FORM 10-K

                       SECURlTlES AND EXCHANGE COMMlSSlON
                             WASHINGTON, D. C. 20549

       [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

        For the fiscal year ended
        December 31, 1997                     Commission File Number  1-3132-2


                       INDIANAPOLIS POWER & LIGHT COMPANY
             (Exact name of Registrant as specified in its charter)

                  Indiana                                  35-0413620
         (State or other jurisdiction                    (I.R.S. Employer
           of incorporation or organization)              Identification No.)

                  One Monument Circle
                  Indianapolis, Indiana                       46204
         (Address of principal executive offices)           (Zip Code)

         Registrant's telephone number, including area code:  317-261-8261

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

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

         518,985 Shares of Cumulative Preferred Stock

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

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

     As of January 31, 1998,  there were 17,206,630  shares of the  registrant's
common stock (without par value)issued and  outstanding.
                     -------------------------------------

         DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Indianapolis Power & Light Company definitive Information
Statement for the Annual  Meeting of  Shareholders  to be held on April 15, 1998
are incorporated by reference into Part III of this Report.
<PAGE>


                                     PART I
                                     ------

Item 1. BUSINESS
        --------

ORGANIZATION

       Indianapolis  Power & Light Company (IPL) is an operating  public utility
incorporated  under the laws of the state of Indiana on October 27, 1926. IPL is
a subsidiary of IPALCO Enterprises,  Inc. (IPALCO).  IPALCO is a holding company
incorporated  under the laws of the state of Indiana on September 14, 1983.  All
common stock of IPL is owned by IPALCO.

GENERAL

       IPL was  incorporated  under the laws of the state of Indiana in 1926 and
is a wholly owned subsidiary of IPALCO.  IPL is engaged primarily in generating,
transmitting,   distributing   and  selling  electric  energy  in  the  city  of
Indianapolis  and neighboring  cities,  towns,  communities,  and adjacent rural
areas,  all within the state of Indiana,  the most distant  point being about 40
miles from Indianapolis. It also produces,  distributes and sells steam within a
limited  area in such  city.  There  have  been no  significant  changes  in the
services  rendered,  or in the  markets or methods  of  distribution,  since the
beginning  of the fiscal  year.  IPL intends to do business of the same  general
character as that in which it is now engaged.  Existing Indiana law provides for
electric suppliers to have an exclusive retail service area.

       IPL's business is not dependent on any single  customer or group of a few
customers. IPL's historical retail sales to ultimate consumers for 1993-1997 are
depicted at page I-4.

       The electric utility business is affected by the various seasonal weather
patterns  throughout  the  year  and,  therefore,  the  operating  revenues  and
associated  operating  expenses are not  generated  evenly by months  during the
year.

       IPL's  generation,  transmission  and distribution  facilities  (electric
system) are described in Item 2, "PROPERTIES." IPL's electric system is directly
interconnected with the electric systems of Indiana Michigan Power Company,  PSI
Energy,  Inc.,  Southern Indiana Gas and Electric  Company,  Wabash Valley Power
Association,  Hoosier  Energy Rural Electric  Cooperative,  Inc. and the Indiana
Municipal Power Agency.

       Also, IPL is a member of the East Central Area Reliability  Group (ECAR),
and is cooperating under an agreement which provides for coordinated planning of
generating and  transmission  facilities and the operation of such facilities to
promote  reliability  of bulk power supply in the  nine-state  region  served by
ECAR.  Smaller electric utility systems,  independent  power producers and power
marketers participate as associate members.

REGULATION

       IPL is subject to regulation by the Indiana Utility Regulatory Commission
(IURC)  as  to  its  services  and  facilities,   valuation  of  property,   the
construction,   purchase   or   lease   of   electric   generating   facilities,
classification of accounts, rates of depreciation,  rates and charges,  issuance
of securities  (other than  evidences of  indebtedness  payable less than twelve
months  after the date of issue),  the  acquisition  and sale of public  utility
properties or securities  and certain other matters (see Note 10 in the Notes to
Financial Statements).
<PAGE>

       In addition,  IPL is subject to the  jurisdiction  of the Federal  Energy
Regulatory  Commission (FERC), in respect of short-term borrowings not regulated
by the  IURC,  the  sale and  transmission  of  electric  energy  in  interstate
commerce,  the  classification  of its accounts and the  acquisition and sale of
utility property in certain circumstances as provided by the Federal Power Act.

       IPL is also subject to federal,  state and local  environmental  laws and
regulations,  particularly as to generating station discharges affecting air and
water quality. The impact of compliance with such regulations on the capital and
operating  costs of IPL has been and will  continue to be  substantial.  IPL has
developed and  implemented a plan to reduce  sulfur  dioxide and nitrogen  oxide
emissions  from  several  generating  units.  This  plan  was  approved  by  the
Environmental  Protection  Agency (EPA) in 1994.  Estimated  new annual  capital
expenditures for all other air, solid waste and water  environmental  compliance
measures  are $10  million,  $1 million and $.5 million in 1998,  1999 and 2000,
respectively.

RETAIL RATEMAKING

       IPL's tariffs for electric and steam service to retail  customers  (basic
rates and charges) are set and approved by the IURC after public hearings.  Such
proceedings,  which have occurred at irregular intervals, involve IPL, the staff
of the IURC, the Office of the Indiana Utility  Consumer  Counselor,  as well as
other interested consumer groups and IPL customers.  In Indiana, basic rates and
charges are determined after giving  consideration,  on a proforma basis, to all
allowable  costs for  ratemaking  purposes  including  a fair return on the fair
value of the utility property dedicated to providing service to customers.  Once
set, the basic rates and charges  authorized do not assure the  realization of a
fair return on the fair value of  property.  Other  numerous  factors  including
weather,  inflation,  customer growth and usage, the level of actual maintenance
and capital  expenditures and IURC restrictions on the level of operating income
can  impact the  return  realized.  Substantially  all of IPL's  retail  tariffs
provide for the monthly  billing or  crediting  to  customers  of  increases  or
decreases,  respectively,  in the actual costs of fuel consumed  from  estimated
fuel costs  embedded in base  tariffs.  Additionally,  all such  retail  tariffs
provide for billing of "lost revenue margins" on estimated  kilowatt-hour  (KWH)
sales  reductions  along with current and deferred  costs  resulting  from IPL's
approved  demand side  management  programs  (DSM).  IPL maintains its books and
records consistent with generally accepted accounting  principles reflecting the
impact of regulation  (see Note 1 in the Notes to Financial  Statements and Item
7, "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF
OPERATIONS" under "Nature of Operations and Regulatory Matters").

       Future events,  including the advent of retail  competition  within IPL's
service  territory,  could  result in the  deregulation  of all or part of IPL's
existing  regulated   businesses.   Upon  deregulation,   adjustments  to  IPL's
accounting  records  may be  required  to  eliminate  the  historical  impact of
regulatory accounting.  Such adjustments,  as required by Statement of Financial
Accounting Standards No. 101 (SFAS 101), "Regulated Enterprises - Accounting for
the  Discontinuation  of Application of FASB Statement No. 71," would  eliminate
the "effects of any actions of  regulators  that have been  recognized as assets
and  liabilities...."  Required  adjustments  could  include  expensing  of  any
unamortized net regulatory assets,  elimination of certain tax liabilities and a
write down of any impaired utility plant balances.  IPL does not expect to be in
a position to be required to adopt SFAS 101 in the near term and accordingly has
not attempted to estimate the impact of adopting SFAS 101.

FUEL

       In 1997,  approximately 99.5% of the total KWH sold by IPL were generated
from  coal,  .2% from  middle  distillate  fuel  oil,  .2% from gas and .1% from
purchased steam. In addition to use in oil-fired  generating  units, fuel oil is
used for start up and flame stabilization in coal-fired generating units as well
as for coal  thawing and coal  handling.  Gas is used in IPL's newer  combustion
turbines.
<PAGE>

       IPL's  long-term  coal  contracts  provide  for the  supply  of the major
portion of its burn requirements  through the year 1999, assuming  environmental
regulations  can be met. The long-term coal  agreements are with three suppliers
and the coal is mined  entirely in the state of  Indiana.  See  Exhibits  listed
under  Part IV Item  14(a)2(10.1  to 10.5) for a list of coal  contracts.  It is
presently  believed  that all coal  used by IPL  will be  mined by  others.  IPL
normally  carries  fuel oil and a 60-day  supply  of coal to  offset  unforeseen
occurrences  such as labor  disputes,  equipment  breakdowns  and power sales to
other  utilities.  IPL increases its stockpile to an  approximate  80-day supply
when strikes are anticipated in the coal industry.

EMPLOYEE RELATIONS

       As of  December  31,  1997,  IPL had 2,095  employees  of whom 1,050 were
represented  by the  International  Brotherhood of Electrical  Workers,  AFL-CIO
(IBEW) and 350 were represented by the Electric Utility Workers Union (EUWU), an
independent  labor  organization.  In December  1996, the membership of the IBEW
ratified a new labor  agreement which remains in effect until December 13, 1999.
The agreement  provided for general pay  adjustments of 3.5% in 1996 and 3.0% in
both 1997 and 1998,  and changes in pension and health care  coverage.  In March
1995, the membership of the EUWU ratified a new labor agreement which remains in
effect until  February 23, 1998.  Negotiations  are currently  underway with the
EUWU for a new contract.  The old agreement provided for general pay adjustments
of 2% in 1995,  1996 and 1997;  lump sum payments of $500 in both 1995 and 1996;
and changes in pension and health care coverage.

