UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-K
                (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 FILE NUMBER 1-3672

                     CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
             (Exact name of registrant as specified in its charter)
          Illinois                                        37-0211380
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)                    


               607 East Adams Street, Springfield, Illinois 62739
              (Address of principal executive offices and Zip Code)
       Registrant's telephone number, including area code: (217) 523-3600

        Securities Registered Pursuant to Section 12(b) of the Act: None.

           Securities Registered Pursuant to Section 12(g) of the Act:
                                 Title Of Class

              Cumulative Preferred Stock, par value $100 per share

           Depositary Shares, each representing one-fourth of a share
         of 6.625% Cumulative Preferred Stock, par value $100 per share
  

     Indicate  by check mark  whether the  registrant  (1) has 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
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( ).

     Aggregate  market  value at  March  5,  1999 of the  voting  stock  held by
non-affiliates of Central Illinois Public Service Company (CIPS) - $24,725,000 -
Cumulative  Preferred Stock (par value $100 per share) [Note:  Excludes value of
400,000 shares of Cumulative  Preferred  Stock for which CIPS has been unable to
determine market value.]

     Shares of Common Stock without par value,  outstanding as of March 5, 1999:
25,452,373 shares (all owned by Ameren Corporation).

                      Documents incorporated by references.

     Portions of the registrant's definitive proxy statement for the 1999 annual
meeting are incorporated by reference into Part III.

<PAGE>

<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

PART I  Page
<S>                                                                          <C>

Item 1-Business
        General.............................................................  1
        Capital Program and Financing.......................................  1
        Rates...............................................................  2
        Fuel Supply.........................................................  3
        Regulation..........................................................  3
        Industry Issues.....................................................  4
Item 2-Properties...........................................................  5
Item 3-Legal Proceedings....................................................  6
Item 4-Submission of Matters to a Vote of Security Holders<F1>

Executive Officers of the Registrant (Item 401(b) of Regulation S-K)........  8

PART II

Item 5-Market for Registrant's Common Equity and Related
        Stockholder Matters.................................................  8
Item 6-Selected Financial Data..............................................  8
Item 7-Management's Discussion and Analysis of Financial Condition
        and Results of Operations...........................................  9
Item 7A-Quantitative and Qualitative Disclosures about Market Risk.......... 17
Item 8-Financial Statements and Supplementary Data.......................... 19
Item 9-Changes in and Disagreements with Accountants on Accounting
        and Financial Disclosure............................................ 36

PART III

Item 10-Directors and Executive Officers of the Registrant2................. 36
Item 11-Executive Compensation<F2>.......................................... 36
Item 12-Security Ownership of Certain Beneficial Owners
         and Management<F2>................................................. 36
Item 13-Certain Relationships and Related Transactions<F2>.................. 37

PART IV

Item 14-Exhibits, Financial Statement Schedules and Reports on Form 8-K....  37

SIGNATURES     ............................................................  39
EXHIBITS       ............................................................  40
________________
<FN>

     <F1> Not applicable and not included herein.
     <F2> Incorporated herein by reference.
</FN>
</TABLE>


<PAGE>




                                      PART I

ITEM 1.BUSINESS.

                                     GENERAL

     Central   Illinois  Public  Service   Company  (CIPS,   AmerenCIPS  or  the
Registrant) is a subsidiary of Ameren Corporation  (Ameren),  a holding company,
registered under the Public Utility Holding Company Act of 1935. On December 31,
1997, CIPSCO Incorporated (CIPSCO) and Union Electric Company (UE) combined with
the  result  that the  common  shareholders  of CIPSCO  and UE became the common
shareholders of Ameren,  and Ameren became the owner of 100% of the common stock
of UE and CIPSCO's  operating  subsidiaries,  Central  Illinois  Public  Service
Company (CIPS) and CIPSCO Investment Company (the Merger).

     The Registrant,  an Illinois corporation,  was organized in 1902. CIPS is a
public utility  operating company engaged in the sale of electricity and natural
gas in portions of central  and  southern  Illinois.  The  Registrant  furnishes
electric service in 557 incorporated and unincorporated communities and adjacent
suburban and rural areas.  The Registrant also furnishes  natural gas service to
retail customers in 267 incorporated and unincorporated communities and adjacent
suburban and rural areas located in 41 counties of central and southern Illinois
and provides gas transportation service to end-users.

     The CIPS  service  territory  is  predominantly  made up of small towns and
rural areas. Of the communities  served,  only 5 have  populations  greater than
15,000.  Customer  density on the CIPS gas system is  approximately 35 customers
per mile of main. The Registrant furnishes both electric and natural gas service
in 236 of the communities served by it.

     The territory served by the Registrant, located in 66 counties in Illinois,
has an estimated population of 820,000 and is devoted principally to agriculture
and diversified  industrial  operations.  Key industries  include  petroleum and
petrochemical industries, food processing, metal fabrication and coal mining.

     For the year 1998,  85% of total  operating  revenues  was derived from the
sale of electric energy and 15% from the sale of natural gas. Electric operating
revenues as a percentage of total operating  revenues in both 1997 and 1996 were
82%.

     The Registrant  employed 1,799 persons at December 31, 1998.  Approximately
70% of the  Registrant's  employees are  represented by local unions  affiliated
with the AFL-CIO.  Labor agreements  representing  approximately 1,250 employees
will expire in 1999. One agreement covering six employees will expire in 2001.


                          CAPITAL PROGRAM AND FINANCING

     The  Registrant  is  engaged  in a  capital  program  under  which  capital
expenditures are expected to approximate $115 million in 1999. For the five-year
period 1999-2003,  construction expenditures are estimated at $615 million. This
estimate  includes any  construction  expenditures  which may be incurred by the
Registrant to meet new air quality standards for ozone and particulate matter.

     During the five-year  period ended 1998, gross additions to the property of
the Registrant,  including  allowance for funds used during  construction,  were
approximately  $440  million  (including  $69  million  in  1998)  and  property
retirements were $252 million.

                                       1

<PAGE>

     In addition to the funds  required for  construction  during the  1999-2003
period,  $203 million will be required to repay  long-term debt as follows:  $60
million in 1999;  $35 million in 2000; $30 million in 2001; $33 million in 2002;
and $45 million in 2003.

     For additional information on the Registrant's capital program and external
cash sources, see "Liquidity and Capital Resources" in "Management's  Discussion
and  Analysis of Financial  Condition  and Results of  Operations"  under Item 7
herein and Notes 6 and 7 to the  "Notes to  Financial  Statements"  under Item 8
herein.

     Financing  Restrictions.  The  Mortgage  Indenture  of CIPS,  as  presently
operative,  permits the issuance of additional first mortgage bonds up to 60% of
available net expenditures for bondable property, provided the "net earnings" of
CIPS (before  income taxes and otherwise as provided in the Mortgage  Indenture)
for  a  recent  12-month  period  equal  at  least  twice  the  annual  interest
requirements on all first mortgage bonds outstanding (and on all equally secured
and prior lien indebtedness) and on the bonds then to be issued. At December 31,
1998, the more  restrictive of these  requirements  was the "net earnings" test.
The "net  earnings" of CIPS for the year ended  December 31, 1998,  so computed,
were equal to 5.97 times the  interest for one year on the  aggregate  amount of
bonds  outstanding  under the Mortgage  Indenture at December 31, 1998. Based on
the "net  earnings" of CIPS (so computed) for the year ended  December 31, 1998,
and the bonds outstanding under the Mortgage Indenture at December 31, 1998, the
Registrant  could have issued about $875 million of  additional  first  mortgage
bonds  under the  foregoing  interest  coverage  provision  (assuming  an annual
interest rate of 6.25% on such bonds).

     The Articles of Incorporation of CIPS provide,  in effect,  that so long as
any CIPS preferred stock is outstanding,  CIPS shall not,  without the requisite
vote of the holders of preferred  stock,  unless the retirement of such stock is
provided  for, (a) issue any  preferred or equal ranking stock (except to retire
or in exchange for an equal amount thereof)  unless the "gross income  available
for interest" of CIPS for a recent  12-month period is at least one and one-half
(1-1/2)  times the sum of (i) one year's  interest  on all funded debt and notes
maturing  more than 12 months after the date of issuance of such shares and (ii)
one year's dividend  requirement on all preferred stock to be outstanding  after
such issue, or (b) issue or assume any unsecured debt  securities  maturing less
than two years from the date of  issuance  or  assumption  (except  for  certain
refunding  or  retirement  purposes)  if  immediately  after  such  issuance  or
assumption the total amount of all such unsecured debt  securities  would exceed
20% of the sum of all  secured  debt  securities  and the capital and surplus of
CIPS.  For the year ended  December 31, 1998,  the "gross  income  available for
interest" of CIPS equalled 2.78 times the sum of the annual interest charges and
dividend  requirements  on all such  funded  debt,  notes  and  preferred  stock
outstanding at December 31, 1998. Such "gross income available for interest" was
sufficient under the test to support the issuance of additional  preferred stock
(assuming an annual dividend rate on such preferred stock of 5%) in an amount in
excess of the maximum amount ($185 million) of authorized and unissued preferred
stock under the Articles.


                                      RATES

     For the year 1998, approximately 82% of the Registrant's electric operating
revenues were based on rates regulated by the Illinois Commerce Commission (ICC)
and 18% were regulated by the Federal Energy Regulatory Commission (FERC) of the
U. S. Department of Energy.

     The electric utility  restructuring  legislation in Illinois  included a 5%
residential rate decrease for the  Registrant's  electric  customers,  effective
August 1, 1998. This rate decrease  reduced electric  revenues  approximately $5
million in 1998 and is expected to reduce electric revenues by approximately $11
million  annually  thereafter,  based on estimated  levels of sales and assuming
normal weather  conditions.  See "Regulation"  for additional  reference to this
legislation.

                                       2

<PAGE>

     As permitted by electric utility restructuring  legislation in Illinois, in
February 1998, the Registrant  filed to eliminate the fuel adjustment  clause on
sales of electricity in Illinois,  thereby  including a historical level of fuel
costs in base rates. The ICC approved the Registrant's filing in March 1998.

     In June 1998, the Registrant filed a request with the ICC to increase rates
for natural gas service. In February 1999, the ICC approved an $8 million annual
rate increase. The rate increase became effective in February 1999.

     For  additional  information  on  "Rates",  see  Note  2 to the  "Notes  to
Financial Statements" under Item 8 herein.

<TABLE>
<CAPTION>

                                   FUEL SUPPLY

Cost of Fuels                                                                               Year                  
-------------                            -------------------------------------------------------------------------
                                             1998           1997             1996           1995           1994
                                             ----           ----             ----           ----           ----
<S>                                   <C>             <C>             <C>             <C>            <C>          
Per Million BTU - Coal                 152.738(cent)   163.000(cent)   171.000(cent)   176.000(cent)  165.000(cent)
</TABLE>

     Over 99% of the net  kilowatthour  generation of the Registrant in 1998 was
provided by coal-fired generating units and the remainder by an oil-fired unit.

     Oil.  The  actual  and  prospective  use of such  oil is  minimal,  and the
Registrant has not experienced  and does not expect to experience  difficulty in
obtaining adequate supplies.

     Coal.  Because of  uncertainties of supply due to potential work stoppages,
equipment  breakdowns and other factors, the Company has a policy of maintaining
a coal inventory consistent with its expected burn practices.

     For additional  information on the Registrant's "Fuel Supply",  see Note 10
to the "Notes to Financial Statements" under Item 8 herein.


                                   REGULATION

     The  Company  is subject  to  regulation  by the  Securities  and  Exchange
Commission  and, as a subsidiary of Ameren,  is subject to the provisions of the
Public Utility  Holding  Company Act. The Registrant is subject to regulation by
the ICC as to rates, service, accounts, issuance of equity securities,  issuance
of debt having a maturity of more than twelve months, mergers, and various other
matters.  The  Registrant  is also subject to regulation by the FERC as to rates
and charges in connection with the transmission of electric energy in interstate
commerce  and the sale of such  energy  at  wholesale  in  interstate  commerce,
mergers,  and  certain  other  matters.  Authorization  to issue  debt  having a
maturity of twelve months or less is obtained from the  Securities  and Exchange
Commission.

     In December  1997,  the Governor of Illinois  signed the  Electric  Service
Customer  Choice and Rate  Relief Law of 1997  providing  for  electric  utility
restructuring  in Illinois.  This  legislation  introduces  competition into the
supply of electric  energy in Illinois and, as a result,  retail direct  access,
which allows  customers to choose their electric  generation  supplier,  will be
phased in over several years.  Access for  commercial  and industrial  customers
will occur over a period  from  October  1999 to December  2000,  and access for
residential  customers  will occur after May 1, 2002.  For a  discussion  of the
Illinois  legislation,  see "Electric  Industry  Restructuring" in "Management's
Discussion and Analysis of Financial  Condition and Results of Operations" under
Item 7 herein and Note 2 to the  "Notes to  Financial  Statements"  under Item 8
herein.

                                       3

<PAGE>

     CIPS is regulated, in certain of its operations, by air and water pollution
and hazardous waste regulations at the city,  county,  state and federal levels.
The Registrant is in substantial compliance with such existing regulations.

     Environmental  Issues.  On December 22, 1995, a complaint  was filed in the
Circuit  Court for the  Seventh  Judicial  Circuit,  Sangamon  County,  Illinois
against CIPS and several  other  defendants.  The  complaint  seeks  unspecified
monetary  damages and  alleges  that,  as a result of  exposure  to  carcinogens
contained  in coal tar at the  CIPS  Taylorville  gas  plant  site,  plaintiffs'
children  had  suffered   from  a  rare  form  of  childhood   cancer  known  as
"neuroblastoma".  The  plaintiffs in this  complaint are the  plaintiffs  who on
October  5, 1995  voluntarily  dismissed  claims in a similar  complaint  in the
Circuit Court for the Fourth Judicial Circuit,  Christian County,  Illinois.  On
April 17, 1996, the Seventh  Judicial Circuit Court,  Sangamon County,  Illinois
granted approval of the petition by CIPS requesting transfer of this case to the
Circuit Court for the Fourth Judicial Circuit,  Christian County,  Illinois.  On
March 27,  1998, a jury  awarded  plaintiffs  $3.2  million.  CIPS  continues to
believe it has  meritorious  defenses and has  appealed the verdict.  Management
believes that final  disposition of this matter will not have a material adverse
effect on financial position, results of operations or liquidity of the Company.

     On August 2, 1996, the Illinois Attorney General filed a complaint with the
Illinois  Pollution  Control  Board  alleging  various  violations of wastewater
discharge  permit  conditions  and ground water  standards at CIPS'  Hutsonville
Power Station.  The complaint seeks monetary penalties and the award of attorney
fees.  CIPS, the Board and the Attorney General are continuing to work on a plan
to resolve these issues.  While the Company  cannot predict the final outcome of
this matter,  it does not believe that the final resolution will have a material
adverse effect on financial position,  results of operations or liquidity of the
Company.

     See  "Liquidity  and Capital  Resources" in  "Management's  Discussion  and
Analysis of Financial  Conditions and Results of Operations" under Item 7 herein
and Note 10 to the  "Notes to  Financial  Statements"  under Item 8 herein for a
further discussion of environmental issues.

     Other aspects of the Registrant's  business are subject to the jurisdiction
of various regulatory  authorities and, for additional information on regulation
see "Electric Industry  Restructuring" in "Management's  Discussion and Analysis
of Financial  Condition and Results of Operations" under Item 7 herein and Notes
2 and 10 to the "Notes to Financial Statements" under Item 8 herein.


                                 INDUSTRY ISSUES

     The  Registrant  is facing  issues  common to the  electric and gas utility
industries  which have  emerged  during the past  several  years.  These  issues
include:  the  potential  for more  intense  competition  and for  changing  the
structure of regulation; changes in the structure of the industry as a result of
changes in federal and state laws; on-going  consideration of additional changes
of the  industry  by  federal  and  state  authorities;  continually  developing
environmental laws,  regulations and issues,  including proposed new air quality
standards;  public  concern  about the siting of new  facilities;  proposals for
demand side management programs;  public concerns about nuclear  decommissioning
and the disposal of nuclear wastes; and global climate issues. The Registrant is
monitoring  these issues and is unable to predict at this time what  impact,  if
any,  these  issues  will  have  on  its  operations,  financial  condition,  or
liquidity.

     For  additional  information  on certain  of these  issues,  see  "Electric
Industry  Restructuring"  in  Management's  Discussion and Analysis of Financial
Condition and Results of  Operations"  under Item 7 herein and Notes 2 and 10 to
the "Notes to Financial Statements" under Item 8 herein.

     Year 2000  Issue.  The Year 2000 Issue  relates to how dates are stored and
used in computer systems,  applications,  and embedded  systems.  As the century
date change occurs,  certain date-sensitive systems need to be able to recognize
the year as 2000 and not as 1900. This inability to recognize and

                                       4

<PAGE>

properly treat  the year as  2000 may cause  these systems  to process  critical
financial and  operational  information  incorrectly.  For  information  on this
issue,  see "Year  2000  Issue" in  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations" under Item 7 herein.

ITEM 2. PROPERTIES.

