<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                                    Form 8-K
 
                                 CURRENT REPORT
 
                       Pursuant to Section 13 or 15(d) of
                      the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): February 19, 1999
 
                               Unicom Corporation
             (Exact name of registrant as specified in its charter)
 
        Illinois                    1-11375                  36-3961038
     (State or other       (Commission File Number)         (IRS Employer
     jurisdiction of                                     Identification No.)
     incorporation)
 
 37th Floor, 10 South Dearborn Street,                 60690-3005
      Post Office Box A-3005,                          (Zip Code)
           Chicago, Illinois
    (Address of principal executive
                offices)
 
       Registrant's telephone number, including area code: (312) 394-7399
<PAGE>
 
Item 5. Other Events
 
  The purpose of this Current Report is to file certain financial information
regarding the Registrant (Unicom Corporation) and its subsidiaries. Such
financial information is set forth in the exhibits to this Current Report.
 
  Exhibits
 
<TABLE>
     <C>  <S>
     (23) Consent of Independent Public Accountants
     (27) Financial Data Schedule of Unicom Corporation
     (99) Unicom Corporation and Subsidiary Companies--Certain Financial
           Information as of and for the Year Ended December 31, 1998:
          --Summary of Selected Consolidated Financial Data
          --Price Range and Cash Dividends Paid per Share of Common Stock
          --1998 Consolidated Revenues and Sales
          --Management's Discussion and Analysis of Financial Condition and
             Results of Operations
          --Report of Independent Public Accountants
          --Statements of Consolidated Operations for the years 1998, 1997 and
           1996
          --Consolidated Balance Sheets as of December 31, 1998 and 1997
          --Statements of Consolidated Capitalization as of December 31, 1998
           and 1997
          --Statements of Consolidated Retained Earnings (Deficit) for the
             years 1998, 1997 and 1996
          --Statements of Consolidated Cash Flows for the years 1998, 1997 and
           1996
          --Notes to Financial Statements
</TABLE>
 
                                       2
<PAGE>
 
                                   SIGNATURE
 
  Pursuant to the requirements 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.
 
                                          Unicom Corporation
                                            (Registrant)
 
                                          By:         Robert E. Berdelle
                                             ----------------------------------
                                                      Robert E. Berdelle
                                              Vice President and Comptroller
 
Date: February 24, 1999
 
                                       3
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 Exhibit     Description of
 Number         Exhibit
 -------     --------------
 <C>     <S>
  (23)   Consent of Independent Public Accountants
  (27)   Financial Data Schedule of Unicom Corporation
  (99)   Unicom Corporation and Subsidiary Companies--Certain Financial
          Information as of and for the Year Ended December 31, 1998:
         --Summary of Selected Consolidated Financial Data
         --Price Range and Cash Dividends Paid per Share of Common Stock
         --1998 Consolidated Revenues and Sales
         --Management's Discussion and Analysis of Financial Condition and
            Results of Operations
         --Report of Independent Public Accountants
         --Statements of Consolidated Operations for the years 1998, 1997 and
          1996
         --Consolidated Balance Sheets as of December 31, 1998 and 1997
         --Statements of Consolidated Capitalization as of December 31, 1998
          and 1997
         --Statements of Consolidated Retained Earnings (Deficit) for the years
            1998, 1997 and 1996
         --Statements of Consolidated Cash Flows for the years 1998, 1997 and
          1996
         --Notes to Financial Statements
</TABLE>
<PAGE>
 
                                                       Exhibit (23)
                                                       Unicom Corporation
                                                       Form 8-K File No. 1-11375
 
                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
  As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 19, 1999 on Unicom Corporation and
Subsidiary Companies' consolidated financial statements as of and for the year
ended December 31, 1998, included as an Exhibit to this Form 8-K Current
Report of Unicom Corporation, into Unicom Corporation's previously filed
prospectuses dated March 18, 1994, constituting part of Form S-4 Registration
Statement File No. 33-52109, as amended (relating to Common Stock of Unicom
Corporation), as further amended by Post-Effective Amendment No. 1 on Form S-8
(relating to Commonwealth Edison Company's Employee Savings and Investment
Plan) and Post-Effective Amendment No. 2 on Form S-8 (relating to Unicom
Corporation's Employee Stock Purchase Plan), Form S-8 Registration Statement
File No. 33-56991 (relating to Unicom Corporation's Long-Term Incentive Plan),
Form S-4 Registration Statement File No. 333-01003 (relating to Unicom
Corporation's Common Stock), Form S-8 Registration Statement File No. 333-
04749 (relating to Unicom Corporation's 1996 Directors' Fee Plan), Form S-8
Registration Statement File Nos. 333-10613 and 333-26779 (relating to
Commonwealth Edison Company's Employee Savings and Investment Plan) and Form
S-8 Registration Statement File No. 333-39677 (relating to Unicom
Corporation's Management Deferred Compensation Plan). We also consent to the
application of our report to Commonwealth Edison Company and Subsidiary
Companies' ratios of earnings to fixed charges and the ratios of earnings to
fixed charges and preferred and preference stock dividend requirements for
each of the years ended December 31, 1998, 1997 and 1996 appearing in Exhibit
99 of this Form 8-K.
 
                                          ARTHUR ANDERSEN LLP
 
Chicago, Illinois
February 24, 1999
<PAGE>
 
                                                      Exhibit (99)
                                                      Unicom Corporation
                                                      Form 8-K File No. 1-11375
 
 
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                       CONSOLIDATED FINANCIAL STATEMENTS
 
                        AS OF DECEMBER 31, 1998 AND 1997
 
 
 
 
 
 
 
<PAGE>
 
                  Unicom Corporation and Subsidiary Companies
 
Forward-Looking Information
 
  Except for historical data, the information contained herein constitutes
forward-looking statements. Forward-looking statements are inherently
uncertain and subject to risks. Such statements should be viewed with caution.
Actual results or experience could differ materially from the forward-looking
statements as a result of many factors. Forward-looking statements in this
report include, but are not limited to: (1) statements regarding expectations
of revenue reductions and collections of future CTC revenues as a result of
the 1997 Act in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," subcaption "Changes in the Electric Utility
Industry--The 1997 Act," and in Note 2 of Notes to Financial Statements, (2)
statements regarding estimated capital expenditures in "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaptions "Liquidity and Capital Resources--UTILITY OPERATIONS--Construction
Program," "Liquidity and Capital Resources--UNREGULATED OPERATIONS--
Construction Program" and "Changes in the Electric Utility Industry--Response
to Regulatory Changes," (3) statements regarding the estimated return to
service of certain nuclear generating units in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Regulation--Nuclear Matters," (4) statements regarding the costs of
decommissioning nuclear generating stations in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Regulation--Nuclear Matters," and in Note 1 of Notes to Financial Statements,
under "Depreciation, Amortization of Regulatory Assets and Decommissioning,"
(5) statements regarding cleanup costs associated with MGPs and other
remediation sites in Note 22 of Notes to Financial Statements, (6) statements
regarding the estimated fair value of forward energy contracts in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS--
Market Price Exposure," and (7) statements regarding the risks and
uncertainties relating to Year 2000 issues set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS--Year 2000
Conversion," including the projected completion dates in each of Unicom's four
critical business areas, Unicom's dependence upon the Year 2000 readiness of
third parties with whom it has significant business relationships, the
estimated costs of remediating or upgrading embedded systems and software that
would not otherwise be replaced in accordance with Unicom's business plans,
and Unicom's Year 2000 contingency planning process. Management cannot predict
the course of future events or anticipate the interaction of multiple factors
beyond management's control and their effect on revenues, project timing and
costs. The statements regarding revenue reductions and collections of future
CTC revenues are subject to unforeseen developments in the market for
electricity in Illinois resulting from regulatory changes. The statements
regarding estimated capital expenditures, estimated return to service of
nuclear generation units, decommissioning costs, cleanup costs and Year 2000
conversion costs are subject to changes in the scope of work and manner in
which the work is performed and consequent changes in the timing and level of
the projected expenditure, and are also subject to changes in laws and
regulations or their interpretation or enforcement. The statements regarding
expectations for Year 2000 readiness and Unicom's Year 2000 contingency
planning process are subject to the risk that Year 2000 remediation efforts of
Unicom and other parties with whom it has significant business relationships
are not successful. The statements regarding the estimated return to service
of nuclear generating units are subject to the concurrence of the NRC with
proceeding to power operations. The statements regarding the fair value of
forward energy contracts are subject to changes in generating capability and a
reduction in the demand for electricity. Unicom and ComEd make no commitment
to disclose any revisions to the forward-looking statements, or any facts,
events or circumstances after the date hereof that may bear upon forward-
looking statements.
 
                                       1
<PAGE>
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                          Page
                                                                          -----
<S>                                                                       <C>
Definitions..............................................................     3
Summary of Selected Consolidated Financial Data..........................     4
Price Range and Cash Dividends Paid per Share of Common Stock............     4
1998 Consolidated Revenues and Sales.....................................     4
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  5-23
Report of Independent Public Accountants.................................    24
Consolidated Financial Statements--
  Statements of Consolidated Operations for the years 1998, 1997 and
   1996..................................................................    25
  Consolidated Balance Sheets as of December 31, 1998 and 1997........... 26-27
  Statements of Consolidated Capitalization as of December 31, 1998 and
   1997..................................................................    28
  Statements of Consolidated Retained Earnings (Deficit) for the years
   1998, 1997 and 1996...................................................    29
  Statements of Consolidated Cash Flows for the years 1998, 1997 and
   1996..................................................................    30
  Notes to Financial Statements.......................................... 31-59
</TABLE>
 
                                       2
<PAGE>
 
                                  DEFINITIONS
 
  The following terms are used in this document with the following meanings:
 
<TABLE>
<CAPTION>
         Term                                        Meaning
----------------------  ------------------------------------------------------------------
<S>                     <C>
1997 Act                Illinois Electric Service Customer Choice and Rate Relief Law of
                         1997
AFUDC                   Allowance for funds used during construction
APB                     Accounting Principles Board
CERCLA                  Comprehensive Environmental Response, Compensation and Liability
                         Act of 1980, as amended
CFC                     Chlorofluorocarbon
Clean Air Amendments    Clean Air Act Amendments of 1990
ComEd                   Commonwealth Edison Company
ComEd Funding           ComEd Funding, LLC, a ComEd subsidiary
ComEd Funding Trust     ComEd Transitional Funding Trust, a ComEd Funding subsidiary
Congress                U.S. Congress
Cotter                  Cotter Corporation, a ComEd subsidiary
CTC                     Non-bypassable "competitive transition charge"
DOE                     U.S. Department of Energy
EEI                     Edison Electric Institute
EPRI                    Electric Power Research Institute
EPS                     Earnings (Loss) per Common Share
ESPP                    Employee Stock Purchase Plan
FAC                     Fuel adjustment clause
FASB                    Financial Accounting Standards Board
FERC                    Federal Energy Regulatory Commission
FERC Order              FERC Open Access Order No. 888 issued in April 1996
GAAP                    Generally Accepted Accounting Principles
ICC                     Illinois Commerce Commission
IDR                     Illinois Department of Revenue
Indiana Company         Commonwealth Edison Company of Indiana, Inc., a ComEd subsidiary
INPO                    Institute of Nuclear Power Operations
ISO                     Independent System Operator
MAIN                    Mid-America Interconnected Network
MGP                     Manufactured gas plant
NEI                     Nuclear Electric Institute
NEIL                    Nuclear Electric Insurance Limited
NERC                    North American Electric Reliability Council
NML                     Nuclear Mutual Limited
NPL                     Nuclear Priorities List
NRC                     Nuclear Regulatory Commission
O&M                     Operation and maintenance
SEC                     Securities and Exchange Commission
SFAS                    Statement of Financial Accounting Standards
SPEs                    Special purpose entities
S&P                     Standard & Poor's
Trusts                  ComEd Financing I and ComEd Financing II, ComEd subsidiaries
Trust Securities        ComEd-obligated mandatorily redeemable preferred securities of
                         subsidiary trusts holding solely ComEd's subordinated debt
                         securities
Unicom                  Unicom Corporation
Unicom Energy Services  Unicom Energy Services Inc., a Unicom Enterprises subsidiary
Unicom Enterprises      Unicom Enterprises Inc., a Unicom subsidiary
Unicom Thermal          Unicom Thermal Technologies Inc., a UT Holdings subsidiary
U.S. EPA                U.S. Environmental Protection Agency
UT Holdings             UT Holdings Inc., a Unicom Enterprises subsidiary
</TABLE>
 
                                       3
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
Summary of Selected Consolidated Financial Data
 
<TABLE>
<CAPTION>
                                   1998    1997        1996    1995       1994
                                  ------- -------     ------- -------    -------
                                     (Millions Except per Share Data)
<S>                               <C>     <C>         <C>     <C>        <C>
Operating revenues..............  $ 7,151 $ 7,083     $ 6,937 $ 6,910    $ 6,278
Net income (loss)...............  $   510 $  (853)(1) $   666 $   640(2) $   355
Basic earnings (loss) per common
 share..........................  $  2.35 $ (3.94)(1) $  3.09 $  2.98(2) $  1.66
Diluted earnings (loss) per
 common share...................  $  2.34 $ (3.94)(1) $  3.09 $  2.98(2) $  1.66
Cash dividends declared per
 common share...................  $  1.60 $  1.60     $  1.60 $  1.60    $  1.60
Total assets (at end of year)...  $25,707 $22,700     $23,388 $23,250    $23,121
Long-term obligations at end of
 year excluding current portion:
 Long-term debt, preference
  stock and preferred securities
  subject to mandatory
  redemption requirements.......  $ 8,229 $ 6,262     $ 6,487 $ 7,011    $ 7,745
 Accrued spent nuclear fuel
  disposal fee and related
  interest......................  $   728 $   693     $   657 $   624    $   590
 Capital lease obligations......  $   334 $   438     $   477 $   376    $   433
 Other long-term obligations....  $ 2,951 $ 3,183     $ 1,991 $ 1,826    $ 1,754
</TABLE>
--------
(1) Includes an extraordinary loss for the write-off of generation-related net
    regulatory assets of $810 million (after-tax), or $3.75 per common share
    (basic), the loss on the early retirement of Zion nuclear generating
    station of $523 million (after-tax), or $2.42 per common share (basic),
    and the positive impact of a one-time cumulative effect for a change in
    accounting principle for revenue recognition of $197 million (after-tax),
    or $0.91 per common share (basic).
(2) Includes an extraordinary loss related to the early redemption of long-
    term debt of $20 million (after-tax), or $0.09 per common share (basic).
 
Price Range* and Cash Dividends Paid per Share of Common Stock
 
<TABLE>
<CAPTION>
                                 1998 (by quarters)             1997 (by quarters)
                          --------------------------------- ---------------------------
                           Fourth  Third   Second   First   Fourth Third  Second First
                          -------- ------ -------- -------- ------ ------ ------ ------
<S>                       <C>      <C>    <C>      <C>      <C>    <C>    <C>    <C>
Price range:
 High...................  41 3/16  38     36 15/16 35 13/16 30 3/4 25 5/8 24 1/4 28 1/4
 Low....................  36 13/16 33 3/8 32 9/16  30       18 1/2 21     18 1/2 19 1/4
Cash dividends paid.....  40c      40c    40c      40c      40c    40c    40c    40c
</TABLE>
* As reported as NYSE Composite Transactions.
--------
 
  Unicom's common stock is traded on the New York, Chicago and Pacific stock
exchanges, with the ticker symbol UCM. At December 31, 1998, there were
approximately 124,000 holders of record of Unicom's common stock.
 
1998 Consolidated Revenues and Sales
 
<TABLE>
<CAPTION>
                                           %                       %
                           Operating   Increase/  Kilowatthour Increase/                %
                           Revenues    (Decrease)    Sales     (Decrease)           Increase
                          (Thousands)  Over 1997   (Millions)  Over 1997  Customers Over 1997
                          -----------  ---------- ------------ ---------- --------- ---------
<S>                       <C>          <C>        <C>          <C>        <C>       <C>
Residential.............  $2,551,741       -- %      23,942        8.1%   3,134,490    0.4%
Small commercial and
 industrial.............   2,187,532       1.6       27,005        4.4      304,208    4.5
Large commercial and
 industrial.............   1,406,720      (4.1)      24,043       (0.1)       1,794   14.6
Public authorities......     510,185       0.8        7,472        2.0       14,049   15.4
Electric railroads......      31,022       4.2          433        3.6            3   50.0
                          ----------                 ------               ---------
 Ultimate consumers.....  $6,687,200      (0.3)      82,895        3.8    3,454,544    0.8
Provision for revenue
 refunds................     (21,848)    (52.1)        --          --        --        --
                          ----------                 ------               ---------
 Net ultimate consumers.  $6,665,352       --        82,895        3.8    3,454,544    0.8
Sales for resale........     397,157      18.0       14,744       (6.0)          62   21.6
Other revenues..........      88,744       7.1         --          --        --        --
                          ----------                 ------               ---------
 Total..................  $7,151,253       1.0       97,639        2.2    3,454,606    0.8
                          ==========                 ======               =========
</TABLE>
 
                                       4
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Changes in the Electric Utility Industry
 
  Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change. These
changes are attributable to changes in technology and regulation. Federal law
and regulations have been amended to provide for open transmission system
access, and various states, including Illinois, are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers in addition to the local utility.
 
  Electric Utility Industry. The electric utility industry historically has
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all of such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have provided the basis for
recording certain costs as regulatory assets. These assets represent costs
which are allocated over future periods reflecting related regulatory
treatment, rather than expensed in the current period.
 
  Federal Regulation. The Federal Energy Policy Act of 1992, among other
things, empowered FERC to introduce a greater level of competition into the
wholesale marketplace for electric energy. Under the FERC Order, utilities are
required to file open access tariffs with regard to their transmission
systems. These tariffs set forth the terms, including prices, under which
other parties and the utility's wholesale marketing function may use the
utility's transmission system. ComEd has an approved open access tariff with
the FERC. The FERC Order requires the separation of the transmission
operations and wholesale marketing functions so as to ensure that unaffiliated
third parties have access to the same information as to system availability
and other requirements. The FERC Order further requires utilities to operate
an electronic bulletin board to make transmission price and access data
available to all potential users. A key feature of the FERC Order is that it
contemplates full recovery of a utility's costs "stranded" by competition.
These costs are "stranded" or "strandable" to the extent market-based rates
would be insufficient to allow for their full recovery. To recover stranded
costs, the utility must show that it had a reasonable expectation that it
would continue to serve the customer in question under its regulatory compact.
In addition, some governmental entities, such as cities, may elect to
"municipalize" a utility's distribution facilities through condemnation
proceedings. Such municipalities would then be able to purchase electric power
on a wholesale basis and resell it to customers over the newly acquired
facilities. The FERC Order provides for the recovery of a utility's investment
stranded by municipalization.
 
  The 1997 Act. In December 1997, the Governor of Illinois signed into law the
1997 Act, which established a phased process to introduce competition into the
electric industry in Illinois under a less regulated structure. Major
provisions of the 1997 Act applicable to ComEd include a 15% residential base
rate reduction which became effective August 1, 1998, an additional 5%
residential base rate reduction commencing on May 1, 2002 and gradual customer
access to other electric suppliers. Access for commercial and industrial
customers will occur over a period from October 1999 to December 2000, and
access for residential customers will occur after May 1, 2002. ComEd's
operating revenues were reduced by approximately $170 million in 1998 due to
the rate reduction. ComEd is engaged in certain pricing experiments
contemplated by the 1997 Act, which reduced
 
                                       5
<PAGE>
 
ComEd's operating revenues by approximately $30 million in 1998 and are
expected to reduce operating revenues by $55 million in 1999, compared to 1997
rate levels; however, such reductions are expected to be offset by the effects
of customer growth. ComEd expects that the 15% residential base rate reduction
will reduce ComEd's operating revenues by approximately $380 million in 1999,
compared to 1997 rate levels.
 
  The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval. The
CTC will be established in accordance with a formula defined in the 1997 Act.
The CTC, which will be applied on a cents per kilowatthour basis, considers
the revenue which would have been collected from a customer under tariffed
rates, reduced by the revenue the utility will receive for providing delivery
services to the customer, the market price for electricity and a defined
mitigation factor, which represents the utility's opportunity to develop new
revenue sources and achieve cost savings.
 
  Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period, utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC regulatory review. A utility may
request a rate increase during the rate freeze period only when necessary to
ensure the utility's financial viability, but not before January 1, 2000.
Under the earnings provision of the 1997 Act, if the earned return on common
equity of a utility during this period exceeds an established threshold, one-
half of the excess earnings must be refunded to customers. The threshold rate
of return on common equity is based on the 30-Year Treasury Bond rate, plus
5.5% in the years 1998 through 1999 and plus 6.5% in the years 2000 through
2004. The utility's earned return on common equity and the threshold return on
common equity are each calculated on a two year average basis. The earnings
sharing provision is applicable only to utility earnings. Increased
amortization of regulatory assets may be recorded, thereby reducing the earned
return on common equity, if earnings otherwise would have exceeded the maximum
allowable rate of return. The potential for earnings sharing or increased
amortization of regulatory assets could limit earnings in future periods.
 
  Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based,
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the leveling of certain regulatory
requirements to permit operational flexibility, the leveling of certain
regulatory and tax provisions as applied to various electric suppliers and a
new, more stringent, liability standard applicable to ComEd in the event of a
major outage. See "Response to Regulatory Changes" below for additional
information.
 
  The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds from such securities issuances must be used to refinance
outstanding debt and equity or for certain other limited purposes. The total
amount of such securities that may be issued is approximately $6.8 billion;
approximately one-half of that amount can be issued in the twelve-month period
which commenced on August 1, 1998. In December 1998, ComEd initiated the
issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd
Funding and ComEd Funding Trust. See "Liquidity and Capital Resources,"
subcaption "UTILITY OPERATIONS--Capital Resources" below, and Notes 2, 7 and
24 of Notes to Financial Statements, for additional information regarding the
issuance of transitional trust notes and the planned use of the proceeds.
 
 
                                       6
<PAGE>
 
  As a result of the 1997 Act, prices for the supply of electric energy are
expected to change from cost-based, regulated rates to rates determined by
competitive market forces. The CTC allows ComEd to recover some of its costs
which might otherwise be unrecoverable under market-based rates. Nonetheless,
ComEd will need to take steps to address the portion of such costs which are
not recoverable through the CTC. Such steps may include cost control efforts,
developing new sources of revenue and potential asset dispositions. See
"Response to Regulatory Changes" below for additional information.
 
  See Note 2 of Notes to Financial Statements for the accounting effects
related to the 1997 Act.
 
 
  Response to Regulatory Changes. Unicom has announced several business and
operational objectives designed to focus efforts in responding to the energy
market changes that are expected to develop from the 1997 Act. These
objectives contemplate that ComEd will seek additional improvements in its
transmission and distribution operations in order to meet customers'
expectations for reliable delivery and will seek to refocus its generation
activities, with a concentration on improved nuclear generation, and that
Unicom and ComEd will seek to expand their offerings of energy-related
products and services. See Unicom and ComEd's Current Report on Form 8-K dated
July 6, 1998 for more information regarding the objectives announced by
Unicom.
 
