Preference Stock Subject to Mandatory Redemption Re-
 quirements:
  Preference stock, cumulative, without par value--
   Outstanding--1,756,060 shares and 2,058,560
    shares, respectively............................   $   174,919     $   205,016
  Current redemption requirements for preference
   stock included in current liabilities............       (17,801)        (30,688)
                                                       -----------     -----------
                                                       $   157,118     $   174,328
                                                       -----------     -----------
Company-Obligated Mandatorily Redeemable Preferred
 Securities of Subsidiary Trusts Holding Solely the
 Company's Subordinated Debt Securities.............   $   350,000     $   350,000
                                                       -----------     -----------
Long-Term Debt:
  First mortgage bonds:
    Maturing 1998 through 2002--6.00% to 9 3/8%.....   $   830,000     $ 1,060,000
    Maturing 2003 through 2012--3.70% to 8 3/8%.....     1,440,400       1,440,400
    Maturing 2013 through 2022--5.85% to 9 7/8%.....     1,791,000       1,791,000
    Maturing 2023--7 3/4% to 8 3/8%.................       560,000         560,000
                                                       -----------     -----------
                                                       $ 4,621,400     $ 4,851,400
  Sinking fund debentures, due 1999 through 2011--
   2 3/4% to 7 5/8%.................................        94,159         100,298
  Pollution control obligations, due 2007 through
   2014--3.60% to 5 7/8%............................       140,700         142,200
  Other long-term debt..............................     1,056,346       1,016,889
  Current maturities of long-term debt included in
   current liabilities..............................       (83,304)       (501,445)
  Unamortized net debt discount and premium.........       (46,477)        (46,459)
                                                       -----------     -----------
                                                       $ 5,782,824     $ 5,562,883
                                                       -----------     -----------
                                                       $11,825,717     $11,460,702
                                                       ===========     ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       64
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
             STATEMENTS OF CONSOLIDATED RETAINED EARNINGS (DEFICIT)
 
<TABLE>
<CAPTION>
                            THREE MONTHS ENDED    NINE MONTHS ENDED    TWELVE MONTHS ENDED
                               SEPTEMBER 30         SEPTEMBER 30          SEPTEMBER 30
                            -------------------- -------------------- ----------------------
                              1998       1997      1998       1997       1998        1997
                            --------  ---------- --------  ---------- ----------  ----------
                                               (THOUSANDS OF DOLLARS)
<S>                         <C>       <C>        <C>       <C>        <C>         <C>
Balance at Beginning of
 Period...................  $(43,295) $1,258,599 $(19,172) $1,157,956 $1,418,848  $1,144,307
Add--Net income (loss)....   286,071     260,949  462,357     563,991   (875,406)    678,873
                            --------  ---------- --------  ---------- ----------  ----------
                            $242,776  $1,519,548 $443,185  $1,721,947 $  543,442  $1,823,180
                            --------  ---------- --------  ---------- ----------  ----------
Deduct--
   Dividends declared on--
    Common stock..........  $ 85,695  $   85,691 $257,082  $  257,072 $  342,773  $  342,759
    Preferred and
     preference stocks....    13,870      14,621   42,836      45,611     57,385      61,140
   Other capital stock
    transactions--net.....       222         388      278         416        295         433
                            --------  ---------- --------  ---------- ----------  ----------
                            $ 99,787  $  100,700 $300,196  $  303,099 $  400,453  $  404,332
                            --------  ---------- --------  ---------- ----------  ----------
Balance at End of Period
 (includes $546 million of
 appropriated retained
 earnings at September 30,
 1998)....................  $142,989  $1,418,848 $142,989  $1,418,848 $  142,989  $1,418,848
                            ========  ========== ========  ========== ==========  ==========
</TABLE>
 
 
 