DISPOSITION OF ASSETS

       In 1997,  IPL retired and sold its CC Perry W Plant site,  including land
and improvements, to the State of Indiana White River State Park Commission.

<PAGE>
<TABLE>

                       INDIANAPOLIS POWER & LIGHT COMPANY
                       STATISTICAL INFORMATION - ELECTRIC

The following table of statistical information presents additional data on IPL's
operation.
<CAPTION>

                                                                      Year Ended December 31,
                                   -----------------------------------------------------------------------------------------------
Operating Revenues (In Thousands):     1997 (1)             1996                1995                1994                 1993
--------------------------------------------------    ---------------    ----------------     ---------------     ----------------
<S>                                <C>                <C>                <C>                  <C>                 <C>            
  Residential                      $      261,832     $      261,819     $       243,055      $      230,805      $       225,138
  Small industrial and commercial         125,998            132,361             130,780             129,346              127,551
  Large industrial and commercial         306,761            298,720             275,803             266,703              255,945
  Public lighting                           8,457              8,147               7,598               6,949                7,186
  Miscellaneous                            12,050              9,264               8,289               7,186                7,373
                                   ---------------    ---------------    ----------------     ---------------     ----------------
    Revenues - ultimate consumers         715,098            710,311             665,525             640,989              623,193
  Sales for resale - REMC                   1,082              1,141               1,105               1,098                  897
  Sales for resale - other                 21,954             13,312               6,758               7,680                5,237
                                   ---------------    ---------------    ----------------     ---------------     ----------------
      Total electric revenues      $      738,134     $      724,764     $       673,388      $      649,767      $       629,327
                                   ===============    ===============    ================     ===============     ================

Kilowatt-hour Sales (In Millions):
  Residential                               4,255              4,367               4,277               4,077                4,014
  Small industrial and commercial           1,972              2,130               2,209               2,207                2,202
  Large industrial and commercial           6,834              6,772               6,509               6,306                6,169
  Public lighting                              57                 58                  61                  64                   62
                                   ---------------    ---------------    ----------------     ---------------     ----------------
    Sales - ultimate consumers             13,118             13,327              13,056              12,654               12,447
  Sales for resale - REMC                      29                 29                  28                  26                   24
  Sales for resale - other                  1,111                725                 394                 456                  321
                                   ---------------    ---------------    ----------------     ---------------     ----------------
      Total kilowatt-hours sold            14,258             14,081              13,478              13,136               12,792
                                   ===============    ===============    ================     ===============     ================

Customers at End of Year:
  Residential                             374,686            370,029             365,163             360,347              356,015
  Small industrial and commercial          41,148             40,403              39,781              38,849               38,359
  Large industrial and commercial           3,960              3,657               3,557               3,525                3,342
  Public lighting                             346                303                 281                 266                  252
                                   ---------------    ---------------    ----------------     ---------------     ----------------
    Total ultimate consumers              420,140            414,392             408,782             402,987              397,968
  Sales for resale - REMC                       1                  1                   1                   1                    1
                                   ---------------    ---------------    ----------------     ---------------     ----------------
      Total electric customers            420,141            414,393             408,783             402,988              397,969
                                   ===============    ===============    ================     ===============     ================




(1) 1997 includes estimated  electric operating revenue and kilowatt-hour  sales
for services delivered but not billed during the period (see Note 3 in the Notes
to Consolidated Financial Statements).

</TABLE>
<PAGE>


Item 2.       PROPERTIES
              ----------

       IPL's executive offices are in the IPALCO Corporate Center located at One
Monument Circle,  Indianapolis,  Indiana.  This facility contains  approximately
201,300 square feet of space and contains certain  administrative  operations of
IPALCO's subsidiaries.

       IPL also  owns two  distribution  service  centers  located  at 1230 West
Morris Street and 3600 North Arlington  Avenue,  both in Indianapolis,  Indiana.
IPL's  customer  service  center is  located at 2102  North  Illinois  Street in
Indianapolis.

       IPL owns and operates four primarily coal-fired  generating plants, three
of  which  are used for only  electric  generation  and one  which is used for a
combination of electric and steam generation. For electric generation, the total
gross  nameplate  rating is 3,024 MW,  winter  capability is 3,036 MW and summer
capability  is 2,956 MW. For steam  generation,  gross  capacity  is 1,990 Mlbs.
(thousands of pounds) per hour.

       Total Electric Stations:

       H. T. Pritchard plant  (Pritchard),  located 25 miles  southwest of
       Indianapolis  (seven units in service - one in 1949, 1950, 1951, 1956
       and 1967 and two in 1953) with 367 MW nameplate rating and net winter 
       and summer  capabilities of 344 MW and 341 MW, respectively.

       E. W. Stout plant (Stout) located in the southwest part of Marion County
       (eleven units in service - one each in 1941, 1947, 1958, 1961, 1967, 1994
       and 1995 and four in 1973) with 921 MW  nameplate  rating and net winter
       and summer capabilities of 1,000 MW and 924 MW, respectively.

       Petersburg plant  (Petersburg),  located in Pike County,  Indiana  (seven
       units in service - four in 1967 and one each in 1969, 1977 and 1986)with
       1,716 MW nameplate rating and net winter and summer capabilities of
       1,672 MW.

       Combination Electric and Steam Station:

       C.C.Perry Section K plant (Perry K), located in the city of  Indianapolis
       with 20 MW nameplate  rating (net winter capability 20 MW, summer 19 MW)
       for electric  and a gross  capacity of 1,990 Mlbs.  per hour for steam.

       Net  electrical  generation  during 1997,  at the  Petersburg,  Stout and
Pritchard stations accounted for about 72.9%, 20.3% and 6.7%,  respectively,  of
IPL's  total net  generation.  Perry K and Perry W produced  .1% net  electrical
generation  and all of the  steam  generated  by IPL for the  steam  system.  In
addition,  IPL purchases  steam from an  independent  resource  recovery  system
located within the city of  Indianapolis.  During 1997, the C.C. Perry Section W
plant (Perry W), located in downtown  Indianapolis  with 11 MW nameplate  rating
(net winter capability 10 MW, summer 12 MW) for electric and a gross capacity of
300 Mlbs. per hour for steam was retired in place and  subsequently  sold to the
State of Indiana White River State Park Commission.

       Included  in the above  totals are three gas  turbine  units at the Stout
station  added in 1973,  one gas turbine added in 1994 and one gas turbine added
in 1995 with a combined  nameplate  rating of 214 MW,  one  diesel  unit each at
Pritchard and Stout stations and three diesel units at Petersburg  station,  all
added in 1967. Each diesel unit has a nameplate rating of 3 MW.
<PAGE>

       IPL's  transmission  system  includes  457 circuit  miles of 345,000 volt
lines,  359  circuit  miles of 138,000  volt lines and 268 miles of 34,500  volt
lines. Distribution facilities include 4,709 pole miles and 19,877 wire miles of
overhead lines.  Underground  distribution  and service  facilities  include 505
miles of conduit and 5,520 wire miles of conductor.  Underground street lighting
facilities  include 109 miles of conduit and 686 wire miles of  conductor.  Also
included  in the  system  are 73  bulk  power  substations  and 76  distribution
substations.

       Steam  distribution  properties  include  22  miles  of  mains  with  257
services. Other properties include coal and other minerals, underlying 798 acres
in Sullivan County,  Indiana,  and coal underlying about 6,215 acres in Pike and
Gibson Counties,  Indiana.  Additional land, approximately 4,882 acres in Morgan
County,  Indiana and approximately 876 acres in Switzerland County,  Indiana has
been purchased for future plant sites.

       All of the facilities owned by IPL are well-maintained, in good condition
and meet the present needs of IPL.

       The Mortgage  and Deed of Trust of IPL,  together  with the  Supplemental
Indentures thereto (the "Mortgage"),  secure first mortgage bonds issued by IPL.
Pursuant to the terms of the Mortgage,  substantially  all property owned by IPL
is subject to a direct first mortgage lien.

Item 3.       LEGAL PROCEEDINGS
              -----------------

        On  August  18,  1997,  Region V of the U. S.  Environmental  Protection
Agency  issued to IPL a Notice of  Violation  (NOV) under the Clean Air Act. The
NOV alleged that particulate matter emissions from IPL's Perry K Units 11 and 12
exceeded  applicable  limits on three  dates in 1995,  that  particulate  matter
emissions  from Perry K Units 15 and 16 exceeded  applicable  limits on a single
date in each of 1994 and 1995,  and that sulfur dioxide  emissions  exceeded the
applicable  limit on four days in the first quarter of 1997.  IPL disagrees with
the Agency's interpretations of the applicable rules and believes that the Perry
K Plant has been in compliance with applicable  limits.  Representatives  of IPL
met with the Agency on September  24, 1997,  in an attempt to resolve the matter
and have  subsequently  provided the Agency with  additional  information on the
operation  of the  Plant.  If IPL  were  adjudged  to have  violated  applicable
emission limits,  it could be subject to maximum penalties of $27,500 per day of
violation.  While  the  results  of this  proceeding  cannot be  predicted  with
certainty, management, based upon the advice of counsel, believes that the final
outcome will not have a material  adverse effect on the  consolidated  financial
statements.

