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


                                    FORM 10-Q

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

For the quarterly period ended 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             

  Commission        Registrant, State of Incorporation,        I.R.S. Employer
  File Number         Address, and Telephone Number           Identification No.

    1-11377                    CINERGY CORP.                      31-1385023
                         (A Delaware Corporation)
                          139 East Fourth Street
                          Cincinnati, Ohio 45202
                              (513) 421-9500

    1-1232         THE CINCINNATI GAS & ELECTRIC COMPANY          31-0240030
                           (An Ohio Corporation)
                          139 East Fourth Street
                          Cincinnati, Ohio 45202
                              (513) 421-9500

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

    2-7793       THE UNION LIGHT, HEAT AND POWER COMPANY          31-0473080
                         (A Kentucky Corporation)
                          139 East Fourth Street
                          Cincinnati, Ohio 45202
                              (513) 421-9500

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

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

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

As of October 31, 1998,  shares of Common Stock  outstanding for each registrant
were as listed:
<TABLE>
<CAPTION>

<S>                                                                           <C>  
                             Company                                            Shares  
-------------------------------------------------------------------           ------------
Cinergy Corp., par value $.01 per share                                       158,584,688
The Cincinnati Gas & Electric Company, par value $8.50 per share               89,663,086
PSI Energy, Inc., without par value, stated value $.01 per share               53,913,701
The Union Light, Heat and Power Company, par value $15.00 per share               585,333
</TABLE>




<PAGE>



                                TABLE OF CONTENTS


 Item                                                               Page
Number                                                             Number

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

                         PART I.  FINANCIAL INFORMATION

  1    Financial Statements
       Cinergy Corp.
         Consolidated Balance Sheets . . . . . . . . . . . . .        7
         Consolidated Statements of Income (Loss). . . . . . .        9
         Consolidated Statements of Changes in Common
           Stock Equity. . . . . . . . . . . . . . . . . . . .       10
         Consolidated Statements of Cash Flows . . . . . . . .       13
         Results of Operations . . . . . . . . . . . . . . . .       14
       The Cincinnati Gas & Electric Company
         Consolidated Balance Sheets . . . . . . . . . . . . .       24
         Consolidated Statements of Income and Comprehensive
           Income. . . . . . . . . . . . . . . . . . . . . . .       26
         Consolidated Statements of Cash Flows . . . . . . . .       27
         Results of Operations . . . . . . . . . . . . . . . .       28
       PSI Energy, Inc.
         Consolidated Balance Sheets . . . . . . . . . . . . .       34
         Consolidated Statements of Income and Comprehensive
           Income. . . . . . . . . . . . . . . . . . . . . . .       36
         Consolidated Statements of Cash Flows . . . . . . . .       37
         Results of Operations . . . . . . . . . . . . . . . .       38
       The Union Light, Heat and Power Company
         Balance Sheets. . . . . . . . . . . . . . . . . . . .       43
         Statements of Income. . . . . . . . . . . . . . . . .       45
         Statements of Cash Flows. . . . . . . . . . . . . . .       46
         Results of Operations . . . . . . . . . . . . . . . .       47
       Notes to Financial Statements . . . . . . . . . . . . .       51
  2    Management's Discussion and Analysis of Financial
         Condition and Results of Operations . . . . . . . . .       60
  3    Quantitative and Qualitative Disclosures About
         Market Risk . . . . . . . . . . . . . . . . . . . . .       67

                           PART II. OTHER INFORMATION

  1    Legal Proceedings . . . . . . . . . . . . . . . . . . .       68
  5    Other Information . . . . . . . . . . . . . . . . . . .       68
  6    Exhibits and Reports on Form 8-K. . . . . . . . . . . .       68
       Signatures. . . . . . . . . . . . . . . . . . . . . . .       70

                                       


<PAGE>



                                GLOSSARY OF TERMS

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

    TERM                                   DEFINITION

1997 Form         Combined 1997 Annual Report on Form 10-K filed separately by
  10-K              Cinergy, CG&E, PSI, and ULH&P

ADR               Alternative Dispute Resolution

Apache            Apache Corporation

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

Bcf               Billion cubic feet

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

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

CERCLA            Comprehensive Environmental Response, Compensation and
                    Liability Act

CFC               National Rural Utilities Cooperative Finance Corporation

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

CWIP              Construction work in progress

Cayuga            PSI's Cayuga Station

Cinergy or        Cinergy Corp.
  Company

Cinergy Global    Cinergy Global Power, Inc., formerly Cinergy Investments
  Power             MPI, Inc. (a subsidiary of Cinergy Global Resources)

Cinergy Global    Cinergy Global Resources, Inc. (a subsidiary of Cinergy),
  Resources         which holds Cinergy's international non-regulated
                    businesses

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

DSM               Demand-side management

Destec            Destec Energy, Inc.

Dynegy            Dynegy, Inc.

EPA               United States Environmental Protection Agency

EPRI              Electric Power Research Institute

EPS               Earnings per share





<PAGE>



GLOSSARY OF TERMS (Continued)

    TERM                                   DEFINITION

East Bend         CG&E's East Bend Station (steam electric generating plant)

Enertech          Enertech Associates, Inc., formerly Power International,
                    Inc. (a subsidiary of Cinergy Investments, Inc.)

Exxon             Exxon Coal and Minerals Company

FASB              Financial Accounting Standards Board

FERC              Federal Energy Regulatory Commission

February 1995     An IURC order issued in February 1995
  Order

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

HB 443            Customer choice bill introduced by the House Chairman of the
                    Tourism, Development and Energy Committee in Kentucky

HJR 95            House Joint Resolution, which calls for an executive task
                    force to study electricity restructuring in Kentucky

IDEM              Indiana Department of Environmental Management

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

Investments       Cinergy Investments, Inc. (a subsidiary of Cinergy), which
                    holds Cinergy's domestic, non-regulated businesses

IOU               Investor-owned utility

ISO               Independent System Operator

IT                Information Technology

IURC              Indiana Utility Regulatory Commission

kwh               Kilowatt-hour

mcf               Thousand cubic feet

MGP               Manufactured gas plant

MW                Megawatts

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

Moravske          Moravske Teplarna a.s. (an indirect subsidiary of Cinergy
                    Global Power)

N/A               Not applicable

NERC              North American Electric Reliability Council

NIPSCO            Northern Indiana Public Service Company



<PAGE>



GLOSSARY OF TERMS (Continued)

    TERM                                   DEFINITION

NOx               Nitrogen Oxide

Oryx              Oryx Energy Company

PRP               Potentially Responsible Party

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

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

PUCO              Public Utilities Commission of Ohio

RUS               Rural Utilities Service

SB 237 and        Companion electric restructuring bills introduced into the
  HB 732            Ohio legislature during 1998

SEC               United States Securities and Exchange Commission

SIP               State Implementation Plan

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

Statement 130     Statement of Financial Accounting Standards No. 130,
                    Reporting Comprehensive Income

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

UCC               Office of Utility Consumer Counselor

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

U.S. District     United States District Court for the Southern District of
  Court             Ohio, Western Division

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

WVPA              Wabash Valley Power Association, Inc.

Wabash River      PSI's Wabash River Station

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

                                                     

<PAGE>


                                          CINERGY CORP.
                                     AND SUBSIDIARY COMPANIES

                                                
<PAGE>


<TABLE>
<CAPTION>



                                  CINERGY CORP.
                           CONSOLIDATED BALANCE SHEETS


ASSETS
<S>                                                 <C>            <C>
                                                    September 30   December 31
                                                        1998          1997
                                                    (unaudited)
                                                     (dollars in thousands)

Current Assets

  Cash and temporary cash investments                $    78,826   $   53,310
  Restricted deposits                                      1,531        2,319
  Notes receivable                                            71          110
  Accounts receivable less accumulated provision
    for doubtful accounts of $20,689 at September
    30, 1998, and $10,382 at December 31, 1997           832,766      413,516
  Materials, supplies, and fuel - at average cost        189,300      163,156
  Prepayments and other                                   56,368       38,171
                                                     -----------   ----------
                                                       1,158,862      670,582

Utility Plant - Original Cost
  In service
    Electric                                           9,102,204    8,981,182
    Gas                                                  772,006      746,903
    Common                                               185,896      186,078
                                                     -----------   ----------
                                                      10,060,106    9,914,163
  Accumulated depreciation                             3,982,686    3,800,322
                                                     -----------   ----------
                                                       6,077,420    6,113,841
  Construction work in progress                          226,362      183,262
                                                     -----------   ----------
      Total utility plant                              6,303,782    6,297,103

Other Assets
  Regulatory assets                                    1,033,651    1,076,851
  Investments in unconsolidated subsidiaries             502,623      537,720
  Other                                                  438,699      275,897
                                                     -----------   ----------
                                                       1,974,973    1,890,468

                                                     $ 9,437,617   $8,858,153


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

                                                      
<PAGE>


<TABLE>
<CAPTION>

                                  CINERGY CORP.


LIABILITIES AND SHAREHOLDERS' EQUITY

<S>                                                   <C>          <C>
                                                      September 30 December 31
                                                          1998        1997   
                                                      (unaudited)
                                                       (dollars in thousands)

Current Liabilities
  Accounts payable                                    $  917,760   $  488,716
  Accrued taxes                                          206,361      187,033
  Accrued interest                                        49,011       46,622
  Notes payable and other short-term obligations       1,185,486    1,114,028
  Long-term debt due within one year                     186,000       85,000
  Other                                                   98,848       79,193
                                                      ----------   ----------
                                                       2,643,466    2,000,592

Non-Current Liabilities
  Long-term debt                                       2,210,488    2,150,902
  Deferred income taxes                                1,095,884    1,248,543
  Unamortized investment tax credits                     159,030      166,262
  Accrued pension and other postretirement
    benefit costs                                        305,269      297,142
  Other                                                  388,483      277,523
                                                      ----------   ----------
                                                       4,159,154    4,140,372

    Total liabilities                                  6,802,620    6,140,964

Cumulative Preferred Stock of Subsidiaries
  Not subject to mandatory redemption                     92,648      177,989

Common Stock Equity
  Common stock - $.01 par value;  authorized
    shares - 600,000,000;  outstanding shares - 
    158,547,701 at September 30, 1998, and
    157,744,658 at December 31, 1997                       1,585        1,577
  Paid-in capital                                      1,600,776    1,573,064
  Retained earnings                                      943,647      967,420
  Accumulated other comprehensive loss                    (3,659)      (2,861)
                                                      ----------   ----------
    Total common stock equity                          2,542,349    2,539,200

                                                      $9,437,617   $8,858,153

</TABLE>

<PAGE>


<TABLE>
<CAPTION>


                                  CINERGY CORP.
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                                   (unaudited)


                                              Quarter Ended                 Year to Date              Twelve Months Ended
                                              September 30                  September 30                  September 30
<S>                                    <C>            <C>            <C>            <C>            <C>            <C> 
                                           1998           1997          1998           1997           1998           1997
                                                              (in thousands, except per share amounts)

Operating Revenues
  Electric                             $1,601,996     $1,315,165     $3,782,641     $2,923,655     $4,720,684     $3,631,890
  Gas                                     355,945         39,941        666,136        326,964        830,318        494,936
  Other                                    18,545          5,423         43,888         21,705         56,568         31,458
                                       ----------     ----------     ----------     ----------     ----------     ----------
                                        1,976,486      1,360,529      4,492,665      3,272,324      5,607,570      4,158,284

Operating Expenses
  Fuel and purchased and exchanged
    power                               1,070,753        804,397      2,318,624      1,470,701      2,760,717      1,707,996
  Gas purchased                           316,321         15,622        518,006        175,416        608,748        274,219
  Other operation and maintenance         235,074        213,458        774,149        651,648        991,075        899,859
  Depreciation and amortization            80,425         76,847        240,780        229,496        318,205        305,184
  Taxes other than income taxes            69,346         67,174        208,125        204,132        270,037        265,625
                                       ----------     ----------     ----------     ----------     ----------     ----------
                                        1,771,919      1,177,498      4,059,684      2,731,393      4,948,782      3,452,883

Operating Income                          204,567        183,031        432,981        540,931        658,788        705,401

Equity in Earnings of
  Unconsolidated Subsidiaries              11,421          3,782         32,992         42,462         50,922         57,445

Other Income and (Expenses) - Net            (115)         6,268        (11,850)         3,634        (18,088)        (8,972)

Interest                                   60,950         58,444        181,511        176,897        240,933        234,560
                                        ---------     ----------     ----------     ----------     ----------     ----------

Income Before Taxes                       154,923        134,637        272,612        410,130        450,689        519,314

Income Taxes                               44,127         48,961         77,891        148,373        142,518        183,732

Preferred Dividend Requirements
  of Subsidiaries                           1,365          3,142          5,152          9,617          8,104         12,856
                                       ----------     ----------     ----------     ----------     ----------     ----------

Net Income Before Extraordinary Item   $  109,431     $   82,534     $  189,569     $  252,140     $  300,067     $  322,726
Extraordinary Item - Equity Share of
  Windfall Profits Tax (Less
  Applicable Income Taxes of $0)             -          (109,400)          -          (109,400)          -          (109,400)
                                       ----------     ----------     ----------     ----------     ----------     ----------
Net Income (Loss)                      $  109,431     $  (26,866)    $  189,569     $  142,740     $  300,067     $  213,326
Average Common Shares Outstanding         158,539        157,679        158,110        157,679        158,007        157,679

Earnings Per Common Share
  Net income before
    extraordinary item                      $0.69         $ 0.53          $1.20          $1.60          $1.90          $2.04
  Net income (loss)                         $0.69         $(0.16)         $1.20          $0.91          $1.90          $1.35

Earnings Per Common Share - Assuming Dilution
  Net income before
    extraordinary item                      $0.69         $ 0.52          $1.20          $1.59          $1.90          $2.03
  Net income (loss)                         $0.69         $(0.17)         $1.20          $0.90          $1.90          $1.34

Dividends Declared Per Common Share         $0.45         $ 0.45          $1.35          $1.35          $1.80          $1.80

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




<PAGE>



<TABLE>
<CAPTION>


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

<S>                                <C>          <C>             <C>             <C>                <C>                <C>
                                                                                 Accumulated
                                                                                    Other             Total              Total
                                   Common         Paid-in        Retained       Comprehensive      Comprehensive      Common Stock
                                   Stock          Capital        Earnings           Loss           Income (Loss)         Equity    

Quarter Ended September 30, 1998

Balance at July 1, 1998            $1,585       $1,599,435      $  905,556        $(3,330)                             $2,503,246
Comprehensive income
  Net income                                                       109,431                           $109,431             109,431
  Other comprehensive income,
      net of tax
    Foreign currency translation
      adjustment                                                                                         (329)               (329)
                                                                                                     --------                     
    Other comprehensive loss
      total                                                                          (329)               (329)
                                                                                                     -------- 
Comprehensive income total                                                                           $109,102
Issuance of 12,423 shares of
  common stock - net                                   225                                                                    225
Treasury shares purchased              (1)          (1,536)                                                                (1,537)
Treasury shares reissued                1            2,637                                                                  2,638
Dividends on common stock (see
  page 9 for per share amounts)                                    (71,340)                                               (71,340)
Other                                                   15                                                                     15
                                   ------       ----------      ----------        -------                              ----------

Balance at September 30, 1998      $1,585       $1,600,776      $  943,647        $(3,659)                             $2,542,349

Quarter Ended September 30, 1997

Balance at July 1, 1997            $1,577       $1,570,533      $1,021,210        $(1,973)                             $2,591,347
Comprehensive income
  Net loss                                                         (26,866)                          $(26,866)            (26,866)
  Other comprehensive income,
      net of tax
    Foreign currency translation
      adjustment                                                                                         (514)               (514)
                                                                                                     --------
    Other comprehensive loss
      total                                                                          (514)               (514)
                                                                                                     --------
Comprehensive loss total                                                                             $(27,380)
                                                                                                     ========
Treasury shares purchased                             (214)                                                                  (214)
Treasury shares reissued                             1,614                                                                  1,614
Dividends on common stock (see
  page 9 for per share amounts)                                    (71,000)                                               (71,000)
Other                                                 (406)            118                                                   (288)
                                   ------       ----------      ----------        -------                              ----------

Balance at September 30, 1997      $1,577       $1,571,527      $  923,462        $(2,487)                             $2,494,079


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



<PAGE>






<TABLE>
<CAPTION>

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

<S>                                 <C>        <C>              <C>             <C>                <C>                <C>
                                                                                 Accumulated
                                                                                    Other             Total              Total
                                    Common        Paid-in        Retained       Comprehensive      Comprehensive      Common Stock
                                    Stock         Capital        Earnings           Loss              Income             Equity    

Nine Months Ended September 30, 1998

Balance at January 1, 1998          $1,577      $1,573,064      $  967,420        $(2,861)                             $2,539,200
Comprehensive income
  Net income                                                       189,569                           $189,569             189,569
  Other comprehensive income,
      net of tax
    Foreign currency translation
      adjustment                                                                                         (747)               (747)
    Minimum pension liability
      adjustment                                                                                          (51)                (51)
                                                                                                     --------                     
    Other comprehensive loss
      total                                                                          (798)               (798)
                                                                                                     -------- 
Comprehensive income total                                                                           $188,771
Issuance of 803,043 shares of
  common stock - net                     8          27,018                                                                 27,026
Treasury shares purchased               (3)         (6,468)                                                                (6,471)
Treasury shares reissued                 3           7,115                                                                  7,118
Dividends on common stock (see
  page 9 for per share amounts)                                   (213,340)                                              (213,340)
Other                                                   47              (2)                                                    45
                                    ------      ----------      ----------        -------                              ----------