     In planning its construction program, the Registrant is presently utilizing
a forecast of  kilowatthour  sales  growth of  approximately  1.1% and peak load
growth of 1.5%, each compounded annually, and is providing for a minimum reserve
margin of approximately 15% to 18% above its anticipated peak load requirements.

     The Registrant is a member of one of the ten regional electric  reliability
councils  organized for  coordinating the planning and operation of the nation's
bulk  power  supply  -  MAIN  (Mid-America   Interconnected  Network)  operating
primarily in  Wisconsin,  Illinois and  Missouri.  The  Registrant's  bulk power
system is operated as an Ameren-wide  control area and transmission system under
the FERC approved Joint Dispatch  Agreement  between CIPS and UE. The Registrant
has  interconnections  for  transmission  service  and the  exchange of electric
energy,  directly  and through the  facilities  of others,  with twenty  private
utilities and nine government utilities that operate control areas.

     The  Registrant  owns 20% of the  capital  stock of Electric  Energy,  Inc.
(EEI), and its affiliate, UE, owns 40% of such stock. The balance is held by two
other  sponsoring  companies -- Kentucky  Utilities  Company (KU),  and Illinova
Generating  (IG).  EEI owns and  operates  a  generating  plant  with a  nominal
capacity  of 1,000 mW. 60% of the  plant's  output is  committed  to the Paducah
Project of the DOE, 20% to KU, 10% to UE and 5% each to IG and CIPS.

     As of December 31, 1998 the Registrant  owned  approximately  4,700 circuit
miles of electric  transmission  lines. The Registrant also owned 4,800 miles of
natural gas transmission and  distribution  mains,  four underground gas storage
fields and one propane-air  gas plant used to supplement the available  pipeline
supply  of  natural  gas  during  periods  of  abnormally  high  demands.  Other
properties of the Registrant  include  distribution  lines,  underground  cable,
office buildings, warehouses, garages and repair shops.

     CIPS has fee title to all  principal  plants and other  important  units of
property,  or to the real property on which such facilities are located (subject
to mortgage liens  securing  outstanding  indebtedness  of the Registrant and to
permitted liens and judgment liens, as defined).

     Substantially  all of CIPS'  property  and plant is  subject  to the direct
first lien an Indenture of Mortgage or Deed of Trust dated  October 1, 1941,  as
amended and supplemented.

                                       5

<PAGE>
<TABLE>
<CAPTION>

               The following  table sets forth  information  with respect to the
Registrant's  generating  facilities  and capability at the time of the expected
1999 peak.

                                                                Gross Kilowatt
    Energy                                                        Installed
    Source          Plant                    Location             Capability   
    ------          -----                    --------             ----------
   <S>           <C>                      <C>                     <C>      
    Coal          Newton                   Newton, IL              1,170,000
                  Coffeen                  Coffeen, IL               950,000
                  Grand Tower              Grand Tower, IL           202,000
                  Hutsonville
                    (Units 3 & 4)          Hutsonville, IL           161,000
                  Meredosia
                    (Units 1, 2 & 3)       Meredosia, IL             359,000
                                                                  ----------

                                           Total Coal              2,842,000

    Oil           Hutsonville
                    (Diesel)               Hutsonville, IL             3,000
                  Meredosia
                    (Unit 4)               Meredosia, IL             182,000
                                                                  ----------

                                           Total Oil                 185,000

                                                  TOTAL            3,027,000
                                                                   =========
</TABLE>

     All of the generating stations are located in Illinois on land owned in fee
by CIPS.


ITEM 3. LEGAL PROCEEDINGS.

     During 1996, the Registrant restructured its contract with one of its major
coal suppliers. In 1997, the Registrant paid a $70 million restructuring payment
to the  supplier,  which  allowed it to  purchase at market  prices  low-sulfur,
non-Illinois  coal  through the supplier (in  substitution  for the  high-sulfur
Illinois  coal the  Registrant  was  obligated  to purchase  under the  original
contract);   and  to  receive  options  for  future   purchases  of  low-sulfur,
non-Illinois coal from the supplier through 1999 at set negotiated prices.

     By switching to low-sulfur  coal,  the  Registrant  was able to discontinue
operating  a  generating   station  scrubber.   The  benefits  of  the  contract
restructuring   include  lower  cost  coal,  avoidance  of  significant  capital
expenditures to renovate the scrubber and elimination of scrubber operations and
maintenance costs (offset by scrubber retirement expenses).  The net benefits of
restructuring  are expected to exceed $100  million  through  2007.  In December
1996,  the ICC  entered  an order  approving  the switch to  non-Illinois  coal,
recovery  of  the   restructuring   payment  plus   associated   carrying  costs
(Restructuring  Charges) through the retail uniform fuel adjustment clause (FAC)
over six years, and continued  recovery in rates of the  undepreciated  scrubber
investment  plus costs of removal.  Additionally,  in May 1997 the FERC approved
recovery  of the  wholesale  portion of the  Restructuring  Charges  through the
wholesale FAC. As a result of the ICC and FERC order, the Registrant  classified
the $72  million  of the  Restructuring  Charges  made to the coal  supplier  in
February  1997 as a  regulatory  asset and,  through  December  1997,  recovered
approximately  $10 million of the  Restructuring  Charges through the retail FAC
and from wholesale customers.

     A group of  industrial  customers  filed with the Illinois  Third  District
Appellate  Court (the Court) in  February  1997 an appeal of the  December  1996
order of the ICC. In November 1997, the Court

                                       6

<PAGE>

reversed  the  ICC's  December  1996   order,  finding  that  the  Restructuring
Charges were not direct  costs of fuel that may be recovered  through the retail
FAC, but rather should be considered as a part of a review of aggregate  revenue
requirements in a full rate case.  Restructuring  Charges allocated to wholesale
customers  (approximately  $7  million)  are not in  question as a result of the
opinion of the Court. In December 1997, the Registrant  requested a rehearing by
the  Court;  that  request  was  denied.  However,  the  Court did rule that all
revenues collected under the retail FAC in 1997 would not have to be refunded to
customers.  The Registrant  filed an appeal with the Illinois  Supreme Court. In
December  1998,  the Supreme  Court issued its  decision,  reversing the Court's
opinion  and  affirming  the  ICC's  order.  The  Supreme  Court  held  that the
Restructuring  Charges  are  recoverable  through  the  retail  FAC.  No further
proceedings are anticipated.

     The  International   Union  of  Operating   Engineers  Local  148  and  the
International  Brotherhood  of  Electrical  Workers Local 702 filed unfair labor
practice charges with the National Labor Relations Board (NLRB), relating to the
legality of the 1993 lockout of both unions by CIPS. The NLRB issued  complaints
against CIPS  concerning its lockout.  Both unions  sought,  among other things,
back pay and other  benefits  for the period of the lockout.  At that time,  the
Registrant  estimated the amount of back pay and other  benefits for both unions
to be approximately $17 million. In May 1996, an administrative law judge of the
NLRB ruled that the lockout was unlawful.  In July 1996, the Registrant appealed
to the NLRB.  In August  1998,  a  three-member  panel of the NLRB  reversed the
administrative law judge's decision and ruled that the lockout was lawful.  Both
unions filed motions for review with the NLRB asking for reconsideration of this
decision.   In  December  1998,   the  NLRB  denied  the  unions'   motions  for
reconsideration. Subsequently, in December 1998, the unions filed a joint motion
for a rehearing of their motions for reconsideration. On March 5, 1999, the NLRB
denied the unions' motion for  reconsideration.  The Registrant expects that the
unions will pursue a judicial appeal of the NLRB's decision.

     The  Registrant is involved in other legal and  administrative  proceedings
before  various  courts and  agencies  with  respect  to matters  arising in the
ordinary  course  of  business,  some  of  which  involve  substantial  amounts.
Management  believes that the final  disposition of these  proceedings  will not
have a material adverse effect on its financial position,  results of operations
or liquidity.

     For additional  information on legal and  administrative  proceedings,  see
"Rates" and  "Regulation  Environmental  Issues" under Item 1 herein and Notes 2
and 10 to the "Notes to Financial Statements" under Item 8 herein.

                            _________________________

     Statements made in this report which are not based on historical facts, are
forward-looking  and,  accordingly,  involve risks and uncertainties  that could
cause actual results to differ  materially from those  discussed.  Although such
forward-looking  statements  have  been  made in good  faith  and are  based  on
reasonable assumptions,  there is no assurance that the expected results will be
achieved.  These statements include (without limitation) statements as to future
expectations,  beliefs, plans, strategies,  objectives,  events,  conditions and
financial  performance  and the Year 2000 Issue.  In  connection  with the "Safe
Harbor" provisions of the Private Securities  Litigation Reform Act of 1995, the
Registrant is providing this cautionary  statement to identify important factors
that could cause actual  results to differ  materially  from those  anticipated.
Factors  include,  but are not limited to, the effects of:  regulatory  actions;
changes  in laws and other  governmental  actions;  competition;  future  market
prices for fuel and purchased power, electricity, and natural gas, including the
use of financial  instruments;  average  rates for  electricity  in the Midwest;
business and economic  conditions;  interest  rates;  weather  conditions;  fuel
prices and  availability;  generation  plant  performance;  monetary  and fiscal
policies; future wages and employee benefits costs; and legal and administrative
proceedings.

                                       7


<PAGE>

<TABLE>
<CAPTION>

INFORMATION REGARDING EXECUTIVE OFFICERS REQUIRED BY ITEM 401(b) OF REGULATION S-K:
                          Age At                                           Date First Elected
         Name            12/31/98        Present Position                      or Appointed
         ----            --------        ----------------                      ------------

<S>                         <C>         <C>                                       <C>
G. L. Rainwater              52          President and
                                         Chief Executive Officer                     1/1/98
J. T. Birkett                61          Vice President                             7/10/95
M. J. Montana                52          Vice President                             4/28/98
G. W. Moorman                55          Vice President                              6/1/88
C. D. Nelson                 45          Vice President                             4/28/98
T. R. Voss                   51          Vice President                              7/1/98
S. R. Sullivan               38          Vice President, General Counsel
                                         and Secretary                              11/7/98
W. L. Baxter                 37          Controller                                12/31/97
J. E. Birdsong               44          Treasurer                                 12/31/97

</TABLE>

     All officers  are elected or  appointed  annually by the Board of Directors
following the election of such Board at the annual meeting of stockholders  held
in April.  Except for  Messrs.  Baxter  and  Sullivan,  each of the  above-named
executive  officers has been employed by the Company or its  affiliates for more
than five years in executive or management positions.  Mr. Baxter was previously
employed by PricewaterhouseCoopers  LLP. Mr. Sullivan was previously employed by
Anheuser Busch Companies, Inc.


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     There is no market for the  Registrant's  Common Stock since all shares are
owned by its parent, Ameren.


ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>

For the Years Ended
December 31 (In Thousands)                   1998          1997           1996           1995           1994
--------------------------                   ----          ----           ----           ----           ----

<S>                                     <C>            <C>            <C>           <C>            <C>       
Operating revenues                       $  847,424     $  852,075     $  881,102    $  828,073     $  835,882
Operating income                            120,044        102,495        116,531       106,029        110,678
Net income                                   80,147         38,620         77,393        70,631         81,913
Preferred stock dividends                     3,745          3,715          3,721         3,850          3,510
Net income after preferred
  stock dividends                            76,402         34,905         73,672        66,781         78,403
Common stock dividends                       72,285         43,300         62,950        71,000         68,600

As of December 31,

Total assets                             $1,764,397     $1,788,707     $1,795,353    $1,759,838     $1,726,540
Long-term debt                              528,446        558,474        421,228       478,926        474,619
Total common stockholder's equity           575,370        572,759        581,224       570,419        574,745
</TABLE>

                                       8


<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  RESULTS
        OF OPERATIONS

OVERVIEW

Central  Illinois  Public Service  Company  (AmerenCIPS or the  Registrant) is a
subsidiary of Ameren  Corporation  (Ameren),  a holding company registered under
the Public Utility Holding Company Act of 1935 (PUHCA).  In December 1997, Union
Electric Company  (AmerenUE) and CIPSCO  Incorporated  (CIPSCO) combined to form
Ameren,  with  AmerenUE and CIPSCO's  subsidiaries,  the  Registrant  and CIPSCO
Investment  Company (CIC),  becoming  wholly-owned  subsidiaries  of Ameren (the
Merger).

RESULTS OF OPERATIONS

Earnings
Earnings for 1998, 1997 and 1996, were $76 million, $35 million and $74 million,
respectively.  Earnings  fluctuated due to many conditions,  primarily:  weather
variations,  electric rate reductions,  competitive market forces, sales growth,
fluctuating  operating  costs,  merger-related  expenses,  changes  in  interest
expense,  changes in income and property taxes, a charge for a targeted employee
separation plan in 1998 and an extraordinary charge in 1997.

In 1998, the Registrant recorded a nonrecurring charge to earnings in connection
with a targeted separation plan it offered to employees in July 1998. The charge
reduced  earnings  $4  million,  net of  income  taxes,  (see  Note  3  Targeted
Separation Plan under Notes to Financial Statements for further information). In
addition,  the Registrant  recorded an  extraordinary  charge to earnings in the
fourth quarter of 1997 for the write-off of generation-related regulatory assets
and  liabilities  as a result of  electric  industry  restructuring  legislation
enacted in  Illinois  in December  1997.  The  write-off  reduced  earnings  $25
million,  net of income taxes.  (See Note 2 - Regulatory  Matters under Notes to
Financial Statements for further information.)

The significant  items affecting  revenues,  expenses and earnings for the years
ended December 31, 1998, 1997 and 1996 are detailed in the following pages.


<TABLE>
<CAPTION>

Electric Operations
Electric Revenues                                           Variations from Prior Year
------------------------------------------------------------------------------------
(Millions of Dollars)                               1998         1997         1996
------------------------------------------------------------------------------------
<S>                                                <C>         <C>           <C> 
Rate Variations                                    $ (5)        $  -          $  -
Growth and other                                      9            5            12
Effect of abnormal weather                           13           (1)           (5)
Interchange sales                                    (1)         (29)           20
------------------------------------------------------------------------------------ 
                                                   $ 21         $(25)         $ 27
------------------------------------------------------------------------------------
</TABLE>

Electric  revenues for 1998  increased  $21 million  compared to 1997.  Revenues
increased  primarily  due  to  higher  sales  to  retail  customers  within  the
Registrant's service territory,  as a result of warm summer weather and economic
growth in the service area.  Weather-sensitive  residential and commercial sales
increased  6% and 4%,  respectively,  while  industrial  sales  grew  4%.  These
increases were partially  offset by a 5% rate decrease to residential  customers
beginning  in August  1998  (see  Note 2 -  Regulatory  Matters  under  Notes to
Financial Statements for further information).

Electric  revenues  for  1997  decreased  primarily  due  to a 19%  decrease  in
interchange sales due to market conditions and differences in the classification
of certain  interchange and purchased power transactions  resulting from Federal
Energy  Regulatory  Commission  (FERC)  Order  888,  as well as a 3%  decline in
industrial  sales.  Residential  sales remained constant with prior year levels,
while commercial sales increased 2% over the same period.

The increase in 1996 electric revenues was primarily the result of a 5% increase
in  kilowatthour  sales from the prior year.  The  kilowatthour  sales  increase
stemmed  from  colder  weather  early  in the  year,  which  increased  sales to
residential and commercial customers and a 14% increase in interchange sales.

                                       9

<PAGE>

<TABLE>
<CAPTION>

Fuel and Purchased Power                                 Variations from Prior Year
---------------------------------------------------------------------------------------
(Millions of Dollars)                              1998           1997            1996
---------------------------------------------------------------------------------------
<S>                                             <C>            <C>              <C>
Fuel:                                        
    Variation in generation                      $ (25)          $  7            $ 29
    Price                                           (2)            (8)              3
    Generation efficiencies and other               (6)            (4)              -
Purchased power variation                           21            (27)             (6)
---------------------------------------------------------------------------------------
                                                 $ (12)          $(32)            $ 26
---------------------------------------------------------------------------------------
</TABLE>

The $12 million decrease in fuel and purchased power costs for 1998, compared to
1997,  was  primarily  driven by lower fuel  costs due to lower fuel  prices and
utilizing joint dispatch generation.  Upon consummation of the Merger,  AmerenUE
and AmerenCIPS began jointly dispatching  generation,  therefore allowing Ameren
to utilize the most cost efficient  plants of both operating  companies to serve
customers in either service  territory.  The decrease in 1997 fuel and purchased
power costs was driven mainly by a decrease in interchange  sales and lower fuel
prices. The increase in 1996 fuel and purchased power costs reflected  increased
kilowatthour sales.

While  unprecedented  prices for power  purchases  occurred  in the  marketplace
during the last week of June 1998, the Registrant was able to effectively manage
its power costs in the face of soaring wholesale  electricity  prices.  Overall,
the abnormally  high prices for power purchases in June had little impact on the
Registrant's financial results for 1998.