Item 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              ---------------------------------------------------

        At a special  meeting on October 9, 1997,  an amendment to Article 6A of
the Company's  Amended  Articles of Incorporation  was approved.  This amendment
removed the  limitation  on the issuance of unsecured  indebtedness.  17,206,630
shares  of the  Company's  common  stock  were  cast in favor  of the  amendment
representing  100% of the total common stock. Of the 518,985 shares  outstanding
of the Company's  cumulative  preferred stock,  415,337 shares were cast for the
amendment,  2,716 votes were cast against the amendment and 364 shares abstained
from  voting.  Having  received  at least 2/3  approval  of the  holders  of its
cumulative preferred stock, the amendment was duly adopted.

<PAGE>


EXECUTIVE OFFICERS OF THE REGISTRANT AT FEBRUARY 24, 1998

       Name, age (at December 31, 1997),  and positions and offices held for the
past five years:

                                            From                     To
John R. Hodowal (52)
  Chairman of the Board                February, 1990
  Chief Executive Officer              May, 1989

Ramon L. Humke (65)
  President and Chief Operating
    Officer                            February, 1990

John R. Brehm (44)
  Senior Vice President - Finance
    and Information Services           May, 1991

Robert W. Rawlings (56)
  Senior Vice President -
    Electric Production                May, 1991

Bryan G. Tabler (54)
  Senior Vice President -
    Secretary and General Counsel      January, 1995
  Partner, Barnes & Thornburg          January, 1979           October, 1994

Gerald D. Waltz (58)
  Senior Vice President -
    Electric Delivery                  May, 1996
  Senior Vice President -
    Business Development               May, 1991               May, 1996

Paul S. Mannweiler (48)
  Senior Vice President -
    External Affairs                   January, 1997
  Partner, Locke Reynolds Boyd 
    and Weisell                        July, 1980              December, 1996

Max Califar (44)
  Vice President - Human
    Resources                          December, 1992

Steven L. Meyer (39)
  Treasurer                            December, 1992

Stephen J. Plunkett (49)
  Controller                           May, 1991


<PAGE>

                                     PART II
                                     -------

Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
        ------------------------------------------------------------------------

       All common stock of IPL is owned by IPALCO and is not publicly  traded on
any stock exchange.

       Aggregate dividends paid on the common stock were $93.5 million and $83.6
million during 1997 and 1996, respectively.  Dividends were paid on a quarterly
basis during 1996 and on a monthly basis during 1997.

       IPL's Board of Directors declared dividends on common stock of
$25 million on January 27, 1998, and $16 million on February 24, 1998, payable 
February 1, 1998 and March 1, 1998,respectively.

Dividend Restrictions
---------------------

       So long as any of the  several  series of bonds of IPL  issued  under the
Mortgage  and  Deed of  Trust,  dated as of May 1,  1940,  as  supplemented  and
modified,  executed  by IPL to  American  National  Bank and  Trust  Company  of
Chicago, as Trustee,  remain  outstanding,  IPL is restricted in the declaration
and payment of dividends,  or other  distribution on shares of its capital stock
of any class, or in the purchase or redemption of such shares,  to the aggregate
of its net income, as defined in Section 47 of such Mortgage, after December 31,
1939.  The amount which these  Mortgage  provisions  would have permitted IPL to
declare and pay as dividends at December 31, 1996, exceeded retained earnings at
that  date.  Such  restrictions  do not apply to the  declaration  or payment of
dividends  upon any  shares  of  capital  stock of any class to an amount in the
aggregate not in excess of $1,107,155,  or to the application to the purchase or
redemption  of any shares of capital stock of any class of amounts not to exceed
in the aggregate the net proceeds received by IPL from the sale of any shares of
its capital  stock of any class  subsequent  to December 31, 1939.  In addition,
pursuant to IPL's Articles of Incorporation, no dividends may be paid or accrued
and no other  distribution may be made on IPL's common stock unless dividends on
all outstanding shares of IPL preferred stock have been paid or declared and set
apart for payment.  The management of IPL believes these  restrictions  will not
materially restrict anticipated dividends.

<PAGE>

<TABLE>

Item 6. SELECTED FINANCIAL DATA
        -----------------------
<CAPTION>
        

(In Thousands)                                      1997             1996              1995              1994             1993
--------------------------------------------- ---------------   --------------   ---------------   ---------------  ---------------
<S>                                           <C>               <C>              <C>               <C>              <C>    
Total operating revenues (1)                  $      776,427    $     762,503    $      709,206    $      686,076   $      664,303
Operating income                                     167,315          163,219           147,588           143,310          142,368
Allowance for funds used
   during construction                                 4,407            9,321            11,370             9,381            5,527
Income before cumulative effect
  of accounting change (1)                           133,402          122,588           106,273           103,823          102,766
Cumulative effect of accounting change (1)            18,347                -                 -                 -                -
Net income                                           151,749          122,588           106,273           103,823          102,766
Preferred dividend requirements                        2,760            3,182             3,182             3,182            3,182
Income applicable to
  common stock                                       148,989          119,406           103,091           100,641           99,584
Utility plant - net                                1,766,383        1,787,969         1,792,007         1,711,772        1,608,871
Total assets                                       2,049,772        2,052,400         2,108,816         2,000,380        1,870,306
Construction expenditures                             73,130           78,543           166,874           178,295          145,765
Common shareholder's equity                          835,492          782,249           747,129           725,762          705,149
Nonredeemable cumulative
  preferred stock                                      9,135           51,898            51,898            51,898           51,898
Long-term debt (less current
  maturities and sinking
  fund requirements)                                 627,840          627,791           669,000           654,121          532,260


    See financial statements.

(1) In 1997,  IPL  adopted  the  unbilled  revenues  method  of  accounting  for
    electricity and steam delivered during the period.  Revenues are accrued for
    services  provided  but unbilled at the end of each month (see Note 3 in the
    Notes to Financial Statements).

</TABLE>
<PAGE>

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

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

       In connection with the safe harbor  provisions of the Private  Securities
Litigation  Reform Act of 1995 (the Reform Act), IPL is hereby filing cautionary
statements  identifying  important factors that could cause IPL's actual results
to differ materially from those projected in forward-looking  statements of IPL.
This Form 10-K, and particularly Management's Discussion and Analysis,  contains
forward-looking  statements,  and many of these statements are contained in this
Item  7  under  the  section,  "Future  Performance."  The  Reform  Act  defines
forward-looking  statements as statements  that express an expectation or belief
and contain a projection, plan or assumption with regard to, among other things,
future  revenues,   income,  earnings  per  share  or  capital  structure.  Such
statements  of  future  events  or  performance  are not  guarantees  of  future
performance  and  involve  estimates,  assumptions,  and  uncertainties  and are
qualified  in their  entirety  by  reference  to,  and are  accompanied  by, the
following  important  factors  that could cause IPL's  actual  results to differ
materially  from those  contained in  forward-looking  statements  made by or on
behalf  of  IPL.  The  words  "anticipate",   "believe",  "estimate",  "expect",
"forecast",  "project",  "objective"  and similar  expressions  are  intended to
identify forward-looking statements

       Some important  factors that could cause IPL's actual results or outcomes
to differ  materially  from those  discussed in the  forward-looking  statements
include,  but are not limited to,  fluctuations  in customer  growth and demand,
weather,  fuel costs and  availability,  regulatory  action,  Federal  and State
legislation, interest rates, labor strikes, maintenance and capital expenditures
and local economic conditions.  In addition,  IPL's ability to have available an
appropriate  amount of production  capacity in a timely manner can significantly
impact IPL's financial performance.  The timing of deregulation and competition,
product  development and introductions of technology  changes are also important
potential factors.

       All such factors are difficult to predict,  contain  uncertainties  which
may materially affect actual results and are beyond the control of IPL.

LIQUIDITY AND CAPITAL RESOURCES

                   Nature of Operations and Regulatory Matters
                   -------------------------------------------
Regulation
----------

       IPL is a regulated public utility and is principally engaged in providing
electric and steam service to the Indianapolis metropolitan area. As a regulated
entity,  IPL is  required  to  use  certain  accounting  methods  prescribed  by
regulatory bodies which may differ from those accounting  methods required to be
used by nonregulated entities (see Note 1 in the Notes to Financial Statements).

Electric Rate Settlement Agreement
----------------------------------

       On August 24, 1995,  the Indiana  Utility  Regulatory  Commission  (IURC)
issued an order  approving,  without  amendment,  a Stipulation  and  Settlement
Agreement  (Settlement  Agreement)  resolving  all issues in IPL's then  pending
electric general rate  proceeding.  The Settlement  Agreement  authorized IPL to
increase its basic rates and charges for electric service in two steps, to begin
the amortization of certain regulatory assets and approved IPL's plan to expense
and to fund its annual  postretirement  benefits.  These  issues  are  discussed
further in Notes 1, 5, 10 and 12 in the Notes to  Financial  Statements.
<PAGE>

Demand Side Management Agreement
--------------------------------

       On July 30, 1997, the IURC issued an order approving,  without amendment,
a new settlement  agreement for IPL's DSM program. The new agreement resulted in
a reduction  in required DSM  expenditures,  authorization  to amortize  certain
deferred DSM regulatory assets and the recovery of certain  additional DSM costs
through a tracker (see Note 10 in the Notes to Financial Statements).