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       65
<PAGE>
 
              COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                     STATEMENTS OF CONSOLIDATED CASH FLOWS
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED      NINE MONTHS ENDED      TWELVE MONTHS ENDED
                             SEPTEMBER 30           SEPTEMBER 30             SEPTEMBER 30
                          --------------------  ----------------------  -----------------------
                            1998       1997        1998        1997        1998        1997
                          ---------  ---------  ----------  ----------  ----------  -----------
                                               (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>         <C>         <C>         <C>
Cash Flow from Operating
 Activities:
 Net income (loss)......  $ 286,071  $ 260,949  $  462,357  $  563,991  $ (875,406) $   678,873
 Adjustments to
  reconcile net income
  (loss) to net cash
  provided by operating
  activities:
   Depreciation and
    amortization........    245,362    262,969     751,423     785,745   1,013,281    1,038,775
   Deferred income taxes
    and investment tax
    credits--net........    (13,348)    (6,181)     (9,008)     (5,796)   (352,101)       7,684
   Extraordinary loss
    related to write-off
    of certain net
    regulatory assets...        --         --          --          --      810,335          --
   Cumulative effect of
    change in accounting
    principle...........        --         --          --     (196,700)        --      (196,700)
   Loss on nuclear plant
    closure.............        --         --          --          --      885,611          --
   Payments for revenue
    refunds.............        --         --      (45,470)        --          --           --
   Equity component of
    allowance for funds
    used during
    construction........     (1,814)    (5,772)     (5,358)    (16,558)    (12,570)     (21,614)
   Provisions/(payments)
    for liability for
    separation costs--
    net.................     (9,853)    24,146      (2,817)     24,948     (11,779)      23,919
   Net effect on cash
    flows of changes in:
     Receivables........   (281,151)    11,093    (430,553)    101,174    (510,533)     103,390
     Coal and fuel oil..     53,064     35,704     (31,444)     (4,084)     (7,662)       5,521
     Materials and
      supplies..........     14,324       (319)      7,686         222      49,123        6,303
     Accounts payable
      excluding
      separation costs--
      net...............   (131,869)   (40,195)    (15,106)    (99,888)     63,103       36,759
     Accrued interest
      and taxes.........    107,217    107,242     205,176     140,847      57,864       29,820
     Other changes in
      certain current
      assets and
      liabilities.......     31,780     89,395      83,468     187,978     189,403      238,633
   Other--net...........     42,824     23,178     100,510     136,537     141,890      176,820
                          ---------  ---------  ----------  ----------  ----------  -----------
                          $ 342,607  $ 762,209  $1,070,864  $1,618,416  $1,440,559  $ 2,128,183
                          ---------  ---------  ----------  ----------  ----------  -----------
Cash Flow from Investing
 Activities:
 Construction
  expenditures..........  $(198,155) $(212,445) $ (618,277) $ (638,289) $ (949,613) $  (878,268)
 Nuclear fuel
  expenditures..........    (28,616)   (66,555)   (123,583)   (157,271)   (151,686)    (212,203)
 Sale of generating
  plants................        --         --      177,454         --      238,245          --
 Equity component of
  allowance for funds
  used during
  construction..........      1,814      5,772       5,358      16,558      12,570       21,614
 Contributions to
  nuclear
  decommissioning
  funds.................        --         --      (80,077)    (80,181)   (114,721)    (116,284)
 Other investments and
  special deposits......        658      4,690        (288)    (24,610)     19,618      (21,244)
                          ---------  ---------  ----------  ----------  ----------  -----------
                          $(224,299) $(268,538) $ (639,413) $ (883,793) $ (945,587) $(1,206,385)
                          ---------  ---------  ----------  ----------  ----------  -----------
Cash Flow from Financing
 Activities:
 Issuance of
  securities--
  Long-term debt........  $ 222,068  $     --   $  222,068  $  297,663  $  222,068  $   297,663
  Company-obligated
   mandatorily
   redeemable preferred
   securities of
   subsidiary trusts
   holding solely the
   Company's
   subordinated debt
   securities...........        --         --          --      150,000         --       150,000
  Capital stock.........         20         50         244         288         244          302
 Retirement and
  redemption of
  securities--
  Long-term debt........    (51,009)  (100,283)   (423,192)   (674,765)   (483,195)    (775,551)
  Capital stock.........    (24,270)   (37,300)    (30,495)    (40,539)    (34,066)     (44,141)
 Deposits and
  securities held for
  retirement and
  redemption of
  securities............        995        229         --          --          --           --
 Premium paid on early
  redemption of long-
  term debt.............        --         --          --       (9,500)        --        (9,500)
 Cash dividends paid on
  capital stock.........   (110,729)  (111,450)   (326,063)   (322,363)   (430,615)    (427,892)
 Proceeds from
  sale/leaseback of
  nuclear fuel..........     39,612     22,953     101,038     104,224     146,768      170,925
 Nuclear fuel lease
  principal payments....    (43,321)   (38,206)   (204,330)   (124,061)   (246,681)    (177,109)
 Increase/(decrease) in
  short-term
  borrowings............    (81,200)  (221,000)    250,496     (86,000)    365,896     (120,800)
                          ---------  ---------  ----------  ----------  ----------  -----------
                          $(47,834)  $(485,007) $ (410,234) $ (705,053) $ (459,581) $  (936,103)
                          ---------  ---------  ----------  ----------  ----------  -----------
Increase/(decrease) in
 Cash and Temporary Cash
 Investments............  $  70,474  $   8,664  $   21,217  $   29,570  $   35,391  $   (14,305)
Cash and Temporary Cash
 Investments at
 Beginning of Period....     23,377     49,796      72,634      28,890      58,460       72,765
                          ---------  ---------  ----------  ----------  ----------  -----------
Cash and Temporary Cash
 Investments at End of
 Period.................  $  93,851  $  58,460  $   93,851  $   58,460  $   93,851  $    58,460
                          =========  =========  ==========  ==========  ==========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       66
<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 and the subcaption "Average Common Shares Outstanding" in
Unicom's Note 1.
 