Gas Operations
Gas revenues in 1998 decreased $26 million compared to 1997,  primarily due to a
7% decline in retail  sales  resulting  from mild  winter  weather and lower gas
costs   reflected  in  the   Registrant's   purchase  gas   adjustment   clause.
Weather-sensitive  residential  and  commercial  sales  decreased  9%  and  13%,
respectively,  from 1997.  Industrial sales increased 8% from 1997. Gas revenues
in 1997  decreased  $4 million  primarily  due to a 10% decline in retail  sales
resulting from mild winter weather. Weather-sensitive residential and commercial
sales decreased 14% and 18%, respectively, from 1996. Industrial sales increased
31% from the same  period.  The  introduction  of  off-system  gas sales in 1997
offset the decrease in total sales to ultimate customers.  Gas revenues grew $26
million in 1996 as a result of colder weather and higher gas costs. Residential,
commercial and industrial sales increased 13%, 17% and 9%, respectively, in 1996
versus 1995.

Gas costs in 1998  declined $28 million  compared to 1997.  This decrease in gas
costs was due to lower sales and lower gas prices.  Gas costs for 1997  remained
relatively  flat when  compared to 1996 costs.  Gas costs  increased $22 million
between 1996 and 1995 due to increased demand related to colder weather,  and an
increase in the price paid for gas in 1996 versus 1995.

Other Operating Expenses
Other  operating  expense  variations in 1996 through 1998  reflected  recurring
factors such as growth,  inflation, and labor and benefit increases, in addition
to a charge for the targeted separation plan (TSP) as discussed below.

In March 1998,  Ameren  announced plans to reduce its other operating  expenses,
including plans to eliminate  approximately  400 employee  positions by mid-1999
through a hiring  freeze and the TSP. In July 1998,  Ameren  offered  separation
packages to employees  whose  positions  were to be eliminated  through the TSP.
During  the third  quarter of 1998,  the  Registrant  recorded  a  nonrecurring,
pre-tax charge of $7 million (which  reduced  earnings $4 million)  representing
its share of costs  incurred to  implement  the TSP.  The  elimination  of these
positions,  exclusive  of the  nonrecurring  charge,  reduced  the  Registrant's
operating expenses  approximately $4 million in 1998, and the Registrant expects
operating expenses to be reduced approximately $6 million to $7 million annually
thereafter.  See Note 3 -  Targeted  Separation  Plan under  Notes to  Financial
Statements for further information.

The $19 million increase in other operations expenses in 1998, compared to 1997,
was  primarily  due  to  the  charge  for  the  TSP  and  increased  information
system-related  costs. In 1997, other operations expenses increased $15 million,
primarily due to increases in labor, various equipment purchases and rentals and
information  system-related  costs. In 1996, other operations expenses decreased
$9 million  mainly due to several  nonrecurring  costs  incurred in 1995,  which
included the write-off of system development costs.

Maintenance  expense  changes  between  years  are due to  normal  planning  and
scheduling  of major  power  plant  maintenance  outages.  In 1998,  maintenance
expenses decreased $4 million from the prior year. The 1997

                                       10

<PAGE>

maintenance  expense  increase  of  $14  million  from  the  prior  year  can be
attributed to scheduled outages at three generating plants during 1997.

In 1998, depreciation and  amortization expense  decreased  $8 million  from the
prior  year due to the  write-off  of  generation-related  regulatory  assets in
Illinois  during the  fourth  quarter of 1997.  1997 and 1996  depreciation  and
amortization expense fluctuations relate primarily to property additions.

Taxes
Income tax expense from  operations  increased $12 million in 1998,  compared to
1997, due to higher pre-tax income and a higher  effective tax rate.  Income tax
expense from operations  decreased $14 million in 1997  principally due to lower
pre-tax  income  and a  lower  effective  tax  rate.  Income  tax  expense  from
operations increased $4 million in 1996 due primarily to higher pre-tax income.

Other Income and Deductions
In 1998,  miscellaneous,  net  decreased  $3  million  primarily  due to  higher
merger-related expenses incurred in the prior year. Miscellaneous, net increased
$2 million  between  1997 and 1996  primarily  due to  increased  merger-related
expenses.

Interest
Interest expense increased $3 million in 1998, compared to 1997, due to a higher
amount of debt outstanding, partially offset by a decrease in other interest.

Balance Sheet
The $23 million decrease in accounts  receivable at December 31, 1998,  compared
to 1997,  was due to lower sales and  revenues in  November  and early  December
1998,  compared  to the  comparable  time  period  in 1997,  due to mild  winter
weather. The Company's service territory  experienced much colder weather in the
latter part of December  1998,  resulting  in higher  sales and revenues at that
time compared to the comparable 1997 period. This increase in sales caused a $21
million  increase in  unbilled  revenues.  The $16  million  increase in current
liabilities was primarily due to increased current maturities to long-term debt.
This  increase was  partially  offset by decreased  accounts  payable  caused by
payment timing differences between years and less short-term debt outstanding.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities totaled $123 million for 1998, compared to
$81 million for 1997 and $137 million in 1996, respectively.

Cash flows used in investing  activities  totaled $68 million,  $111 million and
$80 million, for the years ended December 31, 1998, 1997 and 1996, respectively.
Expenditures in 1998 for constructing new or to improve existing facilities were
$69 million.

Capital  expenditures  are expected to approximate $115 million in 1999. For the
five-year  period  1999-2003,  construction  expenditures  are estimated at $615
million.  This estimate  includes any  construction  expenditures,  which may be
incurred  by the  Registrant  to meet new air  quality  standards  for ozone and
particulate matter, as discussed below.

Under  Title IV of the Clean  Air Act  Amendments  of 1990,  the  Registrant  is
required to significantly  reduce total annual sulfur dioxide (SO2) and nitrogen
oxide (NOx)  emissions by the year 2000.  By switching to low-sulfur  coal,  the
Registrant  anticipates  that it can  comply  with the  requirements  of the law
without  significant  revenue  increases  because the related  capital costs are
largely offset by lower fuel costs.

In July 1997,  the United States  Environmental  Protection  Agency (EPA) issued
final regulations  revising the National Ambient Air Quality Standards for ozone
and  particulate  matter.  The new ambient  standards may result in  significant
additional  reductions  in SO2 and NOx  emissions  from the  Registrant's  power
plants. The new particulate matter standards may require SO2 reductions of up to
50% beyond that already required by Phase II acid rain control provisions of the
1990 Clean Air Act Amendments and could be required by 2007. The full details of
these  requirements  are  under  study  by the  Registrant.  At this  time,  the
Registrant is unable to predict the ultimate impact of these revised air quality
standards on its future financial condition, results of operations or liquidity.

In an attempt to lower ozone levels across the eastern  United  States,  the EPA
issued  final  regulations  in  September  1998 to  reduce  NOx  emissions  from
coal-fired boilers and other sources in 22 states, including Illinois (where all
of

                                       11

<PAGE>

the  Registrant's  coal-fired  power  plant   boilers   are  located).  Although
reduction requirements in NOx emissions from the Registrant's coal-fired boilers
are  anticipated  to exceed 75 percent from 1990 levels by the year 2003,  it is
not yet possible to determine  the exact  magnitude of the  reductions  required
from the  Registrant's  power  plants  because  each state has up to one year to
develop a plan to comply with the EPA rule. The NOx emissions reductions already
achieved on several of the  Registrant's  coal-fired  power  plants will help to
reduce  the costs of  compliance  with  this  regulation.  However,  preliminary
analysis  of  the  regulations   indicate  that  selective  catalytic  reduction
technology will be required for some of the Registrant's units, as well as other
additional controls.

Currently,  the Registrant estimates that its additional capital expenditures to
comply with the EPA's final  regulations  issued in  September  1998 could range
from $125 million to $175 million over the period from 1999 to 2002.  Associated
operations and maintenance  expenditures could increase $5 million to $8 million
annually,  beginning in 2003. The Registrant will explore alternatives to comply
with these new  regulations in order to minimize,  to the extent  possible,  its
capital costs and operating  expenses.  The  Registrant is unable to predict the
ultimate impact of these standards on its future financial condition, results of
operations or liquidity.

In November  1998,  the United  States signed an agreement  with numerous  other
countries (the Kyoto  Protocol)  containing  certain  environmental  provisions,
which would require  decreases in  greenhouse  gases in an effort to address the
"global warming" issue. The Kyoto Protocol must be ratified by the United States
Senate before provisions are effective for the United States. Until ratification
is obtained, the Registrant is unable to predict what requirements, if any, will
be adopted in this country; however, implementation of the Kyoto Protocol in its
present form would  likely  result in  significantly  higher  capital  costs and
operations  and  maintenance  expenses  by the  Registrant.  At this  time,  the
Registrant  is  unable  to  determine  the  impact  of  these  proposals  on the
Registrant's future financial condition, results of operations or liquidity.

Cash flows used in financing activities were $74 million for 1998. This compares
to cash flows  provided by financing  activities of $48 million in 1997 and cash
flows used in financing  activities  of $57 million for 1996.  The  Registrant's
principal financing  activities during 1998 included the issuance of $85 million
of long-term debt, offset by the redemption of $64 million of long-term debt and
dividend payments of $76 million.

The Registrant  plans to continue  utilizing  short-term  debt to support normal
operations and other temporary requirements. The Registrant is authorized by the
Securities  and  Exchange  Commission  under PUHCA to have up to $125 million of
short-term  unsecured debt instruments  outstanding at any one time.  Short-term
borrowings  consist of bank loans  (maturities  generally on an overnight basis)
and commercial  paper  (maturities  generally within 10 to 45 days). At December
31, 1998,  the Registrant  had committed  bank lines of credit  aggregating  $80
million (of which $80 million were unused and $33 million were available at such
date) which make available  interim financing at various rates of interest based
on LIBOR,  the bank  certificate of deposit rate or other options.  The lines of
credit are renewable annually at various dates throughout the year. At year-end,
the Registrant had $47 million of short-term borrowings.

Also,  Ameren has a bank credit  agreement due 2003, which permits the borrowing
of up to $200 million on a long-term  basis.  This credit agreement is available
to Ameren and its  subsidiaries,  including the  Registrant.  As of December 31,
1998, $190 million was available for the Registrant's use.

RATE MATTERS

See Note 2 -  Regulatory  Matters  under  Notes to  Financial  Statements  for a
discussion of rate matters.

ELECTRIC INDUSTRY RESTRUCTURING

Changes enacted and being considered at the federal and state levels continue to
change the structure of the electric industry and utility regulation, as well as
encourage increased competition.  At the federal level, the Energy Policy Act of
1992 reduced various  restrictions on the operation and ownership of independent
power  producers and gave the FERC the authority to order electric  utilities to
provide transmission access to third parties.

In April 1996,  the FERC issued  Order 888 and Order 889,  which are intended to
promote  competition  in  the  wholesale  electric  market.  The  FERC  requires
transmission-owning   public   utilities,   such  as   AmerenCIPS,   to  provide
transmission  access and service to others in a manner similar and comparable to
that which the utilities have by virtue of ownership.  Order 888 requires that a
single tariff be used by the utility in providing  transmission  service.  Order
888 also provides for the recovery of stranded costs, under certain  conditions,
related to the wholesale business.

                                       12

<PAGE>

Order 889 established the standards of conduct and information requirements that
transmission owners must adhere to in doing business under the open access rule.
Under Order 889, utilities must obtain transmission service for their own use in
the same manner their  customers will obtain  service,  thus  mitigating  market
power through control of transmission facilities.  In addition, under Order 889,
utilities must separate their merchant  function  (buying and selling  wholesale
power) from their transmission and reliability functions.

The  Registrant  believes  that  Order 888 and Order  889,  which  relate to its
wholesale  business,  will not have a material  adverse  effect on its financial
condition, results of operations or liquidity.

In 1998,  the  Registrant  joined a group of ten other utility  companies  which
support the formation of the Midwest  Independent System Operator (Midwest ISO).
An ISO operates,  but does not own,  transmission  systems and maintains  system
reliability and security while  alleviating  pricing issues  associated with the
"pancaking"  of rates.  The Midwest  ISO would be  regulated  by FERC.  The FERC
conditionally  approved the formation of the Midwest ISO in September  1998, and
it is expected to be  operational by the year 2001. The Midwest ISO covers eight
states and represents  portions of 40,000 miles of transmission  line and 62,000
megawatts of electric power. Collectively,  the member companies serve more than
seven million customers.

In December 1997, the Governor of Illinois signed the Electric  Service Customer
Choice and Rate  Relief Law of 1997 (the Law)  providing  for  electric  utility
restructuring  in Illinois.  This  legislation  introduces  competition into the
supply of electric energy in Illinois.

Major provisions of the Law include the phasing-in through 2002 of retail direct
access, which allows customers to choose their electric generation supplier.  In
addition,  the  Law  includes  a 5%  rate  decrease  for  residential  customers
effective August 1998. The decrease  reduced electric  revenues by approximately
$5 million in 1998 and is expected to reduce electric  revenues by approximately
$11 million annually thereafter, based on estimated levels of sales and assuming
normal weather conditions.  In 1998, the Registrant  eliminated its Uniform Fuel
Adjustment  Clause (FAC) as allowed by the Law, which the Registrant  expects to
benefit  shareholders  in the  future.  (See  Note 1 -  Summary  of  Significant
Accounting   Policies   under  Notes  to   Financial   Statements   for  further
information.) The Law contains a provision  allowing for the potential  recovery
of a portion of  strandable  costs,  which  represent  costs  which would not be
recoverable in a restructured environment, through a transition charge collected
from customers who choose an alternate electric supplier.  In addition,  the Law
contains a provision  requiring a portion of excess  earnings (as defined  under
the Law) for the years 1998 through 2004 to be refunded to customers. See Note 2
-  Regulatory   Matters  under  Notes  to  Financial   Statements   for  further
information.

In  December  1997,  after  evaluating  the  impact of the Law,  the  Registrant
determined that it was necessary to write-off the generation-related  regulatory
assets  and  liabilities  of  its  Illinois  retail  electric   business.   This
extraordinary charge reduced 1997 earnings $25 million, net of income taxes. The
Registrant has also concluded that its remaining net  generation-related  assets
are not impaired for financial  reporting  purposes and that no plant writedowns
are  necessary  at this time.  See Note 2 -  Regulatory  Matters  under Notes to
Financial Statements for further information.

In  summary,  the  potential  negative  consequences  associated  with  electric
industry restructuring could be significant and could include the impairment and
writedown of certain assets,  including  generation-related  plant assets, lower
revenues,  reduced profit margins and increased  costs of capital and operations
expense.  The  Registrant is actively  taking steps to mitigate  these  negative
consequences.  Most  importantly,  the Registrant will continue to focus on cost
control  to  ensure  that  it  maintains  a  competitive  cost  structure.   The
Registrant's  actions also include  strengthening  its  marketing  operations to
maintain its current  customers and obtain new  customers,  as well as enhancing
its information systems. The Registrant is also actively involved in shaping the
policies of the Midwest ISO to protect  shareholders'  interests.  At this time,
the  Registrant  is unable to predict the ultimate  impact of electric  industry
restructuring  on  the  Registrant's  future  financial  condition,  results  of
operations or liquidity.

YEAR 2000 ISSUE

The Year  2000  Issue  relates  to how  dates are  stored  and used in  computer
systems,  applications, and embedded systems. As the century date change occurs,
certain date-sensitive systems need to be able to recognize the year as 2000 and
not as 1900.  This inability to recognize or properly treat the year as 2000 may
cause these systems to process  critical  financial and operational  information
incorrectly.   The  Registrant's  primary  concern  is  the  potential  for  any
interruption in providing electric and gas service to customers,  as well as the
potential inability to process critical financial and operational information on
a timely basis, including  billing its customers, if appropriate steps

                                       13

<PAGE>

are not taken to address this issue.  Management has  developed a Year 2000 plan
(Plan) covering Ameren, including AmerenCIPS,  and Ameren's  Board of  Directors
has been briefed about the Year 2000 Issue and how it may affect the Registrant.

Ameren's Plan to resolve the Year 2000 Issue involves three phases:  assessment,
planning,  and implementation/  testing.  Implementation of the Plan is directly
supervised  by each  area's  responsible  Vice  President.  A Year 2000  Project
Director  coordinates the  implementation of the Plan among functional teams who
are  addressing  issues  specific  to a  particular  area,  such as nuclear  and
non-nuclear generation facilities,  energy management systems, gas distribution,
etc. Ameren has also engaged certain outside consultants,  technicians and other
external resources to aid in formulating and implementing the Plan.

Ameren  has  completed  its   assessment   phase,   which   included   analyzing
date-sensitive  electronic hardware,  software applications and embedded systems
and has developed a compliance plan to address issues that were identified. Many
of the major  corporate  computer  systems  at  Ameren  are  relatively  new and
therefore are either Year 2000  compliant or only require  minor  modifications.
Also,   several  of  the  operating   hardware  and  embedded   systems   (i.e.,
microprocessor  chips) use analog  rather than digital  technology  and thus are
unaffected  by the  two-digit  date issue.  In  addition,  Ameren has  contacted
hundreds of vendors and suppliers to verify compliance.

Ameren has also completed its planning  phase.  Items that have been  identified
for remediation have been prioritized into groups based on their significance to
Ameren's    operations.    The    implementation/testing     phase    for    all
components/applications  is approximately  45% complete as of December 31, 1998.
Ameren    expects    to    complete     remediation    of    its     significant
components/applications by the end of the third quarter 1999.