Balance at September 30, 1998       $1,585      $1,600,776      $  943,647        $(3,659)                             $2,542,349

Nine Months Ended September 30, 1997

Balance at January 1, 1997          $1,577      $1,590,735      $  993,526        $(1,384)                             $2,584,454
Comprehensive income
  Net income                                                       142,740                           $142,740             142,740
  Other comprehensive income,
      net of tax
    Foreign currency translation
      adjustment                                                                                       (1,103)             (1,103)
                                                                                                     --------
    Other comprehensive loss
      total                                                                        (1,103)             (1,103)
                                                                                                     --------
Comprehensive income total                                                                           $141,637
                                                                                                     ========
Treasury shares purchased              (11)        (45,939)                                                               (45,950)
Treasury shares reissued                11          27,073                                                                 27,084
Dividends on common stock (see
  page 9 for per share amounts)                                   (212,910)                                              (212,910)
Other                                                 (342)            106                                                   (236)
                                    ------      ----------      ----------        -------                              ----------

Balance at September 30, 1997       $1,577      $1,571,527      $  923,462        $(2,487)                             $2,494,079


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



<PAGE>


<TABLE>
<CAPTION>


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

<S>                                   <C>       <C>             <C>              <C>                <C>                <C>
                                                                                  Accumulated
                                                                                    Other               Total              Total
                                      Common      Paid-in         Retained       Comprehensive      Comprehensive      Common Stock
                                      Stock       Capital         Earnings           Loss              Income             Equity    

Twelve Months Ended September 30, 1998

Balance at October 1, 1997            $1,577    $1,571,527      $  923,462         $(2,487)                             $2,494,079
Comprehensive income
  Net income                                                       300,067                             $300,067            300,067
  Other comprehensive income,
      net of tax
    Foreign currency translation
      adjustment                                                                                            (39)               (39)
    Minimum pension liability
      adjustment                                                                                         (1,133)            (1,133)
                                                                                                       --------                    
    Other comprehensive loss
      total                                                                         (1,172)              (1,172)
                                                                                                       -------- 
Comprehensive income total                                                                             $298,895
Issuance of 868,572 shares of
  common stock - net                       8        29,084                                                                  29,092
Treasury shares purchased                 (3)       (6,728)                                                                 (6,731)
Treasury shares reissued                   3         6,771                                                                   6,774
Dividends on common stock (see
  page 9 for per share amounts)                                   (284,296)                                               (284,296)
Other                                                  122           4,414                                                   4,536
                                      ------    ----------      ----------         -------                              ----------

Balance at September 30, 1998         $1,585    $1,600,776      $  943,647         $(3,659)                             $2,542,349

Twelve Months Ended September 30, 1997

Balance at October 1, 1996            $1,577    $1,592,393      $  994,113         $(1,658)                             $2,586,425
Comprehensive income
  Net income                                                       213,326                             $213,326            213,326
  Other comprehensive income,
      net of tax
    Foreign currency translation
      adjustment                                                                                           (650)              (650)
    Minimum pension liability
      adjustment                                                                                           (179)              (179)
                                                                                                       --------
    Other comprehensive loss
      total                                                                           (829)                (829)
                                                                                                       --------
Comprehensive income total                                                                             $212,497
                                                                                                       ========
Treasury shares purchased                (12)      (48,170)                                                                (48,182)
Treasury shares reissued                  12        27,674                                                                  27,686
Dividends on common stock (see
  page 9 for per share amounts)                                   (283,866)                                               (283,866)
Costs of reacquisition of
  preferred stock of subsidiary                                       (216)                                                   (216)
Other                                                 (370)            105                                                    (265)
                                      ------    ----------      ----------         -------                              ----------

Balance at September 30, 1997         $1,577    $1,571,527      $  923,462         $(2,487)                             $2,494,079

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




<PAGE>

<TABLE>
<CAPTION>


                                  CINERGY CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

                                                          Year to Date           Twelve Months Ended
                                                          September 30              September 30
                                                        1998         1997         1998         1997
                                                                      (in thousands)

Operating Activities
<S>                                                  <C>          <C>          <C>          <C>      
  Net income                                         $ 189,569    $ 142,740    $ 300,067    $ 213,326
  Items providing (using) cash currently:
    Depreciation and amortization                      240,780      229,496      318,205      305,184
    WVPA settlement                                     80,000         -          80,000      (80,000)
    Deferred income taxes and investment tax
      credits - net                                    (79,350)       4,698      (16,410)      18,549
    Equity in earnings of unconsolidated subsidiaries  (32,992)     (17,309)     (50,922)     (32,292)
    Extraordinary item - equity share of windfall
      profits tax                                         -         109,400         -         109,400
    Allowance for equity funds used during
      construction                                        (793)        (189)        (701)        (208)
    Regulatory assets - net                             57,122       40,355       68,210       68,169
    Changes in current assets and current liabilities
      Restricted deposits                                  788         (229)         419         (230)
      Accounts and notes receivable, net of
        reserves on receivables sold                  (298,792)    (180,916)    (335,033)    (275,404)
      Materials, supplies, and fuel                    (20,037)       9,871       (8,091)      30,351
      Accounts payable                                 293,435      175,165      301,566      218,405
      Accrued taxes and interest                        21,717       22,719      (22,416)      36,922
    Other items - net                                   94,458      (28,229)     137,017       37,645
                                                     ---------    ---------    ---------    ---------
          Net cash provided by operating
            activities                                 545,905      507,572      771,911      649,817

Financing Activities
  Issuance of common stock                                 515         -           2,581         -
  Issuance of long-term debt                           373,041         -         473,103      150,217
  Retirement of preferred stock of subsidiaries        (85,292)     (16,182)     (85,379)     (19,110)
  Redemption of long-term debt                        (333,745)    (336,312)    (333,745)    (365,912)
  Change in short-term debt                             61,642      323,128      (69,675)     243,891
  Dividends on common stock                           (212,730)    (212,910)    (283,686)    (283,866)
                                                     ---------    ---------    ---------    ---------
          Net cash used in financing activities       (196,569)    (242,276)    (296,801)    (274,780)

Investing Activities
  Construction expenditures (less allowance
    for equity funds used during construction)        (238,364)    (226,389)    (340,030)    (345,425)
  Acquisition of businesses (net of cash acquired)     (63,412)        -         (63,412)        -
  Investments in unconsolidated subsidiaries           (22,044)        -         (51,076)        -    
                                                     ---------    ---------    ---------    ----------
          Net cash used in investing activities       (323,820)    (226,389)    (454,518)    (345,425)

Net increase in cash and temporary cash investments     25,516       38,907       20,592       29,612

Cash and temporary cash investments at
  beginning of period                                   53,310       19,327       58,234       28,622
                                                     ---------    ---------    ---------    ---------

Cash and temporary cash investments at
  end of period                                      $  78,826    $  58,234    $  78,826    $  58,234

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




<PAGE>





                                  CINERGY CORP.

Below is  information  concerning  the  consolidated  results of operations  for
Cinergy for the quarter,  nine months,  and twelve  months ended  September  30,
1998. For information concerning the results of operations for each of the other
registrants  for the quarter and nine months ended  September 30, 1998,  see the
discussion  under the heading  "Results of  Operations"  following the financial
statements of each registrant.


         RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998

Operating Revenues

Electric Operating Revenues

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

                                                 Quarter Ended
                                                 September 30 
                                       Revenue                Kwh Sales      
                                  1998         1997       1998         1997  
                                            ($ and kwh in millions)

Retail                           $  713       $  671     13,013       12,099
Sales for resale                    873          635     25,243       24,553
Other                                16            9        N/A          N/A
                                 ------       ------     ------       ------
Total                            $1,602       $1,315     38,256       36,652

Electric  operating  revenues increased $287 million (22%) for the quarter ended
September  30,  1998,  from the  comparable  period of 1997.  This  increase was
primarily  the result of a higher  average  price per kwh  received on sales for
resale  transactions.  There was also an increase  in the average  price per kwh
paid for the corresponding  purchases of purchased and exchanged power described
below. Also contributing to the increase were higher retail kwh sales due to the
warmer than  normal  weather  during  1998 and growth in the  average  number of
residential and commercial customers.

Gas Operating Revenues

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

                                                Quarter Ended
                                                September 30                 
                                       Revenue                Mcf Sales      
                                 1998           1997     1998           1997 
                                 ----           ----     ----           -----
                                           ($ and mcf in millions)

Sales for resale                 $296            $ -      152              -
Retail                             48             33        6              4
Transportation                      8              6       11             12
Other                               4              1      N/A            N/A
                                 ----            ---      ---            ---
Total                            $356            $40      169             16

Gas operating revenues increased $316 million in the third quarter of 1998, when
compared  to the same  period  last  year,  primarily  due to the gas  operating
revenues of ProEnergy, which was acquired in June 1998.



<PAGE>



Other Revenues

Other revenues for the quarter ended September 30, 1998,  increased $13 million,
over the same  period  of 1997.  This  increase  was  primarily  the  result  of
increased  sales and new  initiatives  by  certain  of  Cinergy's  non-regulated
entities.

Operating Expenses

Fuel and Purchased and Exchanged Power

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

                                              Quarter Ended
                                              September 30    
                                            1998         1997
                                              (in millions)

Fuel                                       $  206        $197
Purchased and exchanged power                 865         607
                                           ------        ----
Total                                      $1,071        $804


Electric fuel costs  increased $9 million (5%) for the quarter  ended  September
30, 1998, as compared to the same period last year.

An analysis of these fuel costs is shown below:

                                              Quarter Ended
                                              September 30  
                                              (in millions)

Fuel expense - September 30, 1997                 $197 
Increase (Decrease) due to change in:
  Price of fuel                                     (6)
  Deferred fuel cost                                (4)
  Kwh generation                                    19
                                                  ----

Fuel expense - September 30, 1998                 $206

Purchased  and  exchanged  power  expense  increased  $258 million (43%) for the
quarter  ended  September  30, 1998,  when  compared to the same period of 1997,
primarily reflecting an increase in the average price paid per kwh.

Gas Purchased

Gas purchased for the quarter ended September 30, 1998,  increased $301 million,
when  compared to the same period last year,  primarily due to the gas purchased
expenses of ProEnergy, which was acquired in June 1998.

Other Operation and Maintenance

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

                                         Quarter Ended
                                         September 30  
                                         1998     1997
                                         (in millions)

Other operation                          $185     $171
Maintenance                                50       42
                                         ----     ----
Total                                    $235     $213


<PAGE>


Other  operation  expenses  increased  $14 million  (8%) for the  quarter  ended
September 30, 1998,  as compared to the same period last year,  primarily due to
an  increase  in  new   initiatives   by  certain  of   Cinergy's   consolidated
non-regulated businesses.

Maintenance  expenses increased $8 million (19%) for the quarter ended September
30, 1998,  as compared to the same period of 1997,  primarily due to an increase
in production  maintenance at Wabash River,  Cayuga, and Gibson, and an increase
in distribution line maintenance.

Depreciation and Amortization

The components of depreciation and amortization expenses are shown below:

                                        Quarter Ended
                                        September 30  
                                        1998     1997
                                        (in millions)

Depreciation                            $74      $73
Amortization of phase-in deferrals        5        3
Amortization of post-in-service
  deferred operating expenses             1        1
                                        ---      ---
Total                                   $80      $77

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

Equity in Earnings of Unconsolidated Subsidiaries

For  the  quarter  ended   September  30,  1998,   the  equity  in  earnings  of
unconsolidated subsidiaries increased $8 million, as compared to the same period
of last year. This increase is primarily attributable to Midlands.

Other Income and (Expenses) - Net

The change in other  income and  (expenses)  - net of $6 million for the quarter
ended  September  30, 1998,  from the same period of 1997, is due primarily to a
gain recorded in 1997 on the sale of a PSI investment.

Income Taxes

Income taxes  decreased $5 million  (10%) for the quarter  ended  September  30,
1998, as compared to the same period of 1997,  primarily due to the  recognition
by Cinergy  of  Foreign  Tax  Credits  in the third  quarter  of 1998.  Previous
projections  indicated  that these  Foreign Tax Credits  would expire unused and
therefore previous Federal tax provisions had not given benefit to these Foreign
Tax Credits.  This decrease is somewhat  offset by an increase in taxable income
over the prior period.

Preferred Dividend Requirements of Subsidiaries

The decrease in preferred  dividend  requirements  of subsidiaries of $2 million
(57%) for the quarter  ended  September 30, 1998, as compared to the same period
of 1997, is primarily attributable to PSI's redemption of all outstanding shares
of its 7.15%  Series  Cumulative  Preferred  Stock and 7.44%  Series  Cumulative
Preferred Stock on September 1, 1997, and March 1, 1998, respectively.

<PAGE>

       RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

Operating Revenues

Electric Operating Revenues

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

                                                 Nine Months
                                              Ended September 30             
                                       Revenue                Kwh Sales      
                                  1998         1997       1998         1997  
                                 ------       ------     ------       -------
                                           ($ and kwh in millions)

Retail                           $1,955       $1,843     35,898       33,934
Sales for resale                  1,790        1,056     63,349       46,283
Other                                38           25        N/A          N/A
                                 ------       ------     ------       ------
Total                            $3,783       $2,924     99,247       80,217

Electric  operating  revenues  increased  $859 million (29%) for the nine months
ended September 30, 1998, from the comparable  period of 1997. This increase was
primarily due to increased  volumes and a higher  average price per kwh received
on sales for resale  transactions.  There was also an  increase  in the  average
price per kwh paid for the  corresponding  purchases of purchased  and exchanged
power described below.  Also contributing to the increase were higher retail kwh
sales due to the warmer than normal weather  during 1998,  growth in the average
number of residential  and commercial  customers,  and an increase in industrial
sales  primarily  reflecting  growth in the  primary  metals  and  miscellaneous
manufacturers sectors.

Gas Operating Revenues

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

                                         Nine Months Ended
                                           September 30         _
                                    Revenue           Mcf Sales   
                                 1998     1997     1998      1997 
                                      ($ and mcf in millions)

Sales for resale                 $380     $  -      195         -
Retail                            248      300       37        45
Transportation                     28       24       42        40
Other                              10        3      N/A       N/A
                                 ----     ----      ---       ---
Total                            $666     $327      274        85

Gas  operating  revenues  increased  $339  million  for the  nine  months  ended
September 30, 1998, when compared to the same period last year. This increase is
primarily due to the gas operating revenues of ProEnergy,  which was acquired in
June 1998.  This increase was partially  offset by a decline in retail sales due
to lower mcf volumes  reflecting,  in part,  the milder weather during the first
quarter  of 1998,  and a  reduction  in the  average  number of  commercial  and
industrial customers.  Transportation  revenues increased as customers continued
the trend of  purchasing  gas  directly  from  suppliers,  using  transportation
services provided by CG&E.

Other Revenues

Other  revenues for the nine months ended  September  30,  1998,  increased  $22
million, over the same period of 1997. This increase was primarily the result of
increased  sales and new  initiatives  by  certain  of  Cinergy's  non-regulated
entities.

<PAGE>

Operating Expenses

Fuel and Purchased and Exchanged Power

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

                                        Nine Months Ended
                                          September 30     
                                        1998         1997  
                                          (in millions)

Fuel                                   $  542       $  507
Purchased and exchanged power           1,777          964
                                       ------       ------
Total                                  $2,319       $1,471

Electric  fuel costs  increased  $35  million  (7%) for the first nine months of
1998, as compared to the same period last year.

An analysis of these fuel costs is shown below:

                                             Nine Months Ended
                                               September 30    
                                               (in millions)

Fuel expense - September 30, 1997                  $507 
Increase (Decrease) due to change in:
  Price of fuel                                     (16)
  Deferred fuel cost                                 12
  Kwh generation                                     39
                                                   ----

Fuel expense - September 30, 1998                  $542

Purchased and exchanged power expense  increased $813 million (84%) for the nine
months ended  September  30, 1998,  when  compared to the same period last year,
primarily reflecting increased purchases of non-firm power for resale to others.
Also  contributing  to the increase was a higher  average price paid per kwh and
increased demand due to the warmer than normal weather for the comparable period
of 1997.

Gas Purchased

Gas  purchased  for the nine months ended  September  30, 1998,  increased  $343
million  when  compared  to the same  period  last  year,  primarily  due to the
acquisition  of ProEnergy in June 1998,  and its related gas purchased  expense.
Slightly  offsetting  this  increase is a decrease in the retail  volumes of gas
purchased by CG&E, due to lower demand,  and a lower average cost per mcf of gas
paid by CG&E.