  Under the 1997 Act, the role of electric utilities in the supply and
delivery of energy is expected to change. Utilities, such as ComEd,
traditionally have been responsible for providing both adequate supply and
reliable delivery of electricity to customers within their service areas. In
the future, ComEd will continue to be obligated to provide a reliable delivery
system. However, ComEd will be obligated to supply electricity only to those
customers that it continues to serve under tariffs for electricity, but not to
those customers who choose to rely on the marketplace. Nonetheless, during the
transition period to a competitive supply marketplace, ComEd must provide both
an adequate supply and reliable delivery of electricity. Given the tight
capacity situation in ComEd's market, ComEd will continue working to restore
and maintain its available capacity, as well as working to assist in the
development of a competitive supply marketplace in Illinois.
 
  ComEd has a significant commitment to, and investment in, nuclear generating
capacity. ComEd has installed a new management team responsible for improving
nuclear operations. Such improvements are aimed at increasing levels of energy
generation, or capacity factors, at ComEd's nuclear generating units while
simultaneously improving ComEd's record of meeting NRC requirements and INPO
performance standards. Increased capacity factors generally result in lower
unit production costs and an improved opportunity to generate and sell
electricity in a competitive marketplace. Efforts are also being made to
control capital and operating costs through increased efficiencies, such as
the reduction of downtime and expenses associated with generating unit
maintenance and refueling outages.
 
  ComEd also evaluated the recoverability of its generating plant investment
as a result of the 1997 Act. This evaluation, based upon interpretative
guidance issued by the SEC, resulted in a conclusion that the investment was
impaired and should be reduced. See Note 2 of Notes to Financial Statements
for additional information. Notwithstanding these efforts, there continues to
be an ongoing analysis of the ability of ComEd's various nuclear plants to
generate and deliver electric energy safely at competitive prices in the
competitive market for energy. Although short-term system reliability and
capacity constraints are likely to support the continued operation of ComEd's
nuclear units in the near term, expected longer term developments are likely
to make decision-making a function of economic considerations. In the absence
of short-term reliability and capacity constraints, if a generating plant
cannot produce power safely at a cost below the competitive market price, it
will be disposed of or closed. Plant impairment adjustments have reduced the
carrying value of nuclear plants, and depreciation rates reflecting shortened
estimated useful lives for certain stations will reduce the
 
                                       7
<PAGE>
 
carrying value further during the next several years. However, closure of a
plant could involve additional charges associated with the write-off of its
then-current carrying value. In January 1998, Unicom and ComEd announced its
decision to permanently cease nuclear generating operations at ComEd's Zion
Station. The related retirement resulted in a charge in 1997 of $523 million
(after-tax), or $2.42 per common share (basic), reflecting both a write down
of the plant's carrying value and a liability for future closing costs. A
portion of Zion Station is used to provide voltage support in the transmission
system that serves ComEd's northern region. See Note 5 of Notes to Financial
Statements for additional information.
 
  ComEd is also undertaking steps to offer for sale approximately 9,700
megawatts of fossil generating capacity, representing seven fossil-fired
generating stations, and the oil and gas peaking units located in Illinois.
Such plants have an aggregate book value of approximately $1.3 billion. As a
part of such sales, ComEd expects to enter into transitional power purchase
agreements with the purchasers in order to assure the availability of power
during the period that the competitive market for electric generation is
developing in Illinois. Non-binding proposals from prospective qualified
buyers were received in late 1998, with final, binding proposals due in the
first quarter of 1999. The closing of the sale is anticipated for the fourth
quarter of 1999. Any net gain on the sale of the stations will be offset in
large part by increased amortization of the regulatory asset for impaired
production plant and therefore is not expected to have a material impact on
results of operations. In addition, ComEd continues to examine its other
operations and assets with a view to rationalizing their investment and
operating costs against their ability to contribute to the revenues and
profits of ComEd. As a result of such evaluations, additional asset sales may
be undertaken.
 
  In response to customer expectations and more stringent reliability
standards provided for by the 1997 Act, ComEd's Board of Directors approved a
$307 million increase in capital expenditures on its transmission and
distribution systems over the next three years. See "Liquidity and Capital
Resources," subcaption "UTILITY OPERATIONS--Construction Program" below, for
additional information regarding capital spending for the transmission and
distribution systems.
 
  ComEd joined with other Midwestern utilities to form a regional Midwest ISO
in January 1998. Presently, a number of these utilities have agreed to place
their transmission systems under the control of the Midwest ISO. The Midwest
ISO is a key element in accommodating the restructuring of the electric
industry and will promote enhanced reliability of the transmission system,
equal access to the transmission system and increased competition. The Midwest
ISO has established an independent body that will ultimately direct the
planning and operation of the transmission system for the utilities involved.
The Midwest ISO will have operational control over the transmission system and
will have authority to require modification in the operation of generators
connected to that system during system emergencies. ComEd will retain
ownership of its transmission system. The formation of the Midwest ISO was
approved by FERC in September 1998, subject to certain conditions. The ISO
members elected the Midwest ISO Board of Directors in December 1998.
 
                                       8
<PAGE>
 
Liquidity and Capital Resources
 
                              UTILITY OPERATIONS
 
  Construction Program. ComEd has a construction program for the years 1999-
2001, which consists principally of improvements to its existing nuclear and
other electric production, transmission and distribution facilities. The
program, as currently approved by ComEd, includes the following estimated
expenditures (excluding nuclear fuel expenditures of approximately $676
million):
 
<TABLE>
<CAPTION>
                                                                1999  2000 2001
                                                               ------ ---- ----
                                                                  (Millions
                                                                 of Dollars)
   <S>                                                         <C>    <C>  <C>
   Production................................................. $  420 $264 $233
   Transmission and Distribution..............................    515  527  529
   General....................................................    109   83   80
                                                               ------ ---- ----
                                                               $1,044 $874 $842
                                                               ====== ==== ====
</TABLE>
 
  This program includes an increase in capital expenditures on ComEd's
transmission and distribution systems of approximately $307 million over the
next three years, in addition to the estimated $1.3 billion previously planned
to be spent on these systems over the same time period. A significant portion
of such additional expenditures is intended to increase the reliability of
ComEd's distribution system by replacing certain equipment and increasing
automation to identify distribution problems faster and more quickly restore
power to customers.
 
  ComEd's forecasts of peak load indicate a need for additional resources to
meet demand, either through generating capacity, equivalent purchased power
and/or the development of additional demand-side management resources, in 1999
and each year thereafter for the foreseeable future. However, ComEd believes
that adequate resources, including cost-effective, demand-side management
resources, non-utility generation resources and other-utility power purchases,
can be obtained in sufficient quantities to meet such forecasted needs.
 
  Purchase commitments for ComEd, principally related to construction and
nuclear fuel, approximated $335 million at December 31, 1998. In addition,
ComEd's estimated commitments for the purchase of coal are as follows:
 
<TABLE>
<CAPTION>
      Contract                                          Period   Commitment (1)
   --------------                                      --------- --------------
   <S>                                                 <C>       <C>
   Black Butte Coal Co................................ 1999-2000      $434
   Decker Coal Co..................................... 1999-2014       478
   Other commitments.................................. 1999-2000        38
                                                                      ----
                                                                      $950
                                                                      ====
</TABLE>
  --------
  (1) In millions of dollars, excluding transportation costs. No estimate of
      future cost escalation has been made.
 
  For additional information concerning these coal contracts, see Note 22 of
Notes to Financial Statements. See "Changes in the Electric Utility Industry,"
subcaption "Response to Regulatory Changes" above, for additional information.
 
  Capital Resources. In December 1998, ComEd initiated the issuance of $3.4
billion of transitional trust notes through its SPEs, ComEd Funding and ComEd
Funding Trust. The proceeds from the transitional trust notes, net of
transaction costs, must be used to redeem or repurchase debt and equity to
lower ComEd's overall cost of capital. Accordingly, in early 1999 ComEd
redeemed $788 million of long-term debt and $534 million of preference stock,
and reacquired $229 million of outstanding ComEd long-term debt through a
tender offer. In addition, $500 million of the proceeds, of which
approximately $300 million has been utilized, is being used to reduce ComEd's
outstanding short-term debt. As more fully described below, Unicom has
announced plans to repurchase approximately $750 million of Unicom common
stock using the proceeds it receives from ComEd's repurchase of its common
stock held by Unicom. The remaining proceeds will be used for the payment of
fees and additional debt and equity redemptions and repurchases.
 
                                       9
<PAGE>
 
  Unicom has entered into a prepaid forward purchase arrangement with a
financial institution for the repurchase of approximately 15 million shares of
Unicom common stock. The repurchase arrangement provides for final settlement
no later than February 2000, on either a physical (share) basis, or a net cash
basis, at the option of the financial institution. The amount at which the
arrangement can be settled is dependent principally upon the average market
price at which the financial institution purchases such shares, compared to
the forward price per share. The share repurchases will not reduce shares
outstanding for purposes of EPS calculations or reduce common stock equity and
resulting return on common equity calculations until the date of physical
settlement. Unicom currently does not anticipate that settlement will occur in
1999. The repurchase arrangement will initially be recorded as a receivable on
Unicom's Consolidated Balance Sheets and will be adjusted at the end of each
reporting period to reflect the aggregate market value of the shares
deliverable under the arrangement. Consequently, the arrangement could
increase earnings volatility in 1999.
 
  This arrangement supplements a previously announced program to repurchase up
to $200 million of Unicom common stock. Shares repurchased under that program
will also be outstanding for financial statement purposes until the time of
final settlement, which is currently expected to extend to February 2000, on
either a physical (share) basis, or a net cash basis, at the option of Unicom.
As of December 31, 1998, this arrangement has been accounted for as an equity
instrument. If this arrangement had been settled on a physical (share) basis
at December 31, 1998, Unicom would have received approximately 5.1 million
shares of its common stock.
 
  See Note 24 of Notes to Financial Statements for additional information
regarding the redemptions and repurchases of debt and equity.
 
  ComEd forecasts that internal sources will provide approximately three-
fourths of the funds required for ComEd's 1999 construction program and other
capital requirements, including nuclear fuel expenditures, contributions to
nuclear decommissioning funds, sinking fund obligations and scheduled debt
maturities. See Notes 10 and 12 of Notes to Financial Statements for the
summaries of the annual sinking fund requirements and scheduled maturities for
ComEd preference stock and long-term debt, respectively. The forecast takes
into consideration the effects of the 1997 Act and the issuance by ComEd
Funding Trust of $3.4 billion of transitional trust notes in 1998 to refinance
debt and equity, as discussed above.
 
  The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of ComEd at the time of such
financing. A portion of ComEd's financing may be provided through the
continued sale and leaseback of nuclear fuel through ComEd's existing nuclear
fuel lease facility. During 1998, ComEd sold and leased back $101 million of
nuclear fuel through its existing nuclear fuel lease facility. See Note 20 of
Notes to Financial Statements for additional information concerning ComEd's
nuclear fuel lease facility. In July 1998, ComEd issued $225 million principal
amount of 6.95% Notes due July 15, 2018, the proceeds of which were used for
general corporate purposes, including the refinancing of existing debt. ComEd
has $1 billion of unused bank lines of credit at December 31, 1998, which may
be borrowed at various interest rates. The interest rate is set at the time of
a borrowing and is based on floating rate bank indices plus a spread, which is
dependent upon the credit ratings of ComEd's outstanding first mortgage bonds
or on a prime interest rate. See Note 13 of Notes to Financial Statements for
information concerning lines of credit. See the Statements of Consolidated
Cash Flows for the construction expenditures and cash flow from operating
activities for the years 1998, 1997 and 1996. Cash flow from operating
activities decreased temporarily for the year 1998, compared to the previous
two years, as a result of an increase in customer receivables due to the
transition to a new customer information and billing system in the latter part
of 1998.
 
  As of February 19, 1999, ComEd has an effective "shelf" registration
statement with the SEC for the future sale of up to an additional $280 million
of debt securities and cumulative preference stock for general corporate
purposes of ComEd, including the discharge or refund of other outstanding
securities.
 
                                      10
<PAGE>
 
  ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
<TABLE>
<CAPTION>
                                                                Standard Duff &
                                                        Moody's & Poor's Phelps
                                                        ------- -------- ------
     <S>                                                <C>     <C>      <C>
     First mortgage and secured pollution control
      bonds............................................  Baa2     BBB     BBB
     Publicly-held debentures and unsecured pollution
      control obligations..............................  Baa3     BBB-    BBB-
     Convertible preferred stock.......................  baa3     BB+     BBB-
     Preference stock..................................  baa3     BB+     BBB-
     Trust Securities..................................  baa3     BB+     BBB-
     Commercial paper..................................  P-2      A-2     D-2
</TABLE>
 
  ComEd Funding Trust's securities are currently rated by three principal
securities rating agencies as follows:
<TABLE>
<CAPTION>
                                                                 Standard Duff &
                                                         Moody's & Poor's Phelps
                                                         ------- -------- ------
     <S>                                                 <C>     <C>      <C>
     Transitional trust notes...........................   Aaa     AAA     AAA
</TABLE>
 
  As of January 1999, Moody's rating outlook on ComEd's securities is "Stable"
and S&P's rating outlook is "Positive." Duff & Phelps removed ComEd's
securities from "Rating Watch-Down" in September 1998.
 
  In February 1999, S&P revised the general ratings scale for evaluating
preferred and preference stock issues of corporations. As a result of this
change in scale, ratings on ComEd's preferred and preference stocks, and Trust
Securities were lowered in February 1999.
 
  Capital Structure. ComEd's ratio of long-term debt to total capitalization
increased to 58.0% at December 31, 1998 from 48.5% at December 31, 1997. The
increase is primarily due to the issuance of $3.4 billion of transitional
trust notes, in late December, which had not been applied to redeem long-term
debt and equity as of December 31, 1998. Excluding the effect of the
transitional trust notes, ComEd's ratio of long-term debt to total
capitalization was 45.5% at December 31, 1998. ComEd does not expect the
issuance of the transitional trust notes to adversely affect security ratings
of other outstanding securities. Unicom's retained earnings account had a
positive balance of $143 million at December 31, 1998 and a deficit balance of
$21 million at December 31, 1997. As of December 31, 1998 and 1997, $494
million and $331 million, respectively, of retained earnings had been
appropriated for future dividend payments.
 
  Year 2000 Conversion. Unicom, including ComEd, uses various software
applications and embedded systems throughout its businesses that will be
affected by so-called "Year 2000 issues." These issues may prevent an
application or system from correctly processing dates up to the year 2000 and
beyond. A failure to correct any critical Year 2000 processing problems prior
to January 1, 2000 could have material adverse operational and financial
consequences if the affected systems either cease to function or produce
erroneous data. At this time, Unicom believes the major risks associated with
the inability of systems and software to process Year 2000 data correctly are
a system failure or miscalculation causing disruption of operations, including
among other things, an inability to operate ComEd's nuclear or fossil
generating plants, disruption in the operation of its transmission and
distribution systems or an inability to access interconnections with the
systems of neighboring utilities. Such failures could materially and adversely
affect Unicom's results of operations, financial position and cash flows.
 
  Unicom management established a Year 2000 project team to address Year 2000
issues. The Year 2000 project team is currently composed of over 300 members,
including members of Unicom's senior management. The team is focused on three
elements that are integral to the project: business continuity, project
management and risk management. Business continuity involves the continuation
of reliable electric supply and service in a safe, cost-effective manner.
Project management involves defining and meeting the project scope, schedule
and budget. Risk management involves customer communications, contingency
planning and legal issues.
 
 
                                      11
<PAGE>
 
  In addition to its internal efforts, Unicom is working with various industry
groups, including NERC, EPRI and EEI to coordinate electric utility industry
Year 2000 efforts with the Clinton Administration's Year 2000 Conversion
Council, the DOE and Congress. The DOE has asked NERC to report on the
integrity of the transmission system for North America and to coordinate and
assess the preparation of the electric systems in North America for the Year
2000. NERC submitted its initial status report and coordination plan to the
DOE in September 1998 and a second report in January 1999; a full status
report is due by July 1999.
 
  Since July 1996, Unicom has been working to identify and address Year 2000
issues. Unicom's approach to identifying and addressing noncompliant software
applications and embedded systems consists of the following stages: inventory,
analysis, renovation, testing and deployment. The first stage is to inventory
all applications and systems. The analysis stage involves assessing whether
software applications and embedded systems are Year 2000 compliant. The
renovation stage involves remediating or upgrading applications and systems to
make them Year 2000 ready. The testing stage determines whether the renovated
applications and systems are Year 2000 ready. The deployment stage is when the
tested applications and systems are implemented. In addition, Unicom is
engaged in contingency planning for Year 2000 problems. Unicom is developing
contingency plans to address the possibility that the applications and systems
may not be Year 2000 ready at the end of this process. An independent
consultant has been engaged to assist Unicom in the assessment of the process
being used to address the Year 2000 issue.
 
  Unicom's Year 2000 project focuses on those facets of its business that are
required to deliver reliable electric service. The project encompasses the
computer systems that support core business functions such as customer
information and billing, finance, procurement, supply and personnel as well as
the components of metering, transmission, distribution and generation support.
The project also focuses on embedded systems, instrumentation and control
systems in facilities and plants. In accordance with business plans, Unicom
has replaced certain of its financial, human resources and customer service
and billing software, and is in the process of replacing its payroll system,
with new software that is Year 2000 compliant, and that addresses Unicom's
strategic needs as it enters a less regulated environment.
 
  The following table summarizes the status as of February 5, 1999 of Unicom's
progress toward achieving Year 2000 readiness. The figures set forth in the
table represent the estimated extent to which Unicom has completed each phase
of the Year 2000 project for software applications and embedded systems.
<TABLE>
<CAPTION>
                                                             Software   Embedded
                                                           Applications Systems
                                                           ------------ --------
      <S>                                                  <C>          <C>
      Inventory...........................................     100%       100%
      Analysis............................................      93%        96%
      Renovation..........................................      87%        74%
      Testing.............................................      79%        46%
      Deployment..........................................      78%        91%
</TABLE>
 
  The renovation and testing phases include only those software applications
and embedded systems which are not Year 2000 compliant, and require renovation
and testing. The deployment phase includes all inventoried applications and
systems, including those applications and systems that are Year 2000 compliant
and required no renovation or testing. Accordingly, the percentage of
completion for testing and renovation may be lower than the percentage of
completion for deployment.
 
  The following is a brief summary of estimates of the progress of the Year
2000 project and certain projected completion dates in each of Unicom's four
critical business areas--nuclear generation, fossil generation, transmission
and distribution, and corporate information services:
 
 
                                      12
<PAGE>
 
  . Nuclear Generation--Software applications analysis is 65% complete and
    embedded systems analysis is 98% complete. Testing of software
    applications is 36% complete and 55% complete for embedded systems.
    Deployment of software applications is 23% complete and embedded systems
    are 85% complete. All ten operating nuclear units are expected to be Year
    2000 ready by June 30, 1999.
 
  . Fossil Generation--Analysis is 100% complete for software applications
    and 96% complete for embedded systems. Testing of software applications
    is 63% complete and 4% complete for embedded systems. Deployment of
    software applications is 80% complete and embedded systems are 97%
    complete and both are expected to be completed by June 30, 1999.
 
  . Transmission and Distribution--Analysis is 100% complete for software
    applications and 98% complete for embedded systems. Testing of software
    applications is 89% complete and 97% complete for embedded systems.
    Deployment of software applications is 89% complete and 97% complete for
    embedded systems. Deployment of software applications and embedded
    systems is expected to be completed by June 30, 1999.
 
  . Corporate Information Services--Inventory and analysis are 100% complete.
    Renovation, testing and deployment are 99% complete. Enterprise-wide
    mainframe applications and systems are 100% complete.
 
  Unicom's current schedule is subject to change, depending on developments
that may arise through unforeseen business circumstances, and through the
remediation and testing phases of its compliance effort. Unicom also depends
upon third parties, including customers, suppliers, government agencies and
financial institutions, to reliably deliver its products and services. Unicom
has implemented additional initiatives to assess the degree to which third
parties with whom it has business relationships are addressing Year 2000
issues. These initiatives include analysis of the Year 2000 compliance
programs of Unicom's critical vendors and obtaining Year 2000 warranties in
certain new contracts and licenses. Unicom also has introduced protocols for
assuring that software and embedded systems remain Year 2000 compliant on a
continuing basis. Unicom's contingency planning is addressing mechanisms for
preventing or mitigating interruption caused by its suppliers. Unicom also has
an outreach program in place for communicating Year 2000 project information
to residential and business customers.
 
  Unicom estimates that the total cost of remediating or upgrading software
which would not otherwise be replaced in accordance with its business plans is
approximately $20 million, and the total cost of remediating or upgrading
embedded systems is approximately $20-$40 million. Approximately $26 million
has been expended as of December 31, 1998 for external labor, hardware and
software costs, and for the costs of Unicom employees who are dedicated full-
time to the Year 2000 project. All of such costs are expensed as incurred. The
foregoing amounts do not include the cost of new software applications
installed as a result of strategic replacement projects described earlier.
Such replacement projects were not accelerated because of Year 2000 issues.
 
  The cost of the project and the dates on which Unicom plans to complete its
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third parties' Year 2000
readiness and other factors. Further, Unicom expects to incur additional costs
after 1999 to remediate and replace less critical software applications and
embedded systems.
 
  Unicom has existing contingency plans in place for events such as extreme
heat, storms, equipment failures and accidents. Unicom is preparing Year 2000
contingency plans based on the framework of existing emergency management
system preparation and scenario development.
 
  Unicom has begun the process of developing contingency plans to address the
most reasonably likely worst case scenarios that could occur in the event that
various Year 2000 issues are not resolved in a timely manner. Unicom submitted
the first draft of contingency plans to NERC prior to December 31, 1998, as
NERC requested. In addition, the first draft contingency plans were also
submitted to MAIN. Final plans are due to be submitted to NERC by June 30,
1999. Contingency planning is an ongoing process and will continue through the
fourth quarter of 1999.
 
 
                                      13
<PAGE>
 
  Unicom is using an approach in its contingency planning process that has
been recognized by NERC and NEI. The phases of the process include: business
impact analysis, contingency planning and testing. Unicom's business impact
analysis requires business unit personnel to evaluate the impact of mission-
critical systems failures on Unicom's core business operations, focusing on
specific failure scenarios and how they can be mitigated. The necessary
conditions for enacting the plans will be documented along with the
appropriate personnel responsible in each of the business units should a Year
2000 failure occur. Additionally, Unicom will participate in the NERC
industry-wide readiness drills scheduled for the spring and fall of 1999.
 
  Based on Unicom's current schedule for completion of Year 2000 tasks, it
believes that its planning is adequate to secure Year 2000 readiness of its
critical systems. Nevertheless, achieving Year 2000 readiness is subject to
various risks and uncertainties, many of which are described above. Unicom is
not able to predict all the factors that could cause actual results to differ
materially from its current expectations as to its Year 2000 readiness.
However, if Unicom or third parties with whom it has significant business
relationships fail to achieve Year 2000 readiness with respect to critical
systems, there could be a material adverse effect on Unicom's results of
operations, financial position and cash flows.
 