With  respect  to  third  parties,   for  areas  that  interface  directly  with
significant  vendors,  Ameren has inventoried vendors and major suppliers and is
currently  assessing  their Year 2000 readiness  through  surveys,  websites and
personal contact. Ameren plans to follow up with major suppliers and vendors and
verify Year 2000  compliance  where  appropriate.  Ameren has queried its health
insurance  providers.  To date,  Ameren is not aware of any problems  that would
materially  impact  financial  condition,  results of  operations  or liquidity;
however,  neither Ameren nor the Registrant has the means of ensuring that these
parties will be Year 2000 compliant.  The inability of those parties to complete
their  Year 2000  resolution  process  could  materially  impact  Ameren and the
Registrant.

Ameren is also  addressing  the impact of electric  power grid problems that may
occur outside of its own electric system.  Ameren has started Year 2000 electric
power grid impact planning through the system's various electric interconnection
affiliations and is working with the Mid-American  Interchange Network (MAIN) to
begin planning Year 2000 operational  preparedness and restoration scenarios. As
of January 31, 1999 (the latest  information  available),  MAIN was 99% complete
with its assessment phase, 94% complete with its planning phase and 53% complete
with its  implementation/testing  phase. In addition,  Ameren  provides  monthly
status  reports to the North  American  Electric  Reliability  Council (NERC) to
assist them in assessing Year 2000  readiness of the regional  electric grid. As
of January 31, 1999 (the latest  information  available),  NERC was 98% complete
with its assessment phase, 90% complete with its planning phase and 57% complete
with its  implementation/testing  phase.  Through the  Electric  Power  Research
Institute (EPRI), an industry-wide effort has been established to deal with Year
2000  problems  affecting  digital  systems and  equipment  used by the nation's
electric power companies. Under this effort, participating utilities are working
together  to assess  specific  vendors'  system  problems  and test  plans.  The
assessment  will be shared by the  industry as a whole to  facilitate  Year 2000
problem solving.

In addressing  the Year 2000 Issue,  Ameren will incur  internal  labor costs as
well as external  consulting  and other expenses to prepare for the new century.
Ameren estimates that its external costs (consulting fees and related costs) for
addressing the Year 2000 Issue will range from $10 million to $15 million. As of
December 31, 1998,  Ameren has expended  approximately  $2.4  million.  Ameren's
plans to  complete  Year  2000  modifications  are  based on  management's  best
estimates,  which are derived  utilizing  numerous  assumptions of future events
including the continued  availability of certain  resources,  and other factors.
However,  there can be no guarantee  that these  estimates  will be achieved and
actual results could differ  materially from those plans.  Specific factors that
might  cause such  material  differences  include,  but are not  limited to, the
availability  and cost of personnel  trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.

Ameren  believes  that,  with  appropriate  modifications  to existing  computer
systems/components,  updates by vendors and trading partners,  and conversion to
new  software and  hardware in the  ordinary  course of business,  the Year 2000
Issue  will  not  pose  significant  operational  problems  for the  Registrant.
However,  if such conversions are not completed in a proper and timely manner by
all  affected  parties,  the Year 2000 Issue could  result in  material  adverse
operational and financial  consequences  to the Registrant,  and there can be no
assurance that Ameren's efforts, or

                                       14

<PAGE>

those  of  vendors and  trading  partners,  interconnection affiliates,  NERC or
EPRI to address the Year 2000 Issue will be successful. Ameren is in the process
of developing  contingency plans to address potential risks,  including risks of
vendor/trading  partners  noncompliance,  as well as noncompliance of any of the
Registrant's material operating systems. The first operational  contingency plan
addressing power grid issues is expected to be completed by the end of the first
quarter 1999. Contingency plans related to the business areas are expected to be
completed by the end of the second quarter 1999. At this time, the Registrant is
unable to predict  the  ultimate  impact,  if any, of the Year 2000 Issue on the
Registrant's financial condition,  results of operations or liquidity;  however,
the impact could be material.

CONTINGENCIES

See Note 10 -  Commitments  and  Contingencies  and Note 2 - Regulatory  Matters
under Notes to Financial Statements for material issues existing at December 31,
1998.

MARKET RISK RELATED TO FINANCIAL INSTRUMENTS AND COMMODITY INSTRUMENTS

Market risk  represents the risk of changes in value of a financial  instrument,
derivative  or  non-derivative,  caused by  fluctuations  in interest  rates and
equity prices. The following discussion of Ameren's, including AmerenCIPS', risk
management activities includes forward-looking statements that involve risks and
uncertainties.  Actual results could differ  materially  from those projected in
the forward-looking  statements.  Ameren handles market risks in accordance with
established  policies,  which  may  include  entering  into  various  derivative
transactions. In the normal course of business, Ameren also faces risks that are
either non-financial or non-quantifiable.  Such risks principally include credit
risk and legal risk and are not represented in the following analysis.

Interest Rate Risk
The Registrant is exposed to market risk through  changes in interest rates with
its issuance of long-term and short-term  variable-rate  debt,  fixed-rate debt,
commercial paper and auction market preferred stock. The Registrant  manages its
interest rate exposure by controlling  the amount of these  instruments it holds
within its total  capitalization  portfolio  and by  monitoring  the  effects of
market changes in interest rates.

If market  rates  increase  1% in 1999 as  compared  to 1998,  the  Registrant's
interest  expense would increase and net income would decrease by  approximately
$1  million.  This amount has been  determined  using the  assumptions  that the
Registrant's outstanding variable-rate debt, commercial paper and auction market
preferred stock as of December 31, 1998, continued to be outstanding  throughout
1999,  and that the average  interest rates for these  instruments  increased 1%
over 1998.  The model does not  consider  the  effects of the  reduced  level of
overall economic activity that would exist in such an environment.  In the event
of a significant change in interest rates,  management would likely take actions
to further  mitigate  its  exposure to this  market  risk.  However,  due to the
uncertainty  of the  specific  actions  that  would be taken and their  possible
effects,  the  sensitivity  analysis  assumes  no  change  in  the  Registrant's
financial structure.

Commodity Price Risk
The  Registrant  is exposed to changes in market prices for natural gas and fuel
and  purchased  power.  With regard to its natural  gas  utility  business,  the
Registrant's  exposure to changing  market prices is in large part  mitigated by
the fact that the  Registrant  has a Purchased  Gas  Adjustment  Clause (PGA) in
place.  The PGA allows the  Registrant to pass on to its customers its prudently
incurred costs of natural gas.

Since  the  Registrant  does not  have a  provision  similar  to the PGA for its
electric operations, the Registrant has entered into several long-term contracts
with various  suppliers to purchase  coal to manage its exposure to fuel prices.
(See Note 10 - Commitments and Contingencies under Notes to Financial Statements
for further  information.) With regard to the Registrant's exposure to commodity
risk for purchased  power,  Ameren has  established a subsidiary,  AmerenEnergy,
Inc.,  whose primary  responsibility  includes  managing market risks associated
with the changing market prices for purchased power for the Registrant.

AmerenEnergy  utilizes  several  techniques  to  mitigate  its  market  risk for
purchased  power,  including  utilizing  derivative  financial  instruments.   A
derivative  is a contract  whose value is dependent on or derived from the value
of some underlying asset. The derivative financial instruments that AmerenEnergy
is allowed to utilize (which include  forward  contracts and futures  contracts)
are  dictated by a risk  management  policy,  which has been  reviewed  with the
Auditing  Committee of Ameren's  Board of  Directors.  Compliance  with the risk
management policy is the responsibility of a risk management steering committee,
consisting of Ameren  officers and an  independent  risk  management  officer at
AmerenEnergy.

                                       15

<PAGE>

As of December  31, 1998,  the fair value of  derivative  financial  instruments
exposed  to  commodity  price risk was  immaterial.  The  Registrant  expects an
increase in the derivative financial instruments used to manage risk in 1999 due
to expected growth at AmerenEnergy.

ACCOUNTING MATTERS

In its  November  19,  1998  meeting,  the  Emerging  Issues  Task  Force of the
Financial  Accounting  Standards  Board (EITF) reached a consensus on EITF Issue
98-10,  "Accounting  for Energy Trading and Risk  Management  Activities."  EITF
98-10 provides  guidance on the accounting for energy contracts entered into for
the purchase or sale of electricity,  natural gas, capacity and  transportation.
The EITF reached a consensus  in EITF 98-10 that sales and  purchase  activities
being  performed  need  to be  classified  as  either  trading  or  non-trading.
Furthermore,  transactions that are determined to be trading activities would be
recognized  on the balance sheet  measured at fair value,  with gains and losses
included in earnings. EITF 98-10 includes factors or indicators to consider when
determining if a transaction is a trading or  non-trading  activity.  EITF 98-10
will be  effective  beginning  in  1999.  Currently,  AmerenEnergy  enters  into
contracts for the sale and purchase of energy on behalf of the Registrant. These
transactions  are considered a non-trading  activity and are accounted for using
the accrual or settlement method, which represents industry practice. Should any
of AmerenEnergy's  future activities be considered  trading  activities based on
the indicators  provided in EITF 98-10,  the related  transaction may need to be
measured at fair value and recognized in the balance sheet,  with a gain or loss
included in earnings.  EITF 98-10 is not  expected to have a material  impact on
the Registrant's financial position or results of operations upon adoption. Many
of the  provisions  of EITF 98-10 will  likely be  superceded  by  Statement  of
Financial   Accounting   Standards   (SFAS)  133,   "Accounting  for  Derivative
Instruments and Hedging Activities" (see below).

In June  1998,  the  Financial  Accounting  Standards  Board  issued  SFAS  133,
"Accounting  for  Derivative  Instruments  and  Hedging  Activities."  SFAS  133
establishes  accounting and reporting  standards for derivative  instruments and
for hedging  activities  and  requires  recognition  of all  derivatives  on the
balance  sheet  measured at fair  value.  SFAS 133 is  effective  for all fiscal
quarters of all fiscal years beginning after June 15, 1999. Earlier  application
is  encouraged.  SFAS 133 cannot be  applied  retroactively.  At this time,  the
Registrant  is  unable to  determine  the  impact  of SFAS 133 on its  financial
position or results of operations upon adoption.

In March 1998,  the  Accounting  Standards  Executive  Committee of the American
Institute of Certified  Public  Accountants  issued  Statement of Position (SOP)
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use."  SOP 98-1  provides  guidance  on  accounting  for the  costs of
computer  software  developed  or obtained  for  internal  use.  Under SOP 98-1,
certain  costs,  which  are  currently  expensed  by  the  Registrant,   may  be
capitalized  and amortized  over some future  period.  SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. SOP 98-1 is not expected to have
a  material  impact  on  the  Registrant's  financial  position  or  results  of
operations upon adoption.

EFFECTS OF INFLATION AND CHANGING PRICES

The  Registrant's  rates for retail  electric  and gas service are  regulated by
Illinois  Commerce  Commission.  Non-retail  electric rates are regulated by the
FERC.

The current  replacement  cost of the Registrant's  utility plant  substantially
exceeds its recorded historical cost. Under existing regulatory  practice,  only
the historical cost of plant is recoverable  from customers.  As a result,  cash
flows  designed to provide  recovery of historical  costs  through  depreciation
might not be adequate to replace plants in future years. Regulatory practice has
been modified for the Registrant's  generation portion of its business (see Note
2  -  Regulatory  Matters  under  Notes  to  Financial  Statements  for  further
information).

The cost of fuel for  electric  generation,  which was  previously  reflected in
billings to customers through a fuel adjustment  clause,  has been added to base
rates as provided for in the Law (see Note 2 - Regulatory Matters under Notes to
Financial  Statements  for  further  information).  Changes  in  gas  costs  are
generally  reflected in billings to customers through a purchased gas adjustment
clause.

Inflation continues to be a factor affecting operations, earnings, stockholders'
equity and financial performance.

                                       16

<PAGE>


SAFE HARBOR STATEMENT

Statements  made in this report  which are not based on  historical  facts,  are
forward-looking  and,  accordingly,  involve risks and uncertainties  that could
cause actual results to differ  materially from those  discussed.  Although such
forward-looking  statements  have  been  made in good  faith  and are  based  on
reasonable assumptions,  there is no assurance that the expected results will be
achieved.  These statements include (without limitation) statements as to future
expectations,   beliefs,  plans,  strategies,  objectives,  events,  conditions,
financial  performance  and the Year 2000 Issue.  In  connection  with the "Safe
Harbor" provisions of the Private Securities  Litigation Reform Act of 1995, the
Registrant is providing this cautionary  statement to identify important factors
that could cause actual  results to differ  materially  from those  anticipated.
Factors  include,  but are not limited to, the  effects of  regulatory  actions;
changes  in laws and other  governmental  actions;  competition;  future  market
prices for fuel and purchased power, electricity, and natural gas, including the
use of financial  instruments;  average  rates for  electricity  in the Midwest;
business and economic  conditions;  interest  rates;  weather  conditions;  fuel
prices and  availability;  generation  plant  performance;  monetary  and fiscal
policies; future wages and employee benefits costs; and legal and administrative
proceedings.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Information  required to be reported by this item is included under "Market
Risk  Related  to  Financial   Instruments   and   Commodity   Instruments"   in
"Management's  Discussion  and Analysis of Financial  Conditions  and Results of
Operations" under Item 7 herein.

                                       17


<PAGE>







                        REPORT OF INDEPENDENT ACCOUNTANTS
                        ---------------------------------





To the Board of Directors and Shareholders
of Central Illinois Public Service Company


In our opinion,  the financial  statements  listed in the index  appearing under
Item 14(a)(1) on Page 37 present fairly, in all material respects, the financial
position of Central  Illinois  Public Service  Company at December 31, 1998, and
the results of their  operations and their cash flows for the year then ended in
conformity  with  generally  accepted  accounting  principles.  These  financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our  audit.  We  conducted  our audit of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audit  provides a reasonable  basis for the opinion  expressed
above.  The financial  statements of Central Illinois Public Service Company for
the year ended December 31, 1997 were audited by other  independent  accountants
whose report dated January 31, 1997  expressed an  unqualified  opinion on those
statements.






/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
St. Louis, Missouri
February 4, 1999

                                       18

<PAGE>


ITEM    8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<TABLE>
<CAPTION>

                     CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
                     ---------------------------------------
                                  BALANCE SHEET
                                  -------------
                      (Thousands of Dollars, Except Shares)


                                                                     December 31,      December 31,
ASSETS                                                                   1998              1997
------                                                                   ----              ----
<S>                                                                  <C>               <C>
Property and plant, at original cost:
   Electric                                                           $2,381,682        $2,311,364
   Gas                                                                   259,656           249,499
                                                                   --------------      ------------
                                                                       2,641,338         2,560,863
   Less accumulated depreciation and amortization                      1,192,108         1,132,591
                                                                   --------------      ------------
                                                                       1,449,230         1,428,272
Construction work in progress                                             16,220            59,531
                                                                   --------------      ------------
         Total property and plant, net                                 1,465,450         1,487,803
                                                                   --------------      ------------

Other assets                                                              31,904            30,476

Current assets:
   Cash and cash equivalents                                              10,180            28,140

   Accounts receivable - trade (less allowance for doubtful
         accounts of $1,714 and $1,200, respectively)                     44,494            67,495
   Unbilled revenue                                                       53,120            31,708
   Other accounts and notes receivable                                    16,486             7,760
   Materials and supplies, at average cost -
      Fossil fuel                                                         38,102            24,919
      Gas stored underground                                              12,689            14,275
      Other                                                               36,047            32,334
   Other                                                                   8,214            10,537
                                                                   --------------      ------------
         Total current assets                                            219,332           217,168
                                                                   --------------      ------------
Regulatory assets:
   Deferred income taxes                                                  24,797            28,052
   Other                                                                  22,914            25,208
                                                                   --------------      ------------
         Total regulatory assets                                          47,711            53,260
                                                                   --------------      ------------
TOTAL ASSETS                                                          $1,764,397        $1,788,707
                                                                   ==============      ============

CAPITAL AND LIABILITIES
Capitalization:
   Common stock, no par value, authorized 45,000,000 shares -
     outstanding 25,452,373 shares                                      $120,033          $121,282
   Retained earnings                                                     455,337           451,477
                                                                   --------------      ------------
         Total common stockholder's equity                               575,370           572,759
   Preferred stock not subject to mandatory redemption (Note 5)           80,000            80,000
   Long-term debt (Note 7)                                               528,446           558,474
                                                                   --------------      ------------
         Total capitalization                                          1,183,816         1,211,233
                                                                   --------------      ------------

Current liabilities:
   Current maturity of long-term debt                                     60,000             9,000
   Short-term debt                                                        46,700            64,966
   Accounts and wages payable                                             61,609            89,362
   Accumulated deferred income taxes                                      21,386            20,285
   Taxes accrued                                                          13,201            15,869
   Other                                                                  34,454            21,937
                                                                   --------------      ------------
         Total current liabilities                                       237,350           221,419
                                                                   --------------      ------------
Commitments and Contingencies (Notes 2 and 10)
Accumulated deferred income taxes                                        234,119           237,629
Accumulated deferred investment tax credits                               34,657            40,369
Regulatory liability                                                      39,621            48,587
Other deferred credits and liabilities                                    34,834            29,470
                                                                   ==============      ============
TOTAL CAPITAL AND LIABILITIES                                         $1,764,397        $1,788,707
                                                                   ==============      ============


See Notes to Financial Statements.
</TABLE>
                                       19

<PAGE>

<TABLE>
<CAPTION>

                    CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
                    --------------------------------------- 
                               STATEMENT OF INCOME
                               -------------------
                             (Thousands of Dollars)

                                                              December 31,   December 31,  December 31,
For the year ended                                                1998          1997         1996
                                                                  ----          ----         ----

OPERATING REVENUES:
<S>                                                           <C>          <C>          <C>
   Electric                                                    $ 721,918    $ 700,517    $ 725,750
   Gas                                                           125,506      151,558      155,352
                                                               ---------    ---------     --------
    Total operating revenues                                     847,424      852,075      881,102
                                                                                               

OPERATING EXPENSES:
   Operations
      Fuel and purchased power                                   230,085      242,256      274,215
      Gas                                                         69,350       97,226       96,228
      Other                                                      179,477      160,201      145,332
                                                               ---------    ---------     --------
                                                                 478,912      499,683      515,775
    Maintenance                                                   71,542       75,652       61,458
    Depreciation and amortization                                 74,323       82,689       81,853
    Income taxes                                                  45,769       33,661       47,693
    Other taxes                                                   56,834       57,895       57,792
                                                               ---------    ---------     --------
      Total operating expenses                                   727,380      749,580      764,571
                                                                                               
Operating Income                                                 120,044      102,495      116,531
                                                                                               

OTHER INCOME AND DEDUCTIONS:
   Allowance for equity funds used during
      Construction                                                    16          783          378
   Miscellaneous, net                                               (955)      (3,800)      (2,245)
                                                               ---------    ---------     --------
      Total other income and deductions                             (939)      (3,017)      (1,867)
                                                                                     

Income Before Interest Charges                                   119,105       99,478      114,664
                                                                                  
INTEREST CHARGES:
   Interest                                                       40,039       36,791        37,754
   Allowance for borrowed funds used during construction          (1,081)        (786)         (483)
                                                               ---------    ---------     ---------
      Net interest charges                                        38,958       36,005        37,271

Income Before Extraordinary Charge                                80,147       63,473        77,393
                                                               ---------    ---------     ---------

Extraordinary Charge, net of income taxes (Note 2)                   --       (24,853)          --
                                                               ---------    ---------     ---------

NET INCOME                                                        80,147       38,620        77,393
                                                               ---------    ---------     ---------

Preferred Stock Dividends                                          3,745        3,715         3,721
                                                               ---------    ---------     ---------

NET INCOME AFTER PREFERRED
       STOCK DIVIDENDS                                         $  76,402     $  34,905    $  73,672
                                                                ==========    =========    =========

</TABLE>

See Notes to Financial Statements.