Authorized Annual Operating Income
----------------------------------

       During quarterly fuel adjustment clause proceedings, the annual operating
income of IPL's  electric and steam  businesses  is subject to review.  Customer
refunds could result if actual annual operating income exceeds levels authorized
by the IURC  (see  Note 1 in the Notes to  Financial  Statements).  IPL does not
anticipate any customer refunds to result from such reviews during 1998.

Optional Pricing and Service Plan
---------------------------------

       During 1997, IPL filed with the IURC a plan that, if approved, will allow
IPL to offer  customers with less than 2,000  kilowatts of demand an opportunity
to choose from three new payment  options.  This plan would allow  eligible  IPL
customers to enter into written agreements for:

      Fixed Rate - Pay a guaranteed fixed rate per unit of consumption for up to
        three years.
      Green Power - Purchase  environmentally  friendly or "green" power.

Additionally,  residential customers may choose a "Sure Bill" option, paying the
same bill amount each month for 12 months  regardless of how much electricity is
used. All customers may also opt to continue  paying for electricity in the same
way as in the past.

       In January,  1998,  a  Settlement  Agreement  between IPL and the parties
intervening in this filing was reached, and subsequently filed with the IURC. If
approved by the IURC, IPL can begin to offer the option programs.

                        Competition and Industry Changes
                        --------------------------------

       In  recent  years,  various  forms  of  proposed  industry  restructuring
legislation  and/or rulemakings have been introduced at the federal level and by
some  states.  Generally,  the intent of these  initiatives  is to  encourage an
increase in competition  within the regulated  electric utility industry.  While
federal  rulemaking to date has addressed  only the electric  wholesale  market,
various state  legislatures  are  considering or have enacted new laws impacting
the retail energy markets within their  respective  states.  A discussion of the
legislative and regulatory initiatives most likely to impact IPL follows:

Wholesale Energy Market
-----------------------

       In April 1996, the Federal  Energy  Regulatory  Commission  (FERC) issued
Orders 888 and 889  concerning  open access  transmission  service for wholesale
sales.  These orders require all utilities under FERC  jurisdiction  to: 1. file
open,  nondiscriminatory   transmission  access  tariffs  with  FERC;  2.  offer
transmission   to  eligible   customers   comparable  to  service  they  provide
themselves;  and 3. take service under the tariffs for their own wholesale sales
and purchases of  electricity.  FERC order 888 also provides for the recovery of
utility  stranded  costs.  Stranded  cost is defined  by FERC as the  difference
between  revenues  received  by  utilities  under  traditional   ratemaking  and
market-based prices.
<PAGE>

       IPL  requested  and was initially  denied a waiver from  compliance  with
orders 888 and 889. On October 11, 1996,  IPL was granted a stay by FERC pending
disposition of its request for rehearing.  IPL requested a waiver because, among
other reasons,  the estimated costs of compliance are expected to exceed revenue
derived from its transmission service for others.

Retail Energy Market
--------------------

       The legislatures of a few states have enacted,  and many other states are
considering,  new laws that would allow  various  forms of  competition,  at the
retail level,  for the energy  requirements of electric  consumers  within their
respective states. While each state proposal is different, most provide for some
recovery of a utility's stranded costs and require an extended transition period
before the intended full  competition is fully  effective.  Additionally,  a few
states have  implemented  pilot "limited direct access" programs that experiment
with allowing some form of customer choice of electricity suppliers.

       In Indiana,  competition  among electric  energy  providers for sales has
primarily  focused on the  wholesale  power markets or the sale of bulk power to
other  public  and  municipal  utilities.  Existing  Indiana  law  provides  for
electricity suppliers to have an exclusive retail service area.

       In  1995,  the  Indiana   General   Assembly,   anticipating   increasing
competitive  forces in the regulated public utility  industry,  enacted into law
legislation  codified at I.C.  8-1-2.5 and commonly  referred to as "Senate Bill
637." This new law enables the IURC to consider  and approve,  on an  individual
utility basis,  utility company  initiated  proposals  providing  nontraditional
forms of determining  customer  tariffs.  The IPL "Optional  Pricing and Service
Plan" presently under consideration by the IURC was filed under this law.

       During 1997, the Indiana General Assembly  authorized a legislative study
committee to assess the issue of electric utility competition and restructuring.
A comprehensive restructuring bill was introduced in the Indiana Senate in 1998,
but was subsequently  amended to deal only with authorizing Indiana utilities to
participate in a transmission  independent  system operator  organization.  This
bill failed to pass the Senate.

IPL's Position on Industry Deregulation
---------------------------------------

       In general,  the  foregoing  FERC  wholesale  and  state-by-state  retail
initiatives are inconsistent with IPL beliefs. IPL favors federal legislation to
deregulate  the industry for all companies and all customers  across the country
at the same time.  IPL believes that  customers,  particularly  residential  and
small  businesses,  are best served by the creation of large,  diverse  markets.
Such markets enable the  development of residential  aggregators who can deliver
the same benefits of volume  purchasing to residential  customers as are enjoyed
by large  industrial  customers.  IPL  advocates  a  single,  nondistance  based
transmission  access price over wide geographic  areas to maximize  competition;
turning over transmission  system operation to an independent system operator to
avoid  gamesmanship  by  incumbents  who own both  transmission  and  generation
assets;  rejecting the piecemeal  opening of markets in favor of national access
to all markets and  rejecting  recovery of "stranded  costs" due to  competition
because such  recovery  would  subsidize  certain  high-cost  generators  to the
detriment of competition. Absent a comprehensive national approach, IPL believes
state policy makers must recognize and make allowances for the distorted markets
that will inevitably be created by state-by-state approaches.

       There can be no  assurance  as to the  outcome of the debate on  electric
utility industry restructuring. IPL intends to remain competitive in the face of
increasing competition through maintaining its low cost structure and continuing
to serve existing  customers well,  while  accessing the wholesale  market as it
continues to open.
<PAGE>

New Environmental Standards
---------------------------

       On July 16,  1997,  the United  States  Environmental  Protection  Agency
promulgated  final  regulations  which amended the National  Ambient Air Quality
Standards by introducing  standards for fine particulate matter and creating new
ozone  standards.  Existing  sources that cause or contribute  to  nonattainment
regions will likely be subject to additional regulatory requirements,  including
possible emission reductions.  New facilities in nonattainment areas may also be
subject to additional  control  requirements and may be required to offset their
emissions.   Because  power  plants  emit  certain  air  pollutants  that  could
contribute to the formation of ambient ozone and fine particulate matter,  there
is a possibility  that  existing IPL sources will be required to be  retrofitted
with additional air pollution controls in the future. Congressional intervention
and/or   litigation   regarding  the  standards  are  probable.   Due  to  these
uncertainties,  it is not presently  possible to predict the  potential  impacts
associated with implementation of these standards on IPL's facilities.

Year 2000 System Requirements
-----------------------------

       IPL is  performing  an  analysis  of its  systems  and  is  working  with
suppliers  and service  organizations  with whom we interact  electronically  in
order to  determine  the  impact of year 2000  issues.  Management  is unable to
predict  at this  time the full  impact  year  2000  issues  will  have on IPL's
operations or future financial  condition.  Management  presently estimates that
the total cost of  required  changes to systems  owned or  controlled  by IPL to
allow for year 2000 issues should not exceed $3 million.

           Liquidity, Financing Requirements and Capital Market Access
           -----------------------------------------------------------

       Liquidity  is the  ability  of an  entity  to  meet  its  short-term  and
long-term cash needs.  IPL's  liquidity is a function of its ability to generate
internal  funds,  its  construction  program,  its mortgage  covenants  and loan
agreements and its access to external capital markets.

       Sustaining investment grade debt ratings is also a key element for having
adequate  liquidity and financial  flexibility.  As of December 31, 1997,  IPL's
senior secured debt was rated AA- by Standard & Poor's,  Aa2 by Moody's Investor
Services and AA by Duff & Phelps,  and IPL's  commercial paper was rated A-1+ by
Standard & Poor's and P-1 by Moody's Investor  Services.  IPL expects to be able
to maintain investment grade debt ratings into the foreseeable future.

       IPL has no  long-term  debt which  matures  during 1998.  However,  other
existing  higher-rate debt may be refinanced  depending upon market  conditions.
See the following section for discussion of the construction program.

       IPALCO  purchased  shares of IPL's  preferred  stock on October 17, 1997,
pursuant to the terms of a tender offer  concluded  October 8, 1997. Such shares
were subsequently  purchased from IPALCO by IPL at cost and canceled. On October
28, 1997,  the Board of Directors of IPL called for  redemption of all remaining
shares of IPL's 6.0% and 8.2% Cumulative  Preferred Stock issued and outstanding
on December 15, 1997, at a price per share, payable to shareholders of record of
$102 and $101, respectively, together with dividends accrued through the date of
redemption.