Other Operation and Maintenance

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

                                        Nine Months Ended
                                          September 30    
                                        1998         1997
                                          (in millions)

Other operation                         $629         $508
Maintenance                              145          144
                                        ----         ----
Total                                   $774         $652

<PAGE>

Other operation  expenses increased $121 million (24%) for the nine months ended
September 30, 1998,  as compared to the same period last year.  This increase is
primarily due to the one-time  charge of $80 million  recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA (see Note 14 of the "Notes to  Financial  Statements"  in "Part I.
Financial  Information").  This increase was also the result of increased growth
and  new  initiatives  by  certain  of  Cinergy's   consolidated   non-regulated
businesses.

Depreciation and Amortization

The components of depreciation and amortization expenses are shown below:

                                       Nine Months Ended
                                          September 30   
                                       1998         1997
                                         (in millions)

Depreciation                           $221         $216
Amortization of phase-in deferrals       17           10
Amortization of post-in-service
  deferred operating expenses             3            3
                                       ----         ----
Total                                  $241         $229

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

Equity in Earnings of Unconsolidated Subsidiaries

For the nine  months  ended  September  30,  1998,  the  equity in  earnings  of
unconsolidated  subsidiaries decreased $9 million (22%), as compared to the same
period of last year.  This decrease is primarily  attributable to the decline in
the  earnings  of  Midlands,  which is due to milder  weather  conditions  and a
penalty  imposed  on each  electric  distribution  company  due to the  delay in
opening the electricity supply business to competition.

Other Income and (Expenses) - Net

The change in other  income and  (expenses)  - net of $15  million  for the nine
months ended  September 30, 1998, as compared to the same period of 1997, is due
primarily  to a  litigation  settlement  (see Note 10 of the "Notes to Financial
Statements" in "Part I. Financial  Information")  and a gain recorded in 1997 on
the sale of a PSI investment.

Income Taxes

Income taxes decreased $70 million (48%) for the nine months ended September 30,
1998,  as compared to the same  period of 1997,  primarily  due to a decrease in
taxable  income over the prior  period.  Also  contributing  to the  decrease is
Cinergy's  recognition  of Foreign  Tax  Credits  in the third  quarter of 1998.
Previous  projections  indicated  that these  Foreign Tax Credits  would  expire
unused and therefore  previous  Federal tax  provisions had not given benefit to
these Foreign Tax Credits.

Preferred Dividend Requirements of Subsidiaries

The decrease in preferred  dividend  requirements  of subsidiaries of $4 million
(46%)for  the nine months  ended  September  30,  1998,  as compared to the same
period of 1997, is primarily attributable to PSI's redemption of all outstanding
shares  of  its  7.15%  Series  Cumulative  Preferred  Stock  and  7.44%  Series
Cumulative   Preferred   Stock  on  September  1,  1997,   and  March  1,  1998,
respectively.

<PAGE>

      RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998

Operating Revenues

Electric Operating Revenues

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

                                             Twelve Months Ended
                                                September 30                 
                                       Revenue                Kwh Sales      
                                  1998         1997       1998         1997  
                                 ------       ------    -------       -------
                                           ($ and kwh in millions)

Retail                           $2,566       $2,445     47,264       44,905
Sales for resale                  2,103        1,152     74,546       48,525
Other                                52           35        N/A          N/A
                                 ------       ------    -------       ------
Total                            $4,721       $3,632    121,810       93,430

Electric  operating  revenues increased $1.1 billion (30%) for the twelve months
ended September 30, 1998, from the comparable  period of 1997. This increase was
primarily due to increased  volumes and a higher  average price per kwh received
on sales for resale  transactions.  There was also an  increase  in the  average
price per kwh paid for the  corresponding  purchases of purchased  and exchanged
power described below.  Also contributing to the increase were higher retail kwh
sales due to the warmer than normal weather  during 1998,  growth in the average
number of residential  and commercial  customers,  and an increase in industrial
sales  primarily  reflecting  growth  in  the  primary  metals,   transportation
equipment, and miscellaneous manufacturers sectors.

Gas Operating Revenues

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

                                             Twelve Months Ended
                                                September 30                 
                                       Revenue                Mcf Sales      
                                 1998           1997     1998           1997 
                                 ----           ----     ----           -----
                                           ($ and mcf in millions)

Sales for resale                 $380           $  -      195              -
Retail                            402            458       61             70
Transportation                     37             30       56             52
Other                              11              7      N/A            N/A
                                 ----           ----      ---            ---
Total                            $830           $495      312            122

Gas operating  revenues increased $335 million (68%) for the twelve months ended
September 30, 1998, when compared to the same period last year. This increase is
primarily due to the gas operating revenues of ProEnergy,  which was acquired in
June 1998.  This increase was partially  offset by a decline in retail  revenues
reflecting  reduced mcf volumes due, in part, to the milder  weather  during the
first quarter of 1998,  and a decline in the average  number of  commercial  and
industrial customers.  Transportation  revenues increased as customers continued
the trend of  purchasing  gas  directly  from  suppliers,  using  transportation
services provided by CG&E.

<PAGE>

Other Revenues

Other  revenues for the twelve months ended  September  30, 1998,  increased $25
million  (80%),  over the same period of 1997.  This  increase was primarily the
result  of  increased   sales  and  new  initiatives  by  certain  of  Cinergy's
non-regulated entities.

Operating Expenses

Fuel and Purchased and Exchanged Power

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

                                       Twelve Months Ended
                                            September 30   
                                        1998         1997  
                                          (in millions)

Fuel                                   $  728       $  681
Purchased and exchanged power           2,033        1,027
                                       ------       ------
Total                                  $2,761       $1,708

Electric  fuel costs  increased  $47 million  (7%) for the twelve  months  ended
September 30, 1998, as compared to the same period last year.

An analysis of these fuel costs is shown below:

                                            Twelve Months Ended
                                               September 30     
                                               (in millions)

Fuel expense - September 30, 1997                  $681 
Increase (Decrease) due to change in:
  Price of fuel                                     (11)
  Deferred fuel cost                                 (4)
  Kwh generation                                     62
                                                   ----

Fuel expense - September 30, 1998                  $728

Purchased  and  exchanged  power  expense  increased  $1.1 billion (62%) for the
twelve months ended September 30, 1998, when compared to the same period of last
year,  primarily  reflecting increased purchases of non-firm power for resale to
others.  Also  contributing  to the increase was a higher average price paid per
kwh  and  increased  demand  due to the  warmer  than  normal  weather  for  the
comparable period of 1997.

Gas Purchased

Gas  purchased for the twelve months ended  September 30, 1998,  increased  $335
million  when  compared  to the same  period  last  year,  primarily  due to the
acquisition  of ProEnergy in June 1998,  and its related gas purchased  expense.
Slightly  offsetting this increase is a decrease in the volumes of gas purchased
by CG&E,  due to lower  demand,  and a lower average cost per mcf of gas paid by
CG&E.

<PAGE>

Other Operation and Maintenance

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

                                       Twelve Months Ended
                                          September 30     
                                       1998           1997 
                                          (in millions)

Other operation                        $809           $704
Maintenance                             182            196
                                       ----           ----
Total                                  $991           $900

Other  operation  expenses  increased  $105 million  (15%) for the twelve months
ended  September  30,  1998,  as compared  to the same  period  last year.  This
increase is primarily due to the one-time charge of $80 million  recorded during
the second quarter of 1998,  reflecting the  implementation of a 1989 settlement
of a dispute with the WVPA (see Note 14 of the "Notes to  Financial  Statements"
in "Part I.  Financial  Information").  This  increase  was also the  result  of
increased  growth  and new  initiatives  by certain  of  Cinergy's  consolidated
non-regulated businesses.

Maintenance  expenses  decreased  $14 million  (7%) for the twelve  months ended
September  30, 1998,  as compared to the same period of 1997,  primarily  due to
decreased outage related expenses at PSI's and CG&E's production facilities.

Equity in Earnings of Unconsolidated Subsidiaries

For the twelve  months  ended  September  30,  1998,  the equity in  earnings of
unconsolidated  subsidiaries decreased $7 million (11%), as compared to the same
period of last year. This decrease is partially due to a decline in the earnings
of Midlands,  which is due to milder weather conditions and a penalty imposed on
each electric  distribution  company due to the delay in opening the electricity
supply  business to  competition.  The decrease also reflects  losses on certain
non-utility subsidiaries.

Other Income and (Expenses) - Net

The change in other  income and  (expenses)  - net of $9 million  for the twelve
months ended September 30, 1998, as compared to the same period of 1997, is due,
in part,  to a  litigation  settlement  (see Note 10 of the "Notes to  Financial
Statements" in "Part I. Financial Information").

Income Taxes

Income taxes  decreased $41 million (22%) for the twelve months ended  September
30, 1998, as compared to the same period of 1997, primarily due to a decrease in
taxable  income over the prior  period.  Also  contributing  to the  decrease is
Cinergy's  recognition  of Foreign  Tax  Credits  in the third  quarter of 1998.
Previous  projections  indicated  that these  Foreign Tax Credits  would  expire
unused and therefore  previous  Federal tax  provisions had not given benefit to
these Foreign Tax Credits.

Preferred Dividend Requirements of Subsidiaries

The decrease in preferred  dividend  requirements  of subsidiaries of $5 million
(37%) for the twelve  months ended  September  30, 1998, as compared to the same
period of 1997, is primarily attributable to PSI's redemption of all outstanding
shares  of  its  7.15%  Series  Cumulative  Preferred  Stock  and  7.44%  Series
Cumulative   Preferred   Stock  on  September  1,  1997,   and  March  1,  1998,
respectively.

<PAGE>


                              THE CINCINNATI GAS &
                                ELECTRIC COMPANY
                            AND SUBSIDIARY COMPANIES



<PAGE>

<TABLE>
<CAPTION>

                      THE CINCINNATI GAS & ELECTRIC COMPANY
                           CONSOLIDATED BALANCE SHEETS


ASSETS
<S>                                                   <C>          <C>
                                                      September 30 December 31
                                                          1998        1997
                                                      (unaudited)
                                                       (dollars in thousands)

Current Assets
  Cash and temporary cash investments                 $    6,321   $    2,349
  Restricted deposits                                      1,173        1,173
  Notes receivable from affiliated companies             148,494       27,193
  Accounts receivable less accumulated provision
    for doubtful accounts of $14,855 at September
    30, 1998, and $9,199 at December 31, 1997            336,489      193,549
  Accounts receivable from affiliated companies            6,553       35,507
  Materials, supplies, and fuel - at average cost        106,846      107,967
  Prepayments and other                                   36,543       31,827
                                                      ----------   ----------
                                                         642,419      399,565

Utility Plant - Original Cost
  In service
    Electric                                           4,747,890    4,700,631
    Gas                                                  772,006      746,903
    Common                                               185,896      186,078
                                                      ----------   ----------
                                                       5,705,792    5,633,612
  Accumulated depreciation                             2,116,313    2,008,005
                                                      ----------   ----------
                                                       3,589,479    3,625,607
  Construction work in progress                          151,226      118,133
                                                      ----------   ----------
      Total utility plant                              3,740,705    3,743,740

Other Assets
  Regulatory assets                                      678,344      667,765
  Other                                                   92,517      103,368
                                                      ----------   ----------
                                                         770,861      771,133

                                                      $5,153,985   $4,914,438

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


<PAGE>

<TABLE>
<CAPTION>

                      THE CINCINNATI GAS & ELECTRIC COMPANY


LIABILITIES AND SHAREHOLDER'S EQUITY
<S>                                                   <C>          <C>
                                                      September 30 December 31
                                                          1998        1997
                                                      (unaudited)
                                                       (dollars in thousands)

Current Liabilities
  Accounts payable                                    $  415,171   $  249,538
  Accounts payable to affiliated companies                19,243       10,821
  Accrued taxes                                          168,019      149,129
  Accrued interest                                        29,362       25,430
  Notes payable and other short-term obligations         230,276      289,000
  Notes payable to affiliated companies                    8,747       12,253
  Long-term debt due within one year                     130,000         -
  Other                                                   25,780       29,950
                                                      ----------   ----------
                                                       1,026,598      766,121

Non-Current Liabilities
  Long-term debt                                       1,199,633    1,324,432
  Deferred income taxes                                  824,741      794,396
  Unamortized investment tax credits                     112,328      116,966
  Accrued pension and other postretirement
    benefit costs                                        142,810      180,566
  Other                                                  186,389      100,576
                                                      ----------   ----------
                                                       2,465,901    2,516,936

    Total liabilities                                  3,492,499    3,283,057

Cumulative Preferred Stock
  Not subject to mandatory redemption                     20,725       20,793

Common Stock Equity
  Common stock - $8.50 par value;  authorized
    shares - 120,000,000;  outstanding shares
    - 89,663,086 at September 30, 1998, and
    December 31, 1997                                    762,136      762,136
  Paid-in capital                                        534,672      534,649
  Retained earnings                                      344,858      314,553
  Accumulated other comprehensive loss                      (905)        (750)
                                                      ----------   ----------
    Total common stock equity                          1,640,761    1,610,588

                                                      $5,153,985   $4,914,438

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                      THE CINCINNATI GAS & ELECTRIC COMPANY
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                   (unaudited)

                                          Quarter Ended                Year to Date
                                          September 30                 September 30
                                        1998        1997            1998          1997
                                                       (in thousands)

Operating Revenues
<S>                                   <C>         <C>            <C>           <C>       
  Electric                            $827,387    $672,372       $1,960,334    $1,485,974
  Gas                                   56,505      39,944          280,437       326,969
                                      --------    --------       ----------    ----------
                                       883,892     712,316        2,240,771     1,812,943

Operating Expenses
  Fuel and purchased and exchanged
    power                              518,393     387,363        1,162,004       687,368
  Gas purchased                         21,539      15,601          139,784       175,395
  Other operation and maintenance       96,193      96,851          302,764       307,316
  Depreciation and amortization         47,267      45,028          142,877       134,696
  Taxes other than income taxes         54,089      52,980          162,484       159,001
                                      --------    --------       ----------    ----------
                                       737,481     597,823        1,909,913     1,463,776

Operating Income                       146,411     114,493          330,858       349,167

Other Income and (Expenses) - Net          511      (1,832)          (2,349)       (6,658)

Interest                                25,072      27,633           77,034        87,627
                                      --------    --------       ----------    ----------

Income Before Taxes                    121,850      85,028          251,475       254,882

Income Taxes                            43,178      32,724           88,925        96,825
                                      --------    --------       ----------    ----------

Net Income                            $ 78,672    $ 52,304       $  162,550    $  158,057

Preferred Dividend Requirement             214         217              644           653
                                      --------    --------       ----------    ----------

Net Income Applicable to Common
  Stock                               $ 78,458    $ 52,087       $  161,906    $  157,404
Other Comprehensive Income (Loss),
  Net of Tax                              -           -                (155)         -   
                                      --------    --------       ----------    ----------
Comprehensive Income                  $ 78,458    $ 52,087       $  161,751    $  157,404

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

<PAGE>

<TABLE>
<CAPTION>

                      THE CINCINNATI GAS & ELECTRIC COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

                                                      Year to Date
                                                      September 30
                                                    1998         1997
                                                     (in thousands)

Operating Activities
<S>                                              <C>          <C>      
  Net income                                     $ 162,550    $ 158,057
  Items providing (using) cash currently:
    Depreciation and amortization                  142,877      134,696
    Deferred income taxes and investment tax
      credits - net                                (11,592)      18,238
    Allowance for equity funds used during
      construction                                    (770)        (154)
    Regulatory assets - net                         23,716       15,147
    Changes in current assets and current
      liabilities
        Restricted deposits                           -              (2)
        Accounts and notes receivable, net of
          reserves on receivables sold            (232,865)     (42,472)
        Materials, supplies, and fuel                1,121          415
        Accounts payable                           174,055       85,545
        Accrued taxes and interest                  22,822       (7,135)
    Other items - net                               38,295      (12,251)
                                                 ---------    ---------
          Net cash provided by operating
            activities                             320,209      350,084

Financing Activities
  Retirement of preferred stock                        (45)        (158)
  Issuance of long-term debt                       223,020         -
  Redemption of long-term debt                    (220,409)    (290,612)
  Change in short-term debt                        (62,230)     178,844
  Dividends on preferred stock                        (645)        (655)
  Dividends on common stock                       (132,245)    (127,800)
                                                 ---------    ---------
          Net cash used in financing
            activities                            (192,554)    (240,381)

Investing Activities
  Construction expenditures (less allowance
    for equity funds used during construction)    (123,683)    (106,612)
          Net cash used in investing
            activities                            (123,683)    (106,612)

Net increase in cash and temporary cash
  investments                                        3,972        3,091

Cash and temporary cash investments at
  beginning of period                                2,349        5,120
                                                 ---------    ---------

Cash and temporary cash investments at
  end of period                                  $   6,321    $   8,211

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

<PAGE>
                      THE CINCINNATI GAS & ELECTRIC COMPANY
         RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998

Operating Revenues

Electric Operating Revenues

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

                                                 Quarter Ended
                                                 September 30 
                                        Revenue                Kwh Sales     
                                   1998        1997        1998        1997  
                                            ($ and kwh in millions)

Retail                             $397        $372        6,423       6,025
Sales for resale                    425         298       12,209      13,913
Other                                 5           2          N/A         N/A
                                   ----        ----       ------      ------
Total                              $827        $672       18,632      19,938

Electric  operating  revenues increased $155 million (23%) for the quarter ended
September  30,  1998,  from the  comparable  period of 1997.  This  increase was
primarily  a result  of a higher  average  price per kwh  received  on sales for
resale  transactions.  There was also an increase  in the average  price per kwh
paid for the corresponding  purchases of purchased and exchanged power described
below.  Also contributing to the increase was higher retail kwh sales due to the
warmer than  normal  weather  during  1998 and growth in the  average  number of
residential and commercial customers.