  Market Risks. ComEd is exposed to market risk due to changes in interest
rates and the market price for electricity. Exposure for interest rate changes
relates to its long-term debt and preferred equity obligations. Exposure to
electricity market price risk relates to forward activities taken to manage
effectively the supply of, and demand for, the electric generation capability
of ComEd's generating plants. ComEd has implemented an integrated risk
management framework to manage such risks. A corporate Risk Management
Committee defines the Company's risk tolerance and establishes appropriate
position limits, and corporate policies and procedures have been implemented
to minimize the exposure to market risk. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes. See "Energy Risk Management Contracts" in Note 1 of Notes to
Financial Statements regarding the accounting for energy risk management
contracts.
 
  Interest Rate Exposure. The table below provides the fair value and average
interest or fixed dividend rates of Unicom's outstanding debt and preferred
stock equity instruments as of December 31, 1998, excluding the January and
February redemptions of long-term debt and preference stock. See Note 24 of
Notes to Financial Statements for additional information on the redemptions.
 
<TABLE>
<CAPTION>
                                                                            Fair
                                Expected Maturity Date                    Value as
Unicom and Subsidiary     ----------------------------------------           of
Companies (millions)      1999  2000  2001  2002  2003  Thereafter Total  12/31/98
---------------------     ----  ----  ----  ----  ----  ---------- ------ --------
<S>                       <C>   <C>   <C>   <C>   <C>   <C>        <C>    <C>
Long-Term Debt-
 Fixed Rate.............  $153  $462  $  9  $308  $108    $4,052   $5,092  $5,476
 Average Interest Rate..   8.7%  7.2%  5.6%  7.9%  6.6%      7.7%
 Variable Rate..........  $ 85                            $   92   $  177  $  177
 Average Interest Rate..   6.2%                              4.1%
 Transitional Trust
  Notes.................  $330  $350  $340  $340  $340    $1,700   $3,400  $3,450
 Average Interest Rate..   5.4%  5.3%  5.3%  5.4%  5.4%      5.6%
Preferred and Preference
 Stock-
 Subject to Mandatory
  Redemption............        $ 69                               $   69  $   71
 Average Dividend Rate..         6.9%
 Not Subject to Manda-
  tory Redemption.......                                  $   75   $   75  $   77
 Average Dividend Rate..                                     9.9%
Trust Securities........                                  $  350   $  350  $  371
 Average Dividend Rate..                                     8.5%
</TABLE>
 
  Market Price Exposure. ComEd's energy purchases from other suppliers have
increased as a result of reductions in owned generating capability and system
load growth. The market price of energy is subject to price volatility
associated with changes in supply and demand in the electric supply markets.
In the normal course of business, ComEd utilizes contracts for the forward
sale and
 
                                      14
<PAGE>
 
purchase of energy to assure system reliability and manage effectively the
utilization of its available generating capability. ComEd also utilizes put
and call option contracts and energy swap arrangements to limit the market
price risk associated with the forward commodity contracts. The estimated fair
value of the forward energy contracts, including options at December 31, 1998,
was approximately $22 million. The estimated fair value is based on the
estimated net settlement value of the contracts derived from forward price
curves and market quotes, discounted at a 10% rate. A sensitivity analysis has
been performed which indicates that the market price risk exposure of these
financial instruments is not material. Notwithstanding these price risk
management activities, an unexpected loss of generating capability or
reduction in demand could increase ComEd's exposure to market price risks and
could have a material adverse effect on operating results.
 
                            UNREGULATED OPERATIONS
 
  Unicom Enterprises is engaged, through subsidiaries, in energy service
activities which are not subject to utility regulation by federal or state
agencies. One of these subsidiaries, UT Holdings, provides district cooling
and related services to offices and other buildings in the central business
district of the city of Chicago and in other cities in North America,
generally working with local utilities. District cooling involves, in essence,
the production of chilled water at one or more central locations and its
circulation to customers' buildings through a closed circuit of supply and
return piping. Such water is circulated through customers' premises primarily
for air conditioning. This process is used by customers in lieu of self-
generated cooling.
 
  Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services including gas services, performance contracting,
distributed energy and active energy management systems. In 1997, Unicom
Energy Services entered into a joint venture with Sonat Marketing Company L.P.
to market natural gas and related services to larger gas purchasers within
ComEd's service area in Northern Illinois and within other Midwestern areas.
As an entry into the distributed energy market, Unicom Energy Services also
entered into an alliance with AlliedSignal Power Systems, Inc., a subsidiary
of AlliedSignal Inc., to market, install and service an electric energy
generator developed by AlliedSignal, known as a TurboGenerator, in a 12-state
region, the providence of Ontario, Canada and Puerto Rico.
 
  Construction Program. Unicom has approved capital expenditures for 1999 of
approximately $88 million for UT Holdings, primarily related to an expansion
of two of its four Chicago district cooling facilities and the related
distribution piping and plants in other cities. As of December 31, 1998, UT
Holdings' purchase commitments, principally related to construction, were
approximately $21 million.
 
  Unicom has approved capital expenditures for 1999 of approximately $47
million for Unicom Energy Services. As of December 31, 1998, Unicom Energy
Services had purchase commitments of approximately $10 million.
 
  Capital Resources. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from dividends received on its ComEd
common stock and from bank borrowings. The availability of ComEd's dividends
to Unicom is dependent on ComEd's financial performance and cash position.
Other forms of financing by ComEd to Unicom or the unregulated subsidiaries of
Unicom, such as loans or additional equity investments, which are not
expected, would be subject to prior approval by the ICC.
 
  Unicom Enterprises has a $200 million credit facility which will expire on
November 15, 1999, of which $115 million was unused as of December 31, 1998.
The credit facility can be used by Unicom Enterprises to finance investments
in unregulated businesses and projects, including UT Holdings and Unicom
Energy Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom and
Unicom Enterprises' operations. Interest rates for borrowings under the credit
facility are set at the time of a borrowing and
 
                                      15
<PAGE>
 
are based on either a prime interest rate or a floating rate bank index plus a
spread which varies with the credit rating of ComEd's outstanding first
mortgage bonds. See Note 13 of Notes to Financial Statements for additional
information regarding certain covenants with respect to Unicom and Unicom
Enterprises' operations.
 
  In July 1998, Unicom Thermal issued $120 million of 7.38% unsecured
guaranteed senior Notes due May 2012, the proceeds of which were used to
refinance existing debt. The Notes are guaranteed by Unicom and include
certain covenants with respect to Unicom and Unicom Thermal's operations.
 
  On April 1, 1998, S&P issued a rating on Unicom's senior debt obligations of
BBB-. Ratings have not been obtained from Moody's or Duff & Phelps.
 
Regulation
 
  ComEd and the Indiana Company are subject to federal and state regulation in
the conduct of their respective businesses, including the operations of
Cotter. Such regulation includes rates, securities issuance, nuclear
operations, environmental and other matters. Particularly in the cases of
nuclear operations and environmental matters, such regulation can and does
affect operational and capital expenditures.
 
  Rate Matters. See "Changes in the Electric Utility Industry," subcaption
"The 1997 Act" above, for information regarding the effects of the 1997 Act on
rate matters. See "Nuclear Matters" below for information regarding fuel
reconciliation proceedings for the years 1994 and 1996.
 
  Nuclear Matters. Nuclear operations have been, and remain, an important
focus of ComEd--given the impact of such operations on overall O&M expenses
and the ability of nuclear power plants to produce electric energy at a
relatively low marginal cost. ComEd operates five nuclear power plants,
ranging from the older Dresden and Quad Cities Stations to the more recently
completed LaSalle, Byron and Braidwood Stations, and is intent upon safe,
reliable and efficient operation. See "Changes in the Electric Utility
Industry," subcaption "Response to Regulatory Changes" above, for information
regarding ComEd's permanent cessation of nuclear generation operations at its
Zion Station.
 
  ComEd's LaSalle Station is currently on the NRC's list of plants that
require increased regulatory scrutiny. Dresden Station had been included on
the list since 1992 and LaSalle and Zion Stations were added in January 1997.
In July 1998, the NRC removed Dresden Station from the list because of
improved performance at the station, and also administratively removed Zion
Station from the list because of ComEd's decision to permanently cease further
nuclear operations at that plant. The listing of LaSalle Station does not
prevent ComEd from operating the generating units; however, it does mean that
the NRC will devote additional resources to monitoring ComEd's operating
performance and that ComEd will need to work to demonstrate to the NRC the
sustainability of improvements which it believes it has undertaken and is
continuing to implement. In January 1998, the NRC noted a declining
performance trend at Quad Cities Station. In March 1998, the NRC stated that
weaknesses were observed with respect to certain operations, maintenance and
engineering activities at Quad Cities Station. In July 1998, the NRC stated
that there has not been sufficient operational data to enable it to assess
Quad Cities Station's performance. The NRC indicated that it is monitoring
ComEd's ability to manage its nuclear operations in their entirety and that
the performance at any one facility will be viewed by the NRC in context with
the performance of ComEd's nuclear generating fleet as a whole. The NRC and
representatives of ComEd's management have met, and will continue to meet
periodically in the future, to discuss the status of recovery and restart
efforts and overall performance of the ComEd nuclear program.
 
  ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. In recent
years, it has increased and reinforced the Nuclear Generation Group executive
leadership and station management with executives and managers drawn from
other utilities that have resolved similar operational and performance issues.
These efforts include the appointment of a new Chief Nuclear Officer in late
1997. ComEd has also
 
                                      16
<PAGE>
 
sought to identify, anticipate and address operating and performance issues in
a safe, cost-effective manner, while seeking to improve the availability and
capacity factors of its nuclear generating units.
 
  ComEd's activities, with respect to its nuclear generating stations, have
included improvements in operating and personnel procedures and repair and
replacement of equipment. Although performing such improvements can result in
longer unit outages, the improvements are expected to result in improved
operational performance when completed. LaSalle Units 1 and 2 were shut down
for extensive improvement work in September 1996. LaSalle Unit 1 was returned
to service in August 1998 after the NRC determined that ComEd had made
sufficient improvements at LaSalle Unit 1 for the unit to resume operations.
LaSalle Unit 2 is expected to restart during the second quarter of 1999. The
restart of LaSalle Unit 2 requires the resolution of material condition issues
similar to those of LaSalle Unit 1.
 
  The NERC forecasted the possibility of electric energy shortages in the
summer of 1998 in light of continued outages at nuclear plants operated by
ComEd and other utilities in the Midwest power grid. ComEd took numerous steps
to support the reliability of its system during the summer of 1998. Such steps
included maximizing available on-system generating capacity during periods of
peak demand, arrangements to purchase power from other utilities,
reinforcements to the transmission systems of ComEd and neighboring utilities
to increase capacity and to provide voltage support, and working with
customers to manage the use of and demand for power. As a result of a unique
combination of heat, storms and equipment problems affecting utilities
throughout the Midwest region, on June 25, 1998, ComEd declared a NERC
generation deficiency alert Level 3, which is a statement that firm load loss
is possible. No firm load losses were experienced in 1998. See "Results of
Operations," subcaption "Purchased Power" below, regarding the increased
purchased power expense in 1998.
 
  Generating station availability and performance during a year have been
issues in fuel reconciliation proceedings in assessing the prudence of fuel
and purchased power costs during such year. Final ICC orders have been issued
in fuel reconciliation proceedings related to ComEd's FAC collections for all
years except for 1994. On November 5, 1998, the ICC issued an order in the
proceeding for the year 1994 providing for a refund of approximately $3
million related to nuclear station performance. On February 9, 1999, an
intervenor moved to dismiss its appeal of the 1994 ICC order. On December 29,
1998, the ICC issued an order for the 1996 fuel reconciliation proceeding
requiring ComEd to refund approximately $19 million related to nuclear station
performance. The 1997 Act provides that, because ComEd eliminated its FAC
effective January 1, 1997, the ICC shall not conduct a fuel reconciliation
proceeding for the year 1997 and subsequent years.
 
  Based on ComEd's most recent study approved by the ICC, decommissioning
costs, including the cost of decontamination and dismantling, are estimated to
aggregate to $4.6 billion in current-year (1999) dollars, including a
contingency allowance. ComEd estimates that it will expend approximately $11.6
billion, including a contingency allowance, for decommissioning costs
primarily during the period from 2007 through 2034. Additionally, ComEd
estimates that it will expend an aggregate of approximately $226 million in
current-year (1999) dollars during the period 2000 through 2014 to maintain
Zion Station in a secured mode until decommissioning begins. All such costs
are expected to be funded by external decommissioning trusts, which ComEd
established in compliance with Illinois law and into which ComEd has been
making annual contributions. Future decommissioning cost estimates may be
significantly affected by the adoption of or changes to NRC regulations, as
well as changes in the assumptions used in making such estimates, including
changes in technology, available alternatives for the disposal of nuclear
waste and inflation. See Note 1 of Notes to Financial Statements, under
"Depreciation, Amortization of Regulatory Assets and Decommissioning," for
additional information regarding decommissioning costs.
 
  Environmental Matters. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The
outcome of these proceedings may require increases in future construction
expenditures and operating expenses, and changes in operating procedures. See
Note 22 of Notes to Financial Statements for additional information.
 
 
                                      17
<PAGE>
 
Results of Operations
 
  Unicom's basic and diluted earnings (loss) per common share for 1998, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
                                                            1998   1997   1996
                                                            ----- ------  -----
<S>                                                         <C>   <C>     <C>
Basic Earnings (Loss) per Common Share..................... $2.35 $(3.94) $3.09
                                                            ===== ======  =====
Diluted Earnings (Loss) per Common Share................... $2.34 $(3.94) $3.09
                                                            ===== ======  =====
</TABLE>
 
  Substantially all of the results of operations for Unicom are the results of
operations for ComEd. The results of Unicom's unregulated subsidiaries
currently are not material to the results of Unicom and subsidiary companies
as a whole. As such, the following section discusses the effect of ComEd's
operations on Unicom's financial results. All EPS computations shown below
reflect the impact on Unicom's basic EPS.
 
  Net Income for the Year 1998. The increase in earnings for 1998 was
primarily due to increased kilowatthour sales, which increased both operating
revenues and energy costs, reduced O&M expenses, lower depreciation and
amortization expenses, lower than expected Zion Station closing costs and
gains on the sales of certain assets. In December 1997, ComEd discontinued
regulatory accounting practices for the generation portion of its business and
recorded other non-recurring accounting charges as a result of the 1997 Act,
which are primarily attributable to the loss for 1997. The 1997 operating
results also include the write-off for the closure of the Zion nuclear
generating station, partially offset by a cumulative one-time positive impact
of $197 million (after-tax), or $0.91 per common share, for a change in
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive to January 1,
1997.
 
  Kilowatthour sales increased 2% for the year 1998, compared to 1997, driven
largely by increased sales to retail customers due to warmer weather
experienced during the recent year, as well as continued economic growth in
ComEd's service territory. Operating revenues increased 1% during 1998,
compared to 1997. See "Operating Revenues" below for additional information.
 
  Fuel and purchased power costs increased 15% in 1998, compared to the year
1997, reflecting increased demand for electricity, as well as the effects of
higher purchased power prices. See "Purchased Power" below for additional
information.
 
  O&M expenses decreased 7% for the year 1998, compared to the year 1997, as
discussed in "Operation and Maintenance Expenses" below.
 
  The year 1998 includes a 6% decrease in depreciation and amortization
expenses, as discussed in "Depreciation and Amortization" below, and a $15
million (after-tax), or $0.07 per common share, reduction in the estimated
liability for closing costs related to the Zion nuclear generating station,
both of which increased operating results.
 
  Also, 1998 operating results reflect realized gains on the sales of certain
assets of $31 million (after-tax), or $0.14 per common share. The sold assets
consisted principally of surplus inventory of emission allowances.
 
  Net Loss for the Year 1997. ComEd's kilowatthour sales, including sales to
wholesale customers, increased 5% during 1997, compared to 1996, as discussed
below. In 1997, O&M expenses increased 12%, as discussed below.
 
  Also, 1997 operating results were reduced by $336 million for increased fuel
and purchased power costs, as discussed below. In addition, a 4% increase in
depreciation expense, primarily due to an increase in certain nuclear plant
depreciation, resulted in a charge of $23 million (after-tax), or $0.11 per
common share.
 
 
                                      18
<PAGE>
 
  ComEd discontinued regulatory accounting practices for the generation
portion of its business in the fourth quarter of 1997 due to the expected
transition of electric generation services to market-based pricing as a result
of the 1997 Act. Accordingly, ComEd's generation-related net regulatory
assets, which represent assets and liabilities properly recorded under
regulatory accounting practices but which would not be recorded under GAAP for
non-regulated entities, were written off, resulting in an extraordinary charge
in 1997 of $810 million (after-tax), or $3.75 per common share.
 
  In addition, as permitted under the 1997 Act, ComEd elected to eliminate its
FAC in December 1997, which resulted in a charge in the fourth quarter of 1997
of $44 million (after-tax), or $0.20 per common share. The reduction includes
$25 million (after-tax), or $0.12 per common share, in net FAC charges billed
to its customers in 1997, which were refunded to customers during the first
six months of 1998. The reduction also includes a write-off of $19 million
(after-tax), or $0.08 per common share, in underrecovered energy costs that
ComEd would have been entitled to recover if the FAC had remained in effect.
 
  Also, 1997 operating results included the write down of ComEd's investment
in uranium-related properties to reflect costs which are not expected to be
recovered in a competitive market. The write down resulted in a charge in 1997
of $60 million (after-tax), or $0.28 per common share.
 
  Partially offsetting the charges to operations for 1997 was a change in the
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive to January 1,
1997. This change in accounting method had a one-time cumulative positive
impact for years prior to 1997 of $197 million (after-tax), or $0.91 per
common share.
 
  The year 1997 also included a charge of $523 million (after-tax), or $2.42
per common share, reflecting the write-off of the unrecoverable portion of the
cost of ComEd's Zion Station plant and inventories, and a liability for future
closing costs, resulting from the decision in January 1998 to permanently
cease nuclear generation operations at Zion Station.
 
  Net Income for the Year 1996. The 1996 operating results reflect, among
other factors, a 1% decrease in overall O&M expenses, compared to 1995, the
positive effects of an income tax refund related to prior years with an
increase in operating results of $26 million (after-tax), or $0.12 per common
share, and a reduction in real estate taxes with an increase in operating
results of $28 million (after-tax), or $0.13 per common share. Approximately
half of the reduction in real estate taxes in 1996 is related to the year
1995. The 1996 results also reflect a 9% reduction in the total interest
expense on debt and dividend requirements on preferred and preference stocks,
compared to 1995, largely due to the early retirement of debt at the end of
1995. In September 1996, the ICC approved ComEd's request to increase
depreciation charges on its nuclear generating units by $30 million for the
year 1996, resulting in a charge of $20 million (after-tax), or $0.09 per
common share.
 
  Operating Revenues. ComEd's electric operating revenues reflect revenues
from sales to ultimate consumers (including residential, commercial and
industrial customers within its service territory), revenues from sales for
resale (i.e., sales to wholesale customers, principally other electric
utilities), and revenues from collections under its FAC for years prior to
1997, which were intended to recover variations in ComEd's fuel cost for
generating electric energy and the energy portion of purchased power cost in
relation to the amount included in ComEd's base rates. Operating revenues are
affected by kilowatthour sales and rate levels, kilowatthour sales, in turn,
are affected by weather, the level of economic activity within ComEd's service
area, and off-system or wholesale sales to other utilities. Off-system sales
are affected by a number of factors, including nuclear generating availability
and performance.
 
  In 1998, operating revenues increased $63 million and kilowatthour sales
increased 2%, compared to the year 1997, primarily due to warmer summer
weather experienced in 1998 and continued economic growth in ComEd's service
territory, partially offset by a 15% residential rate reduction and reserves
for various federal and state litigation matters. Operating revenues for 1998
 
                                      19
<PAGE>
 
also were reduced by approximately $95 million due to a change in presentation
for certain state and municipal taxes. During 1997, electric operating
revenues increased $139 million, primarily due to a 29% increase in
kilowatthour sales to wholesale customers. Kilowatthour sales to ultimate
consumers during 1997 increased 1%, compared to 1996, reflecting continued
economic growth in ComEd's service territory. Operating revenues in 1997 were
reduced by the provision for revenue refunds of $45 million, including revenue
taxes, related to the elimination of the FAC. Operating revenues increased $25
million in the year 1996, compared to 1995, principally reflecting increased
sales to other utilities and increased energy cost recoveries under ComEd's
then effective FAC, although kilowatthour sales to ultimate consumers were
down 1% from the prior year due to the cooler summer weather, compared to the
exceptionally hot summer in the year 1995.
 
  Fuel Costs. Changes in fuel expense for the years 1998, 1997 and 1996
primarily resulted from changes in the average cost of fuel consumed, changes
in the mix of fuel sources of electric energy generated and changes in net
generation of electric energy. Fuel mix is determined primarily by system
load, the costs of fuel consumed and the availability of nuclear generating
units. The cost of fuel consumed, net generation of electric energy and fuel
sources of kilowatthour generation were as follows:
 
<TABLE>
<CAPTION>
                                                          1998    1997    1996
                                                         ------  ------  ------
   <S>                                                   <C>     <C>     <C>
   Cost of fuel consumed (per million Btu):
     Nuclear...........................................   $0.57   $0.57   $0.53
     Coal..............................................   $2.38   $2.28   $2.41
     Oil...............................................   $3.49   $3.90   $3.41
     Natural gas.......................................   $2.39   $2.69   $2.75
     Average all fuels.................................   $1.23   $1.33   $1.17
   Net generation of electric energy (millions of kilo-
    watthours).........................................  83,302  85,861  93,048
   Fuel sources of kilowatthour generation:
     Nuclear...........................................      65%     57%     67%
     Coal..............................................      30      39      30
     Oil...............................................     --      --        1
     Natural gas.......................................       5       4       2
                                                         ------  ------  ------
                                                            100%    100%    100%
                                                         ======  ======  ======
</TABLE>
 
  The decreases in the net generation of electric energy for 1998 and 1997,
compared to the prior years, are primarily due to the sales of State Line and
Kincaid Stations in December 1997 and February 1998, respectively, and lower
nuclear plant availability in 1997. See "Regulation," subcaption "Nuclear
Matters" above, for information regarding outages at certain of ComEd's
nuclear generating stations.
 
  Fuel Supply. Compared to other utilities, ComEd has relatively low average
fuel costs as a result of its reliance predominantly on lower cost nuclear
generation. ComEd's coal costs, however, are high compared to those of other
utilities. ComEd's western coal contracts and its rail contracts for delivery
of the western coal provide for the purchase of certain coal at prices
substantially above currently prevailing market prices, and ComEd has
significant purchase commitments under its contracts. For additional
information concerning ComEd's coal purchase commitments, see "Liquidity and
Capital Resources" above and Note 22 of Notes to Financial Statements. For
additional information concerning ComEd's FAC, see Notes 2 and 4 of Notes to
Financial Statements.
 
  Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of ComEd's generating units, and the availability and
cost of power from other utilities. Purchased power costs increased $395
million and $255 million in 1998 and 1997, compared to 1997 and 1996,
respectively. The increase in 1998 includes $161 million for the agreements
entered into in connection with the sales of State Line and Kincaid Stations
in December 1997 and February 1998, respectively. The increase in purchased
power costs in 1998 also reflects the effects of an extraordinary combination
of heat, storms and equipment problems experienced throughout the
 
                                      20
<PAGE>
 
Midwest in late June 1998 which resulted in unprecedented purchased power
price levels. The increase in 1997 is primarily due to outages at certain of
ComEd's nuclear generating stations. See "Regulation," subcaption "Nuclear
Matters" above, for information regarding outages at certain of ComEd's
nuclear generating stations.
 
  The number and average cost of kilowatthours purchased were as follows:
 
<TABLE>
<CAPTION>
                                                           1998    1997   1996
                                                          ------  ------  -----
   <S>                                                    <C>     <C>     <C>
   Kilowatthours (millions).............................. 20,704  16,672  6,129
   Cost per kilowatthour.................................   3.84c   2.40c  2.37c
</TABLE>
 
  The market price for electricity is subject to price volatility associated
with changes in supply and demand in the electric supply markets. ComEd
utilizes energy put and call option contracts and energy swap arrangements to
limit market price risk associated with forward commodity contracts.
 
  Operation and Maintenance Expenses. O&M expenses include the expenses
associated with operating and maintaining ComEd's generation, transmission and
distribution assets, as well as administrative overhead and support. Given the
variety of expense categories covered, there are a number of factors which
affect the level of such expenses within any given year. Two major components
of such expenses; however, are the costs associated with operating and
maintaining ComEd's nuclear and fossil generating facilities. Generating
station expenses are affected by the cost of materials, regulatory
requirements and expectations, the age of facilities, as well as cost control
efforts.
 
  During the three years presented in the financial statements, the aggregate
level of O&M expenses decreased 7% in 1998 compared to 1997, increased 12% in
1997 compared to 1996, and decreased 1% in 1996 compared to 1995. The year to
year variations reflect increasing efforts in 1997 and 1996 to improve nuclear
generating station availability, as well as to meet regulatory requirements
and expectations. Additional factors in each year also affected the level of
O&M expenses.
 
  O&M expenses associated with nuclear generating stations decreased $172
million and increased $122 million and $88 million for the years 1998, 1997
and 1996, respectively. The decrease in 1998 is principally due to the
permanent cessation of nuclear generation operations at Zion Station. The
increases in 1997 and 1996 were a result of increased levels of activities
associated with the repair, replacement and improvement of nuclear generating
facility equipment. Since 1995, ComEd has increased the number and scope of
maintenance activities associated with its nuclear generating stations. Such
efforts are the result of station performance evaluations performed to
identify the sources and causes of unplanned equipment repairs. The goal of
such efforts is to design and implement cost effective repairs and
improvements to increase station availability. See "Changes in the Electric
Utility Industry," subcaption "Response to Regulatory Changes" above,
regarding the permanent cessation of nuclear operations at Zion Station.
 
  O&M expenses associated with nuclear generating stations have been driven by
ComEd's objective to improve station availability, as well as to meet
regulatory requirements and expectations. ComEd is pursuing a program to
improve the quality of nuclear operations, including safety and efficiency,
which is also expected to achieve a longer term goal of improved availability
and to be positioned to take advantage of opportunities in a more competitive
market. Over the past several years, ComEd has increased and reinforced
station management with managers drawn from other utilities which have
resolved similar operating issues. It has also sought to identify, anticipate
and address nuclear station operation and performance issues in a safe, cost-
effective manner, while seeking to improve the availability and capacity
factors of its nuclear generating units. Such activities have included
improvements in operating and personnel procedures and repair and replacement
of equipment, and can result in longer unit outages. Such activities have
involved increased maintenance and repair expenses in recent years.
 
  O&M expenses associated with fossil generating stations decreased $5 million
and increased $31 million and $4 million for the years 1998, 1997 and 1996,
respectively. The decrease related to fossil generating stations in 1998,
compared to 1997, is primarily due to the sales of State Line and
 
                                      21
<PAGE>
 
Kincaid Stations in December 1997 and February 1998, respectively, partially
offset by plant refurbishment costs. The increase related to fossil generating
stations in 1997 is primarily due to an increase in the repair and improvement
of fossil generating facility equipment in order to increase their general
availability, and to ensure their availability during the summer of 1997. That
increase was partially offset by a reduction in personnel.
 
  O&M expenses associated with transmission and distribution systems increased
$32 million, $15 million and $11 million for the years 1998, 1997 and 1996,
respectively. The 1998 and 1997 increases are primarily due to increased
emergency restoration of electric service, higher maintenance expenses and
tree trimming costs. The 1996 increase reflects higher maintenance expenses.
O&M expenses associated with customer-related activities increased $19
million, $11 million and $17 million for the years 1998, 1997 and 1996,
respectively. The increase in 1998 is primarily due to increased marketing
initiatives, uncollectible accounts and customer service personnel costs. The
increase in 1997 is primarily due to an increase in uncollectible accounts.
 
  O&M expenses also include employee benefits expenses. Since 1995, ComEd has
reduced the size of its workforce by offering incentives for employees to
leave the company voluntarily. Such incentives included both current payments
and earlier eligibility for post-retirement health care benefits, in addition
to certain one-time, employee-related costs, resulting in charges of $48
million, $39 million and $12 million for the years 1998, 1997 and 1996,
respectively.
 
  Other employee-related expenses, excluding the effects of employee
separation plans and certain other one-time, employee-related costs, increased
$41 million and decreased $11 million and $47 million for the years 1998, 1997
and 1996, respectively. The increase for the year 1998 is primarily due to
accruals for estimated incentive compensation recorded in 1998. The decrease
in 1997 is primarily due to a reduction in medical costs for active employees.
The decrease in 1996 is primarily related to a reduction in post-retirement
health care benefit costs, primarily due to a plan amendment effected in mid-
1995 which required retired employee contributions to the plan for the first
time. Favorable experience also allowed the use of lower health care cost
trend rates, producing a lower charge in 1996.
 
  O&M expenses in 1998 reflect a reduction of $34 million in certain nuclear
maintenance costs due to technological improvements, compared to 1997. O&M
expenses in 1997 include $25 million for the additional write-off of obsolete
materials and supplies. O&M expenses associated with certain administrative
and general costs decreased $22 million and increased $35 million for the
years 1998 and 1997, respectively. The 1997 increase was due to a variety of
reasons including an increase in the provision for vacation pay liability. The
effects of inflation have also increased O&M expenses during the years and are
also reflected in the increases and decreases discussed herein.
 
  Depreciation and Amortization. Depreciation expense decreased in 1998 and
increased for the years 1997 and 1996. The decrease in 1998 reflects the
retirement of Zion Station and the plant impairment recorded by ComEd in the
second quarter of 1998, partially offset by plant additions and shortened
depreciable lives for certain nuclear stations. The decrease also reflects the
sales of State Line and Kincaid Stations in December 1997 and February 1998,
respectively. The increases in 1997 and 1996 are a result of additional
nuclear plant depreciation and additions to plant in service. Depreciation
expense for 1998 and 1997 includes depreciation related to the replacement of
the steam generators at Byron Unit 1 and Braidwood Unit 1 of $34 million and
$59 million for the years 1998 and 1997, respectively. The 1996 increase
includes the additional depreciation initiative of $30 million. See Note 1 of
Notes to Financial Statements, under "Depreciation, Amortization of Regulatory
Assets and Decommissioning," for additional information.
 
  The amortization of the regulatory asset, related to impaired production
plant recorded by ComEd in the second quarter of 1998, partially offset the
reductions in depreciation expense. Such
 
                                      22
<PAGE>
 
amortization was $65 million for the year 1998. See Note 1 of Notes to
Financial Statements, under "Depreciation, Amortization of Regulatory Assets
and Decommissioning," for additional information.
 
  Interest on Debt. Changes in interest on long-term debt and notes payable
for the years 1998, 1997 and 1996 were due to changes in average interest
rates and in the amounts of long-term debt and notes payable outstanding.
Changes in interest on long-term debt also reflected new issues of debt, the
retirement and early redemption of debt, and the retirement and redemption of
issues which were refinanced at generally lower rates of interest. The average
amounts of ComEd's long-term debt and notes payable outstanding and average
interest rates thereon were as follows:
 
<TABLE>
<CAPTION>
                                                          1998    1997    1996
                                                         ------  ------  ------
   <S>                                                   <C>     <C>     <C>
   Long-term debt outstanding:
    Average amount (millions)..........................  $6,099  $6,256  $6,644
    Average interest rate..............................    7.06%   7.65%   7.67%
   Notes payable outstanding:
    Average amount (millions)..........................  $  344  $  153  $  230
    Average interest rate..............................    5.68%   5.95%   5.79%
</TABLE>
 
  Decommissioning. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including ComEd,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in the financial statements of electric
utilities. In response to these questions, the FASB is reviewing the
accounting for nuclear decommissioning costs. If current electric utility
industry accounting practices for such decommissioning costs are changed,
annual provisions for decommissioning could increase and the estimated cost
for decommissioning could be recorded as a liability rather than as
accumulated depreciation. Decommissioning costs of currently retired nuclear
plants are recorded as a liability. Unicom and ComEd do not believe that such
changes, if required, would have an adverse effect on results of operations
due to ComEd's ability to recover decommissioning costs through rates.
 
  Other Items. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates as discussed in Note 1 of Notes to Financial Statements, under "AFUDC
and Interest Capitalized." ComEd discontinued SFAS No. 71 regulatory
accounting practices in December 1997 for the generation portion of its
business. As a result, beginning in 1998, ComEd capitalized $28 million in
interest costs on its generation-related construction work in progress and
nuclear fuel in process. AFUDC and interest capitalized do not contribute to
the current cash flow of Unicom or ComEd.
 
  ComEd's ratios of earnings to fixed charges for the years 1998, 1997 and
1996 were 2.67, 0.58 and 2.90, respectively. ComEd's ratios of earnings to
fixed charges and preferred and preference stock dividend requirements for the
years 1998, 1997 and 1996 were 2.29, 0.49 and 2.48, respectively. ComEd's
earnings for 1997 were inadequate to cover fixed charges by approximately $259
million and fixed charges and preferred and preference stock dividend
requirements by approximately $359 million. The deficiency in 1997 is
principally attributable to the earnings impact of the closure of Zion
Station.
 
  Business corporations, in general, have been adversely affected by inflation
because amounts retained after the payment of all costs have been inadequate
to replace, at increased costs, the productive assets consumed. Electric
utilities, in particular, have been especially affected as a result of their
capital intensive nature and regulation which limits capital recovery and
prescribes installation or modification of facilities to comply with
increasingly stringent safety and environmental requirements. Because the
regulatory process limits the amount of depreciation expense included in
ComEd's revenue allowance to the original cost of utility plant investment,
the resulting cash flows are inadequate to provide for replacement of that
investment in future years or preserve the purchasing power of common equity
capital previously invested.
 
                                      23
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Shareholders of Unicom Corporation:
 
  We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Unicom Corporation (an Illinois corporation)
and subsidiary companies as of December 31, 1998 and 1997, and the related
statements of consolidated operations, retained earnings (deficit) and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Unicom Corporation and
subsidiary companies as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
 
  As discussed in Note 3, effective January 1, 1997, the Company changed its
method of accounting for revenue recognition.
 
                                          Arthur Andersen LLP
 
Chicago, Illinois
February 19, 1999
 
                                      24
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                     STATEMENTS OF CONSOLIDATED OPERATIONS
 
  The following Statements of Consolidated Operations for the years 1998, 1997
and 1996 reflect the results of past operations and are not intended as any
representation as to results of operations for any future period. Future
operations will necessarily be affected by various and diverse factors and
developments, including changes in electric prices, regulation, population,
business activity, competition, taxes, environmental control, energy use,
fuel, cost of labor, purchased power and other matters, the nature and effect
of which cannot now be determined.
<TABLE>
<CAPTION>
                                              1998         1997         1996
                                           -----------  -----------  ----------
                                           (Thousands Except per Share Data)
<S>                                        <C>          <C>          <C>
Operating Revenues.......................  $ 7,151,253  $ 7,083,022  $6,937,024
                                           -----------  -----------  ----------
Operating Expenses and Taxes:
  Fuel...................................  $ 1,093,264  $ 1,239,438  $1,157,855
  Purchased power........................      795,355      400,055     145,299
  Operation and maintenance..............    2,285,525    2,438,944   2,162,279
  Depreciation and amortization..........      943,288    1,005,089     968,972
  Taxes (except income)..................      699,834      800,886     783,531
  Income taxes...........................      355,023      317,558     489,392
  Investment tax credits deferred--net...      (27,730)     (31,015)    (33,378)
                                           -----------  -----------  ----------
                                           $ 6,144,559  $ 6,170,955  $5,673,950
                                           -----------  -----------  ----------
Operating Income.........................  $ 1,006,694  $   912,067  $1,263,074
                                           -----------  -----------  ----------
Other Income and (Deductions):
  Interest on long-term debt, net of in-
   terest capitalized....................  $  (444,322) $  (488,033) $ (515,285)
  Interest on notes payable..............      (19,560)      (9,134)    (13,308)
  Allowance for funds used during con-
   struction.............................       16,464       42,325      40,202
  Income taxes applicable to nonoperating
   activities............................        4,974       11,010       7,659
  Provision for dividends--
    Preferred and preference stocks of
     ComEd...............................      (56,884)     (60,486)    (64,424)
    ComEd-obligated mandatorily redeem-
     able preferred
     securities of subsidiary trusts
     holding solely ComEd's
     subordinated debt securities........      (29,710)     (28,860)    (16,960)
  Loss on nuclear plant closure..........          --      (885,611)        --
  Income tax effect of nuclear plant clo-
   sure..................................          --       362,952         --
  Miscellaneous--net.....................       32,528      (95,445)    (34,858)
                                           -----------  -----------  ----------
                                           $  (496,510) $(1,151,282) $ (596,974)
                                           -----------  -----------  ----------
Net Income (Loss) before Extraordinary
 Item and Cumulative Effect of Change in
 Accounting Principle....................  $   510,184  $  (239,215) $  666,100
Extraordinary Loss, less Applicable In-
 come Taxes..............................          --      (810,335)        --
Cumulative Effect of Change in Accounting
 Principle...............................          --       196,700         --
                                           -----------  -----------  ----------
Net Income (Loss)........................  $   510,184  $  (852,850) $  666,100
                                           ===========  ===========  ==========
Earnings (loss) per common share before
 extraordinary item and cumulative effect
 of change in accounting principle--
  Basic..................................  $      2.35  $     (1.10) $     3.09
  Diluted................................  $      2.34  $     (1.10) $     3.09
Extraordinary loss, less applicable in-
 come taxes (basic and diluted)..........  $       --   $     (3.75) $      --
Cumulative effect of change in accounting
 principle (basic and diluted)...........  $       --   $      0.91  $      --
Earnings (loss) per common share--
  Basic..................................  $      2.35  $     (3.94) $     3.09
  Diluted................................  $      2.34  $     (3.94) $     3.09
Cash Dividends Declared per Common Share.  $      1.60  $      1.60  $     1.60
</TABLE>
 
  The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                      25
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                            December 31
                                                      ------------------------
                       ASSETS                            1998         1997
                       ------                         -----------  -----------
                                                      (Thousands of Dollars)
<S>                                                   <C>          <C>
Utility Plant:
  Plant and equipment, at original cost (includes
   construction work in progress of $858 million and
   $1,131 million, respectively)..................... $27,801,246  $27,518,690
  Less--Accumulated provision for depreciation.......  15,234,320   11,646,445
                                                      -----------  -----------
                                                      $12,566,926  $15,872,245
  Nuclear fuel, at amortized cost....................     874,979      906,043
                                                      -----------  -----------
                                                      $13,441,905  $16,778,288
                                                      -----------  -----------
Investments and Other Property:
  Nuclear decommissioning funds...................... $ 2,267,317  $ 1,855,697
  Subsidiary companies...............................      41,643       41,830
  Other, at cost.....................................     292,737      216,243
                                                      -----------  -----------
                                                      $ 2,601,697  $ 2,113,770
                                                      -----------  -----------
 
Current Assets:
  Cash............................................... $    28,743  $    18,519
  Temporary cash investments.........................      26,935      102,702
  Cash held for redemption of securities.............   3,062,816          --
  Special deposits...................................         271          271
  Receivables--
    Customers........................................   1,369,701      873,418
    Other............................................     136,663      132,449
    Provisions for uncollectible accounts............     (48,645)     (17,544)
  Coal and fuel oil, at average cost.................     135,415      120,664
  Materials and supplies, at average cost............     232,246      255,338
  Deferred income taxes related to current assets and
   liabilities.......................................      24,339      179,553
  Prepayments and other..............................      20,301       39,203
                                                      -----------  -----------
                                                      $ 4,988,785  $ 1,704,573
                                                      -----------  -----------
Deferred Charges and Other Noncurrent Assets:
  Regulatory assets.................................. $ 4,578,427  $ 1,966,889
  Other..............................................      96,266      136,230
                                                      -----------  -----------
                                                      $ 4,674,693  $ 2,103,119
                                                      -----------  -----------
                                                      $25,707,080  $22,699,750
                                                      ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       26
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                              December 31
                                                        -----------------------
            CAPITALIZATION AND LIABILITIES                 1998        1997
            ------------------------------              ----------- -----------
                                                        (Thousands of Dollars)
<S>                                                     <C>         <C>
Capitalization (see accompanying statements):
  Common stock equity.................................. $ 5,099,444 $ 4,918,687
  Preferred and preference stocks of ComEd--
    Without mandatory redemption requirements..........      74,488     507,053
    Subject to mandatory redemption requirements.......      69,475     174,328
  ComEd-obligated mandatorily redeemable preferred
   securities of subsidiary trusts holding solely
   ComEd's subordinated debt securities*...............     350,000     350,000
  Long-term debt.......................................   7,809,109   5,737,348
                                                        ----------- -----------
                                                        $13,402,516 $11,687,416
                                                        ----------- -----------
Current Liabilities:
  Notes payable........................................ $   292,963 $   158,150
  Current portion of long-term debt, redeemable prefer-
   ence stock and capitalized lease obligations of sub-
   sidiary companies...................................   2,314,443     775,296
  Accounts payable.....................................     604,936     505,444
  Accrued interest.....................................     180,674     169,559
  Accrued taxes........................................     134,976     175,758
  Dividends payable....................................     105,133     107,001
  Customer deposits....................................      56,954      55,214
  Accrued plant closing costs..........................      78,430     135,000
  Other................................................     155,262     165,177
                                                        ----------- -----------
                                                        $ 3,923,771 $ 2,246,599
                                                        ----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
  Deferred income taxes................................ $ 3,805,460 $ 3,850,308
  Nuclear decommissioning liability for retired plants.   1,215,400   1,301,000
  Accumulated deferred investment tax credits..........     562,285     602,122
  Accrued spent nuclear fuel disposal fee and related
   interest............................................     728,413     692,673
  Obligations under capital leases of subsidiary compa-
   nies................................................     333,653     437,950
  Regulatory liabilities...............................     595,005     698,750
  Other................................................   1,140,577   1,182,932
                                                        ----------- -----------
                                                        $ 8,380,793 $ 8,765,735
                                                        ----------- -----------
Commitments and Contingent Liabilities (Note 22)
                                                        $25,707,080 $22,699,750
                                                        =========== ===========
</TABLE>
 
  *As described in Note 11 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. The sole asset of ComEd Financing II, also a subsidiary
trust of ComEd, is $154.6 million principal amount of ComEd's 8.50%
subordinated deferrable interest debentures due January 15, 2027.
 