       On January 13, 1998, IPL issued $50 million of Cumulative Preferred Stock
with a rate of 5.65%.  The stock will be  redeemable  at par  value,  subject to
certain  restrictions,  in whole or in part,  at any time on or after January 1,
2008, at the option of IPL.
<PAGE>

       During  the  next  five  years,  IPL  is  forecasted  to  meet  its  cash
requirements  without  any  additional  permanent  financing.  Cash  flows  from
operations  and temporary  short-term  borrowings  are forecasted to provide the
funds  required for IPL's  construction  program and the  retirement of maturing
long-term debt.

                               Future Performance
                               ------------------

IPL  expects  operating  revenue  growth  based on a  projected  five-year  2.3%
forecasted  compound  annual  increase in retail KWH sales and increasing  sales
opportunities in the wholesale power market.

       The 2.3% annual KWH sales  growth  estimate  compares to growth rates IPL
actually  achieved of 2.2% and 2.2% for the periods  1992  through 1997 and 1987
through 1997,  respectively,  weather adjusted. The Indianapolis economy grew at
annual  rates of 2.7% and 2.6% for those same  periods  and is  expected to grow
2.4% from 1997 through 2002.

       Operating  and  maintenance  expenses  were  $399.5  million in 1997.
These  expenses in 1998 will be  influenced  by inflation, as well as ongoing
cost controls.                  .

       IPL's  construction  program  for  the  three-year  period  1998-2000  is
estimated to cost $237.2  million  including  AFUDC.  The estimated  cost of the
program  by year (in  millions)  is $102.2  in 1998,  $69.4 in 1999 and $65.6 in
2000. It includes $149.1 million for additions,  improvements  and extensions to
transmission  and  distribution  lines,  substations,  power  factor and voltage
regulating   equipment,    distribution   transformers   and   street   lighting
distribution. At December 31, 1997, IPL had completed installation of all of its
Environmental Compliance Plan facilities.

       IPL will amortize  approximately  $35.4 million of its  nontax-regulatory
assets at December 31, 1997, over the next three years.

                                      Other
                                      -----

Cumulative Effect of Accounting Change
--------------------------------------

       On December 31, 1997, effective January 1, 1997, IPL adopted the unbilled
revenues  method of accounting  for all electric and steam sales to more closely
match revenues with expenses.  Under this method,  IPL accrues  revenues for all
electric and steam  energy  delivered  to  customers  during the period  whether
billed or not.  Previously IPL recognized  these revenues only as customers were
billed,  with the service rendered after monthly meter reading dates through the
end of a calendar month recognized as operating revenues in the following month.
The cumulative effect of this change in accounting method as of January 1, 1997,
net of income  taxes,  is a one-time  income  increase  of $18.3  million and is
reported as a separate  component of net income for 1997. This accounting change
does not impact IPL's cash flow or  liquidity  (see Note 3 of Notes to financial
statements for additional information concerning this accounting change).

Preferred Stock, Debt Issuance  and Dividend Restrictions
---------------------------------------------------------

       IPL is limited in its ability to issue certain securities by restrictions
under its  Mortgage  and Deed of Trust  (Mortgage)  and its Amended  Articles of
Incorporation  (Articles).  The restriction under the Articles requires that the
net income of IPL,  as  specified  therein,  shall be at least one and  one-half
times  the  total  interest  on the  funded  debt  and  the pro  forma  dividend
requirements  on the  outstanding  preferred  stock and on any  preferred  stock
proposed to be issued,  before any additional preferred stock can be issued. The
Mortgage restriction requires that net earnings as calculated  thereunder be two
and one-half times the annual interest  requirements before additional bonds can
be authenticated on the basis of property additions. Based on IPL's net earnings
for the 12 months ended December 31, 1997, the ratios under the Articles and the
Mortgage are 5.03 and 10.68, respectively.  IPL believes these requirements will
not  restrict  any  anticipated  future  financings  (see Note 6 in the Notes to
Financial  Statements).  At December  31,  1997,  and  considering  all existing
restrictions,  IPL had the  capacity  to issue  approximately  $1.1  billion  of
additional long-term debt.

<PAGE>

RESULTS OF OPERATIONS

       Income  applicable  to common stock  increased  by $29.6  million in 1997
compared to 1996.  Income  applicable to common stock increased by $16.3 million
in 1996  compared  to 1995.  The  following  discussion  highlights  the factors
contributing to these increases.

       The 1997 income applicable to common stock includes a one-time cumulative
effect adjustment of $18.3 million, net of taxes, resulting from IPL's change to
the unbilled revenue method of accounting.  The 1997 income applicable to common
stock also  includes a $5.7 million ($3.5  million,  net of taxes) gain from the
sale of a  retired  plant  site  (see  Notes 2 and 3 in the  Notes to  Financial
Statements).

Operating Revenues
------------------

       Operating  revenues  in 1997  and  1996  increased  from  the  prior 
year by  $13.9  million  and by $53.3 million, respectively.  The increases in
revenues resulted from the following:



                                                    Increase (Decrease)
                                                    -------------------
                                             1997 over 1996    1996 over 1995
                                             --------------    --------------
                                                   (Millions of Dollars)
Electric:
    
     Increase in retail basic rates              $  12.7          $  40.8
     Change in retail KWH sales - net of fuel       (7.4)             9.3
     Fuel revenue                                   (4.7)            (8.7)
     Wholesale revenue                               8.6              6.6
     DSM tracker revenue                             1.3              2.4
Steam revenue                                         .6              1.9
Other revenue                                        2.8              1.0
                                                 -------          -------
     Total change in operating revenues          $  13.9          $  53.3
                                                 =======          =======


       The  increase  in  retail  basic  rates  is the  result  of new  tariffs,
effective  July 1, 1996, and September 1, 1995,  designed to produce  additional
annual base revenues of $25 million and $35 million,  respectively. The decrease
in retail KWH sales in 1997  reflects a decrease in cooling  and heating  degree
days in 1997,  compared to 1996, due to milder weather.  During 1996, retail KWH
sales increased as a result of customer growth and the net impact of weather. In
both years, total KWH sales,  including wholesale KWH sales,  increased.  Actual
and percentage  changes in electric  customers and in heating and cooling degree
days for these periods are as follows:

                                                Increase (Decrease)
                                                -------------------
                                    1997 over 1996             1996 over 1995
                                    --------------             --------------

Electric Residential Customers      4,657      1.3%           4,866      1.3%
Commercial & Industrial Customers   1,048      2.4%             722      1.7%

Heating Degree Days                  (203)    (3.4)%            315      5.7%
Cooling Degree Days                  (121)   (12.2)%           (223)   (18.4)%

       The changes in fuel revenues in 1997 and 1996 from the prior year reflect
decreases in fuel costs billed customers.  The changes in wholesale  revenues in
1997  and  1996  reflect  increased   wholesale  marketing  efforts  and  energy
requirements  of other  utilities in those years.  The changes in other revenues
represent increased service revenues.

<PAGE>

Utility Operating Expenses
--------------------------

       Fuel expense increased  slightly in 1997 while decreasing in 1996 by $4.9
million from the prior years.  The 1997 increase was due to increased  total KWH
sales.  The decrease in 1996 was due to decreased  unit costs of coal and oil of
$9.7 million and  decreased  deferred  fuel expense of $2.5  million,  partially
offset by increased fuel consumption of $7.3 million.

       Other  operating  expenses in 1997 and 1996 increased from the prior year
by $6.1  million and by $20.8  million,  respectively.  The increase in 1997 was
primarily due to increased  administrative  and general  expense of $6.0 million
resulting from increased  outside services and labor costs. Also contributing to
the 1997 increase was increased  amortization  of Demand Side  Management  (DSM)
program expenses of $2.3 million  partially  offset by decreased  expense at the
production plants. The increase during 1996 was due to increased  administrative
and general  expenses of $13.5 million  resulting  from  postretirement  benefit
expenses   recognized  since  the  1995  electric  rate  order.   Other  factors
contributing  to  increased  other  operating  expenses  in 1996 were  increased
electric plant operations of $4.0 million, increased amortization of DSM program
expenses of $1.2 million,  increased  uncollectible expenses of $1.3 million and
increased  electric  distribution  operating expense of $1.2 million,  partially
offset by $2.0 million of gain from the sale of emission allowances.

       Power purchased decreased in 1997 compared to 1996 by $10.5 million. This
decrease was primarily due to reduced  demand charges as a result of a new power
purchase contract that became effective in May 1997.

       Maintenance  expenses  increased by $8.9 million  during 1997 and by $4.8
million  during 1996.  The increase in 1997 was  primarily due to an overhaul of
Unit 3 at  Petersburg,  as well as  repairs  to Unit 7 at the Stout  plant.  The
increase  for 1996  maintenance  expenses  was mostly due to  increased  planned
outage expenses of $4.6 million for Unit 3 at IPL's Petersburg generating plant.