Gas Operating Revenues

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

                                               Quarter Ended
                                                September 30             
                                        Revenue               Mcf Sales  
                                   1998         1997        1998    1997
                                             ($ and mcf in millions)

Retail                             $48          $33           6        4
Transportation                       8            6          11       12
Other                                1            1         N/A      N/A
                                   ---          ---         ---      ---
Total                              $57          $40          17       16

Gas operating revenues increased $17 million (41%) in the third quarter of 1998,
when compared to the same period last year, primarily attributable to the annual
true-up of estimated revenues.

Operating Expenses

Fuel and Purchased and Exchanged Power

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

                                             Quarter Ended
                                             September 30   
                                           1998        1997
                                             (in millions)

Fuel                                       $ 93        $ 89
Purchased and exchanged power               425         298
                                           ----        ----
Total                                      $518        $387

<PAGE>

Electric fuel costs  increased $4 million (4%) for the quarter  ended  September
30, 1998, as compared to the same period last year.

An analysis of these fuel costs is shown below:

                                                  Quarter Ended
                                                  September 30  
                                                  (in millions)

Fuel expense - September 30, 1997                      $89
Increase (Decrease) due to change in:
  Deferred fuel cost                                    (2)
  Kwh generation                                         6

Fuel expense - September 30, 1998                      $93

Purchased and exchanged  power  expense  increased  $127 million for the quarter
ended  September  30,  1998,  when  compared  to the same  period of last  year,
primarily reflecting an increase in the average price paid per kwh.

Gas Purchased

Gas  purchased for the quarter  ended  September 30, 1998,  increased $6 million
(38%), when compared to the same period last year,  primarily due to an increase
in the average cost per mcf of gas purchased.

Other Operation and Maintenance

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

                                          Quarter Ended
                                          September 30  
                                         1998      1997
                                         (in millions)

Other operation                          $73       $76
Maintenance                               23        21
                                         ---       ---
Total                                    $96       $97

Maintenance  expenses increased $2 million (10%) for the quarter ended September
30, 1998,  as compared to the same period of 1997,  primarily due to an increase
in production maintenance at Beckjord and East Bend.

Depreciation and Amortization

The components of depreciation and amortization expenses are shown below:

                                        Quarter Ended
                                        September 30  
                                        1998     1997
                                        (in millions)

Depreciation                            $41      $41
Amortization of phase-in deferrals        5        3
Amortization of post-in-service
  deferred operating expenses             1        1
                                        ---      ---
Total                                   $47      $45


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

<PAGE>

Other Income and (Expenses) - Net

The change in other  income and  (expenses)  - net of $2 million for the quarter
ended  September  30,  1998,  as  compared  to the same  period of 1997,  is due
primarily to an increase in interest  income  resulting  from an increase in the
balance of short-term loans to affiliated companies through Cinergy's money pool
arrangement.

Interest

The components of interest expense are shown below:

                                                Quarter Ended
                                                September 30      
                                              1998          1997  
                                               (in thousands)

Interest on long-term debt                  $25,445       $25,973
Other interest                                  942         3,001
Allowance for borrowed funds used
  during construction                        (1,315)       (1,341)
                                            -------       -------

Total                                       $25,072       $27,633

The  decrease  in  interest  expense of $3 million  (9%) for the  quarter  ended
September 30, 1998, as compared to the same period last year,  was primarily due
to a reduction in other  interest  expense  resulting from decreases in both the
average short-term debt borrowings and the short-term debt rates.


       RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

Operating Revenues

Electric Operating Revenues

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

                                              Nine Months Ended
                                                September 30                 
                                       Revenue                 Kwh Sales     
                                  1998         1997       1998         1997  
                                 ------       ------     ------       -------
                                           ($ and kwh in millions)

Retail                           $1,075       $  994     17,357       16,575
Sales for resale                    873          484     30,825       23,006
Other                                12            8        N/A          N/A
                                 ------       ------     ------       ------
Total                            $1,960       $1,486     48,182       39,581

Electric  operating  revenues  increased  $474 million (32%) for the nine months
ended September 30, 1998, from the comparable  period of 1997. This increase was
primarily due to a higher  average price per kwh received and increased  volumes
on sales for resale  transactions.  There was also an  increase  in the  average
price per kwh paid for the  corresponding  purchases of purchased  and exchanged
power described below.  Also contributing to the increase were higher retail kwh
sales due to the warmer than normal  weather and growth in the average number of
residential and commercial customers.

<PAGE>

as Operating Revenues

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

                                               Nine Months Ended
                                  September 30 
                                       Revenue                Mcf Sales      
                                 -------------------     --------------------
                                 1998           1997     1998           1997 
                                 ----           ----     ----           -----
                                            ($ and mcf in millions)

Retail                           $248           $300       37             45
Transportation                     28             24       42             40
Other                               4              3      N/A            N/A
                                 ----           ----      ---            ---
Total                            $280           $327       79             85

Gas  operating  revenues  decreased  $47 million (14%) for the nine months ended
September 30, 1998, when compared to the same period last year. Decreased retail
revenues  reflecting a decline in mcf sales due to the milder weather during the
first quarter of 1998 was the primary  reason for this  decrease.  A decrease in
the average number of commercial and  industrial  customers also  contributed to
the decline in  revenues.  Partially  offsetting  the decline was an increase in
transportation  revenues,  as customers  continued the trend of  purchasing  gas
directly from suppliers, using transportation services provided by CG&E.

Operating Expenses

Fuel and Purchased and Exchanged Power

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

                                        Nine Months Ended
                                          September 30    
                                        1998         1997
                                          (in millions)

Fuel                                   $  258        $219
Purchased and exchanged power             904         468
                                       ------        ----
Total                                  $1,162        $687

Electric  fuel costs  increased  $39  million  (18%) for the nine  months  ended
September 30, 1998, as compared to the same period last year.

An analysis of these fuel costs is shown below:

                                               Nine Months Ended
                                                 September 30    
                                                 (in millions)

Fuel expense - September 30, 1997                    $219
Increase (Decrease) due to change in:
  Price of fuel                                        (1)
  Deferred fuel cost                                   33
  Kwh generation                                        7 
                                                      ----

Fuel expense - September 30, 1998                    $258

Purchased and exchanged power expense  increased $436 million (93%) for the nine
months ended  September  30, 1998,  when  compared to the same period last year,
primarily reflecting a higher average price paid per kwh and increased purchases
of power for resale to others.

<PAGE>

Gas Purchased

Gas  purchased  for the nine months  ended  September  30, 1998,  decreased  $36
million (20%) when compared to the same period last year,  reflecting a decrease
in the volumes of gas purchased,  due to lower demand,  and a lower average cost
per mcf of gas purchased.

Depreciation and Amortization

The components of depreciation and amortization expenses are shown below:

                                        Nine Months Ended
                                          September 30   
                                        1998         1997
                                          (in millions)

Depreciation                            $123         $122
Amortization of phase-in deferrals        17           10
Amortization of post-in-service
  deferred operating expenses              3            3
                                        ----         ----
Total                                   $143         $135

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

Other Income and (Expenses) - Net

The change in other  income  and  (expenses)  - net of $4  million  for the nine
months  ended  September  30, 1998,  as compared to the same period of 1997,  is
largely due to an increase in interest income  resulting from an increase in the
balance of short-term loans to affiliated companies through Cinergy's money pool
arrangement  and an  adjustment  recorded in 1997 related to the sale of certain
assets.

Interest

The components of interest expense are shown below:

                                              Nine Months Ended
                                                September 30     
                                              1998         1997  
                                               (in thousands)

Interest on long-term debt                  $75,913      $83,850
Other interest                                5,312        7,259
Allowance for borrowed funds used
  during construction                        (4,191)      (3,482)
                                            -------      -------

Total                                       $77,034      $87,627

The decrease in interest  expense of $11 million (12%) for the nine months ended
September  30,  1998,  as  compared  to the same  period  last year,  was due to
decreases in both interest on long-term  debt and other  interest  expense.  The
decrease  in  interest  expense on  long-term  debt was  primarily  due to a net
redemption  of  approximately  $116 million of long-term  debt during the period
from March 1997  through May 1998.  The  decrease in other  interest is due to a
reduction in average short-term borrowings.

<PAGE>


                                PSI ENERGY, INC.
                             AND SUBSIDIARY COMPANY

<PAGE>

<TABLE>
<CAPTION>

                                PSI ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS


ASSETS
                                                      September 30 December 31
                                                          1998        1997
                                                      (unaudited)
                                                       (dollars in thousands)

Current Assets
<S>                                                   <C>          <C>       
  Cash and temporary cash investments                 $   30,488   $   18,169
  Restricted deposits                                        359        1,146
  Notes receivable                                            79          110
  Notes receivable from affiliated companies               8,752       21,998
  Accounts receivable less accumulated provision
    for doubtful accounts of $5,760 at September
    30, 1998, and $1,183 at December 31, 1997            370,260      197,898
  Accounts receivable from affiliated companies              302        4,516
  Materials, supplies, and fuel - at average cost         74,732       55,189
  Prepayments and other                                   13,962        4,405
                                                      ----------   ----------
    Total current assets                                 498,934      303,431

Electric Utility Plant - Original Cost
  In service                                           4,354,315    4,280,551
  Accumulated depreciation                             1,866,373    1,792,317
                                                      ----------   ----------
                                                       2,487,942    2,488,234
  Construction work in progress                           75,135       65,129
                                                      ----------   ----------
    Total electric utility plant                       2,563,077    2,553,363

Other Assets
  Regulatory assets                                      355,307      409,086
  Other                                                  119,713      127,945
                                                      ----------   ----------
    Total other assets                                   475,020      537,031

                                                      $3,537,031   $3,393,825

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


<PAGE>

<TABLE>
<CAPTION>


                                PSI ENERGY, INC.


LIABILITIES AND SHAREHOLDER'S EQUITY

                                                      September 30 December 31
                                                          1998        1997
                                                      (unaudited)
                                                       (dollars in thousands)

Current Liabilities
<S>                                                   <C>          <C>       
  Accounts payable                                    $  368,606   $  212,833
  Accounts payable to affiliated companies                20,757       40,714
  Accrued taxes                                           68,492       69,310
  Accrued interest                                        19,938       21,369
  Notes payable and other short-term obligations         117,084      190,600
  Notes payable to affiliated companies                  163,897       16,435
  Long-term debt due within one year                      56,000       85,000
  Other                                                    2,385        2,560
                                                      ----------   ----------
                                                         817,159      638,821

Non-Current Liabilities
  Long-term debt                                         976,623      826,470
  Deferred income taxes                                  371,490      403,535
  Unamortized investment tax credits                      46,702       49,296
  Accrued pension and other postretirement
    benefit costs                                        109,626      116,576
  Other                                                  164,616      176,271
                                                      ----------   ----------
                                                       1,669,057    1,572,148

    Total liabilities                                  2,486,216    2,210,969

Cumulative Preferred Stock
  Not subject to mandatory redemption                     71,923      157,196

Common Stock Equity
  Common stock - without par value; $0.01  
    stated  value;  authorized  shares - 60,000,000; 
    outstanding shares - 53,913,701 at September
    30, 1998, and December 31, 1997                          539          539
  Paid-in capital                                        400,916      390,188
  Retained earnings                                      578,079      636,519
  Accumulated other comprehensive loss                      (642)      (1,586)
                                                      ----------   ----------
    Total common stock equity                            978,892    1,025,660

                                                      $3,537,031   $3,393,825

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                PSI ENERGY, INC.
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                   (unaudited)

                                         Quarter Ended                 Year to Date
                                          September 30                 September 30
                                       1998         1997            1998          1997
                                                       (in thousands)

Operating Revenues
<S>                                  <C>          <C>            <C>           <C>       
  Electric                           $807,181     $650,987       $1,910,836    $1,464,380

Operating Expenses
  Fuel and purchased and exchanged
    power                             584,415      425,228        1,242,253       810,032
  Other operation and maintenance     110,051      102,742          400,431       310,291
  Depreciation and amortization        32,688       31,820           97,433        94,800
  Taxes other than income taxes        14,882       14,011           44,356        44,191
                                     --------     --------       ----------    ----------
                                      742,036      573,801        1,784,473     1,259,314

Operating Income                       65,145       77,186          126,363       205,066

Other Income and (Expenses) - Net        (315)       6,512            1,616         9,390

Interest                               21,975       21,369           67,771        63,321
                                     --------     --------       ----------    ----------

Income Before Taxes                    42,855       62,329           60,208       151,135

Income Taxes                           16,063       21,839           21,106        55,459
                                     --------     --------       ----------    ----------

Net Income                           $ 26,792     $ 40,490       $   39,102    $   95,676

Preferred Dividend Requirement          1,151        2,925            4,509         8,964
                                     --------     --------       ----------    ----------

Net Income Applicable to
  Common Stock                       $ 25,641     $ 37,565       $   34,593    $   86,712
Other Comprehensive Income,
  Net of Tax                             -            -                 944          -    
                                     --------     --------       ----------    -----------
Comprehensive Income                 $ 25,641     $ 37,565       $   35,537    $   86,712

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

<PAGE>

<TABLE>
<CAPTION>

                                PSI ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

                                                          Year to Date
                                                          September 30
                                                        1998         1997
                                                          (in thousands)

Operating Activities
<S>                                                  <C>          <C>      
  Net income                                         $  39,102    $  95,676
  Items providing (using) cash currently:
    Depreciation and amortization                       97,433       94,800
    WVPA settlement                                     80,000         -
    Deferred income taxes and investment tax
      credits - net                                    (44,433)     (13,548)
    Allowance for equity funds used during
      construction                                         (23)         (35)
    Regulatory assets - net                             33,406       25,208
    Changes in current assets and current
      liabilities
        Restricted deposits                                787         (227)
        Accounts and notes receivable, net of
          reserves on receivables sold                (158,099)    (173,862)
        Materials, supplies, and fuel                  (19,543)       9,456
        Accounts payable                               135,816       99,810
        Accrued taxes and interest                      (2,249)      15,785
    Other items - net                                   12,994       (7,768)
                                                     ---------    ---------
          Net cash provided by operating
            activities                                 175,191      145,295

Financing Activities
  Issuance of long-term debt                           150,021         -
  Retirement of preferred stock                        (85,247)     (16 024)
  Redemption of long-term debt                        (113,336)     (45,700)
  Change in short-term debt                             73,946      125,430
  Dividends on preferred stock                          (5,037)      (9,059)
  Dividends on common stock                            (81,800)     (85,200)
                                                     ---------    ---------
          Net cash used in financing activities        (61,453)     (30,553)

Investing Activities
  Construction expenditures (less allowance
    for equity funds used during construction)        (101,419)     (96,423)
          Net cash used in investing activities       (101,419)     (96,423)

Net increase in cash and temporary cash
  investments                                           12,319       18,319

Cash and temporary cash investments at
  beginning of period                                   18,169        2,911
                                                     ---------    ---------

Cash and temporary cash investments at
  end of period                                      $  30,488    $  21,230

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

<PAGE>

                                PSI ENERGY, INC.
         RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998

Operating Revenues

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

                                                Quarter Ended
                                                September 30                 
                                       Revenue                Kwh Sales     
                                 1998           1997      1998         1997  
                                 ----           ----     ------       -------
                                           ($ and kwh in millions)

Retail                           $315           $299      6,590        6,074
Sales for resale                  481            345     13,980       13,321
Other                              11              7        N/A          N/A
                                 ----           ----     ------       ------
Total                            $807           $651     20,570       19,395

Operating  revenues increased $156 million (24%) for the quarter ended September
30, 1998,  from the  comparable  period of 1997.  This  increase was primarily a
result of a higher average price per kwh received and increased volumes on sales
for resale transactions. There was also an increase in the average price per kwh
paid for the corresponding  purchases of purchased and exchanged power described
below. Also contributing to the increase were higher retail kwh sales due to the
warmer than  normal  weather  during  1998 and growth in the  average  number of
residential and commercial customers.

Operating Expenses

Fuel and Purchased and Exchanged Power

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

                                            Quarter Ended
                                            September 30   
                                           1998       1997
                                            (in millions)

Fuel                                       $113       $109
Purchased and exchanged power               471        316
                                           ----       ----
Total                                      $584       $425

Fuel costs  increased $4 million (4%) for the third quarter of 1998, as compared
to the same period last year.

An analysis of fuel costs is shown below:

                                              Quarter Ended
                                              September 30  
                                              (in millions)

Fuel expense - September 30, 1997                  $109
Increase (Decrease) due to change in:
  Price of fuel                                     (6)
  Deferred fuel cost                                (2)
  Kwh generation                                    12
                                                  ----

Fuel expense - September 30, 1998                 $113

<PAGE>

Purchased  and  exchanged  power  expense  increased  $155 million (49%) for the
quarter ended  September  30, 1998,  when compared to the same period last year,
primarily reflecting an increase in the average price paid per kwh and increased
demand due to the warmer than normal weather for the third quarter of 1998.