  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 $133 million and $147 million for the three months ended
September 30, 1998 and 1997, respectively, $404 million and $446 million for
the nine months ended September 30, 1998 and 1997, respectively, and $545
million and $597 million for the twelve months ended September 30, 1998 and
1997, 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,
nine months and twelve months ended September 30, 1998 and 1997 was as
follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
                             SEPTEMBER 30      SEPTEMBER 30       SEPTEMBER 30
                          ------------------ ----------------- -------------------
                            1998     1997      1998     1997     1998      1997
                          ------------------ -------- -------- --------- ---------
                                           (THOUSANDS OF DOLLARS)
<S>                       <C>      <C>       <C>      <C>      <C>       <C>
Supplemental Cash Flow
 Information:
 Cash paid during the
  period for:
   Interest (net of
    amount capitalized).  $ 96,567  $150,582 $342,687 $405,835  $439,112  $516,489
   Income taxes (net of
    refunds)............  $ 23,040 $  27,183 $ 23,546 $ 82,684 $ 222,230 $264,408
Supplemental Schedule of
 Non-Cash Investing and
 Financing Activities:
 Capital lease obliga-
  tions incurred........  $ 40,954 $  24,760 $104,933 $110,533 $ 152,812 $178,161
</TABLE>
 
  (2) ACCOUNTING EFFECTS RELATED TO THE 1997 ACT. See Unicom's Note 2 of Notes
to Financial Statements, except for EPS information.
 
  (3) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE. See Unicom's Note
3 of Notes to Financial Statements, except for pro forma and EPS information.
If the new accounting method had been in effect for the full twelve months
ended September 30, 1997, the pro forma unaudited operating result would have
been $461,812,000, excluding the cumulative effect of a change in accounting
principle.
 
  (4) RATE MATTERS. See Unicom's Note 4 of Notes to Financial Statements.
 
  (5) CLOSURE AND SALE OF PLANTS. See Unicom's Note 5 of Notes to Financial
Statements, except for EPS information.
 
  (6) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At September 30,
1998, the authorized shares of capital stock were: common stock--250,000,000
shares; preference stock--22,066,060 shares; $1.425 convertible preferred
stock--58,211 shares; and prior preferred stock--
 
                                      67
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
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.
 
  See Unicom's Note 2 of Notes to Financial Statements regarding the ICC's
order approving ComEd's proposed issuance of up to $3.4 billion of securities
and the planned use of the proceeds to refinance debt and equity, as permitted
under the 1997 Act.
 