  The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                      27
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   STATEMENTS OF CONSOLIDATED CAPITALIZATION
 
<TABLE>
<CAPTION>
                                                            December 31
                                                      ------------------------
                                                         1998         1997
                                                      -----------  -----------
                                                      (Thousands of Dollars)
<S>                                                   <C>          <C>
Common Stock Equity:
  Common stock, without par value--
   Outstanding--217,094,560 shares and 216,659,480
    shares, respectively............................. $ 4,966,630  $ 4,943,211
  Preference stock expense of ComEd..................      (3,199)      (3,340)
  Retained earnings (deficit)........................     142,813      (21,184)
  Treasury stock--178,982 shares.....................      (6,800)         --
                                                      -----------  -----------
                                                      $ 5,099,444  $ 4,918,687
                                                      -----------  -----------
Preferred and Preference Stocks of ComEd--
  Without Mandatory Redemption Requirements:
    Preference stock, cumulative, without par value--
     Outstanding--13,499,549 shares.................. $   504,957  $   504,957
    Current redemption requirements for preference
     stock included in current liabilities...........    (432,320)         --
    $1.425 convertible preferred stock, cumulative,
     without par value--
     Outstanding--58,211 shares and 65,912 shares,
      respectively...................................       1,851        2,096
    Prior preferred stock, cumulative, $100 par value
     per share-- No shares outstanding...............         --           --
                                                      -----------  -----------
                                                      $    74,488  $   507,053
                                                      -----------  -----------
  Subject to Mandatory Redemption Requirements:
    Preference stock, cumulative, without par value--
     Outstanding--1,720,345 shares and 2,058,560
      shares, respectively........................... $   171,348  $   205,016
    Current redemption requirements for preference
     stock included in current liabilities...........    (101,873)     (30,688)
                                                      -----------  -----------
                                                      $    69,475  $   174,328
                                                      -----------  -----------
ComEd-Obligated Mandatorily Redeemable Preferred
 Securities of Subsidiary Trusts Holding Solely
 ComEd's Subordinated Debt Securities................ $   350,000  $   350,000
                                                      -----------  -----------
Long-Term Debt:
  First mortgage bonds:
    Maturing 1998 through 2003--6.00% to 9 3/8%...... $ 1,080,000  $ 1,385,000
    Maturing 2004 through 2013--3.70% to 8 3/8%......   1,485,400    1,485,400
    Maturing 2014 through 2023--5.85% to 9 7/8%......   1,981,000    1,981,000
                                                      -----------  -----------
                                                      $ 4,546,400  $ 4,851,400
  Transitional trust notes, due 2000 through 2008--
   5.29% to 5.74%....................................   3,400,000          --
  Sinking fund debentures, due 1999 through 2011--2
   3/4% to 7 5/8%....................................      94,159      100,298
  Pollution control obligations, due 2007 through
   2014--3.70% to 5 7/8%.............................     140,700      142,200
  Other long-term debt...............................   1,275,811    1,193,818
  Current maturities of long-term debt included in
   current liabilities...............................  (1,585,281)    (503,909)
  Unamortized net debt discount and premium..........     (62,680)     (46,459)
                                                      -----------  -----------
                                                      $ 7,809,109  $ 5,737,348
                                                      -----------  -----------
                                                      $13,402,516  $11,687,416
                                                      ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       28
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
             STATEMENTS OF CONSOLIDATED RETAINED EARNINGS (DEFICIT)
 
<TABLE>
<CAPTION>
                                                 1998       1997        1996
                                               --------  ----------  ----------
                                                   (Thousands of Dollars)
<S>                                            <C>       <C>         <C>
Balance at Beginning of Year.................. $(21,184) $1,177,997  $  856,893
Add--Net income (loss)........................  510,184    (852,850)    666,100
                                               --------  ----------  ----------
                                               $489,000  $  325,147  $1,522,993
                                               --------  ----------  ----------
Deduct--
 Cash dividends declared on common stock...... $347,161  $  346,225  $  344,892
 Other capital stock transactions--net........     (974)        106         104
                                               --------  ----------  ----------
                                               $346,187  $  346,331  $  344,996
                                               --------  ----------  ----------
Balance at End of Year (Includes $494 million
 and $331 million of appropriated retained
 earnings at December 31, 1998 and 1997, re-
 spectively).................................. $142,813  $  (21,184) $1,177,997
                                               ========  ==========  ==========
</TABLE>
 
 
 
 
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       29
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                     STATEMENTS OF CONSOLIDATED CASH FLOWS
 
<TABLE>
<CAPTION>
                                             1998         1997         1996
                                          -----------  -----------  -----------
                                                (Thousands of Dollars)
<S>                                       <C>          <C>          <C>
Cash Flow from Operating Activities:
 Net income (loss)......................  $   510,184  $  (852,850) $   666,100
 Adjustments to reconcile net income
  (loss) to net cash provided by oper-
  ating activities:
   Depreciation and amortization........      994,861    1,051,543    1,006,051
   Deferred income taxes and investment
    tax credits--net....................       69,768     (345,042)     129,697
   Extraordinary loss related to write-
    off of certain net regulatory as-
    sets................................          --       810,335          --
   Cumulative effect of change in ac-
    counting principle..................          --      (196,700)         --
   Loss on nuclear plant closure........          --       885,611          --
   Provisions/(payments) for revenue re-
    funds--net..........................      (23,622)      45,470          --
   Equity component of allowance for
    funds used during construction......       (6,959)     (23,770)     (20,776)
   Provisions/(payments) for liability
    for separation costs--net...........        9,757       15,986      (29,888)
   Net effect on cash flows of changes
    in:
     Receivables........................     (469,940)      24,083       71,497
     Coal and fuel oil..................      (14,751)      19,698      (11,186)
     Materials and supplies.............       19,805       41,659        9,053
     Accounts payable excluding nuclear
      fuel lease principal payments and
      separation costs--net.............       97,094      259,810      104,366
     Accrued interest and taxes.........      (27,201)     (17,903)     (47,291)
     Other changes in certain current
      assets and liabilities............      144,290       39,005       13,850
   Other--net...........................         (773)     170,832       69,447
                                          -----------  -----------  -----------
                                          $ 1,302,513  $ 1,927,767  $ 1,960,920
                                          -----------  -----------  -----------
Cash Flow from Investing Activities:
 Construction expenditures..............  $  (933,367) $(1,043,311) $  (982,274)
 Nuclear fuel expenditures..............     (166,168)    (185,373)    (281,833)
 Sales of generating plants.............      177,454       60,791          --
 Equity component of allowance for
  funds used during construction........        6,959       23,770       20,776
 Contributions to nuclear
  decommissioning funds.................     (136,771)    (114,825)    (119,281)
 Other investments and special depos-
  its...................................      (11,458)     (13,246)      (2,116)
                                          -----------  -----------  -----------
                                          $(1,063,351) $(1,272,194) $(1,364,728)
                                          -----------  -----------  -----------
Cash Flow from Financing Activities:
 Issuance of securities--
   Transitional trust notes.............  $ 3,382,629  $       --   $       --
   Other long-term debt.................      382,270      362,663      251,902
   ComEd-obligated mandatorily redeem-
    able preferred securities of
    subsidiary trusts holding solely
    ComEd's subordinated debt securi-
    ties................................          --       150,000          --
   Capital stock........................       16,644       15,778       17,754
 Retirement and redemption of securi-
  ties--
   Long-term debt.......................     (615,858)    (736,740)    (433,084)
   Capital stock........................      (34,066)     (44,111)     (44,513)
 Repurchase of common stock.............      (6,800)          --           --
 Premium paid on early redemption of
  long-term debt........................          --        (9,500)         --
 Cash dividends paid on common stock....     (346,954)    (345,936)    (344,553)
 Proceeds from sale/leaseback of nu-
  clear fuel............................      101,038      149,955      316,617
 Nuclear fuel lease principal payments..     (255,605)    (166,411)    (211,741)
 Increase/(decrease) in short-term
  borrowings............................      134,813       29,400     (139,400)
                                          -----------  -----------  -----------
                                          $ 2,758,111  $  (594,902) $  (587,018)
                                          -----------  -----------  -----------
Change in Net Cash Balance..............  $ 2,997,273  $    60,671  $     9,174
Cash, Temporary Cash Investments and
 Cash Held for Redemption of Securities:
 Balance at Beginning of Year...........      121,221       60,550       51,376
                                          -----------  -----------  -----------
 Balance at End of Year.................  $ 3,118,494  $   121,221  $    60,550
                                          ===========  ===========  ===========
</TABLE>
 
   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.
 
                                       30
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                         NOTES TO FINANCIAL STATEMENTS
 
(1) Summary of Significant Accounting Policies
 
  Corporate Structure and Basis of Presentation. Unicom is the parent holding
company of ComEd and Unicom Enterprises. ComEd, a regulated electric utility,
is the principal subsidiary of Unicom. Unicom Enterprises is an unregulated
subsidiary of Unicom and is engaged, through its subsidiaries, in energy
service activities.
 
  The consolidated financial statements include the accounts of Unicom, ComEd,
the Indiana Company, the Trusts, ComEd Funding, ComEd Funding Trust and
Unicom's unregulated subsidiaries. All significant intercompany transactions
have been eliminated. Although the accounts of ComEd Funding and ComEd Funding
Trust, which are SPEs, are included in the consolidated financial statements,
as required by GAAP, ComEd Funding and ComEd Funding Trust are legally
separated from Unicom and ComEd. The assets of the SPEs are not available to
creditors of Unicom or ComEd and the transitional property held by the SPEs
are not assets of Unicom or ComEd.
 
  Use of Estimates. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Due to the transition to a new
customer information and billing system, a larger portion of customer revenues
and receivables were based on estimates in 1998 than in previous years.
 
  Regulation. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd's accounting policies and
the accompanying consolidated financial statements conform to GAAP applicable
to rate-regulated enterprises for the non-generation portion of its business,
including the effects of the ratemaking process in accordance with SFAS No.
71, Accounting for the Effects of Certain Types of Regulation. Such effects on
the non-generation portion of its business concern mainly the time at which
various items enter into the determination of operating results in order to
follow the principle of matching costs with the applicable revenues collected
from or returned to customers through future rates. See Note 2 for information
regarding the write-off of generation-related regulatory assets and
liabilities in December 1997.
 
  ComEd's investment in generation-related, net utility plant, including
construction work in progress and nuclear fuel, and excluding the
decommissioning costs included in the accumulated provision for depreciation,
not subject to cost-based rate regulation, was $9.2 billion and $12.4 billion
at December 31, 1998 and 1997, respectively. See Note 2 regarding the plant
impairment recorded by ComEd in the second quarter of 1998.
 
                                      31
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
  Regulatory Assets and Liabilities. Regulatory assets are incurred costs
which have been deferred and are amortized for ratemaking and accounting
purposes. Regulatory liabilities represent amounts to be settled with
customers through future rates. Regulatory assets and liabilities reflected on
the Consolidated Balance Sheets at December 31, 1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                                December 31
                                                           ---------------------
                                                              1998       1997
                                                           ---------- ----------
                                                               (Thousands of
                                                                 Dollars)
<S>                                                        <C>        <C>
Regulatory assets:
  Impaired production plant (1)........................... $2,955,154 $      --
  Deferred income taxes (2)...............................    680,356    785,354
  Nuclear decommissioning costs--Dresden Unit 1 (3).......    255,031    268,369
  Nuclear decommissioning costs--Zion Units 1 and 2 (4)...    443,130    579,777
  Coal reserves (5).......................................    197,975    281,654
  Unamortized loss on reacquired debt (6).................     46,781     51,735
                                                           ---------- ----------
                                                           $4,578,427 $1,966,889
                                                           ========== ==========
Regulatory liabilities:
  Deferred income taxes (2)............................... $  595,005 $  698,750
                                                           ========== ==========
</TABLE>
--------
(1) Amortized over a transition period which is expected to end by 2006, but
    may be extended to 2008 with ICC approval. See Note 2 for additional
    information.
(2) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes, for
    non-generation related temporary differences.
(3) Amortized over the period 1999 to 2011. See "Depreciation, Amortization of
    Regulatory Assets and Decommissioning" below for additional information.
(4) Amortized over the period 1999 to 2013. See "Depreciation, Amortization of
    Regulatory Assets and Decommissioning" below for additional information.
(5) Amortized through regulated cash flows as coal is used for the generation
    of electricity. See "Depreciation, Amortization of Regulatory Assets and
    Decommissioning" below for additional information.
(6) Amortized over the remaining lives of the non-generation related long-term
    debt issued to finance the reacquisition. See "Loss on Reacquired Debt"
    below for additional information.
 
  Nuclear Fuel. The cost of nuclear fuel is amortized to fuel expense based on
the quantity of heat produced using the unit of production method. As
authorized by the ICC, provisions for spent nuclear fuel disposal costs have
been recorded at a level required to recover the fee payable on the current
nuclear-generated and sold electricity and the current interest accrual on the
one-time fee payable to the DOE for nuclear generation prior to April 7, 1983.
The one-time fee and interest thereon have been recovered and the current fee
and interest on the one-time fee are presently being recovered through base
rates. See Note 14 for additional information concerning the disposal of spent
nuclear fuel, one-time fee and interest accrual on the one-time fee. Nuclear
fuel expenses, including leased fuel costs and provisions for spent nuclear
fuel disposal costs, were $325 million, $298 million and $354 million for the
years 1998, 1997 and 1996, respectively.
 
  Customer Receivables and Revenues. ComEd is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of residential, commercial, industrial and wholesale customers.
ComEd's electric service territory has an area of approximately 11,300 square
miles and an estimated population of approximately eight million as of
December 31, 1998. It includes the city of Chicago, an area of about 225
square miles with an estimated population of approximately three million from
which ComEd derived approximately one-third of its ultimate consumer revenues
in 1998. ComEd had 3.5 million electric customers at December 31, 1998. See
Notes 3, 4 and 19 for additional information.
 
                                      32
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
  Depreciation, Amortization of Regulatory Assets and Decommissioning.
Depreciation, decommissioning and amortization of regulatory assets for the
years 1998, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                     1998      1997      1996
                                                   -------- ---------- --------
                                                      (Thousands of Dollars)
<S>                                                <C>      <C>        <C>
Depreciation expense.............................. $788,057 $  881,196 $843,516
Decommissioning expense...........................   90,020    108,621  110,184
Amortization of regulatory assets.................   65,211     15,272   15,272
                                                   -------- ---------- --------
                                                   $943,288 $1,005,089 $968,972
                                                   ======== ========== ========
</TABLE>
 
  Depreciation is provided on a straight-line basis by amortizing the cost of
depreciable plant and equipment over estimated service lives for each class of
plant. Provisions for depreciation, including nuclear plant, were at average
annual rates of 3.02%, 3.36% and 3.25% for the years 1998, 1997 and 1996,
respectively, of average depreciable utility plant and equipment. The decrease
for the year 1998, compared to 1997, in the average depreciation rates relates
primarily to a reduction in nuclear depreciation rates due to the partial
impairment of production plant, which was recorded as a component of
accumulated depreciation, partially offset by shortened depreciable lives for
certain nuclear stations. The annual rate for nuclear plant and equipment,
excluding separately collected decommissioning costs and depreciation related
to the replacement of the steam generators, was 2.88% for periods ending prior
to July 1, 1998. The nuclear depreciation rate applied to gross depreciable
nuclear plant, beginning July 1, 1998, is 2.16% reflecting the partial
impairment of production plant and shortened depreciable lives for certain
nuclear stations. See Note 2 for additional information on the partial
impairment of production plant.
 
  The regulatory assets for impaired production plant and coal reserves are
being amortized as they are recovered through regulated cash flows over a
transition period which is expected to end by 2006, but may be extended to
2008 with ICC approval. Recovery of these regulatory assets will be realized
through future regulatory revenues, including CTC revenues, and potential
gains on generation asset sales, and will vary from year to year. The
amortization of coal reserves is included in fuel expense on the Statements of
Consolidated Operations.
 
  Nuclear plant decommissioning costs are accrued over the current NRC license
lives of the related nuclear generating units. The accrual is based on an
annual levelized cost of the unrecovered portion of estimated decommissioning
costs, which are escalated for expected inflation to the expected time of
decommissioning and are net of expected earnings on the trust funds. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Results of Operations--Decommissioning," for a
discussion of questions raised by the staff of the SEC and a FASB review
regarding the electric utility industry's method of accounting for
decommissioning costs. Dismantling is expected to occur relatively soon after
the end of the current NRC license life of each generating station currently
operating. The accrual for decommissioning is based on the prompt removal
method authorized by NRC guidelines. ComEd's ten operating units have
remaining current NRC license lives ranging from 7 to 29 years. ComEd's Zion
Station and its first nuclear unit, Dresden Unit 1, are retired and expected
to be dismantled beginning in the years 2014 and 2012, respectively, which is
consistent with the regulatory treatment for the related decommissioning
costs.
 
  Based on ComEd's most recent study approved by the ICC, decommissioning
costs, including the cost of decontamination and dismantling, are estimated to
aggregate to $4.6 billion in current-year (1999) dollars, including a
contingency allowance. ComEd estimates that it will expend approximately
 
                                      33
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
$11.6 billion, including a contingency allowance, for decommissioning costs
primarily during the period from 2007 through 2034. Additionally, ComEd
estimates that it will expend an aggregate of approximately $226 million in
current-year (1999) dollars during the period 2000 through 2014 to maintain
Zion Station in a secured mode until decommissioning begins. All such costs
are expected to be funded by the external decommissioning trusts, which ComEd
established in compliance with Illinois law and into which ComEd has been
making annual contributions. Future decommissioning cost estimates may be
significantly affected by the adoption of or changes to NRC regulations, as
well as changes in the assumptions used in making such estimates, including
changes in technology, available alternatives for the disposal of nuclear
waste and inflation.
 
  Since 1995, ComEd has collected decommissioning costs from its ratepayers in
conjunction with a rider to its tariffs. The rider allows annual adjustments
to decommissioning cost collections outside the context of a traditional rate
proceeding and will continue under the 1997 Act. The current estimated
decommissioning costs include a contingency allowance, but, except at Dresden
Unit 1, exclude amounts for spent fuel storage installations, which may be
necessary to store spent fuel during the period beginning at the end of the
NRC license life of the plants to the date when the DOE accepts the spent fuel
for permanent storage. Contingency allowances used in decommissioning cost
estimates provide for currently unspecifiable costs that are likely to occur
after decommissioning begins and generally range from 20% to 25% of the
currently specifiable costs.
 
  In February 1998, the ICC authorized a reduction in the annual
decommissioning cost accrual from $109 million to $84 million. The reduction
primarily reflects stronger than expected after-tax returns on the external
trust funds in 1996 and lower than expected escalation in low-level waste
disposal costs, partially offset by the higher current-year cost estimates,
including a contingency allowance.
 
  The approved annual decommissioning cost accrual of $84 million was
determined using the following assumptions: the decommissioning cost estimate
of $4.6 billion in current-year (1999) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.30% and 6.26%,
respectively, and an escalation rate for future decommissioning costs of 4.1%.
The annual accrual of $84 million provided over the current NRC license lives
of the nuclear plants, coupled with the expected fund earnings and amounts
previously recovered in rates, is expected to aggregate to approximately $11.6
billion.
 
  For the ten operating nuclear units, decommissioning cost accruals are
recorded as portions of depreciation expense and accumulated provision for
depreciation on the Statements of Consolidated Operations and the Consolidated
Balance Sheets, respectively, as such costs are recovered through rates. As of
December 31, 1998, the total decommissioning costs included in the accumulated
provision for depreciation were $1,870 million.
 
  For ComEd's retired nuclear units, the total estimated liability for nuclear
decommissioning in current-year (1999) dollars is recorded as a liability. The
unrecovered portion of the liability was also recorded as a regulatory asset.
The nuclear decommissioning liability for retired plants as of December 31,
1998 was as follows:
 
<TABLE>
<CAPTION>
                                                               Zion
                                                    Dresden   Units
                                                     Unit 1  1 and 2    Total
                                                    -------- -------- ----------
                                                       (Thousands of Dollars)
<S>                                                 <C>      <C>      <C>
Amounts recovered through rates and investment
 fund earnings....................................  $101,469 $415,770 $  517,239
Unrecovered portion of the liability..............   255,031  443,130    698,161
                                                    -------- -------- ----------
 Nuclear decommissioning liability for retired
  plants..........................................  $356,500 $858,900 $1,215,400
                                                    ======== ======== ==========
</TABLE>
 
                                      34
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
  The total estimated liability related to Zion Units 1 and 2, and the
unrecovered portion of that liability, decreased from December 31, 1997 to
December 31, 1998 due to the exclusion of estimated dry cask storage costs.
 
  Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts. Consequently, such collections do not add to
the cash flows available for general corporate purposes. The ICC has approved
ComEd's funding plan, which provides for annual contributions of current
accruals and ratable contributions of past accruals over the remaining current
NRC license lives of the nuclear plants. The fair value of funds accumulated
in the external trusts at December 31, 1998 was $2,267 million, which includes
pre-tax unrealized appreciation of $620 million. The earnings on the external
trusts for operating plants accumulate in the fund balance and accumulated
provision for depreciation. Nuclear decommissioning funding as of December 31,
1998 was as follows:
 
<TABLE>
<CAPTION>
                                                          (Thousands of Dollars)
<S>                                                       <C>
Amounts recovered through rates and investment fund
 earnings for operating plants (included in the accumu-
 lated provision for depreciation)......................        $1,870,213
Amounts recovered through rates and investment fund
 earnings for retired plants............................           517,239
Less past accruals not yet contributed to the trusts....           120,135
                                                                ----------
 Fair value of external trust funds.....................        $2,267,317
                                                                ==========
</TABLE>
 
  Income Taxes. Deferred income taxes are provided for income and expense
items recognized for financial accounting purposes in periods that differ from
those for income tax purposes. Income taxes deferred in prior years are
charged or credited to income as the book/tax temporary differences reverse.
Prior years' deferred investment tax credits are amortized through credits to
income generally over the lives of the related property. Income tax credits
resulting from interest charges applicable to nonoperating activities,
principally construction, are classified as other income.
 
  AFUDC and Interest Capitalized. In accordance with the uniform systems of
accounts prescribed by regulatory authorities, ComEd capitalizes AFUDC,
compounded semiannually, which represents the estimated cost of funds used to
finance its construction program for the non-generation portion of its
business. The equity component of AFUDC is recorded on an after-tax basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates were 8.34%, 9.39% and 9.02% for the years
1998, 1997 and 1996, respectively. ComEd discontinued SFAS No. 71 regulatory
accounting practices in December 1997 for the generation portion of its
business. As a result, beginning in 1998, ComEd capitalized $28 million in
interest costs on its generation-related construction work in progress and
nuclear fuel in process. AFUDC and interest capitalized do not contribute to
the current cash flow of Unicom or ComEd.
 
  Interest. Total interest costs incurred on debt, leases and other
obligations were $538 million, $598 million and $626 million for the years
1998, 1997 and 1996, respectively.
 
  Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of ComEd are being amortized over the lives of the respective
issues.
 
  Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition, in connection with the refinancing of first
mortgage bonds, sinking fund debentures and pollution control obligations
prior to their scheduled maturity dates, is deferred and amortized over the
lives of the long-term debt issued to finance the reacquisition for non-
generation related financings. See "Regulatory Assets and Liabilities" above
and Note 2 for additional information.
 
                                      35
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
  Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to
adopt SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure
purposes only. Unicom accounts for its stock option awards and ESPP under APB
Opinion No. 25, Accounting for Stock Issued to Employees. See Note 8 for
additional information.
 
  Average Common Shares Outstanding. Unicom adopted SFAS No. 128, Earnings per
Share, which established standards for computing and presenting EPS. Unicom
has presented basic and diluted EPS on the Statements of Consolidated
Operations for the years 1998, 1997 and 1996. The number of average
outstanding common shares used to compute basic and diluted EPS for the years
1998, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                          1998    1997    1996
                                                         ------- ------- -------
                                                          (Thousands of Shares)
<S>                                                      <C>     <C>     <C>
Average Number of Common Shares Outstanding:
 Average Number of Common Shares--Basic................. 216,942 216,330 215,500
 Potentially Dilutive Common Shares--Treasury Method:
  Stock Options.........................................     633     136     --
  Other Convertible Securities..........................      85      98     110
                                                         ------- ------- -------
 Average Number of Common Shares--Diluted............... 217,660 216,564 215,610
                                                         ======= ======= =======
</TABLE>
 
  Energy Risk Management Contracts. In the normal course of business, ComEd
utilizes contracts for the forward sale and purchase of energy to manage
effectively the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. As
ComEd does not currently utilize financial or commodity instruments for
trading or speculative purposes, any gains or losses on forward commodity
contracts are recognized when the underlying transactions affect earnings.
Revenues and expenses associated with market price risk management contracts
are amortized over the term of such contracts.
 
  In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded on the
Consolidated Balance Sheets as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value
be recognized currently in earnings, unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item on the Statements of
Consolidated Operations, and requires Unicom and ComEd to formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
 
  SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
SFAS No. 133 may be implemented prior to June 15, 1999, but such
implementation cannot be applied retroactively. SFAS No. 133 must be applied
to (i) derivative instruments and (ii) certain derivative instruments embedded
in hybrid contracts that were issued, acquired, or substantively modified
after December 31, 1997 (and, at the company's election, before January 1,
1998).
 
  Unicom and ComEd have not yet quantified the effects on their financial
statements of adopting SFAS No. 133 and have not determined the timing or
method of adopting SFAS No. 133. However, adoption of SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
 
  Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on operating results.
 
                                      36
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
  Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be
cash equivalents. Supplemental cash flow information for the years 1998, 1997
and 1996 was as follows:
 
<TABLE>
<CAPTION>
                                                      1998     1997     1996
                                                    -------- -------- --------
                                                      (Thousands of Dollars)
<S>                                                 <C>      <C>      <C>
Supplemental Cash Flow Information:
 Cash paid during the year for:
   Interest (net of amount capitalized)............ $450,160 $512,050 $538,351
   Income taxes (net of refunds)................... $272,476 $264,802 $234,743
Supplemental Schedule of Non-Cash Investing and
 Financing Activities:
 Capital lease obligations incurred by subsidiary
  companies........................................ $106,370 $158,412 $320,975
</TABLE>
 
(2) Accounting Effects Related to the 1997 Act
 
  In December 1997, the Governor of Illinois signed into law the 1997 Act,
which established a phased process to introduce competition into the electric
industry in Illinois under a less regulated structure. Major provisions of the
1997 Act applicable to ComEd include a 15% residential base rate reduction
which became effective August 1, 1998, an additional 5% residential base rate
reduction commencing on May 1, 2002 and gradual customer access to other
electric suppliers. Access for commercial and industrial customers will occur
over a period from October 1999 to December 2000, and access for residential
customers will occur after May 1, 2002. ComEd's operating revenues were
reduced by approximately $170 million in 1998 due to the rate reduction. ComEd
is engaged in certain pricing experiments contemplated by the 1997 Act, which
reduced ComEd's operating revenues by approximately $30 million in 1998 and
are expected to reduce operating revenues by $55 million in 1999, compared to
1997 rate levels; however, such reductions are expected to be offset by the
effects of customer growth. ComEd expects that the 15% residential base rate
reduction will reduce ComEd's operating revenues by approximately $380 million
in 1999, compared to 1997 rate levels.
 