Other Operation and Maintenance

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

                                         Quarter Ended
                                         September 30  
                                         1998     1997
                                         (in millions)

Other operation                          $ 83     $ 81
Maintenance                                27       22
                                         ----     ----
Total                                    $110     $103

Maintenance  expense  increased $5 million (23%) for the quarter ended September
30, 1998,  as compared to the same period of 1997,  primarily due to an increase
in production  maintenance at Wabash River,  Cayuga, and Gibson, and an increase
in distribution line maintenance.

Other Income and (Expenses) - Net

The change in other  income and  (expenses)  - net of $7 million for the quarter
ended  September  30, 1998, as compared to the same period of 1997, is primarily
attributable to a gain recorded in 1997 on the sale of an investment.

Preferred Dividend Requirement

The  decrease in  preferred  dividend  requirement  of $2 million  (61%) for the
quarter  ended  September  30, 1998,  as compared to the same period of 1997, is
primarily  attributable  to PSI's  redemption of all  outstanding  shares of its
7.15% Series Cumulative  Preferred Stock and 7.44% Series  Cumulative  Preferred
Stock on September 1, 1997, and March 1, 1998, respectively.


       RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

Operating Revenues

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

                                              Nine Months Ended
                                                September 30                 
                                       Revenue                Kwh Sales      
                                  1998         1997       1998         1997  
                                 ------       ------     ------       -------
                                          ($ and kwh in millions)

Retail                           $  880       $  849     18,541       17,358
Sales for resale                  1,003          599     35,789       24,893
Other                                28           16        N/A          N/A
                                 ------       ------     ------       ------
Total                            $1,911       $1,464     54,330       42,251

Total operating  revenues increased $446 million (30%) for the nine months ended
September 30, 1998,  when  compared to the same period last year.  This increase
was  primarily  due to  increased  volumes  and a higher  average  price per kwh
received  on sales for resale  transactions.  There was also an  increase in the
average  price per kwh paid for the  corresponding  purchases of  purchased  and

<PAGE>

exchanged power described below.  Also  contributing to the increase were higher
retail kwh sales due to the warmer  than  normal  weather  during  1998,  and an
increase in industrial sales,  primarily reflecting growth in the primary metals
and transportation equipment sectors.

Operating Expenses

Fuel and Purchased and Exchanged Power

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

                                        Nine Months Ended
                                           September 30    
                                        1998          1997 
                                          (in millions)

Fuel                                   $  284         $288
Purchased and exchanged power             958          522
                                       ------         ----
Total                                  $1,242         $810

Fuel costs  decreased $4 million (1%) for the nine months  ended  September  30,
1998, when compared to the same period last year.

An analysis of fuel costs is shown below:

                                                          Nine Months Ended
                                                            September 30 
                                                            (in millions)


Fuel expense - September 30, 1997                               $288 
Increase (Decrease) due to change in:
  Price of fuel                                                  (15)
  Deferred fuel cost                                             (21)
  Kwh generation                                                  32
                                                                ----

Fuel expense - September 30, 1998                               $284

Purchased and exchanged power expense  increased $436 million (84%) for the nine
months ended  September  30, 1998,  when  compared to the same period last year,
primarily reflecting increased purchases of non-firm power for resale to others.
Also  contributing  to the increase were a higher average price paid per kwh and
increased demand due to warmer than normal weather for the comparable  period of
1997.

Other Operation and Maintenance

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

                                        Nine Months Ended
                                          September 30    
                                        1998         1997
                                          (in millions)

Other operation                         $326         $243
Maintenance                               74           67
                                        ----         ----
Total                                   $400         $310

Other operation  expenses  increased $83 million (34%) for the nine months ended
September 30, 1998,  as compared to the same period last year.  This increase is
primarily due to the one-time  charge of $80 million  recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA (see Note 14 of the "Notes to  Financial  Statements"  in "Part I.
Financial Information").

<PAGE>

Maintenance  expenses  increased  $7  million  (10%) for the nine  months  ended
September 30, 1998, as compared to the same period of 1997,  primarily due to an
increase in production  maintenance at Wabash River,  Cayuga, and Gibson, and an
increase in distribution line maintenance.

Other Income and (Expenses) - Net

The change in other  income  and  (expenses)  - net of $8  million  for the nine
months ended  September 30, 1998, as compared to the same period of 1997, is due
primarily  to a gain  recorded  in 1997 on the  sale  of an  investment  and DSM
carrying costs also recorded in 1997.

Interest

The components of interest expense are shown below:

                                              Nine Months Ended
                                                 September 30    
                                               1998        1997  
                                               (in thousands)

Interest on long-term debt                   $60,459     $53,928
Other interest                                 8,976      10,630
Allowance for borrowed funds used
  during construction                         (1,664)     (1,237)
                                             -------     -------
Total                                        $67,771     $63,321

The  increase in interest  expense of $4 million  (7%) for the nine months ended
September  30,  1998,  as compared  to the same period last year,  was due to an
increase of $7 million in interest on long-term debt, which was partially offset
by a decrease of $2 million in other interest expense.  The increase in interest
on long-term  debt was due primarily to the net issuance of  approximately  $303
million of long-term  debt during the period from  February 1997 to August 1998.
The  decrease in other  interest  expense was  primarily  due to a reduction  in
average short-term borrowings.

Preferred Dividend Requirement

The decrease in preferred dividend  requirement of $4 million (50%) for the nine
months  ended  September  30, 1998,  as compared to the same period of 1997,  is
primarily  attributable  to PSI's  redemption of all  outstanding  shares of its
7.15% Series Cumulative  Preferred Stock and 7.44% Series  Cumulative  Preferred
Stock on September 1, 1997, and March 1, 1998, respectively.

<PAGE>


                              THE UNION LIGHT, HEAT
                                AND POWER COMPANY



<PAGE>

<TABLE>
<CAPTION>

                     THE UNION LIGHT, HEAT AND POWER COMPANY
                                 BALANCE SHEETS


ASSETS
                                                      September 30 December 31
                                                          1998        1997
                                                      (unaudited)
                                                       (dollars in thousands)

Current Assets
<S>                                                   <C>          <C>     
  Cash and temporary cash investments                 $  2,802     $    546
  Accounts receivable less accumulated provision
    for doubtful accounts of $1,015 at
    September 30, 1998, and $996 at December
    31, 1997                                             6,105        7,308
  Accounts receivable from affiliated companies             10          446
  Materials, supplies, and fuel - at average cost        9,674        6,094
  Prepayments and other                                    462          385
                                                      --------     --------
    Total current assets                                19,053       14,779

Utility Plant - Original Cost
  In service
    Electric                                           209,763      204,111
    Gas                                                162,354      155,167
    Common                                              19,075       19,073
                                                      --------     --------
                                                       391,192      378,351
  Accumulated depreciation                             141,642      133,213
                                                      --------     --------
                                                       249,550      245,138
  Construction work in progress                         25,369       14,346
                                                      --------     --------
      Total utility plant                              274,919      259,484

Other Assets
  Regulatory assets                                     11,063       11,065
  Other                                                  3,844        6,262
                                                      --------     --------
                                                        14,907       17,327

                                                      $308,879     $291,590

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

<PAGE>

<TABLE>
<CAPTION>


                     THE UNION LIGHT, HEAT AND POWER COMPANY


LIABILITIES AND SHAREHOLDER'S EQUITY
                                                      September 30 December 31
                                                          1998        1997
                                                      (unaudited)
                                                       (dollars in thousands)

Current Liabilities
<S>                                                   <C>          <C>     
  Accounts payable                                    $  4,689     $ 11,097
  Accounts payable to affiliated companies              19,128       19,712
  Accrued taxes                                          1,837        6,332
  Accrued interest                                       1,674        1,286
  Notes payable to affiliated companies                 39,744       23,487
  Long-term debt due within one year                    20,000         -
  Other                                                  4,021        4,364
                                                      --------     --------
                                                        91,093       66,278

Non-Current Liabilities
  Long-term debt                                        34,534       44,671
  Deferred income taxes                                 27,741       26,211
  Unamortized investment tax credits                     4,307        4,516
  Accrued pension and other postretirement
    benefit costs                                       11,434       14,044
  Amounts due to customers - income taxes                7,760        6,566
  Other                                                  7,447        6,391
                                                      --------     --------
                                                        93,223      102,399

    Total liabilities                                  184,316      168,677

Common Stock Equity
  Common stock - $15.00 par value;  authorized
    shares - 1,000,000;  outstanding shares - 
    585,333 at September 30, 1998, and
    December 31, 1997                                    8,780        8,780
  Paid-in capital                                       18,683       18,683
  Retained earnings                                     97,100       95,450
                                                      --------     --------
    Total common stock equity                          124,563      122,913

                                                      $308,879     $291,590


</TABLE>

<PAGE>

<TABLE>
<CAPTION>

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

                                          Quarter Ended                Year to Date
                                           September 30                September 30
                                       1998           1997          1998           1997
                                                        (in thousands)

Operating Revenues
<S>                                   <C>            <C>          <C>            <C>     
  Electric                            $56,368        $56,666      $144,903       $152,560
  Gas                                   7,077          8,647        44,183         53,625
                                      -------        -------      --------       --------
                                       63,445         65,313       189,086        206,185

Operating Expenses
  Electricity purchased from parent
    company for resale                 41,827         44,237       110,338        113,992
  Gas purchased                         2,691          3,002        23,211         30,006
  Other operation and maintenance       8,987          9,402        27,319         29,198
  Depreciation                          3,296          3,048         9,737          9,229
  Taxes other than income taxes         1,024            905         3,058          3,119
                                      -------        -------      --------       --------
                                       57,825         60,594       173,663        185,544

Operating Income                        5,620          4,719        15,423         20,641

Other Income and (Expenses) - Net        (175)          (596)       (1,051)        (1,534)

Interest                                1,244          1,153         3,328          3,512
                                      -------        -------      --------       --------

Income Before Taxes                     4,201          2,970        11,044         15,595

Income Taxes                            1,696            731         4,418          6,078
                                      -------        -------      --------       --------

Net Income                            $ 2,505        $ 2,239      $  6,626       $  9,517

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

<PAGE>

<TABLE>
<CAPTION>

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


                                                     Year to Date
                                                     September 30
                                                   1998        1997
                                                    (in thousands)

Operating Activities
<S>                                              <C>         <C>     
  Net income                                     $  6,626    $  9,517
  Items providing (using) cash currently:
    Depreciation                                    9,737       9,229
    Deferred income taxes and investment tax
      credits - net                                 1,763        (322)
    Allowance for equity funds used during
      construction                                   (150)        (33)
    Regulatory assets                                 (31)       (312)
    Changes in current assets and current
      liabilities
        Accounts and notes receivable, net of
          reserves on receivables sold              3,515       7,687
        Materials, supplies, and fuel              (3,580)       (354)
        Accounts payable                           (6,992)     (9,819)
        Accrued taxes and interest                 (4,107)      6,504
    Other items - net                                (330)      5,267
                                                 --------    --------
          Net cash provided by operating
            activities                              6,451      27,364

Financing Activities
  Issuance of long-term debt                       20,127        -
  Redemption of long-term debt                    (10,118)       -
  Change in short-term debt                        16,257      (5,988)
  Dividends on common stock                        (4,975)     (4,975)
                                                 --------    --------
          Net cash provided by (used in)
            financing activities                   21,291     (10,963)

Investing Activities
  Construction expenditures (less allowance
    for equity funds used during construction)    (25,486)    (14,808)
          Net cash used in investing
            activities                            (25,486)    (14,808)

Net increase in cash and temporary cash
  investments                                       2,256       1,593

Cash and temporary cash investments at
  beginning of period                                 546       1,197
                                                 --------    --------

Cash and temporary cash investments at
  end of period                                  $  2,802    $  2,790

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

<PAGE>

                     THE UNION LIGHT, HEAT AND POWER COMPANY
         RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998


Operating Revenues

Gas Operating Revenues

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

                                                Quarter Ended
                                                September 30                 
                                        Revenue                Mcf Sales     
                                  1998         1997        1998         1997
                                 ------       ------      -----        -----
                                          ($ and mcf in thousands)

Retail                           $6,133       $7,837        764          934
Transportation                      819          682        779          854
Other                               125          128         14           25
                                 ------       ------      -----        -----
Total                            $7,077       $8,647      1,557        1,813

Gas operating  revenues decreased $2 million (18%) in the third quarter of 1998,
when  compared to the same period last year,  primarily due to a decrease in mcf
volumes sold.

Operating Expenses

Electricity Purchased from Parent Company for Resale

Electricity  purchased decreased $2 million (5%) for the quarter ended September
30, 1998, as compared to the same period last year. This decrease reflects lower
volumes purchased from CG&E.

Gas Purchased

Gas purchased for the quarter  ended  September 30, 1998,  decreased $.3 million
(10%),  when compared to the same period last year,  primarily due to a decrease
in the volumes of gas purchased, due to lower demand.

Other Operation and Maintenance

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

                                         Quarter Ended
                                         September 30   
                                        1998      1997  
                                        (in thousands)

Other operation                        $7,514    $7,967
Maintenance                             1,473     1,435 
                                       ------    -------
Total                                  $8,987    $9,402

Other  operation  expenses  decreased  $.4 million  (6%) for the  quarter  ended
September 30, 1998, as compared to the same period last year, primarily due to a
decrease in distribution expenses.

Depreciation

Depreciation  increased  $.2 million (8%) for the quarter  ended  September  30,
1998, as compared to the same period last year,  due to additions to depreciable
plant.

<PAGE>

Other Income and (Expenses) - Net

The change in other  income and  (expenses) - net of $.4 million for the quarter
ended  September  30, 1998, as compared to the same period of 1997, is primarily
attributable  to a decrease  in expenses  associated  with the sales of accounts
receivable   and  an  increase  in  allowance   for  equity  funds  used  during
construction resulting from an increase in the average balance of CWIP.

Interest

The components of interest expense are shown below:

                                                 Quarter Ended
                                                 September 30     
                                              1998          1997  
                                                (in thousands)

Interest on long-term debt                   $1,011        $  881
Other interest                                  409           317
Allowance for borrowed funds used
  during construction                          (176)          (45)
                                             ------        ------
Total                                        $1,244        $1,153

The  increase in  interest  expense of $.1  million  (8%) for the quarter  ended
September 30, 1998, as compared to the same period last year, was due to changes
in interest on long-term debt, other interest,  and allowance for borrowed funds
used during  construction.  The increase in interest on  long-term  debt was due
primarily to the net  issuance of  approximately  $10 million of long-term  debt
during April 1998. Increased short-term  borrowings and a higher average balance
of CWIP  contributed to the increase in other interest expense and allowance for
borrowed funds used during construction, respectively.


       RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

Operating Revenues

Electric Operating Revenues

Electric  operating revenues decreased $8 million (5%) for the nine months ended
September 30, 1998, from the comparable period of 1997. This decrease  primarily
reflects a revision of ULH&P's  estimate of unbilled  revenue which was recorded
in the  second  quarter  of 1998,  which  resulted  in a  decrease  in  electric
operating  revenues of $3.6  million and a  corresponding  decrease to operating
income and net income of $1.7 million.

Gas Operating Revenues

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

                                             Nine Months Ended
                                               September 30                 
                                       Revenue                Mcf Sales     
                                  1998         1997       1998        1997  
                                -------      -------     ------      -------
                                         ($ and mcf in thousands)

Retail                          $40,586      $50,297     6,361        7,427
Transportation                    2,904        2,518     2,734        2,740
Other                               693          810        97          131
                                -------      -------     -----       ------
Total                           $44,183      $53,625     9,192       10,298

<PAGE>

Gas  operating  revenues  decreased  $9 million  (18%) for the nine months ended
September  30, 1998,  when  compared to the same period of last year.  Decreased
volumes  reflecting the milder  weather during the first quarter of 1998,  along
with a decrease in the price of gas sold,  primarily  attributed  to the revenue
decrease.

Operating Expenses

Electricity Purchased from Parent Company for Resale

Electricity  purchased  decreased  $4  million  (3%) for the nine  months  ended
September  30,  1998,  as compared to the same period last year.  This  decrease
reflects lower volumes purchased from CG&E.

Gas Purchased

Gas purchased for the nine months ended September 30, 1998, decreased $7 million
(23%),  when  compared  to the same  period in 1997.  This  decrease  reflects a
decline in the average cost per mcf of gas  purchased  and lower  volumes of gas
purchased.

Other Operation and Maintenance

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

                                       Nine Months Ended
                                          September 30 
                                         1998      1997  
                                         (in thousands)

Other operation                        $23,176   $24,705
Maintenance                              4,143     4,493 
                                       -------   --------
Total                                  $27,319   $29,198

Other  operation  expenses  declined $2 million  (6%) for the nine months  ended
September 30, 1998,  as compared to the same period last year,  primarily due to
decreases in distribution and administrative and general expenses.

Maintenance  expenses  declined  $.4  million  (8%)  for the nine  months  ended
September 30, 1998, as compared to the same period last year, primarily due to a
decrease in distribution maintenance.