                                       20

<PAGE>

<TABLE>
<CAPTION>



                     CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
                     ---------------------------------------
                             STATEMENT OF CASH FLOWS
                             -----------------------
                             (Thousands of Dollars)


                                                        December 31,   December 31   December 31,
For the year ended                                          1998         1997           1996
                                                            ----         ----           ----
<S>                                                   <C>             <C>           <C>
Cash Flows From Operating:
   Income before extraordinary charge                  $  80,147       $  63,473     $  77,393
   Adjustments to reconcile net income to net cash
      provided by operating activities:
        Depreciation and amortization                     74,323          82,689        81,853
        Allowance for funds used during construction      (1,097)         (1,569)         (861)
        Deferred income taxes, net                       (10,801)         (1,686)        1,600
        Deferred investment tax credits, net              (5,712)         (8,516)       (3,349)
        Changes in assets and liabilities:
           Receivables, net                               (7,137)         (2,076)      (12,079)
           Materials and supplies                        (15,310)          2,249        18,877     
           Regulatory assets - other                       2,294         (50,693)      (44,903)   
           Accounts and wages payable                    (27,753)         16,840         2,411
           Taxes accrued                                  (2,668)          1,926         2,788
           Other, net                                     37,058         (21,922)       13,609    
                                                        --------        --------      --------
Net Cash Provided By Operating Activities                123,344          80,715       137,339

Cash Flows From Investing:
   Construction expenditures                             (68,848)       (115,551)     (106,601)
   Allowance for funds used during construction            1,097           1,569           861
   Other                                                     --            3,182        25,874
                                                        --------        --------      --------
Net Cash Used In Investing Activities                    (67,751)       (110,800)      (79,866)
 
Cash Flows From Financing:
   Dividends on common stock                             (72,285)        (43,300)      (62,950)
   Dividends on preferred stock                           (4,002)         (3,638)       (3,637)
   Redemptions -
      Short-term debt                                    (18,266)            --            --
      Long-term debt                                     (64,000)        (64,000)          --
   Issuances -
      Short-term debt                                       --             7,198         9,847
      Long-term debt                                      85,000         152,000           --
                                                        --------        --------      --------
Net Cash Provided By (Used In) Financing Activities      (73,553)         48,260       (56,740)

Net Change In Cash And Cash Equivalents                  (17,960)         18,175           733
Cash And Cash Equivalents At Beginning Of Year            28,140           9,965         9,232
                                                        --------        --------      --------
Cash And Cash Equivalents At End Of Year               $  10,180       $  28,140     $   9,965
==============================================================================================
Cash paid during the periods:
----------------------------------------------------------------------------------------------
   Interest (net of amount capitalized)                $  40,269       $  35,363     $  36,512
   Income taxes                                        $  61,953       $  36,763     $  50,960
----------------------------------------------------------------------------------------------

</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION:
An  extraordinary  charge to earnings was recorded in the fourth quarter of 1997
for the write-off of generation-related regulatory assets and liabilities of the
Registrant's   retail  electric  business  as  a  result  of  electric  industry
restructuring  legislation  enacted in Illinois in December  1997. The write-off
reduced  earnings  $25  million,  net of income  taxes.  See Note 2 - Regulatory
Matters under Notes to Financial Statements for further information.

See Notes to Financial Statements.

                                       21

<PAGE>




                     CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
                     ---------------------------------------

<TABLE>
<CAPTION>

STATEMENT OF RETAINED EARNINGS
(Thousands of Dollars)

-----------------------------------------------------------------------------------
Year Ended December 31,                                                        
                                           1998             1997            1996
-----------------------------------------------------------------------------------
<S>                                     <C>              <C>             <C>     
Balance at Beginning of Period           $451,477         $459,942        $449,137
-----------------------------------------------------------------------------------
  Add:
  Net income                               80,147           38,620          77,393
-----------------------------------------------------------------------------------
                                          531,624          498,562         526,530
-----------------------------------------------------------------------------------
  Deduct:
  Common stock cash dividends              72,285           43,300          62,950
  Preferred stock cash dividends            4,002            3,785           3,638
-----------------------------------------------------------------------------------
                                           76,287           47,085          66,588
-----------------------------------------------------------------------------------
 Balance at End of Period                $455,337         $451,477        $459,942
-----------------------------------------------------------------------------------

</TABLE>





<TABLE>
<CAPTION>

SELECTED QUARTERLY INFORMATION  (Unaudited)
(Thousands of Dollars)

----------------------------------------------------------------------------------------------
                                 Operating        Operating         Net        Net Income
                                 Revenues          Income          Income     (Loss) After
Quarter Ended                                                      (Loss)       Preferred
                                                                              Stock Dividends
----------------------------------------------------------------------------------------------
<S>                              <C>              <C>             <C>            <C>   
March 31, 1998                    199,515          21,732          12,118         11,134
March 31, 1997                    220,692          22,528          14,366         13,453
June 30, 1998                     214,829          28,429          19,349         18,468
June 30, 1997                     190,931          21,713          11,830         10,902
September 30, 1998  <F1>          246,675          50,623          39,672         38,736
September 30, 1997                224,245          42,923          32,756         31,816
December 31, 1998                 186,405          19,260           9,008          8,064
December 31, 1997  <F2>           216,207          15,331         (20,332)       (21,266)
----------------------------------------------------------------------------------------------

<F1> The third quarter of 1998  included a  nonrecurring  charge  related to the
targeted  separation  plan,  which  reduced net income $4 million.  See Note 3 -
Targeted  Separation  Plan  under  Notes to  Financial  Statements  for  further
information.
<F2> The  fourth quarter  of 1997 included  merger costs of  $5 million  and  an
extraordinary charge of $25 million, net of income taxes (see Note 3 -Regulatory
Matters under Notes to Financial Statements for further information).

Other  changes in  quarterly  earnings are due to the effect of weather on sales
and other factors that are characteristic of public utility operations.

</TABLE>

See Notes to Financial Statements.

                                       22

<PAGE>



CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998

NOTE 1 - Summary of Significant Accounting Policies

Basis of Presentation

Central  Illinois  Public Service  Company  (AmerenCIPS or the  Registrant) is a
wholly-owned  subsidiary  of Ameren  Corporation  (Ameren),  which is the parent
company of two utility  operating  companies,  the Registrant and Union Electric
Company  (AmerenUE).  Ameren is a registered  holding  company  under the Public
Utility  Holding  Company Act of 1935 (PUHCA)  formed in December  1997 upon the
merger of CIPSCO Incorporated (the Registrant's former parent) and AmerenUE (the
Merger).  Both  Ameren  Corporation  and its  subsidiaries  are  subject  to the
regulatory  provisions  of  the  PUHCA.  The  operating  companies  are  engaged
principally in the generation,  transmission,  distribution and sale of electric
energy and the purchase, distribution, transportation and sale of natural gas in
the states of Illinois and Missouri. Contracts among the companies--dealing with
jointly-owned generating facilities, interconnecting transmission lines, and the
exchange of electric  power--are  regulated  by the  Federal  Energy  Regulatory
Commission   (FERC)  or  the   Securities   and   Exchange   Commission   (SEC).
Administrative  support  services are provided to the  Registrant  by a separate
Ameren  subsidiary,  Ameren  Services  Company.  The  Registrant  serves 400,000
electric and 175,000 gas customers in a 20,000 square-mile region of central and
southern Illinois.

The Registrant also has a 20% interest in Electric Energy,  Inc. (EEI), which is
accounted  for under the equity method of  accounting.  EEI owns and operates an
electric generating and transmission facility in Illinois that supplies electric
power primarily to a uranium enrichment plant located in Paducah, Kentucky.

Regulation
In addition to the SEC, the  Registrant  is  regulated by the Illinois  Commerce
Commission (ICC) and the FERC. The accounting policies of the Registrant conform
to  generally  accepted  accounting  principles  (GAAP).  See Note 2  Regulatory
Matters for further information.

Property and Plant
The cost of  additions  to and  betterments  of units of  property  and plant is
capitalized.  Cost includes labor, material,  applicable taxes and overheads. An
allowance for funds used during  construction is also added for the Registrant's
regulated  assets,  and  interest  incurred  during  construction  is added  for
non-regulated  assets.  Maintenance  expenditures  and the  renewal of items not
considered  units of property are charged to income as  incurred.  When units of
depreciable  property are  retired,  the original  cost and removal  cost,  less
salvage value, are charged to accumulated depreciation.

Depreciation
Depreciation  is provided  over the  estimated  lives of the various  classes of
depreciable  property by applying composite rates on a straight-line  basis. The
provision for depreciation in 1998,  1997, and 1996 was  approximately 3% of the
average depreciable cost.

Fuel and Gas Costs
The cost of fuel for  electric  generation  is  reflected  in base rates with no
provision for changes to be made through a fuel adjustment clause. (See Note 2 -
Regulatory  Matters for further  information.) In 1997 and 1996, changes in fuel
costs were  generally  reflected in billings to electric  customers  through the
fuel adjustment clause. Changes in gas costs are generally reflected in billings
to gas customers through a purchased gas adjustment clause.

Cash and Cash Equivalents
Cash  and  cash  equivalents  include  cash on hand  and  temporary  investments
purchased with an original maturity of three months or less.

                                       23

<PAGE>

Income Taxes
The Registrant is included in the  consolidated  federal income tax return filed
by Ameren. Income taxes are allocated to the individual companies based on their
respective  taxable  income or loss.  Deferred  tax assets and  liabilities  are
recognized  for the tax  consequences  of  transactions  that have been  treated
differently  for financial  reporting and tax return  purposes,  measured  using
statutory  tax rates  expected  to be in effect when the  temporary  differences
reverse.

Investment  tax  credits  utilized in prior  years were  deferred  and are being
amortized over the useful lives of the related properties.

Allowance for Funds Used During Construction
Allowance  for  funds  used  during  construction  (AFC) is a  utility  industry
accounting  practice  whereby the cost of borrowed  funds and the cost of equity
funds (preferred and common stockholders' equity) applicable to the Registrant's
regulated  construction  program are capitalized as a cost of construction.  AFC
does not  represent a current  source of cash funds.  This  accounting  practice
offsets the effect on earnings of the cost of  financing  current  construction,
and treats such financing costs in the same manner as  construction  charges for
labor and materials.

Under  accepted  ratemaking  practice,  cash  recovery  of AFC, as well as other
construction  costs,  occurs when  completed  projects are placed in service and
reflected  in  customer  rates.  The AFC rates  used were 6% during  1998 and 8%
during 1997 and 1996.

Unamortized Debt Discount, Premium and Expense
Discount, premium, and expense associated with long-term debt are amortized over
the lives of the related issues.

Revenue
The  Registrant  accrues an estimate of electric  and gas  revenues  for service
rendered but unbilled at the end of each accounting period.

Evaluation of Assets for Impairment
Statement of Financial  Accounting  Standards  (SFAS) 121,  "Accounting  for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of"
prescribes  general  standards for the recognition and measurement of impairment
losses. The Registrant determines if long-lived assets are impaired by comparing
their  undiscounted  expected  future cash flows to their  carrying  amount.  An
impairment loss is recognized if the undiscounted expected future cash flows are
less  than the  carrying  amount  of the  asset.  SFAS 121  also  requires  that
regulatory  assets  which are no longer  probable  of  recovery  through  future
revenues be charged to  earnings  (see Note 2 -  Regulatory  Matters for further
information). As of December 31, 1998, no impairment was identified.

Use of Estimates
The  preparation  of  financial  statements  in  conformity  with GAAP  requires
management  to make  certain  estimates  and  assumptions.  Such  estimates  and
assumptions may affect reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.

Reclassifications
Certain  reclassifications have been made to prior-years financial statements to
conform with 1998 reporting.

NOTE 2 - Regulatory Matters

In June 1998, the Registrant  filed a request with the ICC to increase rates for
natural gas service.  In February  1999,  the ICC approved an $8 million  annual
rate increase. The rate increase became effective in February 1999.

In 1998, the Registrant  joined a group of ten other companies which support the
formation of the Midwest  Independent  System  Operator  (Midwest  ISO).  An ISO
operates,   but  does  not  own,   transmission  systems  and  maintains  system
reliability and security while  alleviating  pricing issues  associated with the
"pancaking"  of rates.  The Midwest  ISO would be  regulated  by FERC.  The FERC
conditionally  approved the Midwest ISO in September 1998, and it is expected to
be  operational  by the year  2001.  The  Midwest  ISO covers  eight  states and
represents portions of 40,000 miles of transmission line and 62,000 megawatts of
electric power. Collectively, the member companies serve more than seven million
customers.

                                       24

<PAGE>

In December 1997, the Governor of Illinois signed the Electric  Service Customer
Choice and Rate  Relief Law of 1997 (the Law)  providing  for  electric  utility
restructuring  in Illinois.  This  legislation  introduces  competition into the
supply of electric energy in Illinois.

Under the Law,  retail  direct  access,  which allows  customers to choose their
electric generation  supplier,  will be phased in over several years. Access for
commercial and  industrial  customers will occur over a period from October 1999
to December 2000, and access for  residential  customers will occur after May 1,
2002.

The Law includes a 5% electric  rate decrease for the  Registrant's  residential
customers,  effective  August 1,  1998.  This  rate  decrease  reduced  electric
revenues by  approximately $5 million in 1998 and is expected to reduce electric
revenues by approximately  $11 million annually  thereafter,  based on estimated
levels of sales and assuming  normal weather  conditions.  The Registrant may be
subject to additional 5% residential electric rate decreases in each of 2000 and
2002 to the extent its rates  exceed the Midwest  utility  average at that time.
The Registrant's rates are currently below the Midwest utility average.

As a  result  of the  Law,  the  Registrant  filed a  proposal  with  the ICC to
eliminate the electric fuel  adjustment  clause for Illinois  retail  customers,
thereby  including  a  historical  level of fuel  costs in base  rates.  The ICC
approved the Registrant's filing in March 1998.

The Law  contains a provision  requiring  one-half of excess  earnings  from the
Illinois  regulated  jurisdiction for the years 1998 through 2004 to be refunded
to the Registrant's customers.  Excess earnings are defined as the excess of the
two-year  average  annual  rate of  return on common  equity  over the  two-year
average of the average monthly yields of the 30-year U.S.  Treasury bonds,  plus
prescribed  percentages ranging from 5.5% to 6.5%. Filings must be made with the
ICC on or before  March 31 of each year 2000  through  2005.  At this time,  the
Registrant  is unable to  determine  the impact of this  provision on its future
financial condition, results of operations or liquidity.