  (7) COMMON EQUITY. At September 30, 1998, shares of common stock were
reserved for the following purposes:
 
<TABLE>
      <S>                                                                 <C>
      Conversion of $1.425 convertible preferred stock................... 59,375
      Conversion of warrants............................................. 25,425
                                                                          ------
                                                                          84,800
                                                                          ======
</TABLE>
 
  Shares of common stock issued for the three months, nine months and twelve
months ended September 30, 1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                         THREE MONTHS ENDED   NINE MONTHS ENDED TWELVE MONTHS ENDED
                            SEPTEMBER 30        SEPTEMBER 30        SEPTEMBER 30
                         -------------------- ----------------- --------------------
                           1998      1997       1998     1997     1998       1997
                         --------- ---------- -------- -------- --------- ----------
<S>                      <C>       <C>        <C>      <C>      <C>       <C>
Conversion of $1.425
 convertible preferred
 stock..................      652       1,607    7,848    9,261     7,848     10,245
Conversion of warrants..       52          39      176      351       187        490
                         --------  ---------- -------- -------- --------- ----------
                              704       1,646    8,024    9,612     8,035     10,735
                         ========  ========== ======== ======== ========= ==========
</TABLE>
 
  At September 30, 1998 and December 31, 1997, 76,276 and 76,868,
respectively, of common stock purchase warrants 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.
 
  ComEd's retained earnings had a deficit balance of $19 million at December
31, 1997. As of September 30, 1998 and December 31, 1997, $546 million and
$384 million, respectively, of retained earnings had been appropriated for
future dividend payments.
 
  See Unicom's Note 2 of Notes to Financial Statements regarding the ICC's
order approving ComEd's proposed issuance of up to $3.4 billion of securities
and the planned use of the proceeds to refinance debt and equity, as permitted
under the 1997 Act.
 
  (8) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN. See Unicom's Note 8 of
Notes to Financial Statements, except for EPS information.
 
  (9) PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS. See Unicom's Note 9 of Notes to Financial Statements.
 
  (10) PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS. See
Unicom's Note 10 of Notes to Financial Statements.
 
  (11) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY THE COMPANY'S SUBORDINATED DEBT SECURITIES.
See Unicom's Note 11 of Notes to Financial Statements.
 
  (12) LONG-TERM DEBT. See Unicom's Note 12 of Notes to Financial Statements.
 
                                      68
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  (13) LINES OF CREDIT. See the first paragraph of Unicom's Note 13 of Notes
to Financial Statements.
 
  (14) DISPOSAL OF SPENT NUCLEAR FUEL. See Unicom's Note 14 of Notes to
Financial Statements.
 
  (15) FAIR VALUE OF FINANCIAL INSTRUMENTS. See Unicom's Note 15 of Notes to
Financial Statements.
 
  (16) PENSION BENEFITS AND POSTRETIREMENT BENEFITS. See Unicom's Note 16 of
Notes to Financial Statements.
 
  (17) SEPARATION PLAN COSTS. See Unicom's Note 17 of Notes to Financial
Statements, except for EPS information.
 
  (18) INCOME TAXES. The components of the net deferred income tax liability
at September 30, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
                                                      SEPTEMBER 30, DECEMBER 31,
                                                          1998          1997
                                                      ------------- ------------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                   <C>           <C>
Deferred income tax liabilities:
 Accelerated cost recovery and liberalized deprecia-
  tion, net of removal costs........................   $3,979,573    $4,051,191
 Overheads capitalized..............................      128,894       131,509
 Repair allowance...................................      222,769       231,697
 Regulatory assets recoverable through future rates.      702,824       785,354
Deferred income tax assets:
 Postretirement benefits............................     (329,782)     (305,220)
 Unamortized investment tax credits.................     (195,620)     (206,112)
 Regulatory liabilities to be settled through future
  rates.............................................     (622,758)     (698,750)
 Nuclear plant closure..............................      (52,450)     (194,244)
 Other--net.........................................     (160,474)     (135,311)
                                                       ----------    ----------
Net deferred income tax liability...................   $3,672,976    $3,660,114
                                                       ==========    ==========
</TABLE>
 