  The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval. The
CTC will be established in accordance with a formula defined in the 1997 Act.
The CTC, which will be applied on a cents per kilowatthour basis, considers
the revenue which would have been collected from a customer under tariffed
rates, reduced by the revenue the utility will receive for providing delivery
services to the customer, the market price for electricity and a defined
mitigation factor, which represents the utility's opportunity to develop new
revenue sources and achieve cost savings.
 
  Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period, utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC regulatory review. A utility may
request a rate increase during the rate freeze period only when necessary to
ensure the utility's financial viability, but not before Janaury 1, 2000.
Under the earnings provision of the 1997 Act, if the earned return on common
equity of a utility during this period exceeds an established threshold, one-
half of the excess earnings must be refunded to customers. The threshold rate
of return on common equity is based on the 30-Year Treasury Bond rate, plus
5.5% in the years 1998 through 1999 and plus 6.5% in the years 2000 through
2004. The utility's earned return on common equity and the threshold return on
common equity are each calculated on a two year average basis. The earnings
sharing provision is applicable only to utility
 
                                      37
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
earnings. Increased amortization of regulatory assets may be recorded, thereby
reducing the earned return on common equity, if earnings otherwise would have
exceeded the maximum allowable rate of return. The potential for earnings
sharing or increased amortization of regulatory assets could limit earnings in
future periods.
 
  Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based,
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the leveling of certain regulatory
requirements to permit operational flexibility, the leveling of certain
regulatory and tax provisions as applied to various electric suppliers and a
new, more stringent, liability standard applicable to ComEd in the event of a
major outage.
 
  The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds from such securities issuances must be used to refinance
outstanding debt and equity or for certain other limited purposes. The total
amount of such securities that may be issued is approximately $6.8 billion;
approximately one-half of that amount can be issued in the twelve-month period
which commenced on August 1, 1998. In December 1998, ComEd initiated the
issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd
Funding and ComEd Funding Trust. The proceeds from the transitional trust
notes, net of transaction costs, must be used to redeem or repurchase debt and
equity to lower ComEd's overall cost of capital. Accordingly, in early 1999
ComEd redeemed $788 million of long-term debt and $534 million of preference
stock, and reacquired $229 million of outstanding ComEd long-term debt through
a tender offer. In addition, $500 million of the proceeds, of which
approximately $300 million has been utilized, is being used to reduce ComEd's
outstanding short-term debt. Unicom has announced plans to repurchase
approximately $750 million of Unicom common stock using the proceeds it
receives from ComEd's repurchase of its common stock held by Unicom. The
remaining proceeds will be used for the payment of fees and additional debt
and equity redemptions. See Notes 7 and 24 for additional information
regarding Unicom's share repurchase plans.
 
  As a result of the 1997 Act, prices for the supply of electric energy are
expected to change from cost-based, regulated rates to rates determined by
competitive market forces. The CTC allows ComEd to recover some of its costs
which might otherwise be unrecoverable under market-based rates. Nonetheless,
ComEd will need to take steps to address the portion of such costs which are
not recoverable through the CTC. Such steps may include cost control efforts,
developing new sources of revenue and potential asset dispositions.
 
  Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd evaluated the regulatory assets and liabilities related to the
generation portion of its business and determined that it was not probable
that such costs would be recovered through the cash flows from the regulated
portion of its business. Accordingly, the generation-related regulatory assets
and liabilities were written off in the fourth quarter of 1997, resulting in
an extraordinary charge of $810 million (after-tax), or $3.75 per common share
(basic). These write-offs related principally to previously incurred costs
originally expected to be collected through future revenues, including income
tax benefits previously flowed through to customers, deferred carrying charges
on the Byron Unit 2 and Braidwood Units 1 and 2 nuclear
 
                                      38
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
generating plants, generation-related unamortized loss on reacquired debt and
other miscellaneous generation-related costs. The regulatory asset for the
unrecovered nuclear decommissioning costs of currently retired nuclear plants
was not written off, as the 1997 Act provides for the ongoing recovery of
decommissioning costs through regulated rates. See "Regulatory Assets and
Liabilities" and "Depreciation, Amortization of Regulatory Assets and
Decommissioning" in Note 1 for additional information.
 
  Pursuant to an option contained in the 1997 Act, ComEd filed a tariff in
December 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
regulated rates, the FAC provided for the recovery of changes in fossil and
nuclear fuel costs and the energy portion of purchased power costs, compared
to the fuel and purchased energy costs included in ComEd's base rates. The
elimination of the FAC required ComEd to refund to customers the net FAC
charges billed during the calendar year 1997 of $25 million (after-tax), or
$0.12 per common share (basic). These costs, as well as deferred
underrecovered energy costs of $19 million (after-tax), or $0.08 per common
share (basic), which ComEd would have been entitled to recover if the FAC had
remained in effect, were recorded as a charge to operating results in the
fourth quarter of 1997.
 
  Additionally, the elimination of the FAC and a transition to market-based
pricing for generation-related costs required ComEd to write down its
investment in uranium-related properties. Projections of the market price for
uranium indicated that the expected incremental costs of mining and milling
uranium at such properties would exceed the expected market price for uranium.
Such costs are not expected to be recoverable in a competitive market. A write
down of ComEd's investment in uranium-related properties to realizable value
resulted in a charge of $60 million (after-tax), or $0.28 per common share
(basic), in December 1997.
 
  The staff of the SEC issued interpretive guidance in the second quarter of
1998 regarding the application of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, when a
regulated enterprise such as an electric utility discontinues regulatory
accounting practices for separable portions of its operations and assets.
Under SFAS No. 121, an asset is considered impaired, and should be written
down to fair value, if its future cash flows are insufficient to recover the
carrying value of the asset. The interpretive guidance concludes that for
purposes of applying SFAS No. 121, supplemental regulated cash flows, such as
a CTC, should be excluded from the cash flows of assets in the portion of the
business not subject to regulatory accounting practices. If such assets are
determined to be impaired, a regulatory asset should be established if such
costs are recoverable through regulated cash flows. The guidance also
addresses the extent to which assets should be grouped to determine
impairment.
 
  ComEd discontinued the application of regulatory accounting principles in
December 1997 for the generation portion of its business and performed a SFAS
No. 121 impairment analysis that concluded that future revenues, including the
collection of the CTC, expected to be recovered from electric supply services
would be sufficient to cover the costs of its generating assets. However,
reflecting the SEC's interpretive guidance, ComEd's revised impairment
evaluation resulted in a plant impairment of $3 billion. Because future CTC
revenues collected through regulated cash flows are expected to provide
recovery of the impaired plant assets, a regulatory asset was recorded for the
same amount. Accordingly, the impairment, recorded in the second quarter of
1998, had no effect on results of operations. The regulatory asset is being
amortized as it is recovered through regulated cash flows over a transition
period that ends in 2006, but may be extended to 2008 with ICC approval.
Recovery of the regulatory asset will be realized through future regulatory
revenues, including CTC revenues, and potential gains on generation asset
sales, and will vary from year to year.
 
                                      39
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
(3) Cumulative Effect of a Change in Accounting Principle
 
  In the fourth quarter of 1997, ComEd changed its accounting method for
revenue recognition to record revenues associated with service which has been
provided to customers but has not yet been billed at the end of each
accounting period, retroactive to January 1, 1997. This change in accounting
method increased operating results for the year 1997 to reflect the one-time
cumulative effect of the change for years prior to 1997 by $197 million
(after-tax), or $0.91 per common share. If the new accounting method had been
in effect for the years 1997 and 1996, the pro forma unaudited net income
(loss) would have been $(1,049,550,000), or $(4.85) per common share (basic),
and $698,229,000, or $3.24 per common share (basic), respectively, excluding
the one-time cumulative effect of a change in accounting principle.
 
(4) Rate Matters
 
  Final ICC orders have been issued in fuel reconciliation proceedings related
to ComEd's FAC collections for all years except for 1994. On November 5, 1998,
the ICC issued an order in the proceeding for the year 1994 providing for a
refund of approximately $3 million related to nuclear station performance. On
February 9, 1999, an intervenor moved to dismiss its appeal of the 1994 ICC
order. On December 29, 1998, the ICC issued an order for the 1996 fuel
reconciliation proceeding requiring ComEd to refund approximately $19 million
related to nuclear station performance. The 1997 Act provides that, because
ComEd eliminated its FAC effective January 1, 1997, the ICC shall not conduct
a fuel reconciliation proceeding for the year 1997 and subsequent years. See
Note 2 for information regarding the 1997 Act and the elimination of ComEd's
FAC.
 
  Three of ComEd's wholesale municipal customers filed a complaint and request
for refund with the FERC alleging that ComEd failed to properly adjust their
rates, as provided for under the terms of their electric service contracts, to
track certain refunds made to ComEd's retail customers in the years 1992
through 1994. In the third quarter of 1998, the FERC granted the complaint and
directed that refunds be made, with interest. ComEd filed and was granted a
request for rehearing for purposes of reconsideration with the FERC. If the
order is upheld, ComEd must make refunds within 15 days of the resolution for
rehearing.
 
  ComEd's management believes adequate reserves have been established in
connection with the cases discussed above.
 
(5) Closure and Sale of Plants
 
  In January 1998, the Boards of Directors of Unicom and ComEd authorized the
permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax), or $2.42
per common share (basic). The decision to close Zion Station was a result of
ComEd's ongoing analysis of the economic value of its generating assets in
light of the expected changes in the manner in which electric energy is
marketed and sold. The passage of the 1997 Act provided a clearer basis for
evaluating the costs and benefits of alternative courses of action. In
reaching the decision to cease nuclear generation operations at Zion Station,
the Boards also considered the significant uncertainty associated with
continued operation of the station due to the degradation of the steam
generators and the expected operating costs associated with continued station
operation.
 
  ComEd's fourth quarter 1997 financial results reflected a charge of $406
million (after-tax), representing the undepreciated costs of Zion Station
(excluding the portion which will remain in use to provide voltage support),
materials and supplies inventories, and nuclear fuel inventories. In
 
                                      40
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
addition, as required by GAAP, a liability for future closing costs associated
with the retirement of Zion Station, excluding severance costs, was recorded
resulting in a charge of $117 million (after-tax) in the fourth quarter of
1997. ComEd recorded a reduction to the liability for future closing costs of
$15 million (after-tax), or $0.07 per common share (basic), in the year 1998
to reflect lower than expected closing costs due to employees being reassigned
or removed from payroll sooner than expected, and lower than anticipated
support costs and use of contractors. See Note 17 for information regarding
costs of voluntary employee separation plans.
 
  ComEd completed the sale of two of its coal-fired generating stations,
representing 1,598 megawatts of generating capacity, and has exclusive 15-year
purchased power agreements for the output of the stations. The sales of State
Line and Kincaid Stations were completed in December 1997 and February 1998,
respectively. The net proceeds of the sales, after income tax effects and
closing costs, were approximately $190 million. The proceeds were used to
retire or redeem existing debt in the first quarter of 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Response to Regulatory Changes," for information regarding ComEd's
fossil generating plants, and oil and gas peaking units being offered for
sale.
 
(6) Authorized Shares, Voting Rights and Stock Rights of Capital Stock
 
  At December 31, 1998, Unicom's authorized shares consisted of 400,000,000
shares of common stock. The authorized shares of ComEd preferred and
preference stocks at December 31, 1998 were: preference stock--22,030,345
shares; $1.425 convertible preferred stock--58,211 shares; and prior preferred
stock--850,000 shares. The preference and prior preferred stocks are issuable
in series and may be issued with or without mandatory redemption requirements.
Holders of outstanding Unicom shares are entitled to one vote for each share
held on each matter submitted to a vote of such shareholders; and holders of
outstanding ComEd shares are entitled to one vote for each share held on each
matter submitted to a vote of such shareholders. All such shares have the
right to cumulate votes in elections for the directors of the corporation
which issued the shares.
 
  Pursuant to a plan adopted by the Unicom Board of Directors on February 2,
1998, each share of Unicom's common stock carries the right (referred to
herein as a "Right") to purchase one-thousandth of one share of Unicom's
common stock at a purchase price of $100 per whole share of common stock,
subject to adjustment. The Rights are tradable only with Unicom's common stock
until they become exercisable. The Rights become exercisable upon the earlier
of ten days following a public announcement that a person (an "Acquiring
Person") has acquired 15% or more of Unicom's outstanding common stock or ten
business days (or such later date as may be determined by action of the Board
of Directors) following the commencement of a tender or exchange offer which,
if consummated, would result in a person or group becoming an Acquiring
Person. The Rights are subject to redemption by Unicom at a price of $.01 per
Right, subject to certain limitations, and will expire on February 2, 2008. If
a person or group becomes an Acquiring Person, each holder of a Right will
thereafter have the right to receive, upon exercise, Unicom common stock at a
50% discount from the then current market price. If Unicom is acquired in a
merger or other business combination transaction in which Unicom is not the
survivor, or 50% or more of Unicom's assets or earning power is sold or
transferred, each holder of a Right shall then have the right to receive, upon
exercise, common stock of the acquiring company at a 50% discount from the
then current market price of such common stock. Rights held by an Acquiring
Person become void upon the occurrence of such events.
 
                                      41
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
(7) Common Equity
 
  Unicom has entered into a prepaid forward purchase arrangement with a
financial institution for the repurchase of approximately 15 million shares of
Unicom common stock. The repurchase arrangement provides for final settlement
no later than February 2000, on either a physical (share) basis, or a net cash
basis, at the option of the financial institution. The amount at which the
arrangement can be settled is dependent principally upon the average market
price at which the financial institution purchases such shares, compared to
the forward price per share. The share repurchases will not reduce shares
outstanding for purposes of EPS calculations or reduce common stock equity and
resulting return on common equity calculations until the date of physical
settlement. Unicom currently does not anticipate that settlement will occur in
1999. The repurchase arrangement will initially be recorded as a receivable on
Unicom's Consolidated Balance Sheets and will be adjusted at the end of each
reporting period to reflect the aggregate market value of the shares
deliverable under the arrangement. Consequently, the arrangement could
increase earnings volatility in 1999.
 
  This arrangement supplements a previously announced program to repurchase up
to $200 million of Unicom common stock. Shares repurchased under that program
will also be outstanding for financial statement purposes until the time of
final settlement, which is currently expected to extend to February 2000, on
either a physical (share) basis, or a net cash basis, at the option of Unicom.
As of December 31, 1998, this arrangement has been accounted for as an equity
instrument. If this arrangement had been settled on a physical (share) basis
at December 31, 1998, Unicom would have received approximately 5.1 million
shares of its common stock.
 
  See Note 24 for additional information regarding the redemptions and
repurchases of debt and equity.
 
  At December 31, 1998, shares of Unicom common stock were reserved for the
following purposes:
 
<TABLE>
      <S>                                                              <C>
      Long-Term Incentive Plan........................................ 2,683,264
      Employee Stock Purchase Plan....................................   413,297
      Shareholder Rights Plan.........................................   400,000
      Exchange for ComEd common stock not held by Unicom..............    85,196
      1996 Directors' Fee Plan........................................   167,980
                                                                       ---------
                                                                       3,749,737
                                                                       =========
</TABLE>
 
  Common stock for the years 1998, 1997 and 1996 was issued as follows:
 
<TABLE>
<CAPTION>
                                                      1998     1997     1996
                                                     -------  -------  -------
<S>                                                  <C>      <C>      <C>
 Shares of Common Stock Issued:
   Long-Term Incentive Plan......................... 494,302  208,104  132,579
   Employee Stock Purchase Plan.....................  94,270  196,003  196,513
   Employee Savings and Investment Plan.............     --   274,203  339,100
   Exchange for ComEd common stock not held by
    Unicom..........................................  12,757   12,370   25,323
   1996 Directors' Fee Plan.........................  12,733   14,175    5,112
                                                     -------  -------  -------
                                                     614,062  704,855  698,627
                                                     =======  =======  =======
<CAPTION>
                                                     (Thousands of Dollars)
<S>                                                  <C>      <C>      <C>
 Amount of Common Stock Issued:
   Total issued..................................... $16,847  $15,768  $17,733
   Held by trustee for Unicom Stock Bonus Deferral
    Plan............................................   6,775   (2,476)  (4,300)
   Other............................................    (203)      10       38
                                                     -------  -------  -------
                                                     $23,419  $13,302  $13,471
                                                     =======  =======  =======
</TABLE>
 
                                      42
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
 
  In December 1998, 178,982 shares of Unicom common stock were reacquired and
held as treasury stock at a cost of $6.8 million.
 
  At December 31, 1998 and 1997, 76,079 and 76,868, respectively, of ComEd
common stock purchase warrants were outstanding. The warrants entitle the
holders to convert such warrants into common stock of ComEd at a conversion
rate of one share of common stock for three warrants.
 
  Unicom's retained earnings account had a positive balance of $143 million at
December 31, 1998 and a deficit balance of $21 million at December 31, 1997.
As of December 31, 1998 and 1997, $494 million and $331 million, respectively,
of retained earnings had been appropriated for future dividend payments.
 
(8) Stock Option Awards/Employee Stock Purchase Plan
 
  Unicom has a nonqualified stock option awards program under its Long-Term
Incentive Plan. The stock option awards program was adopted by Unicom in July
1996 to reward valued employees responsible for, or contributing to, the
management, growth and profitability of Unicom and its subsidiaries. The stock
options granted expire ten years from their grant date. One-third of the
shares subject to the options vest on each of the first three anniversaries of
the option grant date. In addition, the stock options become fully vested
immediately if the holder dies, retires, is terminated by the Company, other
than for cause, or qualifies for long-term disability and will also vest in
full upon a change in control.
 
  Stock option transactions for the years 1998, 1997 and 1996 are summarized
as follows:
 
<TABLE>
<CAPTION>
                                                                        Weighted
                                                                        Average
                                                             Number of  Exercise
                                                              Options    Price
                                                             ---------  --------
<S>                                                          <C>        <C>
Outstanding at the beginning of 1996........................       --   $   --
Granted during the year..................................... 1,205,500   25.500
Expired/cancelled during the year...........................   (17,500)  25.500
                                                             ---------
Outstanding as of December 31, 1996......................... 1,188,000   25.500
Granted during the year..................................... 1,339,350   22.313
Exercised during the year...................................   (23,423)  25.500
Expired/cancelled during the year...........................  (212,549)  23.632
                                                             ---------
Outstanding as of December 31, 1997......................... 2,291,378   23.810
Granted during the year..................................... 1,379,525   35.234
Exercised during the year...................................  (404,082)  24.244
Expired/cancelled during year...............................  (124,594)  25.714
                                                             ---------
Outstanding as of December 31, 1998......................... 3,142,227   28.694
                                                             =========
</TABLE>
 
  Of the stock options outstanding at December 31, 1998, 943,851 have vested
with a weighted average exercise price of $24.234.
 
  The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
 
<TABLE>
<CAPTION>
                                                      Stock Option Grant Date
                                                      -------------------------
                                                       1998     1997     1996
                                                      -------  -------  -------
<S>                                                   <C>      <C>      <C>
  Expected option life............................... 7 years  7 years  7 years
  Dividend yield.....................................    4.54%    7.20%    6.30%
  Expected volatility................................   21.95%   22.29%   20.98%
  Risk-free interest rate............................    5.58%    6.25%    6.64%
</TABLE>
 
 
                                      43
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
  The estimated weighted average fair value for each stock option granted for
the years 1998, 1997 and 1996 was $6.62, $2.79 and $3.74, respectively.
 
  The ESPP allows employees to purchase Unicom common stock at a 10% discount
from market value. Substantially all of the employees of Unicom, ComEd and
certain subsidiaries are eligible to participate in the ESPP. Unicom issued
94,270, 196,003 and 196,513 shares of common stock for the years 1998, 1997
and 1996, respectively, under the ESPP at a weighted average annual purchase
price of $33.11, $19.15 and $23.52, respectively.
 
  Unicom has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, Unicom has adopted APB No. 25 and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If Unicom had recorded compensation expense for the stock options
granted and the shares of common stock issued under the ESPP in accordance
with SFAS No. 123 using the fair value based method of accounting, the
additional charges to operations would have been $2 million (after-tax), or
$0.01 per common share (basic), $2 million (after-tax), or $0.01 per common
share (basic), and $1 million (after-tax), or less than $0.01 per common share
(basic), for the years 1998, 1997 and 1996, respectively.
 
(9) ComEd Preferred and Preference Stocks Without Mandatory Redemption
Requirements
 
  No shares of ComEd preferred or preference stocks without mandatory
redemption requirements were issued or redeemed during 1998, 1997 and 1996.
The series of ComEd preference stock without mandatory redemption requirements
outstanding at December 31, 1998 are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                        Involuntary
                    Shares           Aggregate         Redemption       Liquidation
      Series      Outstanding       Stated Value        Price(1)         Price(1)
      ------      -----------       ------------       ----------       -----------
                                 (Thousands
                                 of Dollars)
      <S>         <C>               <C>                <C>              <C>
      $1.90        4,249,549          $106,239          $ 25.25           $25.00
      $2.00        2,000,000            51,560          $ 26.04           $25.00
      $1.96        2,000,000            52,440          $ 27.11           $25.00
      $7.24          750,000            74,340          $101.00           $99.12
      $8.40          750,000            74,175          $101.00           $98.90
      $8.38          750,000            73,566          $100.16           $98.09
      $2.425       3,000,000            72,637          $ 25.00           $25.00
                  ----------          --------
                  13,499,549          $504,957
                  ==========          ========
</TABLE>
     --------
     (1) Per share plus accrued and unpaid dividends, if any.
 
  The outstanding shares of ComEd's $1.425 convertible preferred stock are
convertible at the option of the holders thereof, at any time, into common
stock of ComEd at the rate of 1.02 shares of common stock for each share of
convertible preferred stock, subject to future adjustment. The convertible
preferred stock may be redeemed by ComEd at $42 per share, plus accrued and
unpaid dividends, if any. The involuntary liquidation price of the $1.425
convertible preferred stock is $31.80 per share, plus accrued and unpaid
dividends, if any.
 
  ComEd redeemed $432 million of preference stock without mandatory redemption
requirements on January 19, 1999. The redemption retires all series other than
Series $2.425 and $1.425. See Note 24 for additional information regarding the
redemption of ComEd preference stocks.
 