Depreciation

Depreciation  increased $.5 million (6%) for the nine months ended September 30,
1998, as compared to the same period last year,  due to additions to depreciable
plant.

Other Income and (Expenses) - Net

The change in other  income and  (expenses)  - net of $.5  million  for the nine
months ended  September 30, 1998, as compared to the same period of 1997, is due
primarily  to a  decrease  in  expenses  associated  with the sales of  accounts
receivable   and  an  increase  in  allowance   for  equity  funds  used  during
construction resulting from an increase in the average balance of CWIP.

<PAGE>

Interest

The components of interest expense are shown below:

                                               Nine Months Ended
                                                 September 30    
                                               1998        1997  
                                                (in thousands)

Interest on long-term debt                    $2,845      $2,643
Other interest                                   958         951
Allowance for borrowed funds used
  during construction                           (475)        (82)
                                              ------      ------
Total                                         $3,328      $3,512

The  decrease in interest  expense of $.2 million (5%) for the nine months ended
September 30, 1998, as compared to the same period last year, was due to changes
in interest on  long-term  debt and  allowance  for  borrowed  funds used during
construction.  The increase in interest on long-term  debt was due  primarily to
the net issuance of  approximately  $10 million of  long-term  debt during April
1998. Allowance for borrowed funds used during construction  increased primarily
as a result of an increase in the average balance of CWIP.

<PAGE>


                          NOTES TO FINANCIAL STATEMENTS

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

1.   These Financial  Statements  reflect all adjustments (which include normal,
     recurring  adjustments and those  adjustments  discussed in Notes 9 and 14)
     necessary in the opinion of the registrants for a fair  presentation of the
     interim results.  These  statements  should be read in conjunction with the
     Financial  Statements  and the notes thereto  included in the combined 1997
     Form 10-K of the registrants.

     TheStatements  of Income in this report have been  reclassified in order to
     present the  operations  of all  non-regulated  entities as a component  of
     operating income.  Prior to this  reclassification,  the operations of such
     entities  were  reflected in "Other  Income and Expense - Net."  Similarly,
     "Income  Taxes"  now  includes  the  income  taxes   associated   with  the
     non-regulated  entities.  These  changes  had  no  effect  on  net  income.
     Additionally, the Balance Sheets have been reformatted.

Cinergy and CG&E
2.   On April 7, 1998, CG&E issued and sold $100 million principal amount of its
     6.40%  Debentures  due April 1, 2008.  Proceeds  from the sale were used to
     repay short-term indebtedness incurred in connection with CG&E's March 1998
     redemptions  of $100  million  principal  amount of its 8 1/2% Series First
     Mortgage  Bonds  due 2022 and $60  million  principal  amount of its 7 3/8%
     Series First Mortgage Bonds due 2001.

3.   On May 1, 1998,  CG&E redeemed the entire $50 million  principal  amount of
     its 7 3/8% Series First Mortgage Bonds due 1999, at the regular  redemption
     price of 100.00%.  This redemption  effectively  eliminates the maintenance
     and  replacement  fund  provisions of CG&E's First Mortgage Bond indenture,
     which  provisions  required CG&E to make cash payments,  deposit bonds,  or
     pledge  unfunded  property  additions  to the trustee each year based on an
     amount related to net revenues.

4.   On June 15,  1998,  CG&E issued and sold $100 million  principal  amount of
     unsecured  Reset Put Securities.  These  debentures will bear interest at a
     rate of 6.35% for the first five years,  and the interest rate may be reset
     on June 15, 2003, and every five years thereafter to final maturity in 2038
     if the  callholder  exercises  its option on any reset date to purchase the
     bonds and reset the interest rate. If the callholder  does not exercise the
     option  on any  reset  date,  the bonds  will be  redeemed  by CG&E at par.
     Proceeds from the sale were used to repay short-term  indebtedness incurred
     in connection  with the  redemption of CG&E's 7 3/8% First  Mortgage  Bonds
     referred to above and for general corporate purposes.

Cinergy and PSI
5.   On July 23, 1998, PSI redeemed the entire $24 million  principal  amount of
     its 7 5/8% First  Mortgage  Bonds,  Series Y due  January  1, 2007,  at the
     redemption price of 102.11%, and the entire $26 million principal amount of
     its  7%  First  Mortgage  Bonds,  Series  S due  January  1,  2002,  at the
     redemption price of 100.73%.

6.   On August 5,  1998,  PSI issued and sold $50  million  principal  amount of
     unsecured  Synthetic Putable Yield  Securities.  These debentures will bear
     interest at a rate of 6.50% for the first  seven  years,  and the  interest
     rate may be reset every seven years thereafter to final maturity in 2026 if
     the callholder exercises its option on any reset date to purchase the bonds
     and reset the interest rate. If the callholder does not exercise the option
     on any reset date, the bonds will be redeemed by PSI at par.  Proceeds from
     the sale were used to repay short-term  indebtedness incurred in connection
     with PSI's July 1998 redemptions of the above-mentioned Series Y and Series
     S First Mortgage Bonds.

<PAGE>

7.   On August 12, 1998, the Indiana  Development  Finance  Authority loaned the
     proceeds from the sale of its $23 million principal amount of Environmental
     Refunding Revenue Bonds, Series 1998, to PSI. The bonds, which are included
     in notes  payable  and other  short-term  obligations  in the  consolidated
     balance sheets,  will bear interest  initially at a daily rate, will mature
     on August 1, 2028,  and are backed by an irrevocable  direct-pay  letter of
     credit through  August 1, 2002.  Proceeds from the sale were used to redeem
     in September 1998, the $23 million 8 1/4% First Mortgage Bonds,  Series QQ,
     due June 15, 2013 (Pollution  Control),  at a redemption price of 102% plus
     accrued interest.

Cinergy, CG&E, and ULH&P
8.   On April 30, 1998,  ULH&P issued and sold $20 million  principal  amount of
     its 6.50%  Debentures due April 30, 2008.  Proceeds from the sale were used
     by ULH&P to repay short-term  indebtedness  incurred in connection with the
     redemption,  on April 24, 1998, of $10 million  principal  amount of its 8%
     Series  First  Mortgage  Bonds,  due  2003,  and  in  connection  with  its
     construction   program.   The  redemption  of  said  First  Mortgage  Bonds
     effectively  eliminates the maintenance and replacement  fund provisions of
     ULH&P's First Mortgage Bond indenture,  which provisions  required ULH&P to
     make cash payments, deposit bonds, or pledge unfunded property additions to
     the trustee each year based on an amount related to net revenues.

Cinergy, CG&E, and PSI
9.   Cinergy's power marketing and trading function  actively markets and trades
     over-the-counter  forward and option contracts for the purchase and sale of
     electricity.  The  majority of these  contracts  are  settled via  physical
     delivery of electricity or netted out in accordance  with industry  trading
     standards.  The Company  also  trades  exchange-traded  futures  contracts.
     Option  premiums  are deferred  and  included in the  Consolidated  Balance
     Sheets  and  amortized  to  "Operating  Revenues -  Electric"  or "Fuel and
     purchased and  exchanged  power" in the  Consolidated  Statements of Income
     over the term of the  option  contract.  Cinergy  values its  portfolio  of
     contracts using the aggregate lower of cost or market method. To the extent
     there are net aggregate losses in the portfolio,  Cinergy reserves for such
     losses.  Net  gains  are  recognized  when  realized.  Due to the  lack  of
     liquidity and the  volatility  currently  experienced in the power markets,
     significant assumptions must be made by the Company when estimating current
     market  values  for  purposes  of the  aggregate  lower  of cost or  market
     comparison.  It is  possible  that the  actual  gains and  losses  from the
     Company's power marketing and trading activities could differ substantially
     from the gains and losses estimated currently.

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

     Cinergy utilizes  foreign exchange forward  contracts and currency swaps to
     hedge certain of its net  investments in foreign  operations.  Accordingly,
     any  translation  gains or losses related to the foreign  exchange  forward
     contracts or the  principal  exchange on the currency  swap are recorded in
     accumulated other  comprehensive  income,  which is a separate component of
     common  stock  equity.   Aggregate  translation  losses  related  to  these
     instruments   are   reflected  in  "Current   Liabilities   Other"  in  the
     Consolidated Balance Sheets.

<PAGE>

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

Cinergy, CG&E, and PSI

10.  As  discussed in the 1997 Form 10-K,  in October  1995, a suit was filed in
     the U.S.  District  Court by three former  employees of Enertech  naming as
     defendants Enertech, Cinergy, Investments,  CG&E, PSI, James E. Rogers, and
     William J.  Grealis.  (Mr.  Rogers and/or Mr.  Grealis are officers  and/or
     directors of the foregoing companies.) The lawsuit,  which stemmed from the
     termination of employment of the three former employees,  alleged that they
     entered into employment contracts with Enertech based on the opportunity to
     participate in potential profits from future investments in energy projects
     in Central and Eastern  Europe.  The suit  alleged  causes of action  based
     upon,  among  other  theories,  breach of  contract  related  to the events
     surrounding   the   termination   of  their   employment   and   fraud  and
     misrepresentation  related  to the level of  financial  support  for future
     projects.  The suit alleged compensatory damages of $154 million based upon
     assumed future success of potential future investments and punitive damages
     of three times that amount.

     In April  1998,  the parties  reached a  comprehensive  settlement  and all
     claims were dismissed by the U.S.  District  Court.  The obligations of the
     Company  arising out of the  settlement  are not material to its  financial
     condition or its results of operations.

11.  As discussed in the 1997 Form 10-K, prior to the 1950s, gas was produced at
     MGP sites  through a process that  involved the heating of coal and/or oil.
     The gas produced  from this process was sold for  residential,  commercial,
     and industrial uses.

     Coal tar residues, related hydrocarbons, and various metals associated with
     MGP sites  have been  found at former MGP sites in  Indiana,  including  at
     least 21 MGP sites which PSI or its predecessors previously owned. In 1945,
     PSI sold 19 of these sites to IGC,  including the Shelbyville and Lafayette
     sites.  PSI or its  predecessors  acquired  five of the 21 MGP  sites  from
     NIPSCO  (or its  predecessors),  which  were among the 19 sites PSI sold to
     IGC. Two other sites, located in Goshen and Warsaw,  Indiana,  were sold by
     PSI's predecessor to NIPSCO in 1931.

     PSI has  received  claims  from IGC and NIPSCO  that PSI is a PRP under the
     CERCLA with respect to the 21 MGP sites, and therefore  responsible for the
     costs of investigating  and remediating these sites. In August 1997, NIPSCO
     filed suit against PSI in the United States District Court for the Northern
     District of Indiana, South Bend Division, claiming, pursuant to the CERCLA,
     recovery  from PSI of NIPSCO's past and future costs of  investigating  and
     remediating  MGP related  contamination  at the Goshen MGP site.  Recently,
     NIPSCO increased its estimate of the cost of remediating the Goshen site to
     approximately $3.8 million.

     In November 1998, NIPSCO, IGC and PSI entered into a Site Participation and
     Cost Sharing Agreement by which they settled allocation of CERCLA liability
     for past and future  costs,  as between the three  companies,  at seven MGP
     sites in Indiana,  namely the sites located in Lafayette,  Goshen,  Warsaw,
     Rochester,  Frankfort,   Crawfordsville,   and  Lebanon.  Pursuant  to  the
     agreement,   NIPSCO's  lawsuit  against  PSI,  referenced  above,  will  be
     dismissed. The parties have assigned one of the parties lead responsibility
     for managing any further  investigation and remediation  activities at each
     of the sites.

<PAGE>

     This agreement follows a similar agreement  achieved between IGC and PSI in
     August 1997,  allocating CERCLA liability at 13 MGP sites with which NIPSCO
     had no  involvement.  These  two  agreements,  together  with an  agreement
     between  IGC and PSI  entered  into  several  years  ago,  relating  to the
     Shelbyville  MGP site,  conclude all CERCLA and similar  claims between the
     three  companies  relative to MGP sites.  Pursuant to the  agreements,  the
     parties  are  continuing  to   investigate   and  remediate  the  sites  as
     appropriate.  In the case of some sites,  the parties  have  applied to the
     IDEM for  inclusion  of such  sites in the  Indiana  Voluntary  Remediation
     Program.

     PSI and IGC  submitted a proposed  agreed order to the IDEM in 1997 related
     to the  Shelbyville  MGP  site.  On April 15,  1998,  the IDEM  signed  the
     proposed agreed order,  which will result in a determination by the IDEM of
     whether the activities  previously undertaken at the site are sufficient to
     adequately   protect   human  health  and  the   environment.   Based  upon
     environmental   investigations  and  remediation  completed  to  date,  PSI
     believes that any further  investigation  and remediation  required for the
     Shelbyville  site will not have a material  adverse effect on its financial
     condition or results of operations.

     As also  discussed  in the  1997  Form  10-K,  PSI  previously  placed  its
     insurance  carriers  on notice of IGC's,  NIPSCO's,  and the IDEM's  claims
     related to MGP sites.  In April 1998,  PSI filed suit in  Hendricks  County
     Circuit Court against its general  liability  insurance  carriers  seeking,
     among other matters, a declaratory judgment that its insurance carriers are
     obligated  to defend MGP claims  against  PSI or pay PSI's costs of defense
     and  to  indemnify  PSI  for  its  costs  of   investigating,   preventing,
     mitigating, and remediating damage to property and paying claims associated
     with MGP sites. PSI cannot predict the outcome of this litigation.

     CG&E  and its  utility  subsidiaries  are  aware of  other  sites  owned or
     previously owned by CG&E, its subsidiaries,  or their  predecessors,  where
     MGP  activities  may have occurred at some time in the past.  None of these
     sites is known to present a risk to the  environment.  CG&E and its utility
     subsidiaries  have undertaken  preliminary  site assessments to obtain more
     information about some of these MGP sites.

     Reserves  recorded,  based  on  information  currently  available,  are not
     material  to  Cinergy's  financial  condition  or  results  of  operations.
     However, as further investigation and remediation activities are undertaken
     at these sites, the potential  liability for MGP sites could be material to
     Cinergy's financial condition or results of operations.

Cinergy, CG&E, PSI, and ULH&P
12.  Effective  with the first  quarter of 1998,  Cinergy  and its  subsidiaries
     adopted  the  provisions  of  Statement  130.   Statement  130  establishes
     standards  for  reporting  and  displaying  comprehensive  income  and  its
     components  in  a  full  set  of  general-purpose   financial   statements.
     Comprehensive  income is  defined  as the  change  in equity of a  business
     enterprise   during  a  period  from  transactions  and  other  events  and
     circumstances from nonowner sources.

     During the second quarter of 1998,  the FASB issued  Statement 133. The new
     standard requires companies to record derivative instruments, as defined in
     Statement  133,  as assets or  liabilities,  measured  at fair  value.  The
     Statement   requires  that  changes  in  the  derivative's  fair  value  be
     recognized  currently in earnings unless specific hedge accounting criteria
     are met.  Special  accounting for  qualifying  hedges allows a derivative's
     gains and losses to offset related results on the hedged item in the income

<PAGE>

     statement,  and requires that a company must formally document,  designate,
     and assess the effectiveness of transactions that receive hedge accounting.
     The standard is effective for fiscal years  beginning  after June 15, 1999,
     and Cinergy  expects to adopt the  provisions of Statement 133 in the first
     quarter of 2000.

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

Cinergy

13.  Presented  below is a  reconciliation  of earnings  per common share (basic
     EPS) and earnings per common share assuming dilution (diluted EPS).

                                            Income        Shares      Earnings
                                          (Numerator)  (Denominator)  Per Share
                                        (In thousands, except per share amounts)
     Quarter ended September 30, 1998
     Earnings per common share:
        Net income                         $109,431       158,539       $ .69

     Effect of dilutive securities:
        Common stock options                                  606
        Contingently issuable common 
        stock                                                 104

     EPS--assuming dilution:
        Net income plus assumed
          conversions                      $109,431       159,249       $ .69

     Quarter ended September 30, 1997 
     Earnings per common share:
        Net income before extraordinary 
          item                             $ 82,534       157,679       $ .53

     Effect of dilutive securities:
        Common stock options                                  885
        Contingently issuable common stock                    204

     EPS--assuming dilution:
        Net income before extraordinary
          item plus assumed conversions    $ 82,534       158,768       $ .52

<PAGE>


                                            Income        Shares      Earnings
                                          (Numerator)  (Denominator)  Per Share
                                        (In thousands, except per share amounts)
     Nine months ended September 30, 1998
     Earnings per common share:
        Net income                         $189,569       158,110       $1.20

     Effect of dilutive securities:
        Common stock options                                  694
        Contingently issuable common 
          stock                                               113

     EPS--assuming dilution:
        Net income plus assumed
          conversions                      $189,569       158,917       $1.20

     Nine months ended September 30, 1997 
     Earnings per common share:
        Net income before extraordinary 
        item                               $252,140       157,679       $1.60

     Effect of dilutive securities:
        Common stock options                                  931
        Contingently issuable common stock                    204

     EPS--assuming dilution:
        Net income before extraordinary
          item plus assumed conversions    $252,140       158,814       $1.59


                                            Income        Shares      Earnings
                                          (Numerator)  (Denominator)  Per Share
                                        (In thousands, except per share amounts)
     Twelve months ended September 30, 1998
     Earnings per common share:
        Net income                         $300,067       158,007       $1.90

     Effect of dilutive securitie
        Common stock options                                  757
        Contingently issuable common stock                    136

     EPS--assuming dilution:
        Net income plus assumed 
          conversions                      $300,067       158,900       $1.90

     Twelve months ended September 30, 1997
     Earnings per common share:
        Net income before extraordinary item
          and costs of reacquisition of
          preferred stock of subsidiary    $322,726       157,679       $2.04

     Effect of dilutive securities:
        Common stock options                                  945
        Contingently issuable common stock                    232

     EPS--assuming dilution:
        Net income before extraordinary
          item plus assumed conversions    $322,726       158,856       $2.03

         The  after-tax  impact  of the  extraordinary  item -  equity  share of
         windfall  profits  tax for the three,  nine,  and twelve  months  ended
         September  30, 1997,  was $.69 for both basic and diluted  earnings per
         share.