Other  provisions  of the Law  include  (1)  potential  recovery of a portion of
strandable  costs,  which  represent  costs which would not be  recoverable in a
restructured  environment,  through a transition charge collected from customers
who choose  another  electric  supplier;  (2) a mechanism to securitize  certain
future  revenues;  (3) a requirement to file a delivery  service tariff in March
1999  for  customers  who  choose  alternative  suppliers;  and (4) a  provision
relieving  the  Registrant of the  requirement  to file an electric rate case or
alternative  regulatory plan following the consummation of the Merger to reflect
the effects of net merger savings.

The Registrant's  accounting  policies and financial  statements conform to GAAP
applicable  to  rate-regulated  enterprises  and  reflect  the  effects  of  the
rate-making  process in accordance with SFAS 71,  "Accounting for the Effects of
Certain  Types of  Regulation."  Such effects  concern  mainly the time at which
various items enter into the  determination of net income in order to follow the
principle  of  matching  costs and  revenues.  For  example,  SFAS 71 allows the
Registrant  to record  certain  assets and  liabilities  (regulatory  assets and
regulatory  liabilities) which are expected to be recovered or settled in future
rates  and would not be  recorded  under  GAAP for  non-regulated  entities.  In
addition, reporting under SFAS 71 allows companies whose service obligations and
prices are  regulated to maintain  assets on their balance  sheets  representing
costs they  reasonably  expect to recover from customers,  through  inclusion of
such costs in future rates.  SFAS 101,  "Accounting  for the  Discontinuance  of
Application of FASB  Statement No. 71," specifies how an enterprise  that ceases
to  meet  the  criteria  for  application  of  SFAS  71 for  all or  part of its
operations  should  report that event in its financial  statements.  In general,
SFAS 101 requires that the enterprise  report the  discontinuance  of SFAS 71 by
eliminating from its balance sheet all regulatory assets and liabilities related
to the applicable portion of the business that no longer meets SFAS 71 criteria.
At its July 24, 1997  meeting,  the Emerging  Issues Task Force of the Financial
Accounting  Standards  Board  (EITF)  concluded  that  application  of  SFAS  71
accounting  should  be  discontinued  once  sufficiently  detailed  deregulation
legislation is issued for a separable  portion of a business for which a plan of
deregulation  has been  established.  However,  the EITF further  concluded that
regulatory assets associated with the deregulated portion of the business, which
will be recovered through tariffs charged to customers of a regulated portion of
the business,  should be associated  with the regulated  portion of the business
from which  future cash  recovery is expected  (not the portion of the  business
from which the costs  originated),  and can therefore  continue to be carried on
the regulated  entity's balance sheet to the extent such assets are recoverable.
In addition,  SFAS 121  establishes  accounting  standards for the impairment of
long-lived assets (see Note 1 - Summary of Significant  Accounting  Policies for
further information).

Due to the  enactment  of the Law,  prices  for the  retail  supply of  electric
generation are expected to transition from cost-based,  regulated rates to rates
determined in large part by competitive  market forces in the state of Illinois.
As a  result,  the  Registrant  discontinued  application  of  SFAS  71 for  its
generating  business (i.e., the portion of the Registrant's  business related to
the supply of electric energy) in the fourth quarter of 1997. The Registrant has

                                       25

<PAGE>

evaluated the impact of the Law on the future  recoverability  of its regulatory
assets and liabilities related to the generation portion of its business and has
determined  that it is not  probable  that such assets and  liabilities  will be
recovered  through  cash  flows  from the  regulated  portion  of its  business.
Accordingly,   the  Registrant's   generation-related   regulatory   assets  and
liabilities  of its retail  electric  business  were  written  off in the fourth
quarter  of 1997,  resulting  in an  extraordinary  charge  to  earnings  of $25
million,  net of income taxes. These regulatory assets and liabilities  included
previously incurred costs originally expected to be collected/refunded in future
revenues,  such as fuel contract  restructuring  costs, costs associated with an
abandoned  scrubber at a fossil fuel plant,  and income  tax-related  regulatory
assets and liabilities.  In addition,  the Registrant has evaluated  whether the
recoverability of the costs associated with its remaining net generation-related
assets has been impaired as defined under SFAS 121. The Registrant has concluded
that  impairment,  as defined  under SFAS 121,  does not exist and that no plant
write-downs  are necessary at this time. At December 31, 1998, the  Registrant's
net  investment  in  generation  facilities  approximated  $625  million and was
included in electric plant in-service on the Registrant's balance sheet.

The  provisions of the Law could also result in lower  revenues,  reduced profit
margins and increased costs of capital and operations expense. At this time, the
Registrant is unable to determine the impact of the Law on its future  financial
condition, results of operations or liquidity.

In accordance  with SFAS 71, the Registrant has deferred  certain costs pursuant
to actions of its regulators, and is currently recovering such costs in electric
rates charged to customers.

<TABLE>
<CAPTION>

At December 31, the Registrant had recorded the following  regulatory assets and
regulatory liability:
-------------------------------------------------------------------------------
(in millions)                                          1998              1997
-------------------------------------------------------------------------------
<S>                                                    <C>               <C>
Regulatory Assets:                            
  Income taxes                                          $25               $28
  Unamortized loss on reacquired debt                     8                 6
  Other                                                  15                19
-------------------------------------------------------------------------------
Regulatory Assets                                       $48               $53
-------------------------------------------------------------------------------
Regulatory Liability:
  Income taxes                                          $40               $49
-------------------------------------------------------------------------------
Regulatory Liability                                    $40               $49
-------------------------------------------------------------------------------
</TABLE>

Income Taxes:  See Note 8 - Income Taxes.
Unamortized Loss on Reacquired Debt: Represents losses related to refunded debt.
These amounts are being  amortized over the lives of the related new debt issues
or the remaining lives of the old debt issues if no new debt was issued.

The Registrant continually assesses the recoverability of its regulatory assets.
Under  current  accounting  standards,  regulatory  assets  are  written  off to
earnings  when it is no longer  probable  that such  amounts  will be  recovered
through future revenues.

In April 1996, the FERC issued Order 888 and Order 889 related to the industry's
wholesale  electric  business.  In January  1998,  Ameren filed a combined  open
access tariff that conforms to the FERC's orders.

NOTE 3 - Targeted Separation Plan

In July 1998,  Ameren offered  separation  packages to employees whose positions
were  eliminated  through a targeted  separation  plan  (TSP).  During the third
quarter of 1998,  a  nonrecurring,  pre-tax  charge of $7 million was  recorded,
which reduced earnings $4 million,  representing the Registrant's share of costs
incurred to implement the TSP. The remaining  liability  associated with the TSP
at December 31, 1998, was $3 million.

NOTE 4 - Concentration of Risk

Market Risk
The  Registrant   engages  in  price  risk  management   activities  related  to
electricity. In addition to buying and selling these commodities, the Registrant
uses derivative financial instruments to manage market risks and reduce exposure
resulting from  fluctuations  in interest  rates and the prices of  electricity.
Derivative  instruments used include futures and forward  contracts.  The use of
these  types of  contracts  allows  the  Registrant  to  manage  and  hedge  its
contractual  commitments  and  reduce  exposure  related  to the  volatility  of
commodity market prices.

                                       26

<PAGE>

Credit Risk
Credit  risk  represents  the  accounting  loss  that  would  be  recognized  if
counterparties  fail to  perform as  contracted.  New York  Mercantile  Exchange
(NYMEX) traded futures contracts are guaranteed by NYMEX and have nominal credit
risk. On all other transactions, the Registrant is exposed to credit risk in the
event of nonperformance by the counterparties in the transaction.

The Registrant's  financial instruments subject to credit risk consist primarily
of trade accounts  receivable and forward  contracts.  The risk  associated with
trade receivables is mitigated by the large number of customers in a broad range
of industry groups  comprising the Registrant's  customer base. The Registrant's
revenues  are  primarily  derived from sales of  electricity  and natural gas to
customers  in  Illinois.  For  each  counterparty  in  forward  contracts,   the
Registrant  analyzes the  counterparty's  financial  condition prior to entering
into an agreement, establishes credit limits and monitors the appropriateness of
these limits on an ongoing basis.

NOTE 5 - Preferred Stock

At December 31, 1998 and 1997,  AmerenCIPS  had 4.6 million shares of authorized
preferred  stock.  There were 2 million  shares of cumulative  preferred and 2.6
million  shares of preferred  without par value  (aggregate  stated value not to
exceed $65 million) authorized.

<TABLE>
<CAPTION>

Outstanding   preferred  stock  is  entitled  to  cumulative  dividends  and  is
redeemable at the redemption prices shown below:
-----------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------
Preferred Stock Not Subject to Mandatory Redemption:
(in millions)
-----------------------------------------------------------------------------------------
                                            Redemption Price              December 31,
                                              (per share)           1998          1997
<S>                                          <C>                    <C>           <C>
Par value $100 Series--
4.00% Series - 150,000 shares                 $101.00                $15           $15
4.25% Series - 50,000 shares                   102.00                  5             5
4.90% Series - 75,000 shares                   102.00                  8             8
4.92% Series - 50,000 shares                   103.50                  5             5
5.16% Series - 50,000 shares                   102.00                  5             5
1993 Auction  - 300,000 shares                 100.00 - note(a)       30            30
6.625% Series - 125,000 shares                 100.00                 12            12
-----------------------------------------------------------------------------------------
Total Preferred Stock Not
Subject to Mandatory Redemption                                      $80           $80
-----------------------------------------------------------------------------------------

(a) Dividend rates, and periods during which such rates apply, vary depending on
the  Registrant's  selection of certain defined  dividend  period  lengths.  The
average dividend rate during 1998 was 4.04%.

-----------------------------------------------------------------------------------------
</TABLE>

NOTE 6 - Short-Term Borrowings

Short-term  borrowings  of the  Registrant  consist  of bank  loans  (maturities
generally on an overnight  basis) and  commercial  paper  (maturities  generally
within 10-45 days).  At December 31, 1998 and 1997,  $47 million and $65 million
of short-term  borrowings were outstanding,  respectively.  The weighted average
interest rates on borrowings outstanding at December 31, 1998 and 1997 were 4.9%
and 6.3%, respectively.

At  December  31,  1998,  the  Registrant  had  committed  bank  lines of credit
aggregating  $80 million (all of which was unused and $33 million was available)
which make  available  interim  financing at various rates of interest  based on
LIBOR,  the bank  certificate of deposit rate, or other options.  These lines of
credit are renewable annually at various dates throughout the year.

                                       27

<PAGE>


NOTE 7 - Long-Term Debt


<TABLE>
<CAPTION>

Long-term debt outstanding at December 31, was:
--------------------------------------------------------------------------------
(in millions)                                         1998               1997
--------------------------------------------------------------------------------
First Mortgage Bonds  - note (a)
--------------------------------------------------------------------------------
<S>                                                <C>                <C>    
 8 1/2% Series W paid in 1998                        $   -              $  33  
 7 1/8% Series W due 1999                               50                 50  
 6.00% Series Z due 2000                                25                 25  
 6.73% Series 1997-2 due 2001                           20                 20  
 6 3/4% Series Y due 2002                               23                 23  
 6 3/8% Series Z due 2003                               40                 40  
 6.49% Series 1995-1 due 2005                           20                 20  
 7.05% Series 1997-2 due 2006                           20                 20  
 7 1/2% Series X due 2007                               50                 50  
 7.61% Series 1997-2 due 2017                           40                 40  
 6.125% Series due 2028                                 60                  -  
 Other  5.375% - 6.99% due 1999 through 2008            60                 45
--------------------------------------------------------------------------------
                                                      $408               $366
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Pollution Control Loan Obligations
--------------------------------------------------------------------------------
  1990 Series B 7.60% due 2013                          32                 32
  1990 Series A 7.60% due 2014                          20                 20
  1993 Series C-1  due 2026 - note (b)                  35                 35
  1993 Series C-2  due 2026 - note (c)                  25                 25
  1993 Series A 6 3/8% due 2028                         35                 35
  Other 3.785% - 5.90% due 2028                         35                 35
--------------------------------------------------------------------------------
                                                      $182               $182
--------------------------------------------------------------------------------
Unsecured Loans                                          -                 21
--------------------------------------------------------------------------------
Unamortized Discount and Premium on Debt                (2)                (2)
--------------------------------------------------------------------------------
Maturities Due Within One Year                         (60)                (9)
--------------------------------------------------------------------------------
Total Long-Term Debt                                  $528               $558
--------------------------------------------------------------------------------
(a) At  December  31,  1998,  substantially  all of the  property  and plant was
mortgaged under, and subject to liens of, the respective  indentures pursuant to
which the bonds were issued.
(b) The interest rate for the year 1998 was 3.90%. Since  August  15,  1998, the
actual  interest rates vary since the bonds are currently in the weekly interest
rate mode.  Interest rate modes can be changed by the  Registrant  at the end of
any interest rate mode period
(c) The interest rate for the year  1998 was  5.70%.  These bonds are in a long-
term interest rate mode until August 15, 2003.
</TABLE>


Maturities of long-term debt through 2003 are as follows:
------------------------------------------------------------------------
(in millions)                                           Principal Amount
------------------------------------------------------------------------
                                      1999                     $60
                                      2000                      35
                                      2001                      30
                                      2002                      33
                                      2003                      45
------------------------------------------------------------------------

Also,  Ameren has a bank credit  agreement due 2003, which permits the borrowing
of up to $200 million on a long-term  basis.  This credit agreement is available
to Ameren and its  subsidiaries,  including the  Registrant.  As of December 31,
1998, $190 million was available for the Registrant's use.

                                       28

<PAGE>

NOTE 8 - Income Taxes

Total income tax expense for 1998  resulted in an  effective  tax rate of 36% on
earnings before income taxes (35% in 1997 and 38% in 1996).

<TABLE>
<CAPTION>

Principal reasons such rates differ from the statutory federal rate:
-------------------------------------------------------------------------------
                                                   1998         1997       1996
-------------------------------------------------------------------------------
<S>                                                <C>          <C>        <C>
Statutory federal income                            35%          35%        35%
  tax rate                                                             

Increases (Decreases) from:                    
  Depreciation Differences                          (3)           -          -
  Amortization of Investment Tax Credit             (2)          (3)        (3)
  State tax                                          5            5          5
  Other                                              1           (2)         1
-------------------------------------------------------------------------------
Effective income tax rate                           36%          35%        38%
-------------------------------------------------------------------------------

Income tax expense components:
-------------------------------------------------------------------------------
(in millions)                                      1998         1997       1996
-------------------------------------------------------------------------------
Taxes currently payable (principally
  federal):
Included in operating expenses                    $ 60          $39        $54
-------------------------------------------------------------------------------
                                                  $ 60          $39        $54
-------------------------------------------------------------------------------

Deferred taxes (principally federal):
Included in operating expenses--
     Depreciation differences                     $(10)         $(4)       $ -
     Other                                          (1)           2         (3)
-------------------------------------------------------------------------------
                                                  $(11)         $(2)        (3)
-------------------------------------------------------------------------------

Deferred investment tax credits,
  amortization
Included in operating expenses                   $ (3)          $(3)        (3)
-------------------------------------------------------------------------------
Total income tax expense                         $ 46           $34        $48
-------------------------------------------------------------------------------
</TABLE>

In accordance with SFAS 109,  "Accounting for Income Taxes," a regulatory asset,
representing the probable recovery from customers of future income taxes,  which
is expected to occur when temporary differences reverse, was recorded along with
a  corresponding   deferred  tax  liability.   Also,  a  regulatory   liability,
recognizing  the lower  expected  revenue  resulting  from reduced  income taxes
associated  with amortizing  accumulated  deferred  investment tax credits,  was
recorded.  Investment  tax credits have been  deferred  and will  continue to be
credited to income over the lives of the related property.

The Registrant  adjusts its deferred tax  liabilities for changes enacted in tax
laws or rates.  Recognizing that regulators will probably reduce future revenues
for  deferred  tax  liabilities  initially  recorded  at rates in  excess of the
current  statutory rate;  reductions in the deferred tax liability were credited
to the regulatory liability.

<TABLE>
<CAPTION>

Temporary  differences  gave  rise to the  following  deferred  tax  assets  and
deferred tax liabilities at December 31:
--------------------------------------------------------------------------------
(in millions)                                              1998           1997
--------------------------------------------------------------------------------
<S>                                                      <C>             <C>
Accumulated Deferred Income Taxes:
  Accelerated Depreciation                                 $228           $235
  Capitalized taxes and expenses                             87             96
  Regulatory liabilities, net                               (32)           (42)
  Prepayments                                               (27)           (32)
  Other                                                       -              1
--------------------------------------------------------------------------------
Total net accumulated deferred income tax liabilities      $256           $258
--------------------------------------------------------------------------------
</TABLE>

                                       29

<PAGE>

NOTE 9 - Retirement Benefits

In 1998, the Registrant adopted SFAS 132, "Employers'  Disclosures about Pension
and Other Postretirement  Benefits," which resulted in revisions to the 1997 and
1996 information previously reported.

The Registrant has defined-benefit  retirement plans covering  substantially all
employees of AmerenCIPS as well as certain employees of Ameren Services Company.
Benefits  are based on the  employees'  years of service and  compensation.  The
Registrant's  plans are funded in  compliance  with income tax  regulations  and
federal funding requirements.

Pension costs for the years 1998, 1997 and 1996 were $9 million,  $5 million and
$4 million, respectively, of which approximately 19% in 1998 and 15% in 1997 and
1996 was charged to construction accounts.