                                      44
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
(10) ComEd Preference Stock Subject to Mandatory Redemption Requirements
 
  During 1998, 1997 and 1996, no shares of ComEd preference stock subject to
mandatory redemption requirements were issued. The series of ComEd preference
stock subject to mandatory redemption requirements outstanding at December 31,
1998 are summarized as follows:
 
<TABLE>
<CAPTION>
                  Shares     Aggregate
    Series      Outstanding Stated Value          Optional Redemption Price(1)
--------------  ----------- ------------ -----------------------------------------------
                             (Thousands
                            of Dollars)
<S>             <C>         <C>          <C>
$8.20              142,845    $ 14,285   $101
$8.40 Series B     240,000      23,838   $101
$8.85              187,500      18,750   $101
$9.25              450,000      45,000   $103 through July 31, 1999; and $101 thereafter
$6.875             700,000      69,475   Non-callable
                 ---------    --------
                 1,720,345    $171,348
                 =========    ========
</TABLE>
--------
(1) Per share plus accrued and unpaid dividends, if any.
 
  ComEd redeemed $102 million of preference stock with mandatory redemption
requirements on January 19, 1999. The redemption retires all series other than
Series $6.875, all of which is required to be redeemed on May 1, 2000. The
sinking fund price for Series $6.875 is $100 and the involuntary liquidation
price is $99.25 per share plus accrued and unpaid dividends, if any. See Note
24 for additional information regarding the redemption of ComEd preference
stocks.
 
  After reflecting the redemption, the remaining sinking fund requirement is
$69 million in the year 2000. During 1998, 338,215 shares and in each of the
years 1997 and 1996, 438,215 shares of ComEd preference stock subject to
mandatory redemption requirements were reacquired to meet sinking fund
requirements plus any optional additional sinking fund payments.
 
  Sinking fund requirements and the redemption due within one year are
included in current liabilities.
 
(11) ComEd-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
   Trusts Holding Solely ComEd's Subordinated Debt Securities
 
  In September 1995, ComEd Financing I, a wholly-owned subsidiary trust of
ComEd, issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable
preferred securities. The sole asset of ComEd Financing I is $206.2 million
principal amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. In January 1997, ComEd Financing II, a wholly-owned
subsidiary trust of ComEd, issued 150,000 of its 8.50% ComEd-obligated
mandatorily redeemable capital securities. The sole asset of ComEd Financing
II is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable
interest debentures due January 15, 2027. There is a full and unconditional
guarantee by ComEd of the Trusts' obligations under the securities issued by
the Trusts. However, ComEd's obligations are subordinate and junior in right
of payment to certain other indebtedness of ComEd. ComEd has the right to
defer payments of interest on the subordinated deferrable interest notes by
extending the interest payment period, at any time, for up to 20 consecutive
quarters. Similarly, ComEd has the right to defer payments of interest on the
subordinated deferrable interest debentures by extending the interest payment
period, at any time, for up to ten consecutive semi-annual periods. If
interest payments on the subordinated deferrable interest notes or debentures
are so deferred, distributions on the preferred securities will also be
 
                                      45
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
deferred. During any deferral, distributions will continue to accrue with
interest thereon. In addition, during any such deferral, ComEd may not declare
or pay any dividend or other distribution on, or redeem or purchase, any of
its capital stock.
 
  The subordinated deferrable interest notes are redeemable by ComEd, in whole
or in part, from time to time, on or after September 30, 2000, and with
respect to the subordinate deferrable interest debentures, on or after January
15, 2007, or at any time in the event of certain income tax circumstances. If
the subordinated deferrable interest notes or debentures are redeemed, the
Trusts must redeem preferred securities having an aggregate liquidation amount
equal to the aggregate principal amount of the subordinated deferrable
interest notes or debentures so redeemed. In the event of the dissolution,
winding up or termination of the Trusts, the holders of the preferred
securities will be entitled to receive, for each preferred security, a
liquidation amount of $25 for the securities of ComEd Financing I and $1,000
for the securities of ComEd Financing II, plus accrued and unpaid
distributions thereon, including interest thereon, to the date of payment,
unless in connection with the dissolution, the subordinated deferrable
interest notes or debentures are distributed to the holders of the preferred
securities.
 
(12) Long-Term Debt
 
  ComEd initiated the issuance of $3.4 billion of transitional trust notes
through its SPEs, ComEd Funding and ComEd Funding Trust, in the fourth quarter
of 1998, as follows:
 
<TABLE>
<CAPTION>
      Interest                                                        Principal
        Rate   Class and Scheduled Maturity Dates                       Amount
      -------- ----------------------------------                     ----------
                                                                      (Thousands
                                                                     of Dollars)
      <C>      <S>                                                    <C>
       5.38%   A-1 due March 25, 2000...............................  $  424,967
       5.29%   A-2 due June 25, 2001................................     425,033
       5.34%   A-3 due March 25, 2002...............................     258,861
       5.39%   A-4 due June 25, 2003................................     421,139
       5.44%   A-5 due March 25, 2005...............................     598,511
       5.63%   A-6 due June 25, 2007................................     761,489
       5.74%   A-7 due December 25, 2008............................     510,000
                                                                      ----------
                                                                      $3,400,000
                                                                      ==========
</TABLE>
 
  The proceeds, net of transaction costs, from the transitional trust notes
must be used to redeem debt and equity. On January 27, 1999, ComEd redeemed
$730 million of first mortgage bonds. On February 16, 1999, ComEd redeemed $58
million of sinking fund debentures. In response to a tender offer, ComEd
reacquired $229 million of first mortgage bonds in early February 1999. See
Note 24 for additional information regarding the redemptions of first mortgage
bonds and sinking fund debentures, and the reacquired first mortgage bonds.
 
  For accounting purposes, the liabilities of ComEd Funding Trust for the
transitional trust notes are reflected as long-term debt on the Consolidated
Balance Sheets of Unicom and ComEd.
 
  Sinking fund requirements and scheduled maturities remaining through 2003,
after reflecting the redemptions, for ComEd's first mortgage bonds,
transitional trust notes, sinking fund debentures and other long-term debt
outstanding at December 31, 1998, are summarized as follows: 1999--$481
million; 2000--$727 million; 2001--$346 million; 2002--$645 million; and
2003--$445 million. Unicom Enterprises' note payable to bank of $85 million
will mature in 1999.
 
 
                                      46
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
  After reflecting the redemptions of first mortgage bonds, ComEd's
outstanding first mortgage bonds maturing through 2003 were as follows:
 
<TABLE>
<CAPTION>
                                                             Principal Amount
               Series                                     ----------------------
                                                          (Thousands of Dollars)
      <S>                                                 <C>
      9 3/8% due February 15, 2000.......................        $ 42,345
      6 1/2% due April 15, 2000..........................         230,000
      6 3/8% due July 15, 2000...........................         100,000
      7 3/8% due September 15, 2002......................         200,000
      6 5/8% due July 15, 2003...........................         100,000
                                                                 --------
                                                                 $672,345
                                                                 ========
</TABLE>
 
  Other long-term debt outstanding at December 31, 1998 is summarized as
follows:
 
<TABLE>
<CAPTION>
    Debt      Principal
  Security      Amount                       Interest Rate
------------  ---------- ------------------------------------------------------
              (Thousands
                  of
               Dollars)
<S>           <C>        <C>
Unicom--
 Loans Pay-
  able:
   Loan due   $    6,775
    January
    1, 2003              Interest rate of 8.31%
   Loan due
    January
    1, 2004        7,690 Interest rate of 8.44%
              ----------
              $   14,465
              ----------
ComEd--
  Notes:
   Medium
    Term
    Notes,
    Series
    3N due
    various
    dates
    through
    October
    15, 2004  $  296,000 Interest rates ranging from 9.00% to 9.20%
   Notes due
    January
    15, 2004     150,000 Interest rate of 7.375%
   Notes due
    October
    15, 2005     235,000 Interest rate of 6.40%
   Notes due
    January
    15, 2007     150,000 Interest rate of 7.625%
   Notes due
    July 15,
    2018         225,000 Interest rate of 6.95%
              ----------
              $1,056,000
              ----------
 Purchase
  Contract
  Obligation
  due April
  30, 2005    $      346 Interest rate of 3.00%
              ----------
Total ComEd   $1,056,346
              ----------
Unicom En-
 terprises--
 Long-Term
  Note Pay-
  able to
  Bank due
  November
  15, 1999    $   85,000 Prevailing interest rate of 6.20% at December 31, 1998
              ----------
Unicom Ther-
 mal--
  Guaranteed
  Senior
  Note
  due May
   30, 2012   $  120,000 Interest rate of 7.38%
              ----------
Total Unicom  $1,275,811
              ==========
</TABLE>
 
  Long-term debt maturing within one year, including long-term debt redeemed
in January and February of 1999, have been included in current liabilities.
 
  ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.
 
  In July 1998, Unicom Thermal issued $120 million of 7.38% unsecured
guaranteed senior Notes due May 2012, the proceeds of which were used to
refinance existing debt. The Notes are guaranteed by Unicom and include
certain covenants with respect to Unicom and Unicom Thermal's operations. Such
covenants include, among other things, (i) a requirement that Unicom and its
 
                                      47
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
consolidated subsidiaries maintain a tangible net worth at least $10 million
greater than that of ComEd and its consolidated subsidiaries, (ii) a
requirement that Unicom's consolidated debt to consolidated capitalization not
exceed 0.65 to 1, (iii) restrictions on the indebtedness for borrowed money
that Unicom Thermal may incur, and (iv) a requirement that Unicom own,
directly or indirectly, 51% of the outstanding stock of Unicom Thermal and at
least 80% of the outstanding stock of ComEd.
 
(13) Lines of Credit
 
  ComEd had total unused bank lines of credit of $1 billion at December 31,
1998. Of that amount, $500 million expires on October 7, 1999 and $500 million
expires on October 8, 2003. The interest rate is set at the time of a
borrowing and is based on several floating rate bank indices plus a spread,
which is dependent upon the credit rating of ComEd's outstanding first
mortgage bonds or on a prime interest rate. ComEd is obligated to pay
commitment fees with respect to the unused portion of such lines of credit.
 
  Unicom Enterprises has a $200 million credit facility which will expire on
November 15, 1999, of which $115 million was unused as of December 31, 1998.
The credit facility can be used by Unicom Enterprises to finance investments
in unregulated businesses and projects, including UT Holdings and Unicom
Energy Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom and
Unicom Enterprises' operations. Such covenants include, among other things,
(i) a requirement that Unicom and its consolidated subsidiaries maintain a
tangible net worth at least $10 million over that of ComEd and its
consolidated subsidiaries, (ii) a requirement that Unicom's consolidated debt
to consolidated capitalization not exceed 0.65 to 1, (iii) restrictions on the
indebtedness for borrowed money that Unicom (excluding ComEd) and Unicom
Enterprises may incur, and (iv) a requirement that Unicom own 100% of the
outstanding stock of Unicom Enterprises and at least 80% of the outstanding
stock of ComEd; and provide that Unicom may not declare or pay dividends
during the continuance of an event of default. Interest rates for borrowings
under the credit facility are set at the time of a borrowing and are based on
either a prime interest rate or a floating rate bank index plus a spread which
varies with the credit rating of ComEd's outstanding first mortgage bonds.
Unicom Enterprises is obligated to pay commitment fees with respect to the
unused portion of such lines of credit.
 
(14) Disposal of Spent Nuclear Fuel
 
  Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the
selection and development of repositories for, and the disposal of, spent
nuclear fuel and high-level radioactive waste. ComEd, as required by that Act,
has signed a contract with the DOE to provide for the disposal of spent
nuclear fuel and high-level radioactive waste from ComEd's nuclear generating
stations. That contract provided for acceptance by the DOE of such materials
to begin in January 1998; however, that date was not met by the DOE and is
expected to be delayed significantly. The DOE's current estimate for opening a
facility to accept such waste is 2010. This extended delay in spent nuclear
fuel acceptance by the DOE has led to ComEd's consideration of additional dry
storage alternatives. On July 30, 1998, ComEd filed a complaint against the
United States in the United States Court of Federal Claims seeking to recover
damages caused by the DOE's failure to honor its contractual obligation to
begin disposing of spent nuclear fuel in January 1998. The contract with the
DOE requires ComEd to pay the DOE a one-time fee applicable to nuclear
generation through April 6, 1983 of $277 million, with interest to date of
payment, and a fee payable quarterly equal to one mill per kilowatthour of
nuclear-generated and sold electricity after April 6, 1983. Pursuant to the
 
                                      48
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
contract, ComEd has elected to pay the one-time fee, with interest, just prior
to the first delivery of spent nuclear fuel to the DOE. The liability for the
one-time fee and related interest is reflected on the Consolidated Balance
Sheets.
 
(15) Fair Value of Financial Instruments
 
  The following methods and assumptions were used to estimate the fair value
of financial instruments either held or issued and outstanding. The disclosure
of such information does not purport to be a market valuation of Unicom and
subsidiary companies as a whole. The impact of any realized or unrealized
gains or losses related to such financial instruments on the financial
position or results of operations of Unicom and subsidiary companies is
primarily dependent on the treatment authorized under future ComEd ratemaking
proceedings.
 
  Investments. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by
the trustee and based on published market data, as of December 31, 1998 and
1997 was as follows:
 
<TABLE>
<CAPTION>
                                December 31, 1998                December 31, 1997
                         -------------------------------- --------------------------------
                            Cost    Unrealized    Fair       Cost    Unrealized    Fair
                           Basis      Gains      Value      Basis      Gains      Value
                         ---------- ---------- ---------- ---------- ---------- ----------
                                              (Thousands of Dollars)
<S>                      <C>        <C>        <C>        <C>        <C>        <C>
Short-term investments.. $   40,907  $     42  $   40,949 $   33,524  $      2  $   33,526
U.S. Government and
 Agency issues..........    197,240    20,213     217,453    170,240    15,882     186,122
Municipal bonds.........    416,121    24,124     440,245    306,104    20,598     326,702
Corporate bonds.........    241,111     8,790     249,901    231,738     4,293     236,031
Common stock............    740,956   565,630   1,306,586    667,657   385,851   1,053,508
Other...................     11,345       838      12,183     17,300     2,508      19,808
                         ----------  --------  ---------- ----------  --------  ----------
                         $1,647,680  $619,637  $2,267,317 $1,426,563  $429,134  $1,855,697
                         ==========  ========  ========== ==========  ========  ==========
</TABLE>
 
  At December 31, 1998, the debt securities held by the nuclear
decommissioning funds had the following maturities:
 
<TABLE>
<CAPTION>
                                                           Cost Basis Fair Value
                                                           ---------- ----------
                                                               (Thousands of
                                                                 Dollars)
      <S>                                                  <C>        <C>
      Within 1 year.......................................  $ 29,421   $ 29,431
      1 through 5 years...................................   185,810    192,159
      5 through 10 years..................................   254,024    273,255
      Over 10 years.......................................   411,607    439,643
</TABLE>
 
  The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the years 1998,
1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                   1998       1997       1996
                                                ---------- ---------- ----------
                                                     (Thousands of Dollars)
<S>                                             <C>        <C>        <C>
Gross proceeds from sales of securities........ $1,795,484 $2,163,522 $2,335,974
Less cost based on specific identification.....  1,728,092  2,088,300  2,300,038
                                                ---------- ---------- ----------
Realized gains on sales of securities.......... $   67,392 $   75,222 $   35,936
Other realized fund earnings net of expenses...     40,374     39,123     33,008
                                                ---------- ---------- ----------
Total realized net earnings of the funds....... $  107,766 $  114,345 $   68,944
Unrealized gains ..............................    190,503    198,741     65,516
                                                ---------- ---------- ----------
 Total net earnings of the funds............... $  298,269 $  313,086 $  134,460
                                                ========== ========== ==========
</TABLE>
 
 
                                      49
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
  Current Assets. Cash, temporary cash investments, cash held for redemption
of securities and other cash investments, which include U.S. Government
obligations and other short-term marketable securities, and special deposits,
which primarily includes cash deposited for the redemption, refund or
discharge of debt securities, are stated at cost, which approximates their
fair value because of the short maturity of these instruments. The securities
included in these categories have been classified as "available for sale"
securities.
 
  Capitalization. The estimated fair values of ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely ComEd's subordinated debt securities,
transitional trust notes, and long-term debt were obtained from an independent
consultant. The estimated fair values, which include the current portions of
redeemable preference stock and long-term debt but exclude accrued interest
and dividends, as of December 31, 1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                                December 31, 1998                 December 31, 1997
                         -------------------------------- ----------------------------------
                          Carrying  Unrealized    Fair     Carrying   Unrealized    Fair
                           Value      Losses     Value       Value      Losses      Value
                         ---------- ---------- ---------- ----------- ---------- -----------
                                               (Thousands of Dollars)
<S>                      <C>        <C>        <C>        <C>         <C>        <C>
ComEd preferred and
 preference stocks...... $  678,156  $ 11,500  $  689,656 $   712,069 $  11,970  $   724,039
ComEd-obligated
 mandatorily redeemable
 preferred securities of
 subsidiary trusts
 holding solely ComEd's
 subordinated debt
 securities............. $  350,000  $ 20,678  $  370,678 $   350,000 $  21,701  $   371,701
Transitional trust
 notes.................. $3,382,821  $ 67,168  $3,449,989 $    --     $   --     $    --
Long-term debt.......... $5,911,757  $451,240  $6,362,997 $ 5,913,942 $ 380,890  $ 6,294,832
</TABLE>
 
  Long-term notes payable, which are not included in the above table, amounted
to $100 million and $327 million at December 31, 1998 and 1997, respectively.
Such notes, for which interest is paid at fixed and prevailing rates, are
included in the consolidated financial statements at cost, which approximates
their fair value.
 
  Current Liabilities. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the
fair value because of the short maturity of these instruments. See
"Capitalization" above for a discussion of the fair value of the current
portions of long-term debt and redeemable preference stock.
 
  Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
December 31, 1998 and 1997; therefore, the carrying value is equal to the fair
value.
 
(16) Pension and Postretirement Benefits
 
  As of December 31, 1998, ComEd had a qualified non-contributory defined
benefit pension plan which covers all regular employees of ComEd and certain
of Unicom's subsidiaries. Benefits under this plan reflect each employee's
compensation, years of service and age at retirement. Funding is based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution required under
the Employee Retirement Income Security Act of 1974, as amended. The December
31, 1998 and 1997 pension liabilities and related data were determined using
the January 1, 1998 actuarial valuation. Additionally, ComEd maintains a
 
                                      50
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
nonqualified supplemental retirement plan which covers any excess pension
benefits that would be payable to management employees under the qualified
plan but which are limited by the Internal Revenue Code. On January 19, 1998,
Indiana Company's qualified defined benefit pension plan was merged into the
ComEd pension plan as a result of the sale of Indiana Company's State Line
Station and the transfer of its remaining employees to ComEd.
 
  ComEd, the Indiana Company and certain of Unicom's subsidiaries provide
certain postretirement medical, dental and vision care, and life insurance for
retirees and their dependents and for the surviving dependents of eligible
employees and retirees. The employees become eligible for postretirement
benefits when they reach age 55 with ten years of service. The liability for
postretirement benefits is funded through trust funds based upon actuarially
determined contributions that take into account the amount deductible for
income tax purposes. The health care plans are contributory, funded jointly by
the companies and the participating retirees. The December 31, 1998 and 1997
postretirement benefit liabilities and related data were determined using the
January 1, 1998 actuarial valuations.
 
  Reconciliations of the beginning and ending balances of the projected
pension benefit obligation and the accumulated postretirement benefit
obligation and the funded status of these plans for the years 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
                             Twelve Months Ended        Twelve Months Ended
                              December 31, 1998          December 31, 1997
                          -------------------------- --------------------------
                                          Other                      Other
                           Pension    Postretirement  Pension    Postretirement
                           Benefits      Benefits     Benefits      Benefits
                          ----------  -------------- ----------  --------------
                                        (Thousands of Dollars)
Change in benefit
obligation
-----------------
<S>                       <C>         <C>            <C>         <C>
Benefit obligation at
 beginning of period....  $4,010,000    $1,139,000   $3,579,000    $1,035,000
Service cost............     115,000        38,000      100,000        34,000
Interest cost...........     273,000        78,000      261,000        76,000
Plan participants' con-
 tributions.............         --          3,000          --          3,000
Curtailment gain........         --            --        (5,000)          --
Actuarial loss..........     165,000        37,000      282,000        32,000
Benefits paid...........    (236,000)      (46,000)    (207,000)      (41,000)
                          ----------    ----------   ----------    ----------
 Benefit obligation at
  end of period.........  $4,327,000    $1,249,000   $4,010,000    $1,139,000
                          ----------    ----------   ----------    ----------
<CAPTION>
Change in plan assets
---------------------
<S>                       <C>         <C>            <C>         <C>
Fair value of plan as-
 sets at beginning of
 period.................  $3,706,000    $  767,000   $3,281,000    $  665,000
Actual return on plan
 assets.................     534,000       108,000      631,000       128,000
Employer contribution...      11,000        20,000        1,000        12,000
Plan participants' con-
 tributions.............         --          3,000          --          3,000
Benefits paid...........    (236,000)      (46,000)    (207,000)      (41,000)
                          ----------    ----------   ----------    ----------
 Fair value of plan as-
  sets at end of period.  $4,015,000    $  852,000   $3,706,000    $  767,000
                          ----------    ----------   ----------    ----------
Plan assets less than
 benefit obligation.....  $ (312,000)   $ (397,000)  $ (304,000)   $ (372,000)
Unrecognized net actuar-
 ial loss (gain)........      37,000      (345,000)      68,000      (350,000)
Unrecognized prior serv-
 ice cost (asset).......     (60,000)       48,000      (64,000)       52,000
Unrecognized transition
 obligation (asset).....    (101,000)      323,000     (114,000)      345,000
                          ----------    ----------   ----------    ----------
 Accrued liability for
  benefits..............  $ (436,000)   $ (371,000)  $ (414,000)   $ (325,000)
                          ==========    ==========   ==========    ==========
</TABLE>
 
  The assumed discount rate used to determine the benefit obligation as of
December 31, 1998 and 1997 was 6.75% and 7.00%, respectively. The fair value
of pension plan assets excludes $21 million and $17 million held in grantor
trust as of December 31, 1998 and 1997, respectively, for the payment of
benefits under the supplemental plan.
 