  The $13 million increase in the net deferred income tax liability from
December 31, 1997 to September 30, 1998 is comprised of an increase of $19
million in deferred income tax expense and a $6 million decrease in regulatory
assets net of regulatory liabilities pertaining to income taxes for the
period. The amount of accelerated cost recovery and liberalized depreciation
included in deferred income tax liabilities as of September 30, 1998, includes
amounts related to the regulatory asset for impaired production plant. The
amount of regulatory assets included in deferred income tax liabilities
primarily relates to the equity component of AFUDC which is recorded on an
after-tax basis, the borrowed funds component of AFUDC which was previously
recorded net of tax and other temporary differences for which the related tax
effects were not previously recorded. The amount of other regulatory
liabilities included in deferred income tax assets primarily relates to
deferred income taxes provided at rates in excess of the current statutory
rate.
 
  The components of net income tax expense charged (credited) to continuing
operations for the three months, nine months and twelve months ended September
30, 1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED    NINE MONTHS ENDED   TWELVE MONTHS ENDED
                             SEPTEMBER 30         SEPTEMBER 30         SEPTEMBER 30
                          --------------------  ------------------  --------------------
                            1998       1997       1998      1997      1998       1997
                          ---------  ---------  --------  --------  ---------  ---------
                                           (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>       <C>       <C>        <C>
Electric operating in-
 come:
 Current income taxes...  $ 197,234  $ 191,734  $341,280  $276,451  $ 344,464  $ 337,523
 Deferred income taxes..     (6,786)     1,243   (28,394)   18,164     12,099     39,064
 Investment tax credits
  deferred--net.........     (6,889)    (7,570)  (20,937)  (23,364)   (28,588)   (30,399)
Other (income) and
 deductions, primarily
 deferred income taxes..      1,982     (1,971)  (11,557)   (4,093)  (415,089)   (11,320)
                          ---------  ---------  --------  --------  ---------  ---------
Net income taxes charged
 (credited) to
 continuing operations..  $ 185,541  $ 183,436  $280,392  $267,158  $ (87,114) $ 334,868
                          =========  =========  ========  ========  =========  =========
</TABLE>
 
                                      69
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
 
  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, nine months and twelve months ended
September 30, 1998 and 1997:
 
<TABLE>
<CAPTION>
                                                                         TWELVE
                         THREE MONTHS ENDED    NINE MONTHS ENDED      MONTHS ENDED
                            SEPTEMBER 30         SEPTEMBER 30         SEPTEMBER 30
                         --------------------  ------------------  -------------------
                           1998       1997       1998      1997      1998       1997
                         ---------  ---------  --------  --------  ---------  --------
<S>                      <C>        <C>        <C>       <C>       <C>        <C>
Pre-tax book income
 (loss) (thousands).....  $471,612   $444,385  $742,749  $634,449  $(152,185) $817,041
Effective income tax
 rate...................      39.3%      41.3%     37.8%     42.1%      57.2%     41.0%
</TABLE>
 
  The principal differences between net income taxes charged (credited) to
continuing operations and the amounts computed at the federal statutory rate
of 35% for the three months, nine months and twelve months ended September 30,
1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED    NINE MONTHS ENDED   TWELVE MONTHS ENDED
                             SEPTEMBER 30         SEPTEMBER 30         SEPTEMBER 30
                          --------------------  ------------------  --------------------
                            1998       1997       1998      1997      1998       1997
                          ---------  ---------  --------  --------  ---------  ---------
                                           (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>       <C>       <C>        <C>
Federal income taxes
 computed at statutory
 rate...................  $ 165,064   $170,550  $259,962  $249,952  $ (53,265) $ 313,859
Equity component of
 AFUDC which was
 excluded from taxable
 income.................       (102)    (2,020)     (300)   (5,795)    (2,824)    (7,565)
Amortization of invest-
 ment tax credits, net
 of deferred income tax-
 es.....................     (4,517)    (7,570)  (18,246)  (23,364)   (40,221)   (30,399)
State income taxes, net
 of federal income tax-
 es.....................     21,689     25,285    35,350    39,736      2,723     47,145
Differences between book
 and tax accounting,
 primarily property-re-
 lated deductions.......      3,407     (2,809)    3,626     6,629      6,473     11,828
                          ---------  ---------  --------  --------  ---------  ---------
Net income taxes charged
 (credited) to
 continuing operations..  $ 185,541  $ 183,436  $280,392  $267,158  $ (87,114) $ 334,868
                          =========  =========  ========  ========  =========  =========
</TABLE>
 