In 1998,  the  Registrant  changed its  measurement  date for  valuation of plan
assets and  liabilities  to December  31.  1997  amounts  have been  restated to
conform to the new date.

<TABLE>
<CAPTION>

Funded Status of Pension Plans:
--------------------------------------------------------------------------------
 (in millions)                                         1998              1997
--------------------------------------------------------------------------------
<S>                                                   <C>               <C>
Change in benefit obligation
  Net benefit obligation at beginning of year          $249              $214
  Service cost                                            8                 7
  Interest cost                                          17                16
  Amendments                                              5                 -
  Actuarial loss                                          8                19
  Special termination benefit charge                      5                 -
  Benefits paid                                         (31)               (7)
--------------------------------------------------------------------------------
  Net benefit obligation at end of year                 261               249

Change in plan assets *
  Fair value of plan assets at beginning of year        319               265
  Actual return on plan assets                           38                52
  Employer contributions                                  5                 9
  Benefits paid                                         (31)               (7)
--------------------------------------------------------------------------------
  Fair value of plan assets at end of year              331               319

Funded status - excess                                  (70)              (70)
Unrecognized net actuarial gain                          73                65
Unrecognized prior service cost                         (13)              (11)
Unrecognized net transition assets                        2                 3
--------------------------------------------------------------------------------
Prepaid pension cost at December 31                   $  (8)          $  (13)
--------------------------------------------------------------------------------
* Plan assets consist  principally of common and preferred stocks,  bonds, money
market instruments and real estate.
</TABLE>

<TABLE>
<CAPTION>

Components of Net Periodic Benefit Cost:
---------------------------------------------------------------------------
(in millions)                            1998         1997          1996
---------------------------------------------------------------------------
<S>                                     <C>         <C>           <C>  
Service cost                             $  8        $   7         $   7
Interest cost                              17           16            13
Expected return on plan assets            (22)         (19)          (16)
Amortization of Prior service cost          1            1             -
 Special termination benefit charge         5            -             -
---------------------------------------------------------------------------
Net periodic benefit cost                $  9         $  5          $  4
---------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

Weighted-average Assumptions for Actuarial Present Value
 of Projected Benefit Obligations:
----------------------------------------------------------------------------
                                                      1998            1997
----------------------------------------------------------------------------
<S>                                                 <C>              <C>  
Discount rate at measurement date                    6.75%            7.25%
Expected return on plan assets                       8.5%             8.5%
Increase in future compensation                        4%             4.5%
----------------------------------------------------------------------------
</TABLE>

                                       30

<PAGE>

In addition to providing  pension  benefits,  the  Registrant  provides  certain
health care and life insurance  benefits for retired  employees.  The Registrant
accrues the expected  postretirement  benefit costs during  employees'  years of
service.

The Registrant's  funding policy is to fund two  Voluntary Employee  Beneficiary
Association  trusts  (VEBA)  and  the  401(h)  account  established  within  the
Registrant's retirement income trust with the lesser of the net periodic cost or
the amount  deductible for federal income tax purposes.  In 1998, the Registrant
changed its  measurement  date for valuation of plan assets and  liabilities  to
December 31. 1997 amounts have been restated to conform to the new date.

Postretirement  benefit costs were $6 million for 1998, $12 million for 1997 and
$16 million for 1996,  of which  approximately  20% was charged to  construction
accounts  in  1998,  17% in  1997,  and  15 % in  1996.  AmerenCIPS'  transition
obligation at December 31, 1998 is being amortized over the next 14 years.

The ICC allows the  recovery  of  postretirement  benefit  costs in rates to the
extent that such costs are funded.

<TABLE>
<CAPTION>

Funded Status of the Plans:
--------------------------------------------------------------------------------
 (in millions)                                          1998             1997
--------------------------------------------------------------------------------
<S>                                                    <C>              <C>
Change in benefit obligation
  Net benefit obligation at beginning of year           $140             $139
  Service cost                                             3                4
  Interest cost                                           10               10
  Actuarial (gain)/loss                                    4               (9)
  Benefits paid                                           (5)              (4)
--------------------------------------------------------------------------------
  Net benefit obligation at end of year                  152              140

Change in plan assets *
  Fair value of plan assets at beginning of year         115               88
  Actual return on plan assets                            16               20
  Employer contributions                                   4               12
  401(h) transfer                                         (2)              (1)
  Benefits paid                                           (5)              (4)
--------------------------------------------------------------------------------
  Fair value of plan assets at end of year               128              115

Funded status - deficiency                                24               25
Unrecognized net actuarial gain                           58               63
Unrecognized net transition obligation                   (76)             (84)
--------------------------------------------------------------------------------
Postretirement benefit liability at December 31        $   6            $   4
--------------------------------------------------------------------------------
* Plan assets consist  principally of common and preferred stocks,  bonds, money
market instruments and real estate.
</TABLE>

<TABLE>
<CAPTION>

Components of Net Periodic Benefit Cost:
--------------------------------------------------------------------------------
(in millions)                            1998           1997            1996
--------------------------------------------------------------------------------
<S>                                       <C>            <C>             <C>
Service cost                               $3             $4              $4
Interest cost                              10             10              11
Expected return on plan assets            (8)             (5)             (4)
Amortization of:
      Transition obligation                5               5               6
      Actuarial gain                      (4)             (2)             (1)
--------------------------------------------------------------------------------
Net periodic benefit cost                 $6             $12             $16
--------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Assumptions for the Obligation Measurements:
----------------------------------------------------------------------------
                                                      1998          1997
----------------------------------------------------------------------------
<S>                                                  <C>           <C>  
Discount rate at measurement date                     6.75%         7.25%
Expected return on plan assets                        8.5%          8.5%
Medical cost trend rate - initial                     5.75%         8.5%
                       - ultimate                     4.75%         5.5%
Ultimate medical cost trend rate expected in year     2000          2000
----------------------------------------------------------------------------
</TABLE>

                                       31

<PAGE>

A 1% increase in the medical  cost trend rate is  estimated  to increase the net
periodic   cost   and  the   accumulated   postretirement   benefit   obligation
approximately  $2 million and $22  million,  respectively.  A 1% decrease in the
medical cost trend rate is  estimated to decrease the net periodic  cost and the
accumulated  postretirement benefit obligation  approximately $2 million and $22
million, respectively.

NOTE 10 - Commitments and Contingencies

The  Registrant  is  engaged  in a  capital  program  under  which  expenditures
averaging approximately $123 million, including AFC, are anticipated during each
of the next  five  years.  This  estimate  includes  expenditures  that  will be
incurred  by the  Registrant  to meet new air  quality  standards  for ozone and
particulate matter, as discussed later in this Note.

The  Registrant  has  commitments  for  the  purchase  of coal  under  long-term
contracts.  Coal contract commitments,  including transportation costs, for 1999
through  2003 are  estimated  to  total  $493  million.  Total  coal  purchases,
including  transportation costs, for 1998, 1997 and 1996 were $189 million, $209
million and $217, respectively.  The Registrant also has existing contracts with
pipeline and natural gas suppliers to provide natural gas for  distribution  and
electric generation.  Gas-related contract commitments for 1999 through 2003 are
estimated at $65 million. Total delivered natural gas costs were $69 million for
1998 and $97 million for both 1997 and 1996.

During 1996, the Registrant restructured its contract with one of its major coal
suppliers.  In 1997, the Registrant paid a $70 million  restructuring payment to
the  supplier,  which  allowed  it to  purchase  at  market  prices  low-sulfur,
non-Illinois  coal  through the supplier (in  substitution  for the  high-sulfur
Illinois  coal the  Registrant  was  obligated  to purchase  under the  original
contract);  and would  receive  options  for  future  purchases  of  low-sulfur,
non-Illinois coal from the supplier through 1999 at set negotiated prices.

By  switching  to  low-sulfur  coal,  the  Registrant  was  able to  discontinue
operating a  generating  station  scrubber.  The  benefits of the  restructuring
include  lower cost coal,  avoidance  of  significant  capital  expenditures  to
renovate the scrubber and  elimination of scrubber  operations  and  maintenance
costs   (offset  by  scrubber   retirement   expenses).   The  net  benefits  of
restructuring  are expected to exceed $100  million  through  2007.  In December
1996,  the ICC  entered  an order  approving  the switch to  non-Illinois  coal,
recovery  of  the   restructuring   payment  plus   associated   carrying  costs
(Restructuring  Charges) through the retail uniform fuel adjustment clause (FAC)
over six years, and continued  recovery in rates of the  undepreciated  scrubber
investment  plus costs of removal.  Additionally,  in May 1997 the FERC approved
recovery  of the  wholesale  portion of the  Restructuring  Charges  through the
wholesale FAC. As a result of the ICC and FERC orders, the Registrant classified
the $72  million  of the  Restructuring  Charges  made to the coal  supplier  in
February  1997 as a  regulatory  asset and,  through  December  1997,  recovered
approximately  $10 million of the  Restructuring  Charges through the retail FAC
and from wholesale customers.

A group of industrial customers filed with the Illinois Third District Appellate
Court (the Court) in February  1997 an appeal of the December  1996 order of the
ICC. In  November,  1997,  the Court  reversed  the ICC's  December  1996 order,
finding that the Restructuring Charges were not direct costs of fuel that may be
recovered through the retail FAC, but rather should be considered as a part of a
review of  aggregate  revenue  requirements  in a full rate case.  Restructuring
Charges allocated to wholesale  customers  (approximately $7 million) are not in
question  as a result  of the  opinion  of the  Court.  In  December  1997,  the
Registrant requested a rehearing by the Court; that request was denied. However,
the Court did rule that all  revenues  collected  under the  retail  FAC in 1997
would not have to be refunded to customers.

The  Registrant  filed an appeal with the Illinois  Supreme  Court.  In December
1998, the Supreme Court issued its decision,  reversing the Court's  opinion and
affirming the ICC's order. The Supreme Court held that the Restructuring Charges
are recoverable through the retail FAC. No further proceedings are anticipated.

The recoverability of the Restructuring Charges under the retail FAC in Illinois
was also  impacted by the Law.  Among other things,  the Law provides  utilities
with the option to eliminate  the retail FAC and limits the ability of utilities
to  file  a full  rate  case  for  its  aggregate  revenue  requirements.  After
evaluating  the  impact  of  the  Law  on  the  future   recoverability  of  the
Registrant's  Restructuring  Charges through future rates,  the Registrant wrote
off the unamortized  balance of the Illinois retail portion of its Restructuring
Charges as of December 31, 1997 ($34 million, net of income taxes). See Note 2 -
Regulatory Matters for further information.

Under  Title IV of the Clean  Air Act  Amendments  of 1990,  the  Registrant  is
required to significantly  reduce total annual sulfur dioxide (SO2) and nitrogen
oxide (NOx) emissions by the year 2000.  By switching to low-sulfur coal,

                                       32

<PAGE>

the Registrant anticipates that it can comply with the  requirements  of the Law
without  significant  revenue  increases  because the related  capital costs are
largely offset by lower fuel costs.

In July 1997,  the United States  Environmental  Protection  Agency (EPA) issued
final regulations  revising the National Ambient Air Quality Standards for ozone
and  particulate  matter.  The new ambient  standards may result in  significant
additional  reductions  in SO2 and NOx  emissions  from the  Registrant's  power
plants. The new particulate matter standards may require SO2 reductions of up to
50% beyond that already required by Phase II acid rain control provisions of the
1990 Clean Air Act Amendments and could be required by 2007. The full details of
these  requirements  are  under  study  by the  Registrant.  At this  time,  the
Registrant is unable to predict the ultimate impact of these revised air quality
standards on its future financial condition, results of operations or liquidity.

In an attempt to lower ozone levels across the eastern  United  States,  the EPA
issued final  regulations  in September  1998  pertaining to NOx emissions  from
coal-fired boilers and other sources in 22 states, including Illinois (where all
of the  Registrant's  coal-fired  power  plant  boilers are  located).  Although
reduction requirements in NOx emissions from the Registrant's coal-fired boilers
are  anticipated  to exceed 75 percent from 1990 levels by the year 2003,  it is
not yet possible to determine  the exact  magnitude of the  reductions  required
from the  Registrant's  power  plants  because  each state has up to one year to
develop a plan to comply with the EPA rule. The NOx emissions reductions already
achieved on several of the  Registrant's  coal-fired  power  plants will help to
reduce  the costs of  compliance  with  this  regulation.  However,  preliminary
analysis  of  the  regulations   indicate  that  selective  catalytic  reduction
technology will be required for some of the Registrant's units, as well as other
additional controls.

Currently,  the Registrant estimates that its additional capital expenditures to
comply with the EPA's final  regulations  issued in  September  1998 could range
from $125 million to $175 million over the period from 1999 to 2002.  Associated
operations and maintenance  expenditures could increase $5 million to $8 million
annually,  beginning in 2003. The Registrant will explore alternatives to comply
with these new  regulations in order to minimize,  to the extent  possible,  its
capital costs and operating  expenses.  The  Registrant is unable to predict the
ultimate impact of these standards on its future financial condition, results of
operations or liquidity.

In November  1998,  the United  States signed an agreement  with numerous  other
countries (the Kyoto  Protocol)  containing  certain  environmental  provisions,
which would require  decreases in  greenhouse  gases in an effort to address the
"global warming" issue. The Kyoto Protocol must be ratified by the United States
Senate before provisions are effective for the United States. Until ratification
is obtained, the Registrant is unable to predict what requirements, if any, will
be adopted in this country; however, implementation of the Kyoto Protocol in its
present form would  likely  result in  significantly  higher  capital  costs and
operations  and  maintenance  expenses  by the  Registrant.  At this  time,  the
Registrant  is  unable  to  determine  the  impact  of  these  proposals  on the
Registrant's future financial condition, results of operations or liquidity.

As of  December  31,  1998,  the  Registrant  was  designated  as a  potentially
responsible party (PRP) by federal and state  environmental  protection agencies
at three hazardous waste sites. Other hazardous waste sites have been identified
for which the Registrant may be responsible but has not been designated a PRP.

Costs relating to studies and  remediation  and associated  legal and litigation
expenses at the sites located in Illinois are being accrued and deferred  rather
than expensed  currently,  pending recovery through rates.  Through December 31,
1998,  the total of the costs  deferred,  net of  recoveries  from  insurers and
through environmental adjustment clause rate riders approved by the ICC, was $12
million.

The ICC has instituted a  reconciliation  proceeding to review the  Registrant's
environmental  remediation  activities  from 1993  through 1997 and to determine
whether the revenues collected from customers under its environmental adjustment
clause  rate  riders  were  consistent  with the  amount  of  remediation  costs
prudently and properly incurred. Amounts found to have been incorrectly included
under the riders  would be subject  to  refund.  Rulings  from the ICC are still
pending with respect to these  proceedings  applicable to the years 1993 through
1996.  The  reconciliation   proceedings   relating  to  the  Registrant's  1997
environmental  remediation activities were commenced in April 1998, but have not
yet been submitted to the ICC for a decision.

The Registrant  continually  reviews  remediation costs that may be required for
all of these sites. Any unrecovered environmental costs are not expected to have
a material adverse effect on the  Registrant`s  financial  position,  results of
operations or liquidity.

The International  Union of Operating  Engineers Local 148 and the International
Brotherhood of Electrical  Workers Local 702 filed unfair labor practice charges
with the National Labor Relations Board (NLRB), relating to the

                                       33

<PAGE>

legality  of the  1993 lockout of both  unions by  AmerenCIPS.  The NLRB  issued
complaints against AmerenCIPS  concerning its lockout. Both unions sought, among
other things, back pay and other benefits for the period of the lockout. At that
time,  the  Registrant  estimated the amount of back pay and other  benefits for
both unions to be approximately $17 million.  In May 1996, an administrative law
judge of the NLRB  ruled  that the  lockout  was  unlawful.  In July  1996,  the
Registrant  appealed to the NLRB.  In August 1998, a  three-member  panel of the
NLRB reversed the administrative law judge's decision and ruled that the lockout
was  lawful.  Both  unions  filed  motions  for review  with the NLRB asking for
reconsideration of this decision.  In December 1998, the NLRB denied the unions'
motions for reconsideration.  Subsequently, in December 1998, the unions filed a
joint  motion  for  a  rehearing  of  their  motions  for  reconsideration.  The
Registrant  continues to believe that the lockout was both lawful and reasonable
and that the final  resolution  of the dispute will not have a material  adverse
effect on its financial position, results of operations or liquidity.

Certain  employees  of the  Registrant  are  represented  by  the  International
Brotherhood  of  Electrical  Workers and the  International  Union of  Operating
Engineers.  These  employees  comprise  approximately  70% of  the  Registrant's
workforce.  The collective  bargaining  agreements  covering nearly all of these
represented  employees expire in July 1999.  Preliminary  discussions with these
collective bargaining units are currently underway. At this time, the Registrant
is unable to predict the impact of these  negotiations  on its future  financial
condition, results of operations or cash flows.

Regulatory  changes enacted and being considered at the federal and state levels
continue to change the structure of the utility industry and utility regulation,
as well as encourage  increased  competition.  At this time,  the  Registrant is
unable  to  predict  the  impact of these  changes  on the  Registrant's  future
financial condition, results of operations or liquidity. See Note 2 - Regulatory
Matters for further information.