       Depreciation and amortization expense increased in 1997 and 1996 from the
prior year by $.5  million  and by $1.8  million,  respectively.  These  changes
resulted primarily from increases in the depreciable utility plant balances, the
1995 electric rate order and  adjustments  to spare parts  inventory in 1997 and
1996.  Depreciable  utility  plant  reflects  the  addition  of new SO2  removal
facilities at IPL's Petersburg generating plant in June 1996. Adjustments of $.6
million  and $4.5  million  were made in 1997 and 1996,  respectively,  to spare
parts inventory  resulting from the recognition of impairment in value of excess
spare parts.

       Taxes  other  than  income  taxes  decreased  $.3  million in 1997 due to
decreased  property  and gross  income  taxes.  During  1996,  these other taxes
increased $1.7 million due primarily to an increase in property and gross income
taxes.

       Income  taxes - net,  increased  in both  1997 and 1996  from the  prior
years by $5.1  million  and  $13.7  million, respectively.  These changes
reflect increases in pretax operating income.

Other Income And Deductions
---------------------------

       Allowance  for equity  funds used during  construction  decreased by $2.5
million in 1997, while remaining unchanged in 1996. In 1997, the amortization of
deferred  carrying charges on a plant asset ended, and carrying charges on other
regulatory assets decreased $1.2 million.
<PAGE>

       Other - net, which includes the non-operating  income from IPL, increased
by $7.0  million and  decreased  by $0.5 million from the prior year during 1997
and 1996, respectively.  The change during 1997 was due to a $5.7 million pretax
gain from the sale of a retired plant site. Also contributing to the increase in
other - net in 1997 was an increase in net revenues  for  contract  work by IPL.
The decrease in 1996 was due to decreased non-operating income at IPL.

Interest Charges
----------------

       Interest  on  long-term  debt  decreased  by $4.6  million  in  1997  and
decreased by $2.2 million in 1996 from the prior year.  The decrease in interest
expense  for 1997 was due to the  redemption  of $15  million  5 1/8%  Series in
April,  1996,  $50 million 9 5/8% Series in December,  1996 and $11.3  million 5
5/8% Series in May, 1997,  partially offset by the issuance of $20 variable rate
notes in November 1996.  Partially  offsetting the decreased interest from these
redemptions was the issuance of $20 million variable rate bonds. The decrease in
1996 was due to the  refinancing of two of the higher rate First Mortgage Bonds,
10 5/8% Series and 9 5/8% Series in 1995, with debt  instruments  carrying lower
interest rates.

       Other  interest  charges  decreased by $2.4 million  during 1997 from the
prior year and  decreased by $1.1 million  during 1996 from the prior year.  The
decreases  during 1997 and 1996 were primarily due to decreased  short-term debt
borrowings.
Also contributing to the 1996 decrease were decreased interest rates.

       As compared to the prior year,  the  allowance  for  borrowed  funds used
during  construction  decreased  in 1997  and 1996 by $2.4  million  and by $2.0
million,  respectively.  These  decreases  reflect  a  comparable  change in the
construction  base in those  years,  as well as  decreased  carrying  charges on
regulatory assets in 1996.

Cumulative Effect of Accounting Change
--------------------------------------

       A cumulative  effect of accounting change in the amount of $18.3 million,
net of taxes, was recorded during 1997.  Effective  January 1, 1997, IPL adopted
the unbilled  revenues  method of accounting for electricity and steam delivered
during the period.  Revenues are accrued for  services  provided but unbilled at
the end of each month (see Note 3 in the Notes to Financial Statements).

New Accounting Pronouncements
-----------------------------

       The  Financial  Accounting  Standards  Board has issued  Statements 130
and 131 that IPL will be required to adopt in future periods (see Note 1 in the
Notes to Financial Statements).



<PAGE>

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
           -------------------------------------------



                          INDEPENDENT AUDITORS' REPORT
                          ============================


To the Board of Directors of Indianapolis Power & Light Company:

We have audited the  accompanying  balance sheets of Indianapolis  Power & Light
Company as of December 31, 1997 and 1996, and the related  statements of income,
retained earnings and cash flows for each of the three years in the period ended
December 31, 1997.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the financial  position of  Indianapolis  Power & Light Company as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended  December 31, 1997 in conformity
with generally accepted accounting principles.

As  discussed  in Note 3 to the  financial  statements,  in 1997 the Company
changed its method of  accounting  for unbilled revenue.



Deloitte & Touche LLP

Indianapolis, Indiana
January 23, 1998
<PAGE>
<TABLE>

                                            INDIANAPOLIS POWER & LIGHT COMPANY

                                                   Statements of Income
                                   For the Years Ended December 31, 1997, 1996 and 1995
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------

                                                                                 1997             1996             1995
---------------------------------------------------------------------------------------------------------------------------
                                                                                             (In Thousands)
OPERATING REVENUES (Note 10):
<S>                                                                         <C>              <C>              <C>         
  Electric                                                                  $    738,134     $    724,764     $    673,388
  Steam                                                                           38,293           37,739           35,818
                                                                            -------------    -------------    -------------
    Total operating revenues                                                     776,427          762,503          709,206
                                                                            -------------    -------------    -------------

OPERATING EXPENSES:
  Operation:
    Fuel                                                                         164,578          164,339          169,206
    Other                                                                        143,311          137,192          116,428
  Power purchased                                                                  7,833           18,365           19,102
  Purchased steam                                                                  7,075            7,240            6,680
  Maintenance                                                                     76,679           67,768           63,013
  Depreciation and amortization                                                  103,230          102,769          100,984
  Taxes other than income taxes                                                   33,071           33,363           31,706
  Income taxes - net (Note 9)                                                     73,335           68,248           54,499
                                                                            -------------    -------------    -------------
    Total operating expenses                                                     609,112          599,284          561,618
                                                                            -------------    -------------    -------------
OPERATING INCOME                                                                 167,315          163,219          147,588
                                                                            -------------    -------------    -------------

OTHER INCOME AND (DEDUCTIONS):
  Allowance for equity funds used during construction                              3,462            5,967            6,003
  Other - net                                                                      4,507           (2,527)          (2,020)
  Income taxes - net (Note 9)                                                     (1,105)             982              931
                                                                            -------------    -------------    -------------
    Total other income - net                                                       6,864            4,422            4,914
                                                                            -------------    -------------    -------------
INCOME BEFORE INTEREST CHARGES                                                   174,179          167,641          152,502
                                                                            -------------    -------------    -------------

INTEREST CHARGES:
  Interest on long-term debt                                                      38,809           43,425           45,656
  Other interest                                                                   1,243            3,638            4,728
  Allowance for borrowed funds used during construction                             (945)          (3,354)          (5,367)
  Amortization of redemption premiums and expenses on
    debt - net                                                                     1,670            1,344            1,212
                                                                            -------------    -------------    -------------
    Total interest charges                                                        40,777           45,053           46,229
                                                                            -------------    -------------    -------------

INCOME BEFORE CUMULATIVE EFFECT
   OF ACCOUNTING CHANGE                                                          133,402          122,588          106,273
                                                                            -------------    -------------    -------------

CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3)                                   18,347                -                -
                                                                            -------------    -------------    -------------

NET INCOME                                                                       151,749          122,588          106,273
                                                                            -------------    -------------    -------------

PREFERRED DIVIDEND REQUIREMENTS                                                    2,760            3,182            3,182
                                                                            -------------    -------------    -------------

INCOME APPLICABLE TO COMMON STOCK                                           $    148,989     $    119,406     $    103,091
                                                                            =============    =============    =============


See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>


                                         INDIANAPOLIS POWER & LIGHT COMPANY

                                                   Balance Sheets
                                             December 31, 1997 and 1996
<CAPTION>
----------------------------------------------------------------------------------------------------------------------

ASSETS                                                                            1997                      1996
----------------------------------------------------------------------------------------------------------------------
                                                                                          (In Thousands)

UTILITY PLANT:
<S>                                                                       <C>                        <C>             
  Utility plant in service (Note 2)                                       $       2,800,446          $      2,763,305
  Less accumulated depreciation                                                   1,121,317                 1,048,492
                                                                          ------------------         -----------------
      Utility plant in service - net                                              1,679,129                 1,714,813
  Construction work in progress                                                      77,030                    63,243
  Property held for future use                                                       10,224                     9,913
                                                                          ------------------         -----------------
      Utility plant - net                                                         1,766,383                 1,787,969
                                                                          ------------------         -----------------




OTHER PROPERTY -
  At cost, less accumulated depreciation                                              5,171                     5,799
                                                                          ------------------         -----------------




CURRENT ASSETS:
  Cash and cash equivalents                                                           4,950                     8,840
  Accounts receivable and unbilled revenue (less allowance for doubtful
    accounts - 1997, $1,005,000 and 1996, $907,000) (Note 3)                         43,053                     6,710
  Receivable from parent                                                                  -                     1,182
  Fuel - at average cost                                                             35,000                    30,121
  Materials and supplies - at average cost                                           47,648                    52,027
  Prepayments and other current assets                                                8,486                     9,612
                                                                          ------------------         -----------------
      Total current assets                                                          139,137                   108,492
                                                                          ------------------         -----------------




DEFERRED DEBITS:
  Regulatory assets (Note 5)                                                        126,784                   137,974
  Miscellaneous                                                                      12,297                    12,166
                                                                          ------------------         -----------------
      Total deferred debits                                                         139,081                   150,140
                                                                          ------------------         -----------------