         Options to purchase  shares of common stock that were excluded from the
         calculation of  EPS--assuming  dilution  because the exercise prices of
         these options were greater than the average  market price of the common
         shares during the period are summarized below:

<PAGE>

                           Quarter                       Average
                            Ended                       Exercise
                         September 30     Shares          Price  

                             1998         922,600        $37.51
                             1997          13,600         34.35

                         Nine Months                     Average
                            Ended                       Exercise
                         September 30     Shares          Price  

                             1998         766,900        $37.72
                             1997           9,300         34.50

                         Twelve Months                   Average
                            Ended                       Exercise
                         September 30     Shares          Price  

                             1998         574,100        $37.72
                             1997           8,500         34.39

Cinergy and PSI
14.  In February  1989,  PSI and WVPA  entered  into a  settlement  agreement to
     resolve all claims  related to Marble Hill, a nuclear  project  canceled in
     1984.  Implementation  of the settlement  was  contingent  upon a number of
     events,   including  the  conclusion  of  WVPA's   bankruptcy   proceeding,
     negotiation  of certain terms and  conditions  with WVPA,  the RUS, and the
     CFC, and certain  regulatory  approvals.  In December  1996,  following the
     resolution of issues associated with WVPA's bankruptcy proceeding,  PSI, on
     behalf of itself and its  officers,  paid $80  million on behalf of WVPA to
     the RUS and the CFC. The $80 million obligation, net of insurance proceeds,
     other credits,  and applicable income tax effects, was charged to income in
     1988. In January 1997, an order dismissing the WVPA litigation  against PSI
     and its officers with  prejudice was entered by the United States  District
     Court for the  Southern  District  of  Indiana  and final  negotiations  to
     implement the  settlement  agreement were begun with WVPA, the RUS, and the
     CFC. An agreement  on all matters has been  reached with the parties.  As a
     result, PSI recorded a liability to the RUS and the CFC. PSI will repay the
     obligation to the RUS with interest over a 35-year term. A lump sum payment
     was made to the CFC in 1998, in full  satisfaction  of PSI's  obligation to
     the CFC. PSI will use the net proceeds from a 35-year power sales agreement
     with WVPA to fund the principal and interest on the  obligation to the RUS.
     Assumption of the liability (recorded as long-term debt in the Consolidated
     Balance Sheet) resulted in a charge against second quarter  earnings of $80
     million ($50 million after tax or $.32 per share basic and diluted).

Cinergy
15.  The Company's Midlands subsidiary (of which the Company owns 50%) has a 40%
     ownership  interest in a 586 MW power  project in Pakistan  (Uch project or
     Uch) which was originally  scheduled to begin commercial  operation in late
     1998. The Pakistani  government-owned utility has issued a notice of intent
     to terminate  certain key project  agreements  relative to the Uch project.
     The notice  asserts that various forms of  corruption  were involved in the
     original  granting of the  agreements to the Uch investors by a predecessor
     government.  The  Company  believes  that this notice is similar to notices
     received by a number of other independent power projects in Pakistan.

     The Uch  investors,  including a subsidiary of Midlands,  strongly deny the
     allegations  and are pursuing all available  legal options to enforce their
     contractual rights under the project agreements.  Physical  construction of
     the  project  is  substantially  complete;  however,  commissioning,  which
    
<PAGE>

     management believes could be completed within a 60- 90 day period, has been
     delayed as a result of the above situation.  The Uch investors  continue to
     explore   remedies  to  the  situation  with  officials  of  the  Pakistani
     government  and are  working  with the  project's  lenders to ensure  their
     continued support to the project.

     Arising from the delay of the completion of the plant,  the project turnkey
     contractor  has given  notice of its  desire to invoke  dispute  resolution
     procedures (under the terms of the turnkey contract) in relation to a claim
     for  additional  costs  arising  from the failure of the project to provide
     fuel gas and interconnection  facilities.  Uch Power Limited denies that it
     is liable for any additional  costs arising from this delay and will defend
     itself against the claim.

     Through its 50% ownership of Midlands,  the Company's current investment in
     the Uch project is approximately $32 million. In addition,  project lenders
     could require  investors to make additional  capital  contributions  to the
     project under certain  conditions.  The Company's share of these additional
     contributions  is  approximately  $12  million.  At the present  time,  the
     Company cannot predict the ultimate outcome of this matter.

Cinergy and PSI

16.  As discussed in the 1997 Form 10-K,  PSI filed a petition with the FERC for
     recovery,   through  the  fuel   adjustment   clause,   of  the   wholesale
     jurisdictional  portion  of the costs  resulting  from the  Exxon  contract
     buyout.  During July 1998, the FERC accepted PSI's request to recover these
     buyout  costs  from its  wholesale  customers  for the period  August  1996
     through December 2002.

17.  As discussed  in the 1997 Form 10-K,  PSI agreed to begin  pre-funding  its
     obligations for  postretirement  benefits other than pensions in connection
     with  the   settlement   which   resulted  in  the  February   1995  Order.
     Implementation  of pre-funding was subject to negotiations with the UCC and
     approval by the IURC.

     In October 1998, the IURC approved a settlement  agreement  between PSI and
     the UCC authorizing three optional funding alternatives.

18.  As  discussed  in the 1997 Form  10-K,  PSI and  Dynegy  (formerly  Destec)
     entered  into a 25-year  contractual  agreement  for the  provision of coal
     gasification  services in November 1995. The agreement  requires PSI to pay
     Dynegy a base monthly fee including certain monthly operating expenses. PSI
     received  authorization  in the  September  1996 Order for the inclusion of
     these costs in retail rates.  In addition,  PSI received  authorization  to
     defer,  for subsequent  recovery in retail rates, the base monthly fees and
     expenses  incurred prior to the effective date of the September 1996 Order.
     Over the next five years,  the base  monthly fees and expenses for the coal
     gasification service agreement are expected to total $201 million.

     During the third quarter of 1998,  PSI reached an agreement  with Dynegy to
     purchase  the  remainder  of its  25-year  contract  for coal  gasification
     services for $265.7  million.  The proposed  purchase,  which is contingent
     upon  regulatory  approval,  is expected to be completed in 1999.  PSI will
     investigate  financing  alternatives.   The  transaction,  if  approved  as
     proposed, is not expected to have a material impact on PSI's earnings.

     Due to the  competition  within the natural gas market,  natural gas prices
     have  fallen to a level  that has made the  current  gasification  services
     agreement  uneconomical  for PSI  and  its  customers.  Under  the  current
     proposal, the gasification service costs would be replaced by lower natural
     gas costs.  In nominal  dollars,  it is estimated  that the total  savings,
     primarily as a result of the purchase,  would be approximately $275 million
     over the life of the original contract.

<PAGE>

Cinergy, CG&E, and ULH&P
19.  As more fully  discussed in the 1997 Form 10-K,  Cinergy made a filing with
     the SEC in February 1998, setting forth its rationale  supporting retention
     of CG&E's and ULH&P's gas  operations.  As part of its order  approving the
     merger, the SEC had previously  reserved judgment over Cinergy's  ownership
     of CG&E's and ULH&P's gas operations, pending a determination of the amount
     of  increased  operating  costs that would  result from the gas  operations
     being divested and operated on a stand- alone basis.

     On  November  2, 1998,  the SEC issued an order  unconditionally  approving
     Cinergy's retention of CG&E's and its subsidiaries', including ULH&P's, gas
     businesses.  The  order  was  issued  based  on the  SEC's  finding  that a
     divestiture  of  CG&E's  and  its  subsidiaries',  including  ULH&P's,  gas
     businesses would likely result in increased expenses and the potential loss
     of competitive advantages.

Cinergy
20.  On November 3, 1998,  Cinergy Global Resources issued and sold $150 million
     of its  6.20%  Debentures  due 2008.  The  debentures  are  unconditionally
     guaranteed  as to the payment of  principal  and  interest  by Cinergy.  In
     addition,  payment of principal of and interest on the  debentures  is also
     insured by a financial guaranty insurance policy. A portion of the proceeds
     from the sale was used to repay  approximately  $115 million of  short-term
     indebtedness  and  the  remainder  will be used  for  the  acquisition  and
     development of additional energy-related assets.

<PAGE>

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

Cinergy, CG&E, PSI, and ULH&P
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Matters discussed in
this Item 2.  "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations" in "Part I. Financial  Information" reflect and elucidate
Cinergy's  corporate vision of the future and, as a part of that,  outline goals
and aspirations,  as well as specific  projections.  These goals and projections
are considered forward-looking statements and are based on management's beliefs,
as  well  as  certain  assumptions  made  by  management.  In  addition  to  any
assumptions  and other factors that are referred to  specifically  in connection
with these  statements,  other factors that could cause actual results to differ
materially  from those  indicated in any forward-  looking  statements  include,
among others:  factors generally  affecting utility  operations--such as unusual
weather conditions,  unusual maintenance or repairs, or unanticipated changes in
fuel costs;  increased  competition in the electric and gas utility environment;
regulatory  factors,  including  the  failure to obtain  anticipated  regulatory
approvals;  changes in  accounting  principles  or  policies;  adverse  economic
conditions;  changing  market  conditions;  availability  or  cost  of  capital;
employee  workforce  factors;  costs and  effects  of legal  and  administrative
proceedings;  changes in legislative  requirements;  and other risks.  The SEC's
rules do not require  forward-looking  statements to be revised or updated,  and
Cinergy does not intend to do so.

FINANCIAL CONDITION

Recent Developments

Cinergy
Acquisitions In June 1998,  through CC&T, Cinergy acquired ProEnergy from Apache
and Oryx. ProEnergy has had and will continue to have exclusive marketing rights
to North American gas production  owned or controlled by Apache and Oryx,  which
represents  approximately 1.1 Bcf per day of dedicated natural gas supply. These
supplies,   combined  with  the  active   marketing  of  third  party  gas,  are
geographically  diverse and are spread through the Southwest,  Rocky  Mountains,
Gulf Coast, Gulf of Mexico,  and Michigan.  The acquisition was funded with cash
and by the issuance of 771,258 new shares of Cinergy common stock.

In June 1998, a subsidiary of Cinergy Global Power acquired  Moravske,  a 410 MW
district heating plant in the Czech Republic.  In addition, in September 1998, a
subsidiary of Cinergy Global Power  acquired a 406 MW district  heating plant in
the city of Plzen, Czech Republic.

The  purchase  prices for these  acquisitions  were not  material  to  Cinergy's
financial condition or results of operations.

Competitive Pressures

Cinergy, CG&E, PSI, and ULH&P
Federal  Developments As discussed in the 1997 Form 10-K,  Cinergy  collaborated
with other  Midwestern  utility  companies to form the Midwest  ISO.  During the
third quarter of 1998, the FERC approved the formation of the Midwest ISO.

Cinergy, CG&E, and ULH&P
State  Developments As discussed in the 1997 Form 10-K,  comprehensive  electric
restructuring  legislation was introduced in the Ohio  legislature  during 1998.
This legislation,  SB 237 and HB 732, "companion" electric  restructuring bills,
proposes to afford  choice to all retail  electric  customers in Ohio  beginning
January 1, 2000.  Legislative hearings on these bills occurred in the spring and
summer.  In addition,  legislation to provide for  securitization  of transition

<PAGE>

costs through  issuance of rate  reduction  bonds has been pending in Ohio since
1997. It is uncertain whether these pieces of legislation will be passed in Ohio
in 1998. During the third quarter of 1998, Ohio's IOUs, including CG&E, released
a draft bill that sets forth the utilities'  approach to comprehensive  electric
restructuring in Ohio.  Under the IOUs' proposal,  choice to all retail electric
customers would be introduced by January 1, 2001, rates would be frozen during a
five-year  transition period, low income protections would be maintained,  and a
fixed charge for certain government  approved  transition costs would be imposed
(and costs could be securitized if rates are not increased).  Both this proposal
and SB 237/HB 732 are being  studied  by a  legislative  working  group that was
convened in  September  1998.  It is  uncertain  at this time  whether the IOUs'
proposal will be  introduced  in Ohio's  General  Assembly,  or, if  introduced,
whether it will be passed and signed into law.

As also discussed in the 1997 Form 10-K, HB 443 was introduced into the Kentucky
General  Assembly in January  1998.  HB 443 was not brought to a vote during the
1998 legislative  session.  Rather,  HJR 95, which calls for the formation of an
executive  task force  comprised of members from the  Governor's  office and the
Kentucky General Assembly to further study electric restructuring, was passed by
the Kentucky General Assembly, and was signed by the Governor during April 1998.
Task force members will study electric restructuring in anticipation of the next
legislative session, which occurs in January 2000.

Regulatory Matters

Cinergy,  CG&E, and ULH&P Potential Divestiture of Gas Operations See Note 19 of
the "Notes to Financial Statements" in "Part I. Financial Information."

Cinergy  and PSI  Coal  Contract  Buyout  Costs  See  Note 16 of the  "Notes  to
Financial Statements" in "Part I. Financial Information."

Environmental Issues

Cinergy, CG&E, and PSI
Ambient Air Standards As discussed in the 1997 Form 10-K,  during 1997,  the EPA
revised  the  National  Ambient  Air  Quality   Standards  for  ozone  and  fine
particulate matter. The EPA has also proposed, but not finalized,  new rules for
regional haze. The United States  Congress,  as part of the funding bill for the
Surface  Transportation  Act,  combined the schedules for fine  particulates and
regional  haze  implementation.  The  impact of the  particulate  standards  and
regional haze rules cannot be determined at this time.

In June 1998, 13 Midwestern  and Southern  states and numerous  industry  groups
within those states,  including Cinergy, filed comments in opposition to the EPA
proposed NOx rules. These 13 states and utility commentors proposed  alternative
reduction  strategies that would generally phase in NOx reductions by 65 percent
by 2002-2004,  would determine by 2002 if additional  reductions are needed, and
then implement  necessary controls between 2005-2007.  Commentors also generally
opposed the EPA's 22 state trading program in favor of smaller and more flexible
multi-state programs.

In September  1998, the EPA finalized its Ozone Transport Rule. It applies to 22
states in the eastern half of the United  States,  including the three states in
which Cinergy operates, and also proposes a model NOx trading program. This rule
recommends  that states reduce utility NOx emissions by  approximately  85% from
1990 levels by 2003.  The affected  states have until  September  24,  1999,  to
incorporate  utility NOx reductions into their SIPs. It is anticipated that this
new rule will be heavily litigated by the affected states,  industry,  and other
stakeholders.  Cinergy's  initial  estimate  for  compliance  with the new Ozone
Transport  Rule is  $500-$600  million in capital  expenditures  between now and
2003.

<PAGE>

Air Toxics As discussed in the 1997 Form 10-K, the EPA was to announce, by April
15,  1998,  its  conclusions  regarding  the  need  for  additional  air  toxics
regulations.  In April 1998, the EPA announced that it would make its regulatory
determination  on the need for additional air toxics  regulation by November 15,
1998. If more air toxics  regulations  are issued,  the compliance cost could be
significant.  Cinergy  cannot  predict  the  outcome  or  effects  of the  EPA's
determination.

MGP  Sites  See  Note 11 of the  "Notes  to  Financial  Statements"  in "Part I.
Financial Information."

Accounting Issues

Cinergy, CG&E, PSI, and ULH&P New Accounting Standards See Note 12 of the "Notes
to Financial Statements" in "Part I. Financial Information."

Market Risk Sensitive Instruments and Positions

Cinergy, CG&E, PSI, and ULH&P
The following  discussions about Cinergy's market risk sensitive instruments and
positions and risk management activities include forward-looking information and
statements  that  involve  risks  and   uncertainties.   The  forward-   looking
information and statements presented are only estimates of what may occur in the
future,  assuming certain adverse market conditions,  due to their dependence on
model  characteristics and assumptions.  As a result,  actual future results may
differ  materially  from those  presented.  These  disclosures  are not  precise
indicators of expected future losses,  rather they merely present indications of
reasonably possible losses.

Cinergy, CG&E, and PSI
Energy Commodities  Sensitivity The Company markets and trades  over-the-counter
forward and option  contracts  for the  purchase  and sale of  electricity.  The
Company also trades exchange-traded futures contracts.  See Note 9 of the "Notes
to Financial  Statements" in "Part I. Financial  Information"  for the Company's
accounting policies for certain derivative instruments.