The Registrant is involved in other legal and administrative  proceedings before
various  courts and  agencies  with  respect to matters  arising in the ordinary
course of business,  some of which involve substantial  amounts.  The Registrant
believes  that  the  final  disposition  of  these  proceedings  will not have a
material  adverse  effect on its  financial  position,  results of operations or
liquidity.

NOTE 11  - Fair Value of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.

Cash and Temporary Investments/Short-Term Borrowings
The carrying amounts  approximate fair value because of the short-term  maturity
of these instruments.

Preferred Stock
The fair value is estimated  based on the quoted  market  prices for the same or
similar issues.

Long-Term Debt
The fair  value is  estimated  based on the  quoted  market  prices  for same or
similar  issues or on the current  rates offered to the  Registrant  for debt of
comparable maturities.

<TABLE>
<CAPTION>

Carrying  amounts  and  estimated  fair  values  of the  Registrant's  financial
instruments at December 31:


                                            1998                    1997
--------------------------------------------------------------------------------
(in millions)                      Carrying       Fair      Carrying      Fair
                                    Amount       Value       Amount       Value
--------------------------------------------------------------------------------
<S>                                <C>           <C>         <C>         <C> 
Preferred stock                     $ 80          $75         $ 80        $ 71
Long-term debt (including
 current portion)                    588          636          567         600
--------------------------------------------------------------------------------
</TABLE>

                                       34

<PAGE>
NOTE 12 - Segment Information

In 1998,  the  Registrant  adopted SFAS 131,  "Disclosures  about Segments of an
Enterprise  and Related  Information."  AmerenCIPS'  business  segments  provide
electric and gas service in portions of Illinois.

The accounting  policies of the segments are the same as those described in Note
1 - Summary of Significant  Accounting Policies.  Segment data includes a charge
allocating  costs of  administrative  support  services to each of the segments.
These costs are  accumulated in a separate  Ameren  subsidiary,  Ameren Services
Company,  which provides a variety of support  services to the  Registrant.  The
Registrant  evaluates the performance of its segments and allocates resources to
them, based on revenues and operating income.

<TABLE>
<CAPTION>
The table below presents  information  about the reported revenues and operating
income of the Registrant for the years ended December 31:
--------------------------------------------------------------------

(in millions)             Electric           Gas            Total
--------------------------------------------------------------------

--------------------------------------------------------------------
1998
--------------------------------------------------------------------
<S>                      <C>               <C>           <C>    
Revenues                  $   722           $125          $   847
Operating Income              115              5              120
--------------------------------------------------------------------

--------------------------------------------------------------------
1997
--------------------------------------------------------------------
Revenues                  $   700           $152          $   852
Operating Income               95              7              102
--------------------------------------------------------------------

--------------------------------------------------------------------
1996
--------------------------------------------------------------------
Revenues                  $   726           $155          $   881
Operating Income              106             11              117
--------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Specified items included in segment profit/loss for the year ended December 31:
--------------------------------------------------------------------------------
(in millions)                     Electric            Gas            Total
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
1998
--------------------------------------------------------------------------------
<S>                                   <C>            <C>          <C>
Depreciation, depletion
    and amortization expense           $66            $ 8          $   74
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
1997
--------------------------------------------------------------------------------
Depreciation, depletion
    and amortization expense           $76            $ 7          $   83
Extraordinary items                    (25)             -             (25)
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
1996
--------------------------------------------------------------------------------
Depreciation, depletion
    and amortization expense          $ 75            $ 7           $  82
--------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Specified item related to segment assets as of December 31:
--------------------------------------------------------------------------------
(in millions)                     Electric            Gas           Total
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
1998
--------------------------------------------------------------------------------
<S>                                  <C>              <C>           <C>
Expenditures for Additions           
   To Long-Lived Assets               $ 60             $ 9           $ 69
--------------------------------------------------------------------------------
</TABLE>

                                       35

<PAGE>
<TABLE>
[CONTINUED]

--------------------------------------------------------------------------------
1997
--------------------------------------------------------------------------------
<S>                                  <C>             <C>           <C>  
Expenditures for Additions
   To Long-Lived Assets               $105            $ 11          $ 116        
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
1996
--------------------------------------------------------------------------------
Expenditures for Additions 
   To Long-Lived Assets               $ 93            $ 14          $ 107
--------------------------------------------------------------------------------
</TABLE>


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE.

               On June 12,  1998,  the Board of  Directors  of the  Registrant's
parent,  Ameren,  approved the  recommendation of the Board's Auditing Committee
and appointed PricewaterhouseCoopers LLP as auditors for the year 1998. Ameren's
appointment  of  PricewaterhouseCoopers  LLP also covers  auditing  services for
Ameren's  subsidiaries,   which  means  that  Registrant's  previous  certifying
accountant, Arthur Andersen LLP (Andersen), was, in effect, dismissed.

               Andersen's  report of the Registrant's  financial  statements for
either of the last two fiscal  years did not  contain  an  adverse  opinion or a
disclaimer  of opinion,  and was not  qualified  or modified as to  uncertainty,
audit scope, or accounting principles.  Further, during such period, and through
the date of dismissal,  there were no disagreements  with Andersen on any matter
of accounting  principles  or  practices,  financial  statement  disclosure,  or
auditing scope or procedure.  Also, there was no occurrence of any kind of event
set out in paragraphs (a) (1) (v) (A) through (D) of Item 304 of Regulation S-K.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     Any information  concerning  directors required to be reported by this item
is included under "Item (1): Election of Directors" in the CIPS' 1999 definitive
proxy statement  filed pursuant to Regulation 14A and is incorporated  herein by
reference.


ITEM 11. EXECUTIVE COMPENSATION.

     Any  information  required to be  reported  by this item is included  under
"Compensation"  in CIPS' 1999  definitive  proxy  statement  filed  pursuant  to
Regulation 14A and is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Any  information  required to be  reported  by this item is included  under
"Security  Ownership of Management"  in CIPS' 1999  definitive  proxy  statement
filed pursuant to Regulation 14A and is incorporated herein by reference.

                                       36

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Any  information  required to be  reported  by this item is included  under
"Item (1): Election of Directors" in CIPS' 1999 definitive proxy statement filed
pursuant to Regulation 14A and is incorporated herein by reference.


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
         ON FORM 8-K.

    (a) The following documents are filed as a part of this report:

    1.  Financial Statements and Financial Statement Schedule Covered by
        Report of Independent Accountants

                                                                    Pages Herein

        Report of Independent Accountants.................................   18
        Balance Sheet - December 31, 1998 and 1997........................   19
        Statement of Income - Years 1998, 1997, and 1996..................   20
        Statement of Cash Flows - Years 1998, 1997, and 1996..............   21
        Statement of Retained Earnings - Years 1998, 1997, and 1996.......   22
        Notes to Financial Statements.....................................   23
        Valuation and Qualifying Accounts (Schedule II)
          Years 1998, 1997, and 1996......................................   38


    2.  Exhibits:  See EXHIBITS beginning on Page 40

    (b) Reports  on Form 8-K.  The  Registrant  filed a report on Form 8-K
        dated   October  8,  1998   reporting  on  the  impact  of  Ameren
        Corporation's   (parent  company  of  the   Registrant)   employee
        separation  plan and on the  effect  of the final  rule  issued in
        September  1998  by the  United  States  Environmental  Protection
        Agency pertaining
        to nitrogen oxide emissions.

                                       37

<PAGE>


<TABLE>
<CAPTION>

                     CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



         Col. A                                    Col. B                  Col. C                    Col. D           Col. E 
         ------                                    ------                  ------                    ------           ------
                                                                          Additions
                                                                 -----------------------------                                 
                                                                    (1)              (2)
                                                  Balance at     Charged to                                          Balance at
                                                  beginning      costs and        Charged to                           end of
       Description                                of period      expenses       other accounts     Deductions          period  
       -----------                                ---------      ----------     --------------     ----------          ------
                                                                                                     (Note)
<S>                                             <C>            <C>                                <C>               <C>
Year ended December 31, 1998

Reserves deducted in the balance sheet from
 assets to which they apply:

    Allowance for doubtful accounts               $1,200,000     $4,267,000                         $3,752,768       $1,714,232
                                                  ==========     ==========                         ==========       ==========




Year ended December 31, 1997

Reserves deducted in the balance sheet from
 assets to which they apply:

    Allowance for doubtful accounts               $  600,000     $1,788,812                         $1,188,812       $1,200,000
                                                  ==========     ==========                         ==========       ==========



Year ended December 31, 1996

Reserves deducted in the balance sheet from
 assets to which they apply:

    Allowance for doubtful accounts               $  600,000      $     -                           $     -          $  600,000     
                                                  ==========     ==========                         ==========       ==========


Note:  Uncollectible accounts charged off, less recoveries.

</TABLE>

                                       38

<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                         CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
                                                       (Registrant)

                                         G. L. RAINWATER
                                         President and Chief Executive Officer

Date     March 29, 1999                  By  /s/ Steven R. Sullivan 
       -------------------                  ------------------------
                                         (Steven R. Sullivan, Attorney-in-Fact)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the date indicated.

    Signature                                                      Title
    ---------                                                      -----

/s/ G. L. Rainwater            President, Chief Executive Officer and Director
-------------------                              (Principal Executive Officer)
G. L. RAINWATER    

/s/ Jerre E. Birdsong                                                Treasurer
---------------------                            (Principal Financial Officer)
JERRE E. BIRDSONG    

/s/ Warner L. Baxter                                                Controller
--------------------                            (Principal Accounting Officer)
WARNER L. BAXTER
    
/s/ Paul A. Agathen                                                   Director
-------------------
PAUL A. AGATHEN

/s/ Donald E. Brandt                                                  Director
--------------------
DONALD E. BRANDT

/s/ John L. Heath                                                     Director
-----------------
JOHN L. HEATH

/s/ Robert W. Jackson                                                 Director
---------------------
ROBERT W. JACKSON

/s/ Charles W. Mueller                                                Director
----------------------
CHARLES W. MUELLER

/s/ Charles J. Schukai                                                Director
----------------------
CHARLES J. SCHUKAI

/s/ Thomas L. Shade                                                   Director
-------------------
THOMAS L. SHADE


                         By     /s/ Steven R. Sullivan           March 29, 1999
                               -------------------------
                        (Steven R. Sullivan, Attorney-in-Fact)

                                       39


<PAGE>



                                    EXHIBITS

                             Exhibits Filed Herewith
                             -----------------------

Exhibit No.                        Description
-----------                        -----------

  3(ii) - By-Laws of the Company as amended effective February 11, 1999.

  12 - Statement re Computation of Ratio of Earnings to Fixed Charges and
        Preferred Stock Dividend Requirements.

  23 - Consent of Independent Accountants.

  24 - Powers of Attorney.

  27 - Financial Data Schedule.

                                       40

<PAGE>


                       Exhibits Incorporated By Reference
                       ----------------------------------

     The following  exhibits  heretofore have been filed with the Securities and
Exchange  Commission  pursuant to requirements  of the Acts  administered by the
Commission. Such exhibits are identified by the references following the listing
of each such exhibit, and they are hereby incorporated herein by reference.

Exhibit No.                        Description
-----------                        -----------

 2     - Agreement and Plan of Merger, dated as of August 11, 1995, by and among
         CIPSCO  Incorporated,  Union Electric Company,  Ameren Corporation  and
         Arch Merger Inc.(Exhibit 2(a) filed with CIPSCO's and CIPS' Form 10-Q/A
         (Amendment No. 1) for the quarter ended June 30, 1995.)

 3.01  - Restated  Articles of  Incorporation of CIPS.  (Exhibit 3(b) filed with
         CIPS' Form 10-Q for the quarter ended March 31, 1994.)

 4     - Indenture of Mortgage or Deed of Trust dated October 1, 1941, from CIPS
         to Continental Illinois National Bank and Trust Company of  Chicago and
         Edmond  B.Stofft,  as Trustees.  (Exhibit 2.01  in  File  No. 2-60232.)
         Supplemental Indentures dated,  respectively September 1,1947,  January
         1, 1949, February 1, 1952, September 1, 1952, June 1, 1954, February 1,
         1958, January 1, 1959,  May 1, 1963,  May 1, 1964, June 1, 1965, May 1,
         1967, April 1, 1970,  April 1, 1971,  September 1, 1971,   May 1, 1972,
         December 1, 1973, March 1, 1974, April 1, 1975, October 1, 1976, Novem-
         ber 1,  1976,  October 1,  1978,  August 1,  1979,   February 1,  1980,
         February 1, 1986, May 15, 1992, July 1, 1992, September 15, 1992, April
         1, 1993,  and June 1, 1995  between  CIPS  and  the  Trustees under the
         Indenture of  Mortgage or  Deed of Trust referred to above (Amended Ex-
         hibit 7(b) in File No. 2-7341; Second Amended Exhibit 7.03 in  File No.
         2-7795; Second Amended Exhibit 4.07 in File No. 2-9353; Amended Exhibit
         4.05 in  file  No. 2-9802;  Amended  Exhibit 4.02 in  File No. 2-10944;
         Amended Exhibit 2.02 in File No. 2-13866; Amended Exhibit 2.02 in  File
         No. 2-14656; Amended Exhibit 2.02  in  File No.2-21345; Amended Exhibit
         2.02 in  File No. 2-22326;  Amended Exhibit 2.02 in  File  No. 2-23569;
         Amended Exhibit 2.02 in  File No. 2-26284; Amended Exhibit 2.02 in File
         No. 2-36388; Amended Exhibit 2.02 in File No. 2-39587;  Amended Exhibit
         2.02 in  File   No. 2-41468;  Amended Exhibit 2.02 in File No. 2-43912;
         Exhibit 2.03  in  File No. 2-60232;  Amended  Exhibit 2.02 in  File No.
         2-50146;  Amended  Exhibit  2.02 in  File No. 2-52886;  Second  Amended
         Exhibit 2.04 in File  No. 2-57141;  Amended  Exhibit 2.04 in  File  No.
         2-57557; Amended Exhibit  2.06 in File  No.  2-62564;  Exhibit  2.02(a)
         in  File  No. 2-65914; Amended Exhibit 2.02(a) in File No. 2-66380; and
         Amended  Exhibit 4.02  in  File  No. 33-3188;  Exhibit 4.02 to Form 8-K
         dated May 15, 1992; Exhibit 4.02 to Form 8-K dated July 1,1992; Exhibit
         4.02 to  Form 8-K dated  September 15, 1992;  Exhibit 4.02 to  Form 8-K
         dated  March 30, 1993;  Exhibit 4.03 to  Form 8-K  dated  June 5, 1995;
         Exhibit 4.03 to  Form 8-K dated  March 15,  1997;  Exhibit 4.03 to Form
         8-K  dated June 1, 1997; and Exhibit 4.02, Post-Effective Amendment No.
         1 in File No. 333-18473.)

 4.01  - Indenture dated as of  December 1, 1998 from  CIPS to the  Bank of  New
         York relating to CIPS'  Senior Notes,  5.375% due 2008  and  6.125% due
         2028. (Exhibit 4.03,  Post-Effective  Amendment  No. 1 to File No. 333-
         18473.)

 10.01 - Form of  Deferred  Compensation Agreement for Directors. (Exhibit 10.01
         filed with 1990 Annual Report on Form 10-K.)

                                       41

<PAGE>

Exhibit No.                        Description
-----------                        -----------

 10.02 - Amended Form of Deferred Compensation Agreement for Directors. (Exhibit
         filed with 1993 Annual Report on Form 10-K.)

 10.03 - Form of Director's Retirement Income Plan.  (Exhibit 10.04  filed  with
         Annual Report on Form 10-K.)

 10.04 - Form of Excess Benefit Plan.  (Exhibit 10.10  filed with  CIPSCO's  and
         CIPS' 1994 Annual Report on Form 10-K.)

 10.05 - Amendment to Form of Excess Benefit Plan.  (Exhibit  10.07  filed  with
         CIPSCO's and CIPS' 1995 Annual Report on Form 10-K.)

 10.06 - Form of Special Executive Retirement Plan.   (Exhibit 10.11 filed  with
         CIPSCO's and CIPS' 1994 Annual Report on Form 10-K.)

 10.07 - Amendment to Form of Special Executive Retirement Plan.  (Exhibit 10.09
         filed with CIPSCO's and CIPS' 1995 Annual Report on Form 10-K.)

 10.08 - Ameren Long-Term Incentive Plan of  1998.  (Ameren's  1998  Form  10-K,
         Exhibit 10.1.)

 10.09 - Ameren Change of Control Severance Plan.  ((Ameren's  1998  Form  10-K,
         Exhibit 10.2.)

 10.10 - Ameren Deferred Compensation Plan for  Members of the Ameren Leadership
         Team. (Ameren's 1998 Form 10-K, Exhibit 10.3.)

 10.11 - Ameren Deferred Compensation Plan for Members of the Board of Directors
         (Ameren's 1998 Form 10-K, Exhibit 10.4.)

Note:    Reports of the Company on Forms 8-K, 10-Q and 10-K are on file with the
         SEC under File Number 1-3672.

         Reports  of Ameren  on Form  10-K are on file  with the SEC under  File
         Number 1-14756.

                                       42