  (19) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months, nine months and twelve months ended September 30, 1998
and 1997 were as follows:
 
<TABLE>
<CAPTION>
                          THREE MONTHS ENDED  NINE MONTHS ENDED TWELVE MONTHS ENDED
                             SEPTEMBER 30       SEPTEMBER 30       SEPTEMBER 30
                          ------------------- ----------------- -------------------
                            1998      1997      1998     1997     1998      1997
                          --------- --------- -------- -------- --------- ---------
                                           (THOUSANDS OF DOLLARS)
<S>                       <C>       <C>       <C>      <C>      <C>       <C>
Illinois electricity ex-
 cise tax...............  $  17,483 $  67,595 $119,411 $175,005 $ 172,757 $ 228,175
Illinois invested capi-
 tal....................        --     26,258      --    78,275    21,229   104,172
Illinois electricity
 distribution tax.......     29,950       --    81,580      --     81,580       --
Municipal utility gross
 receipts...............     53,001    51,626  134,108  130,696   171,506   170,502
Real estate.............     34,199    37,091   98,558  109,653   139,084   145,037
Municipal compensation..     15,319    23,884   59,404   60,808    76,882    79,343
Other--net..............     28,848    18,013   77,304   59,280    92,776    69,531
                          --------- --------- -------- -------- --------- ---------
                          $ 178,800 $ 224,467 $570,365 $613,717 $ 755,814 $ 796,760
                          ========= ========= ======== ======== ========= =========
</TABLE>
 
  Effective January 1, 1998, the Illinois invested capital tax was repealed
and the Illinois electricity distribution tax was enacted as a replacement.
The new tax is based on the kilowatthours delivered to ultimate consumers.
 
  Effective August 1, 1998, as provided for by the 1997 Act, the Illinois
electricity excise tax and certain municipal utility taxes are recorded as
liabilities. Previously, similar taxes were presented on the Statements of
Consolidated Operations as revenue and expense. The reduction in operating
revenues and taxes (except income taxes) due to the change in presentation for
such taxes was approximately $50 million for the three months, nine months and
twelve months ended September 30, 1998. This change in the presentation for
such taxes did not have an effect on results of operations.
 
                                      70
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--CONCLUDED
 
  (20) LEASE OBLIGATIONS. See the first and second paragraphs of Unicom's Note
20 of Notes to Financial Statements.
 
  Future minimum rental payments at September 30, 1998 for operating leases
are estimated to aggregate $309 million, including $10 million in 1998, $39
million in 1999, $37 million in 2000, $31 million in 2001, $27 million in 2002
and $165 million in 2003-2024.
 
  (21) JOINT PLANT OWNERSHIP. See Unicom's Note 21 of Notes to Financial
Statements.
 
  (22) COMMITMENTS AND CONTINGENT LIABILITIES. See Unicom's Note 22 of Notes
to Financial Statements.
 
                                      71
<PAGE>
 
             COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  CHANGES IN THE ELECTRIC UTILITY INDUSTRY. See Unicom's "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Changes in the Electric Utility Industry," which is incorporated
herein by this reference, except for EPS information.
 
  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, except for EPS information.
 
  FORWARD-LOOKING INFORMATION. See Unicom's "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Forward-Looking Information," which is incorporated herein by this reference.
 
 
 
 
 
 
                                      72
<PAGE>
 
                          PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.
 
  Since January 1, 1998, civil penalties were imposed on ComEd on four
occasions for violations of NRC regulations in amounts aggregating $583,000.
To ComEd's knowledge, there are no enforcement issues currently outstanding.
 