      TOTAL                                                               $       2,049,772          $      2,052,400
                                                                          ==================         =================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>


<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------

CAPITALIZATION AND LIABILITIES                                                           1997                        1996
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                  (In Thousands)

CAPITALIZATION (See Notes 6 and 7):
  Common shareholder's equity
<S>                                                                              <C>                         <C>
    Common stock, no par, authorized - 20,000,000 shares, issued and outstanding
      - 17,206,630 shares in 1997, 17,206,630 shares in 1996
                                                                                 $         324,537           $         324,537
    Premium and net gain on preferred stock                                                  2,329                       1,363
    Retained earnings                                                                      508,626                     456,349
                                                                                 ------------------          ------------------
      Total common shareholder's equity                                                    835,492                     782,249
  Cumulative preferred stock (Note 6)                                                        9,135                      51,898
  Long-term debt (Note 7)                                                                  627,840                     627,791
                                                                                 ------------------          ------------------
        Total capitalization                                                             1,472,467                   1,461,938
                                                                                 ------------------          ------------------



CURRENT LIABILITIES:
  Notes payable - banks and commercial paper (Note 8)                                       23,700                      34,000
  Current maturities and sinking fund requirements (Note 7)                                      -                      11,250
  Accounts payable and accrued expenses                                                     63,970                      56,537
  Dividends payable                                                                         13,290                      21,910
  Taxes accrued                                                                             18,674                      19,621
  Interest accrued                                                                          13,258                      13,301
  Other current liabilities                                                                 12,556                      14,519
                                                                                 ------------------          ------------------
      Total current liabilities                                                            145,448                     171,138
                                                                                 ------------------          ------------------




DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
  Deferred income taxes - net (Note 9)                                                     325,386                     304,854
  Unamortized investment tax credit                                                         44,783                      47,722
  Accrued postretirement benefits (Note 12)                                                 17,144                      23,635
  Accrued pension benefits (Note 11)                                                        39,821                      37,283
  Miscellaneous                                                                              4,723                       5,830
                                                                                 ------------------          ------------------
      Total deferred credits and other long-term liabilities                               431,857                     419,324
                                                                                 ------------------          ------------------

COMMITMENTS AND CONTINGENCIES (Note 14)

      TOTAL                                                                      $       2,049,772           $       2,052,400
                                                                                 ==================          ==================

See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>


                                          INDIANAPOLIS POWER & LIGHT COMPANY

                                               Statements of Cash Flows
                                 For the Years Ended December 31, 1997, 1996 and 1995

<CAPTION>
-----------------------------------------------------------------------------------------------------------------------

                                                                              1997             1996            1995
-----------------------------------------------------------------------------------------------------------------------
                                                                                         (In Thousands)
CASH FLOWS FROM OPERATIONS:
<S>                                                                      <C>             <C>              <C>         
  Net income                                                             $    151,749    $     122,588    $    106,273
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation and amortization                                              98,908           97,313          99,300
    Amortization of regulatory assets                                          15,405           17,680           6,748
    Deferred income taxes and investment tax credit adjustments - net          12,669            3,195          (4,564)
    Allowance for funds used during construction                               (4,407)          (9,321)        (11,370)
    Cumulative effect of accounting change - before taxes (Note 3)            (29,915)               -               -
    Premiums on redemptions of debt                                                 -           (3,128)         (2,506)
    Change in certain assets and liabilities:
     Accounts receivable - excluding cumulative effect
         of accounting change                                                  (5,246)          49,260          (9,174)
      Fuel, materials and supplies                                               (500)           4,293           6,362
      Accounts payable                                                          7,433          (16,516)          4,199
      Taxes accrued                                                              (947)             598           2,236
      Accrued pension benefits                                                  2,538            5,449           4,731
      Other - net                                                             (17,337)         (17,177)          3,978
                                                                         -------------   --------------   -------------
Net cash provided by operating activities                                     230,350          254,234         206,213
                                                                         -------------   --------------   -------------

CASH FLOWS FROM INVESTING:
  Construction expenditures                                                   (73,130)         (78,543)       (166,874)
  Other                                                                        (1,528)         (13,488)        (20,307)
                                                                         -------------   --------------   -------------
Net cash used in investing activities                                         (74,658)         (92,031)       (187,181)
                                                                         -------------   --------------   -------------

CASH FLOWS FROM FINANCING:
  Issuance of long-term debt                                                        -           20,000         110,000
  Retirement of long-term debt                                                (11,250)         (65,150)        (80,350)
  Preferred stock redemptions (Note 6)                                        (41,814)               -               -
  Short-term debt - net                                                       (10,300)         (31,022)         38,622
  Dividends paid                                                              (96,247)         (86,811)        (84,471)
  Other                                                                            29             (365)           (683)
                                                                         -------------   --------------   -------------
Net cash used in financing activities                                        (159,582)        (163,348)        (16,882)
                                                                         -------------   --------------   -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           (3,890)          (1,145)          2,150
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                  8,840            9,985           7,835
                                                                         -------------   --------------   -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                 $      4,950    $       8,840    $      9,985
                                                                         =============   ==============   =============


-----------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: Cash paid during the year for:

    Interest (net of amount capitalized)                                 $     39,837    $      45,339    $     46,792
                                                                         =============   ==============   =============
    Income taxes                                                         $     75,621    $      67,979    $     53,049
                                                                         =============   ==============   =============

See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>


                                              INDIANAPOLIS POWER & LIGHT COMPANY

                                                Statements of Retained Earnings
                                     For the Years Ended December 31, 1997, 1996 and 1995
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------

                                                                                 1997                1996               1995
--------------------------------------------------------------------------------------------------------------------------------
                                                                                               (In Thousands)


<S>                                                                         <C>                <C>                 <C>         
RETAINED EARNINGS AT BEGINNING OF YEAR                                      $    456,349       $     421,229       $    399,862
NET INCOME                                                                       151,749             122,588            106,273
                                                                              -----------         -----------        -----------
    Total                                                                        608,098             543,817            506,135

DEDUCT:
  Cash dividends declared:
    Cumulative preferred stock - at prescribed
      rate of each series (See Note 6)                                             2,760               3,182              3,182
    Common stock                                                                  96,712              84,286             81,724
                                                                            -------------      --------------      -------------
    Total                                                                         99,472              87,468             84,906
                                                                            -------------      --------------      -------------

RETAINED EARNINGS AT END OF YEAR                                            $    508,626       $     456,349       $    421,229
                                                                            =============      ==============      =============

See notes to financial statements.
</TABLE>
<PAGE>


                       INDIANAPOLIS POWER & LIGHT COMPANY
                       ==================================

                          Notes to Financial Statements
              For the Years Ended December 31, 1997, 1996 and 1995
--------------------------------------------------------------------------------

 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

       All the outstanding  common stock of  Indianapolis  Power & Light Company
(IPL) is owned by IPALCO  Enterprises,  Inc. At December 31, 1997 and 1996,  IPL
had a receivable, which is due on demand, for advances made to IPALCO.

       Nature of Operations:  IPL is engaged principally in providing electric
and steam service to the Indianapolis  metropolitan area.

       Concentrations  of Risk:  Substantially all of IPL's business activity is
with customers located within the Indianapolis area. In addition,  approximately
67% of IPL's  employees  are covered by  collective  bargaining  agreements.  On
February 23, 1998, the contract of approximately  25% of those employees covered
by collective bargaining agreements will expire.

       Regulation:  The  retail  utility  operations  of IPL are  subject to the
jurisdiction  of  the  Indiana  Utility  Regulatory   Commission  (IURC).  IPL's
wholesale  power  transactions  are subject to the  jurisdiction  of the Federal
Energy  Regulatory  Commission.  These agencies  regulate IPL's utility business
operations,  tariffs,  accounting,  depreciation allowances,  services, security
issues  and the  sale and  acquisition  of  utility  properties.  The  financial
statements  of IPL  are  based  on  generally  accepted  accounting  principles,
including the provisions of Statement of Financial  Accounting Standards No. 71,
"Accounting  for the  Effects  of  Certain  Types of  Regulation,"  which  gives
recognition to the ratemaking and accounting practices of these agencies.

       Revenues:  Effective  January 1, 1997, IPL adopted the unbilled  revenues
method of  accounting  for electric and steam  delivered  during the period (see
Note 3).  Revenues are accrued for services  provided but unbilled at the end of
each month.

       A fuel adjustment  charge  provision,  which is established  after public
hearing,  is  applicable  to most of the rate  schedules of IPL, and permits the
billing or crediting of estimated fuel costs above or below the levels  included
in such rate  schedules.  Actual fuel costs in excess of or under estimated fuel
costs billed are deferred or accrued, respectively.

       Authorized  Annual  Operating  Income:   Indiana  law  requires  electric
utilities  under the  jurisdiction  of the IURC to meet  operating  expense  and
income  requirements  as a condition  for approval of requested  changes in fuel
adjustment charges.  Additionally,  customer refunds may result if the utilities
rolling 12-month  operating income,  determined at quarterly  measurement dates,
exceeds the utilities'  authorized  annual operating income and cannot be offset
by  applicable   cumulative  net  operating  income  deficiencies.   In  such  a
circumstance,  the required customer refund for the quarterly measurement period
is calculated to be one-fourth of the excess annual  operating income grossed up
for federal and state taxes.