                                      51
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
  The components of pension and other postretirement benefit costs, portions
of which were recorded as components of construction costs, for the years
1998, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                            1998       1997       1996
Pension Benefit Costs     ---------  ---------  ---------
---------------------        (Thousands of Dollars)
<S>                       <C>        <C>        <C>
Service cost............  $ 115,000  $ 100,000  $  93,000
Interest cost on pro-
 jected benefit
 obligation.............    273,000    261,000    247,000
Expected return on plan
 assets.................   (342,000)  (310,000)  (289,000)
Amortization of transi-
 tion asset.............    (12,000)   (13,000)   (13,000)
Amortization of prior
 service asset..........     (4,000)    (4,000)    (4,000)
Recognized loss.........      2,000      2,000      2,000
Curtailment gain........        --      (5,000)       --
                          ---------  ---------  ---------
 Net periodic benefit
  cost..................  $  32,000  $  31,000  $  36,000
                          =========  =========  =========
<CAPTION>
Other Postretirement
Benefit Costs
--------------------
<S>                       <C>        <C>        <C>
Service cost............  $  38,000  $  34,000  $  32,000
Interest cost on accumu-
 lated benefit
 obligation.............     78,000     76,000     73,000
Expected return on plan
 assets.................    (69,000)   (61,000)   (55,000)
Amortization of transi-
 tion obligation........     22,000     22,000     22,000
Amortization of prior
 service cost...........      4,000      4,000      3,000
Recognized gain.........    (14,000)   (13,000)    (9,000)
Severance plan cost.....      6,000      8,000      4,000
                          ---------  ---------  ---------
 Net periodic benefit
  cost..................  $  65,000  $  70,000  $  70,000
                          =========  =========  =========
</TABLE>
 
  In accounting for the pension costs and other postretirement benefit costs
under the plans, the following weighted average actuarial assumptions were
used for the years 1998, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                                 Other
                                      Pension Benefits  Postretirement Benefits
                                      ----------------- -----------------------
                                      1998  1997  1996   1998    1997    1996
                                      ----- ----- ----- ------- ------- -------
<S>                                   <C>   <C>   <C>   <C>     <C>     <C>
Annual discount rate................. 7.00% 7.50% 7.50%   7.00%   7.50%   7.50%
Annual long-term rate of return on
 plan assets......................... 9.50% 9.75% 9.75%   9.20%   9.40%   9.38%
Annual rate of increase in future
 compensation levels................. 4.00% 4.00% 4.00%      --      --      --
</TABLE>
 
  The pension curtailment gain in December 1997 represents the recognition of
prior service costs, the transition asset and the decrease in the projected
benefit obligation related to the reduction in the number of employees due to
the sale of State Line Station by the Indiana Company.
 
  Postretirement health care costs for the years 1998, 1997 and 1996 included
$6 million, $8 million and $4 million, respectively, related to voluntary
separation offers to certain employees of ComEd and the Indiana Company.
 
  The health care cost trend rates used to measure the expected cost of the
postretirement medical benefits are assumed to be 8.5% for pre-Medicare
recipients and 6.5% for Medicare recipients for 1998. Those rates are assumed
to decrease in 0.5% annual increments to 5% for the years 2005 and 2001,
respectively, and to remain level thereafter. The health care cost trend
rates, used to measure the expected cost of postretirement dental and vision
benefits, are a level 3.5% and
 
                                      52
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
2.0% per year, respectively. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plans. A one
percentage point change in the assumed health care cost trend rates would have
the following effects:
 
<TABLE>
<CAPTION>
                                                   1 Percentage   1 Percentage
                                                  Point Increase Point Decrease
                                                  -------------- --------------
                                                     (Thousands of Dollars)
<S>                                               <C>            <C>
Effect on total annual service and interest cost
 components......................................    $ 24,000      $ (18,000)
Effect on postretirement benefit obligation......     225,000       (176,000)
</TABLE>
 
  In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its and Unicom's subsidiaries.
Under the plan, each participating employee may contribute up to 20% of such
employee's base pay. The participating companies match the first 6% of such
contribution equal to 100% of the first 2% of contributed base salary, 70% of
the next 3% of contributed base salary and 25% of the next 1% of contributed
base salary. The participating companies' contributions were $32 million, $33
million and $30 million for the years 1998, 1997 and 1996, respectively.
 
(17) Separation Plan Costs
 
  O&M expenses included $48 million, $39 million and $12 million for the years
1998, 1997 and 1996, respectively, for costs related to voluntary separation
offers to certain employees of ComEd and the Indiana Company, as well as
certain one-time, employee-related costs. Such costs resulted in charges of
$29 million (after-tax), or $0.13 per common share (basic), $24 million
(after-tax), or $0.11 per common share (basic), and $7 million (after-tax), or
$0.03 per common share (basic), for the years 1998, 1997 and 1996,
respectively.
 
(18) Income Taxes
 
  The components of the net deferred income tax liability at December 31, 1998
and 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                              December 31
                                                         ----------------------
                                                            1998        1997
                                                         ----------  ----------
                                                             (Thousands of
                                                               Dollars)
<S>                                                      <C>         <C>
Deferred income tax liabilities:
 Accelerated cost recovery and liberalized deprecia-
  tion, net of removal costs...........................  $4,028,351  $4,062,801
 Overheads capitalized.................................     140,922     131,509
 Repair allowance......................................     233,861     231,697
 Regulatory assets recoverable through future rates....     680,356     785,354
Deferred income tax assets:
 Postretirement benefits...............................    (331,651)   (305,242)
 Unamortized investment tax credits....................    (191,135)   (206,112)
 Regulatory liabilities to be settled through future
  rates................................................    (595,005)   (698,750)
 Nuclear plant closure.................................     (38,354)   (194,244)
 Other--net............................................    (146,224)   (136,258)
                                                         ----------  ----------
Net deferred income tax liability......................  $3,781,121  $3,670,755
                                                         ==========  ==========
</TABLE>
 
  The $110 million increase in the net deferred income tax liability from
December 31, 1997 to December 31, 1998 is comprised of $111 million of
deferred income tax expense and a $1 million decrease in regulatory assets net
of regulatory liabilities pertaining to income taxes for the year. The amount
of accelerated cost recovery and liberalized depreciation included in deferred
income tax
 
                                      53
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
liabilities as of December 31, 1998 includes amounts related to the regulatory
asset for impaired production plant. The amount of regulatory assets included
in deferred income tax liabilities primarily relates to the equity component
of AFUDC which is recorded on an after-tax basis, the borrowed funds component
of AFUDC which was previously recorded net of tax and other temporary
differences for which the related tax effects were not previously recorded.
The amount of other regulatory liabilities included in deferred income tax
assets primarily relates to deferred income taxes provided at rates in excess
of the current statutory rate.
 
  The components of net income tax expense charged (credited) to continuing
operations for the years 1998, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                   1998      1997       1996
                                                 --------  ---------  --------
                                                   (Thousands of Dollars)
<S>                                              <C>       <C>        <C>
Operating income:
 Current income taxes..........................  $304,889  $ 255,057  $328,216
 Deferred income taxes.........................    50,134     62,501   161,176
 Investment tax credits deferred--net..........   (27,730)   (31,015)  (33,378)
Other (income) and deductions:
 Current income taxes..........................   (51,816)     1,116   (12,349)
 Deferred income taxes.........................    59,458   (385,994)    5,117
 Investment tax credits........................   (12,107)   (22,526)      --
                                                 --------  ---------  --------
Net income taxes charged (credited) to continu-
 ing operations................................  $322,828  $(120,861) $448,782
                                                 ========  =========  ========
</TABLE>
 
 
  Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the years 1998, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                  1998      1997        1996
                                                --------  ---------  ----------
                                                   (Thousands of Dollars)
<S>                                             <C>       <C>        <C>
Net income (loss) before extraordinary item
 and cumulative effect of change in accounting
 principle....................................  $510,184  $(239,215) $  666,100
Net income taxes charged (credited) to
 continuing operations........................   322,828   (120,861)    448,782
Provision for dividends on ComEd preferred and
 preference stocks............................    56,884     60,486      64,424
                                                --------  ---------  ----------
Pre-tax net income (loss) before extraordinary
 item, cumulative effect and provision for
 dividends....................................  $889,896  $(299,590) $1,179,306
                                                ========  =========  ==========
Effective income tax rate.....................      36.3%      40.3%       38.1%
                                                ========  =========  ==========
</TABLE>
 
  The principal differences between net income taxes charged (credited) to
continuing operations and the amounts computed at the federal statutory rate
of 35% for the years 1998, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                    1998      1997       1996
                                                  --------  ---------  --------
                                                    (Thousands of Dollars)
<S>                                               <C>       <C>        <C>
Federal income taxes computed at statutory rate.  $311,464  $(104,857) $412,757
Equity component of AFUDC which was excluded
 from taxable income............................      (390)    (8,320)   (7,272)
Amortization of investment tax credits..........   (25,503)   (53,541)  (33,378)
State income taxes, net of federal income taxes.    40,899       (682)   58,387
Differences between book and tax accounting,
 primarily property-related deductions..........    (3,642)    46,539    18,288
                                                  --------  ---------  --------
Net income taxes charged (credited) to
 continuing operations..........................  $322,828  $(120,861) $448,782
                                                  ========  =========  ========
</TABLE>
 
  The effects of an income tax refund related to prior years were recorded in
1996, resulting in a positive impact of $26 million (after-tax), or $0.12 per
common share (basic).
 
                                      54
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
(19) Taxes, Except Income Taxes
 
  Provisions for taxes, except income taxes, for the years 1998, 1997 and 1996
were as follows:
 
<TABLE>
<CAPTION>
                                                       1998     1997     1996
                                                     -------- -------- --------
                                                       (Thousands of Dollars)
      <S>                                            <C>      <C>      <C>
      Illinois electricity excise tax............... $126,481 $228,350 $227,062
      Illinois invested capital.....................      --    99,503  104,663
      Illinois electricity distribution tax.........  110,025      --       --
      Municipal utility gross receipts..............  152,879  168,094  168,715
      Real estate...................................  125,521  151,508  129,770
      Municipal compensation........................   78,010   78,286   78,544
      Other--net....................................  106,918   75,145   74,777
                                                     -------- -------- --------
                                                     $699,834 $800,886 $783,531
                                                     ======== ======== ========
</TABLE>
 
  Effective January 1, 1998, the Illinois invested capital tax was repealed
and the Illinois electricity distribution tax was enacted as a replacement.
The new tax is based on the kilowatthours delivered to ultimate consumers.
 
  Effective August 1, 1998, as provided for by the 1997 Act, the Illinois
electricity excise tax and certain municipal utility taxes are recorded as
liabilities. Previously, similar taxes were presented on the Statements of
Consolidated Operations as revenue and expense. The reduction in operating
revenues and taxes, except income taxes, due to the change in presentation for
such taxes was approximately $95 million for 1998. This change in the
presentation for such taxes did not have an effect on results of operations.
 
  ComEd's real estate taxes in 1996 reflect a credit of $23 million which
related to the year 1995.
 
  See Note 22 for additional information regarding Illinois invested capital
taxes.
 
(20) Lease Obligations of Subsidiary Companies
 
  Under its nuclear fuel lease arrangement, ComEd may sell and lease back
nuclear fuel from a lessor who may borrow an aggregate of $700 million,
consisting of $300 million of commercial paper/bank borrowings and $400
million of intermediate term notes, to finance the transactions. With respect
to the commercial paper/bank borrowings portion, $300 million will expire on
November 23, 1999. With respect to the intermediate term notes, $60 million
expires on November 23, 1999, and an additional portion each November 23
thereafter through November 23, 2003. At December 31, 1998, ComEd's obligation
to the lessor for leased nuclear fuel amounted to approximately $529 million.
As a result of the permanent cessation of nuclear generation operations at
Zion Station, ComEd repurchased approximately $100 million of nuclear fuel
assemblies held under the nuclear fuel lease arrangements at Zion Station in
June 1998. See Note 5 for additional information regarding the permanent
cessation of nuclear generation operations at Zion Station. ComEd has agreed
to make lease payments which cover the amortization of the nuclear fuel used
in ComEd's reactors plus the lessor's related financing costs. ComEd has an
obligation for spent nuclear fuel disposal costs of leased nuclear fuel.
 
  As of December 31, 1998, future minimum rental payments, net of executory
costs, for capital leases are estimated to aggregate to $589 million,
including $217 million in 1999, $164 million in 2000, $99 million in 2001, $60
million in 2002, $33 million in 2003 and $16 million in 2004-2005. The
estimated interest component of such rental payments aggregates $64 million.
The estimated portions of obligations due within one year under capital leases
of $195 million and $241 million at December 31, 1998 and 1997, respectively,
were included in current liabilities on the Consolidated Balance Sheets.
 
                                      55
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
 
  Future minimum rental payments at December 31, 1998 for operating leases are
estimated to aggregate to $316 million, including $38 million in 1999, $35
million in 2000, $30 million in 2001, $27 million in 2002, $25 million in 2003
and $161 million in 2004-2043.
 
(21) Joint Plant Ownership
 
  ComEd has a 75% undivided ownership interest in the Quad Cities nuclear
generating station. Further, ComEd is responsible for 75% of all costs which
are charged to appropriate investment and O&M accounts, and provides its own
financing. ComEd's net plant investment, including construction work in
progress, in Quad Cities Station on the Consolidated Balance Sheets was $5
million at December 31, 1998, after reflecting the accounting impairment
recorded in the second quarter of 1998. See Note 2 for additional information.
 
(22) Commitments and Contingent Liabilities
 
  Purchase commitments, principally related to construction and nuclear fuel,
approximated $366 million at December 31, 1998, comprised of $335 million for
ComEd, $21 million for UT Holdings and $10 million for Unicom Energy Services.
In addition, ComEd has substantial commitments for the purchase of coal.
ComEd's coal costs are high compared to those of other utilities. ComEd's
western coal contracts and its rail contracts for delivery of the western coal
provide for the purchase of certain coal at prices substantially above
currently prevailing market prices. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," subcaption "Liquidity and
Capital Resources--UTILITY OPERATIONS--Construction Program," for additional
information regarding ComEd's purchase commitments.
 
  ComEd is a member of NEIL which provides insurance coverage against property
damage and associated replacement power costs occurring at members' nuclear
generating facilities. All companies insured with NEIL are subject to
retrospective premium adjustments if losses exceed accumulated reserve funds.
Capital has been accumulated in the reserve funds such that ComEd would not be
liable for any single incident. However, ComEd could be subject to assessments
in any policy year for each of three types of coverage provided. The maximum
assessments are approximately $53 million for primary property damage, $73
million for excess property damage and $22 million for replacement power.
Prior to January 1, 1998, the primary property damage coverage described was
provided by NML, another mutual insurance company which merged into NEIL. The
merger did not affect ComEd's obligations or coverage.
 
  The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessed in the event of nuclear
incidents. Based on the number of nuclear reactors with operating licenses,
ComEd would currently be subject to a maximum assessment of $1,145 million in
the event of an incident, limited to a maximum of $130 million in any calendar
year.
 
  In addition, ComEd participates in the American Nuclear Insurers Master
Worker Program, which provides coverage for worker tort claims filed for
bodily injury caused by the nuclear energy hazard. This program was modified,
effective January 1, 1998, to provide coverage to all workers whose "nuclear-
related employment" began on or after the commencement date of reactor
operations. ComEd will not be liable for a retrospective assessment under this
new policy. However, ComEd is still subject to a maximum retroactive assesment
of up to $36 million in the event losses incurred under the small number of
policies in the old program exceed accumulated reserves.
 
  During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that
 
                                      56
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
Cotter has permitted radioactive and other hazardous material to be released
from its mill into areas owned or occupied by the plaintiffs resulting in
property damage and potential adverse health effects. With respect to Cotter,
in 1994 a federal jury returned nominal dollar verdicts against Cotter on
eight bellwether plaintiffs' claims in the 1989 cases, which verdicts were
upheld on appeal. The remaining claims in the 1989 actions have been settled
and dismissed. On July 15, 1998, a jury verdict was rendered in Dodge v.
Cotter (United States District Court for the District of Colorado, Civil
Action No. 91-Z-1861), a case relating to 14 of the plaintiffs in the 1991
cases. The verdict against Cotter included compensatory and punitive damages
totaling approximately $3 million (not including prejudgment interest, which
has not yet been calculated, and which Cotter anticipates may bring the total
award to under $6 million), together with medical monitoring. The matter is
currently on appeal. Although the other 1991 cases will necessarily involve
the resolution of numerous contested issues of fact and law, Unicom and
ComEd's determination is that these actions will not have a material impact on
their financial position or results of operations.
 
  ComEd is involved in administrative and legal proceedings concerning air
quality, water quality and other matters. The outcome of these proceedings may
require increases in future construction expenditures and operating expenses
and changes in operating procedures. ComEd and its subsidiaries are or are
likely to become parties to proceedings initiated by the U.S. EPA, state
agencies and/or other responsible parties under CERCLA with respect to a
number of sites, including MGP sites, or may voluntarily undertake to
investigate and remediate sites for which they may be liable under CERCLA.
 
  ComEd generally did not operate MGPs as a corporate entity but did, however,
acquire MGP sites as part of the absorption of smaller utilities.
Approximately half of these sites were transferred to Northern Illinois Gas
Company as part of a general conveyance in 1954. ComEd also acquired former
MGP sites as vacant real estate on which ComEd facilities have been
constructed. To date, ComEd has identified 44 former MGP sites for which it
may be liable for remediation. ComEd presently estimates that its costs of
former MGP site investigation and remediation will aggregate from $25 million
to $150 million in current-year (1999) dollars. It is expected that the costs
associated with investigation and remediation of former MGP sites will be
incurred over a period not to exceed 30 years. Because ComEd is not able to
determine the most probable liability for such MGP costs, in accordance with
accounting standards, a reserve of $25 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets as of December 31,
1998 and 1997, which reflects the low end of the range of ComEd's estimate of
the liability associated with former MGP sites. In addition, as of December
31, 1998 and 1997, a reserve of $8 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets, representing
ComEd's estimate of the liability associated with cleanup costs of remediation
sites other than former MGP sites. Approximately half of this reserve relates
to anticipated cleanup costs associated with a property formerly used as a
tannery which was purchased by ComEd in 1973. Unicom and ComEd presently
estimate that ComEd's costs of investigating and remediating the former MGP
and other remediation sites, pursuant to CERCLA and state environmental laws,
will not have a material impact on the financial position or results of
operations of Unicom or ComEd. These cost estimates are based on currently
available information regarding the responsible parties likely to share in the
costs of responding to site contamination, the extent of contamination at
sites for which the investigation has not yet been completed and the cleanup
levels to which sites are expected to have to be remediated.
 
  The IDR has issued Notices of Tax Liability to ComEd alleging deficiencies
in Illinois invested capital tax payments for the years 1988 through 1996. The
alleged deficiencies including interest
 
                                      57
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Continued
and penalties totaled approximately $45 million as of December 31, 1998. ComEd
has protested the notices, and the matter is currently pending before the
IDR's Office of Administrative Hearings. Interest will continue to accrue on
the alleged tax deficiencies.
 
(23) Quarterly Financial Information
 
<TABLE>
<CAPTION>
                                                             Average     Basic
                                                            Number of  Earnings/
                                                             Common     (Loss)
                                                  Net        Shares       Per
                         Operating  Operating   Income/    Outstanding  Common
Three Months Ended(a)     Revenues   Income     (Loss)       (Basic)     Share
---------------------    ---------- --------- -----------  ----------- ---------
                                   (Thousands Except per Share Data)
<S>                      <C>        <C>       <C>          <C>         <C>
March 31, 1998.......... $1,712,235 $190,414  $    53,715    216,707    $ 0.25
June 30, 1998........... $1,779,146 $215,146  $    80,458    216,897    $ 0.37
September 30, 1998...... $2,095,699 $394,707  $   264,822    217,024    $ 1.22
December 31, 1998....... $1,564,173 $206,427  $   111,189    217,141    $ 0.51
March 31, 1997.......... $1,670,722 $214,912  $   262,370    216,053    $ 1.21
June 30, 1997........... $1,686,422 $153,076  $     5,494    216,368    $ 0.03
September 30, 1997...... $2,070,912 $386,999  $   240,332    216,409    $ 1.11
December 31, 1997....... $1,654,966 $157,080  $(1,361,046)   216,489    $(6.29)
</TABLE>
 
(a) The March 31, 1997 Net Income/(Loss) includes $197 million (after-tax), or
    $0.91 per common share (basic), for the cumulative effect of a change in
    accounting principle.
 
(24) Subsequent Events
 
  ComEd redeemed the following preference stock, first mortgage bonds and
sinking fund debentures on January 19, 1999, January 27, 1999 and February 16,
1999, respectively.
 
<TABLE>
<CAPTION>
                                   Preference Stock
      --------------------------------------------------------------------------
                                                Shares
      Series                                  Outstanding    Principal Amount
      ------                                  ----------- ----------------------
                                                          (Thousands of Dollars)
      <S>                                     <C>         <C>
      $8.40..................................    750,000         $ 74,175
      $8.38..................................    750,000           73,566
      $2.00..................................  2,000,000           51,560
      $1.96..................................  2,000,000           52,440
      $1.90..................................  4,249,549          106,239
      $7.24..................................    750,000           74,340
      $9.25..................................    450,000           45,000
      $8.85..................................    187,500           18,750
      $8.40 Series B.........................    240,000           23,838
      $8.20..................................    142,845           14,285
                                              ----------         --------
                                              11,519,894         $534,193
                                              ==========         ========
</TABLE>
 
                                      58
<PAGE>
 
                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES
 
                   NOTES TO FINANCIAL STATEMENTS--Concluded
 
<TABLE>
<CAPTION>
                                First Mortgage Bonds
      -------------------------------------------------------------------------
                                                            Principal Amount
             Series                                      ----------------------
     ------------------------------
                                                         (Thousands of Dollars)
      <S>                                                <C>
      9 1/8% due October 15, 2021.......................        $125,000
      8 7/8% due October 1, 2021........................         100,000
      8 1/8% due January 15, 2007.......................         180,000
      8% due October 15, 2003...........................         125,000
      7 5/8% due June 1, 2003...........................         100,000
      7 1/2% due January 1, 2001........................         100,000
                                                                --------
                                                                $730,000
                                                                ========
</TABLE>
 
<TABLE>
<CAPTION>
                               Sinking Fund Debentures
      -------------------------------------------------------------------------
                                                            Principal Amount
             Series                                      ----------------------
     ------------------------------
                                                         (Thousands of Dollars)
      <S>                                                <C>
      7 5/8% due February 15, 2003......................        $56,000(1)
      7 5/8% due February 15, 2003......................          2,000
                                                                -------
                                                                $58,000
                                                                =======
</TABLE>
     --------
     (1)Optional Redemption
 
  In response to a tender offer, ComEd reacquired $229 million of the
following first mortgage bonds in early February 1999.
 
<TABLE>
<CAPTION>
                                                            Principal Amount
             Series                                      ----------------------
     ------------------------------
                                                         (Thousands of Dollars)
      <S>                                                <C>
      9 3/8% due February 15, 2000......................       $  82,655
      9 3/4% due February 15, 2020......................         146,547
                                                           ----------------
                                                               $ 229,202
                                                           ================
</TABLE>
 
  In the first quarter of 1999, ComEd expects to record losses and premiums
related to the early redemptions and the tender offer of the above-mentioned
first mortgage bonds, preference stock and sinking fund debentures, which will
reduce net income on common stock by approximately $38 million (after-tax), or
$0.17 per common share.
 
  In addition to the debt and preference stock redemptions and the tender
offer discussed above, Unicom also has announced plans to repurchase
approximately $750 million of Unicom common stock using the proceeds it
receives from ComEd's repurchase of its common stock held by Unicom. The
remaining proceeds will be used for the payment of fees and additional debt
and equity redemptions. See Note 7 for additional information.
 
                                      59