  During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that Cotter has permitted radioactive and other
hazardous material to be released from its mill into areas owned or occupied
by the plaintiffs resulting in property damage and potential adverse health
effects. ComEd was dismissed as a defendant in both actions. With respect to
Cotter, in 1994 a federal jury returned nominal dollar verdicts against Cotter
on eight bellwether plaintiffs' claims in the 1989 cases, which verdicts were
upheld on appeal. The remaining claims in the 1989 actions have been settled
and dismissed. On July 15, 1998, a jury verdict was rendered in Dodge v.
Cotter (United States District Court for the District of Colorado, Civil
Action No. 91-Z-1861), a case relating to 14 of the plaintiffs in the 1991
cases. The verdict against Cotter included compensatory and punitive damages
totaling approximately $3 million (not including prejudgment interest, which
has not yet been calculated, and which Cotter anticipates may bring the total
award to under $6 million), together with medical monitoring. The matter is
currently on appeal. Although the other 1991 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.
 
  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 22 of
Notes to Financial Statements for information regarding costs associated with
investigating and remediating former MGP sites.
 
  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, 1997 or in these
Quarterly Reports on Form 10-Q for the quarterly period ended September 30,
1998, which could have such an effect.
 
                                      73
<PAGE>
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
 
  (a) Exhibits
 
<TABLE>
<CAPTION>
     EXHIBIT
     NUMBER                        DESCRIPTION OF EXHIBIT
     ------- ------------------------------------------------------------------
     <C>     <S>
     (10)-1  Commonwealth Edison Company Excess Benefit Savings Plan.
     (10)-2  Key Management Severance Plan for Unicom Corporation and
             Commonwealth Edison Company.
     (10)-3  Unicom Corporation Stock Bonus Deferral Plan.
     (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 July 6, 1998 was filed by Unicom and
  ComEd announcing Unicom Directions, a statement of objectives adopted for
  the purpose of improving operations, restructuring its finances and
  operations, and renewing its competitive and cultural focus. Among other
  things, these objectives contemplate that ComEd will undertake steps to
  offer for sale its coal-fired generation plants, representing an
  approximate aggregate capacity of 5,600 megawatts.
 
    A Current Report on Form 8-K dated October 27, 1998 was filed by Unicom
  and ComEd announcing that up to $200 million in funds obtained from
  operations or other sources may be used to repurchase shares of common
  stock either before or after the receipt of funds from the issuance of
  certain asset-backed securities known as "transitional funding
  instruments". The transitional funding instruments are expected to be the
  ultimate source of funding for the stock repurchases.
 
                                      74
<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 10th day of November, 1998. The
signature for each undersigned company shall be deemed to relate only to
matters having reference to such company and its subsidiaries thereof.
 
                                                   Unicom Corporation
                                                       Registrant
 
                                                    Robert E. Berdelle
                                          By __________________________________
                                                    Robert E. Berdelle
                                                        Comptroller
                                               (Chief accounting officer and
                                            officer duly authorized to sign on
                                                 behalf of the registrant)
 
 
                                               Commonwealth Edison Company
                                                       Registrant
 
                                                    Robert E. Berdelle
                                          By __________________________________
                                                    Robert E. Berdelle
                                                        Comptroller
                                               (Chief accounting officer and
                                            officer duly authorized to sign on
                                                 behalf of the registrant)
 
                                      75
<PAGE>
 
                                 EXHIBIT INDEX

     Exhibits filed with or incorporated by reference in Form 10-Q for the 
quarterly period ended September 30, 1998:

<TABLE> 
<CAPTION> 
EXHIBIT
NUMBER    DESCRIPTION OF EXHIBIT 
------    --------------------------------------------------------------------
<C>       <S> 

(10)-1    Commonwealth Edison Company Excess Benefit Savings Plan.

(10)-2    Key Management Severance Plan for Unicom Corporation and Commonwealth 
          Edison Company.

(10)-3    Unicom Corporation Stock Bonus Deferral Plan.

(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>