During a few days late in the second quarter,  wholesale  electric power markets
in the Midwest  exhibited  unprecedented  price volatility due to several market
factors, including an extended period of unseasonably hot weather, scheduled and
unplanned  generating unit outages,  transmission  constraints,  and defaults by
certain  power  marketers  on  their  supply   obligations.   The   simultaneous
culmination  of these events  resulted in temporary  but extreme price spikes in
the  hourly  and daily  markets  and very  little  trading  liquidity  and price
transparency in the term markets. During this period of extreme price volatility
and  trading  illiquidity,   Cinergy's  power  marketing  and  trading  function
maintained its ability to provide the physical  delivery of power to fulfill its
contractual  obligations.  The daily value-at-risk as of September 30, 1998, was
less than 3% of  Cinergy's  "Income  Before  Taxes" for the twelve  months  then
ended. The value-at-risk  model utilizes a 95% confidence  interval and uses the
variance-covariance  statistical modeling technique and historical  volatilities
and correlations over the past 200 day period.  The estimated market prices used
to value  these  transactions  for  value-at-risk  purposes  reflect  the use of
established  pricing  models and  various  factors,  including  quotations  from
exchanges and over-the-counter markets, price volatility factors, the time value
of money,  and location  differentials.  The  variables  used for  value-at-risk
purposes  at  September  30,  1998,  reflect  the  impacts of the  events  which
transpired in the Midwestern electric power markets during late June 1998.

<PAGE>

Cinergy provides reserves as required for the potential unrealized losses in the
fair value of its  portfolio of open forward and option  contract  positions and
potential  unrealized  losses due to  nonperformance  of certain  counterparties
pursuant to contractual supply obligations.  Due to the basic lack of liquidity,
price transparency,  and extreme price volatility  currently  experienced in the
electric power  markets,  significant  assumptions  regarding  estimated  market
prices and  potential  counterparty  credit risk must be made by the Company for
the  purposes of  providing  appropriate  reserves.  It is possible  that actual
realized results from the Company's power marketing and trading activities could
differ substantially from those currently estimated.

As of September 30, 1998,  approximately  69% of Cinergy's  power  marketing and
trading activity represents commitments with 10 counterparties.  The majority of
these  contracts  are for terms of one year or less.  The  temporary but extreme
price volatility and trading  illiquidity  exhibited in the Midwestern  electric
power  markets  late in the second  quarter  resulted  in a few power  marketers
defaulting on contractual supply obligations and industry-wide uncertainty as to
whether others will be able to fulfill existing  contractual  supply obligations
for future delivery of electricity.  As of September 30, 1998,  Cinergy believes
it has  adequately  reserved for credit  exposure  relating to its  portfolio of
existing contracts.

Cinergy  remains  committed  to being a long-term  participant  in the  evolving
competitive  wholesale  electric  power  market and will  continue to manage its
power  marketing  and trading  portfolio to maximize  its  existing  value while
creating additional value. The New York Mercantile Exchange  electricity futures
contracts for delivery into Cinergy's  transmission  grid, which started trading
on July  10,  1998,  should  provide  additional  liquidity  and  greater  price
transparency,  as well as additional risk  management  capabilities in Cinergy's
core  service  territory  and trading  region.  Cinergy  continues to review and
enhance its current risk management  practices to ensure their responsiveness to
evolving and changing market and business conditions.  In addition,  efforts are
ongoing to develop and enhance  systems to improve the timeliness and quality of
market and credit risk information.

Cinergy
Exchange Rate Sensitivity  Cinergy  utilizes foreign exchange forward  contracts
and  currency  swaps  to  hedge  certain  of  its  net  investments  in  foreign
operations.  See  Note 9 of the  "Notes  to  Financial  Statements"  in "Part I.
Financial  Information" for Cinergy's accounting policies for certain derivative
instruments.  Cinergy's market risks have not changed materially from the market
risks reported in the 1997 Form 10-K.

Cinergy, CG&E, PSI, and ULH&P
Interest  Rate  Sensitivity  The  Company's  net exposure to changes in interest
rates primarily  consists of debt instruments with floating  interest rates that
are benchmarked to various market indices.  To manage the Company's  exposure to
fluctuations  in  interest  rates  and  to  lower  funding  costs,  the  Company
constantly  evaluates the use of, and has entered into, interest rate swaps. See
Note 9 of the "Notes to Financial Statements" in "Part I. Financial Information"
for the Company's  accounting policies for certain derivative  instruments.  The
Company's  market  risks  have not  changed  materially  from the  market  risks
reported in the 1997 Form 10-K.

<PAGE>

CAPITAL RESOURCES AND REQUIREMENTS

Cinergy,  CG&E, PSI, and ULH&P Long-term Debt For information  regarding  recent
issuances and redemptions of long-term debt securities, see Notes 2, 3, 4, 5, 6,
7, 8, and 20 of the  "Notes  to  Financial  Statements"  in  "Part I.  Financial
Information."

On October  14,  1998,  PSI issued a  promissory  note to the RUS  (recorded  as
long-term  debt in the  consolidated  balance  sheet)  in the  amount  of  $86.4
million.  For  information  concerning the WVPA  settlement,  see Note 14 of the
"Notes  to  Financial  Statements"  in "Part  I.  Financial  Information."  This
issuance  effectively  reduces PSI's  remaining  authority  for  long-term  debt
issuances to $40.6  million.  In October 1998, PSI filed with the IURC for state
regulatory authority for long-term debt issuances of $400 million.

CG&E's remaining state regulatory authority for long-term debt issuances expired
in June 1998. CG&E is currently in the process of filing an application with the
PUCO requesting authorization to issue additional long-term debt.

On August 21, 1998, the SEC issued an order permitting Cinergy to issue and sell
from time to time unsecured debt securities in an aggregate principal amount not
to exceed $400 million outstanding at any time.

Cinergy, CG&E, PSI, and ULH&P
Short-term  Debt  Obligations  representing  notes payable and other  short-term
obligations  (excluding notes payable to affiliated  companies) at September 30,
1998, were as follows:

Cinergy

                                  Established
                                     Lines         Outstanding
                                         (in millions)
Cinergy
  Committed lines
    Acquisition line                $  350          $  350
    Revolving line                     600              -
  Commercial paper                      -              301
  Uncommitted line                      45              82*
Utility subsidiaries
  Committed lines                      300              -
  Uncommitted lines                    360              81
  Pollution control notes              266             266
Non-utility subsidiaries               125             105
                                    ------          ------

Total                               $2,046          $1,185

CG&E

                                  Established
                                     Lines         Outstanding
                                         (in millions)

Committed lines                      $100             $ -
Uncommitted lines                     190               46
Pollution control notes               184              184
                                     ----             ----

Total                                $474             $230

<PAGE>

PSI
                                  Established
                                     Lines         Outstanding
                                         (in millions)

Committed lines                      $200             $ -
Uncommitted lines                     170               35
Pollution control notes                82               82
                                     ----             ----

Total                                $452             $117

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

Cinergy, CG&E, and PSI
Cinergy's  committed lines are comprised of an acquisition  line and a revolving
line. The established revolving line (as shown in the above table) also provides
credit support for Cinergy's  commercial  paper  program.  During July 1998, the
commercial  paper  program was increased to a maximum  principal  amount of $400
million.  This  increase is supported by an  additional  revolving  line of $200
million,  which was also  established  in July 1998.  Approximately  half of the
proceeds  from the  commercial  paper sales were used to reduce the  acquisition
line to the  quarter-end  level of $350  million.  CG&E  and PSI  also  have the
capacity to issue  commercial paper that must be supported by committed lines of
the respective company.  Neither CG&E nor PSI issued commercial paper during the
third quarter of 1998.

Cinergy, CG&E, PSI, and ULH&P
Cinergy's  utility  subsidiaries  had regulatory  authority to borrow up to $853
million ($453 million for CG&E and its  subsidiaries,  including $50 million for
ULH&P, and $400 million for PSI) as of September 30, 1998.  Regulatory authority
for CG&E and PSI excludes the  Pollution  Control  Notes,  which are  considered
long-term  debt for  regulatory  purposes.  In connection  with this  authority,
committed  lines,  as  well  as  uncommitted  lines,  have  been  arranged.  The
established  committed  lines (as shown in the above table)  include $81 million
designated as backup for certain of the uncommitted lines at September 30, 1998.
Further, the committed lines are maintained by commitment fees.

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

Cinergy  has  established  a  centrally-managed,   company-wide   initiative  to
identify,  evaluate, and address Year 2000 issues.  Cinergy's Year 2000 efforts,
which began in the fourth quarter of 1996, are all  encompassing and include its
generation,  transmission,  and distribution systems and related infrastructure.
Also  within the scope of this  initiative  are  operational  and  financial  IT
systems and applications,  end-user computing  resources,  and building systems,
such as security,  elevator,  and heating and cooling systems. In addition,  the
project  includes a review of the Year 2000  readiness  efforts of Cinergy's key
suppliers  and  customers  and  other  principal  business  partners,   and,  as
appropriate,  the development of joint business support and continuity plans for
Year  2000  issues.  Further,  the  scope  of the  Year  2000  project  includes
communications  with regulatory agencies and the inclusion of Year 2000 concerns
as a regular  part of the due  diligence  process in any new  business  venture.
While this  initiative is broad in scope, it has been structured to identify and
prioritize  efforts for mission critical  systems,  electric and gas systems and
services, and key business partners.

<PAGE>

Under its current Year 2000 plan,  Cinergy has established a target date of June
30, 1999, for the remediation and testing of its generation,  transmission,  and
distribution  systems (gas and electric).  One example of Cinergy's  remediation
and testing  efforts is the current  operation of some of its  generating  units
with post Year 2000 dates.  Cinergy cannot  guarantee that third parties on whom
it depends for essential goods and services (those where the interruption of the
supply of such goods and services  could lead to issues  involving the safety of
employees,  customers,  or the public,  the continued  reliable  delivery of gas
and/or  electricity,  the ability to comply with applicable laws or regulations,
and  revenues)  will convert  their  critical  systems and processes in a timely
manner.  Failure  or delay by any of these  third  parties  could  significantly
disrupt  business.  However,  to address this issue,  Cinergy has  established a
supplier compliance program,  and is working with its key suppliers in an effort
to minimize such risks. In addition,  Cinergy is  coordinating  its findings and
other issues with other utilities via EPRI's Year 2000 Embedded  Systems Project
and with the Year 2000 Readiness  Assessment  Program of the NERC, acting at the
request of the U.S. Department of Energy.

In  addition to the  approximately  $10  million in  expenses  incurred  through
September 30, 1998, for matters  historically  identified as Year  2000-related,
Cinergy  currently   estimates  that  it  will  incur  additional   expenses  of
approximately  $3 million  through  the  completion  of the  program.  Cinergy's
progress to date ranges from 80% for IT systems to  approximately  40% regarding
assessment  of  critical  vendors.  The timing of  expenses  may vary and is not
necessarily  indicative  of  readiness  efforts  or  progress  to date.  Cinergy
anticipates  that a portion of its Year 2000  expenses  will not be  incremental
costs,  but rather will  represent  the  redeployment  of existing IT resources.
Since  its  formation,  Cinergy  has  incurred,  and  will  continue  to  incur,
significant  capital  improvement  costs for IT systems.  These costs related to
planned system upgrades or  replacements  would have been required in the normal
course of business and are not being incurred sooner than originally  planned as
a result of the Year 2000 issue.

Avon Energy has also  undertaken  activities  to address Year 2000  issues.  The
estimated  proportionate  share of Avon  Energy's  incremental  Year 2000  costs
(costs which would not have been required in the normal course of business) that
will flow through to Cinergy's  earnings as a result of such  activities  is not
expected  to have a material  impact on the  financial  condition  or results of
operations of Cinergy.

As part of the Year 2000 initiative,  Cinergy is in the process of reviewing its
existing   contingency  and  business  continuity  plans  to  determine  if  any
modifications are needed in light of the Year 2000 problem. Contingency planning
to  maintain  and restore  service in the event of natural  and other  disasters
(including  software and  hardware-related  problems) has been part of Cinergy's
standard  operation  for many years,  and  Cinergy is working to  leverage  this
experience  in the  review of  existing  plans to  address  Year  2000-  related
challenges.  These  reviews are  expected to assess the  potential  for business
disruption in various scenarios, including the most reasonably likely worst-case
scenario, and to provide for key operational back-up,  recovery, and restoration
alternatives.

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

<PAGE>

The  descriptions  herein of the  elements of  Cinergy's  Year 2000  efforts are
forward-looking  statements.  Of necessity, this effort is based on estimates of
assessment,  remediation, testing, and contingency planning activities and dates
for  perceived  problems not yet  identified.  There can be no  assurances  that
actual results will not materially differ from expectations.  The SEC's rules do
not require  forward-looking  statements  to be revised or updated,  and Cinergy
does not intend to do so.

Cinergy
Other Commitments Cinergy has issued performance and debt guarantees to numerous
counterparties totaling approximately $421 million.

RESULTS OF OPERATIONS

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


       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

<PAGE>

                           PART II. OTHER INFORMATION

                            ITEM 1. LEGAL PROCEEDINGS

Cinergy and CG&E
Skinner Landfill Remediation

As discussed in the 1997 Form 10-K,  CG&E was notified,  in the first quarter of
1998,  by the Allocator in a  court-mandated  ADR  proceeding,  that it had been
identified as a PRP under CERCLA with respect to the Skinner Landfill  Superfund
Site,  which is located  approximately  15 miles north of  Cincinnati,  Ohio. In
March 1997, the plaintiffs from the underlying CERCLA litigation brought suit in
the U.S. District Court, against over 80 PRPs. In August 1997, the U.S. District
Court  entered an order  staying the  litigation  and  requiring  all parties to
engage in a non-binding, confidential ADR process. The Allocator, which has been
given authority by the U.S. District Court to identify other parties that may be
responsible  for response  costs,  has informed CG&E that it was identified by a
site owner,  operator,  or worker as one that had  arranged  for the disposal of
waste at the  landfill  and has  concluded  that a  reasonable  basis exists for
CG&E's participation in the ADR process.

In early October 1998, the Allocator  issued a report which  concluded that CG&E
was  responsible  for $500 of clean-up  costs related to the disposal of a small
amount of utility poles,  shop waste,  tree mulch and light  ballast.  The total
clean-up costs for the site are estimated to be $15 million. While the Allocator
has not identified a responsible  party for approximately 70% of the costs, CG&E
does not expect any further  allocations to substantially  increase its share of
the clean-up costs.

Cinergy, CG&E, and PSI

See Notes 11 and 15 of the "Notes to Financial Statements" in "Part I.
Financial Information."

                            ITEM 5. OTHER INFORMATION

Cinergy and PSI
On October 28, 1998, the Company announced that Mary L. Schapiro has been
appointed to Cinergy's board, effective January 1, 1999.  Ms. Schapiro will
fill the board vacancy resulting from the retirement of Van P. Smith.  Mr.
Smith has served on Cinergy's board since 1994 and has served on the PSI board
since 1986.

                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

         Exhibit
       Designation                        Nature of Exhibit                  

Cinergy
4-A     Base  Indenture  dated as of  October  15,  1998,  between  Cinergy
        Global Resources and The Fifth Third Bank as Trustee.

4-B     First Supplemental  Indenture dated as of October 15, 1998, between 
        Cinergy Global Resources and The Fifth Third Bank as Trustee.

<PAGE>

Cinergy, CG&E, and PSI
10-A    #Second Amended and Restated Employment Agreement dated September 22, 
        1998, between Cinergy, Cinergy Services, Inc., CG&E, and PSI and James 
        E. Rogers.  (Exhibit to Cinergy's September 30, 1998, Form 10- Q in File
        No. 1-11377.)

Cinergy, CG&E, PSI, and ULH
27      Financial Data Schedules (included in electronic submission only)
 
(b)  The  following  reports  on Form 8-K were  filed  during  the  quarter  and
     previously reported on Form 10-Q for the quarter ended June 30, 1998.

  Date of Report                            Item Filed                     

Cinergy
        July 15, 1998       Item 5.  Other Events
                            Item 7.  Financial Statements and Exhibits

CG&E
        July 15, 1998       Item 5.  Other Events

  PSI
        July 15, 1998       Item 5.  Other Events

<PAGE>

                                   SIGNATURES

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted pursuant to such rules and regulations,  although
Cinergy,  CG&E, PSI, and ULH&P believe that the disclosures are adequate to make
the information presented not misleading.  In the opinion of Cinergy, CG&E, PSI,
and ULH&P,  these  statements  reflect all  adjustments  (which include  normal,
recurring  adjustments and those adjustments  discussed in Notes 9 and 14 of the
"Notes to Financial Statements" in "Part I. Financial Information") necessary to
reflect the results of  operations  for the  respective  periods.  The unaudited
statements  are subject to such  adjustments  as the annual audit by independent
public accountants may disclose to be necessary.

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

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






Date:  November 12, 1998                        /s/John P. Steffen        
                                        --------------------------------------
                                                  John P. Steffen
                                              Duly Authorized Officer
                                                       and
                                              Chief Accounting Officer