       Effective  July 1,  1996,  IPL's  authorized  annual  electric  operating
income,  for purposes of quarterly  operating income tests, is $163 million,  as
established  in an  IURC  order  dated  August  24,  1995.  This  level  will be
maintained  until changed by an IURC order.  During 1997,  IPL's rolling  annual
electric  operating income was less than the authorized  annual operating income
at each of the quarterly  measurement dates (January,  April, July and October).
At October 31, 1997,  IPL's most recent  quarterly  measurement  date, IPL had a
cumulative  net operating  deficiency of $78.9  million,  of which $39.9 million
expires at varying  amounts  during the period  ending  September  1, 2000.  The
operating  deficiency  is  calculated  by summing the 20 most  recent  quarterly
measurement period results.  As a consequence,  IPL could, for a period of time,
earn above $163 million of electric net operating  income without being required
to make a customer refund.
<PAGE>

       Through  the date of IPL's  next  general  electric  rate  order,  IPL is
required  to file  upward and  downward  adjustments  in fuel cost  credits  and
charges on a quarterly basis, based on changes in the cost of fuel, irrespective
of its level of earnings.

       Pursuant  to an order of the  IURC,  IPL's  authorized  annual  steam net
operating  income is $6.2  million,  plus any  cumulative  annual  underearnings
occurring during the five-year period  subsequent to the  implementation  of the
new rate tariffs.

       Allowance  For Funds Used During  Construction:  In  accordance  with the
prescribed uniform system of accounts,  IPL capitalizes an allowance for the net
cost of funds (interest on borrowed funds and a reasonable rate on equity funds)
used  for  construction  purposes  during  the  period  of  construction  with a
corresponding  credit to income. IPL capitalized  amounts using pretax composite
rates of 9.1%, 7.3% and 8.5% during 1997, 1996 and 1995, respectively.

       Utility Plant and Depreciation:  Utility plant is stated at original cost
as defined for regulatory  purposes.  The cost of additions to utility plant and
replacements of retirement units of property, as distinct from renewals of minor
items which are charged to maintenance,  are charged to plant accounts. Units of
property  replaced or abandoned  in the ordinary  course of business are retired
from the plant accounts at cost; such amounts plus removal costs,  less salvage,
are  charged  to  accumulated  depreciation.  Depreciation  is  computed  by the
straight-line method based on functional rates approved by the IURC and averaged
3.5% during 1997,  3.4% during 1996 and 3.5% during 1995.  Depreciation  expense
for 1997 and 1996 includes  adjustments to spare parts inventory of $0.6 million
and $4.5 million, respectively,  resulting from recognition of the impairment in
value of excess spare parts.  Depreciation expense for 1995 includes adjustments
to property held for future use of approximately $12.3 million.  The adjustments
in 1995 reflect incurred costs of expired  regulatory  permits and for designing
and engineering a future generating station in Patriot, Indiana.

       Sale of Accounts  Receivable:  At December 31, 1997, IPL had sold, on a
revolving basis, an undivided  percentage interest in $50 million of its
accounts receivable.

       Regulatory  Assets:  Regulatory assets represent deferred costs that have
been,  or that are expected to be,  included as allowable  costs for  ratemaking
purposes.  IPL has  recorded  regulatory  assets  relating  to certain  costs as
authorized by the IURC.  Specific  regulatory assets are disclosed in Note 5. As
of December 31, 1997, all nontax-related regulatory assets have been included as
allowable  costs in orders of the IURC (see  Note 10).  IPL is  amortizing  such
regulatory   assets  to  expense  over  periods   authorized  by  these  orders.
Tax-related  regulatory  assets  represent  the  net  income  tax  costs  to  be
considered in future regulatory proceedings generally as the tax related amounts
are paid .

       In accordance  with  regulatory  treatment,  IPL deferred as a regulatory
asset  certain post  in-service  date  carrying  charges and certain other costs
related  to its  investment  in  Petersburg  Unit 4. As  authorized  in the 1995
Electric Rate  Settlement  (see Note 10), IPL,  effective  September 1, 1995, is
amortizing this deferral to expense over a life which generally approximates the
useful life of the related facility.

       Also in accordance  with regulatory  treatment,  IPL defers as regulatory
assets  nonsinking  fund  debt  and  preferred  stock  redemption  premiums  and
expenses,  and amortizes  such costs over the life of the original  debt, or, in
the case of preferred stock redemption premiums, over 20 years.
<PAGE>

       Derivatives:  IPL has only limited involvement with derivative  financial
instruments  and does not use them for trading  purposes.  IPL  entered  into an
interest  rate swap  agreement as a means of managing the interest rate exposure
on one of its debt  facilities.  This  interest rate swap is accounted for under
the accrual method.  Under this method,  the differential to be paid or received
on the interest rate swap agreement is recognized over the life of the agreement
in interest expense.  Changes in market value of the interest swap accounted for
under  the  accrual  method  are not  reflected  in the  accompanying  financial
statements.

       Income Taxes:  Deferred taxes are provided for all significant  temporary
differences  between  book and taxable  income.  The effects of income taxes are
measured based on enacted laws and rates.  Such  differences  include the use of
accelerated depreciation methods for tax purposes, the use of different book and
tax  depreciable  lives,  rates and  in-service  dates and the  accelerated  tax
amortization  of  pollution   control   facilities.   Deferred  tax  assets  and
liabilities are recognized for the expected future tax  consequences of existing
differences  between the financial  reporting and tax reporting  basis of assets
and liabilities.

       IPL has recorded as regulatory  assets and net deferred tax  liabilities,
income taxes payable and includable in allowable  costs for ratemaking  purposes
in future years.

       Investment  tax credits which reduced  federal  income taxes in the years
they arose have been deferred and are being  amortized to income over the useful
lives of the properties in accordance with regulatory treatment.

       IPL participates in a tax sharing agreement with the consolidated  IPALCO
group  which  allocates  taxes as if each  company had filed a return on a stand
alone basis.

       Statements  of Cash Flows - Cash  Equivalents:  IPL  considers all highly
liquid investments  purchased with original  maturities of 90 days or less to be
cash equivalents.

       Employee  Benefit  Plans:  Substantially  all  employees  of IPL are
covered by a defined  benefit  pension  plan, a defined contribution plan and a
group benefits plan.

       The defined benefit pension plan is noncontributory and is funded through
two trusts.  Additionally,  a select  group of  management  employees of IPL are
covered under a funded  supplemental  retirement plan.  Collectively,  these two
plans are  referred  to as the  Plans.  Benefits  are  based on each  individual
employee's  years of  service  and  compensation.  IPL's  funding  policy  is to
contribute  annually not less than the minimum  required by applicable  law, nor
more than the  maximum  amount  which can be  deducted  for  federal  income tax
purposes.

       The  defined  contribution  plan is  sponsored  by IPL as the  Employees'
Thrift Plan of Indianapolis Power & Light Company (Thrift Plan). Employees elect
to make  contributions  to the Thrift Plan based on a percentage of their annual
base compensation.  IPL matches each employee's  contributions in amounts up to,
but not exceeding, 4% of the employee's annual base compensation.

       The  group  benefits  plan  is  sponsored  by IPL  and  provides  certain
health-care  and life insurance  benefits to active  employees and employees who
retire from active  service on or after  attaining  age 55 and have  rendered at
least 10 years of service.  The postretirement  benefit obligations of this plan
are funded through a Voluntary Employee Beneficiary Association (VEBA) Trust.
IPL's policy is to fund the annual actuarially determined postretirement benefit
cost.
<PAGE>

       New  Accounting  Pronouncements:   In  1997,  IPL  adopted  Statement  of
Financial Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers and
Servicing  of  Financial  Assets  and   Extinguishments  of  Liabilities"  which
established  standards for asset and liability recognition when transfers occur.
Adoption  of SFAS 125 had no impact on IPL's  financial  position  or results of
operations.

       In June 1997,  SFAS 130,  "Comprehensive  Income," was issued and becomes
effective in 1998 and requires  reclassification of earlier financial statements
for  comparative  purposes.  SFAS 130  requires  that  changes in the amounts of
certain items, including foreign currency translation  adjustments and gains and
losses on certain securities be shown in the financial statements. SFAS 130 does
not require a specific format for the financial statement in which comprehensive
income  is  reported,  but  does  require  that  an  amount  representing  total
comprehensive  income be reported in that statement.  IPL  anticipates  adopting
this  statement  on  January 1,  1998,  and does not expect  that it will have a
material impact on its financial statements.

       Also in 1997, SFAS 131,  "Disclosures about Segments of an Enterprise and
Related  Information,"  was  issued.  The  statement  will change the way public
companies  report  information  about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly  reports issued to  shareholders.  It also requires  entity-wide
disclosures  about the products and  services an entity  provides,  the material
countries  in  which  it  holds  assets  and  reports  revenues,  and its  major
customers.  SFAS 131 is effective for fiscal years  beginning after December 15,
1997. However, interim reporting of segments is not required until 1999.

       Use of Management  Estimates:  The preparation of financial statements in
conformity  with  generally  accepted   accounting   principles   requires  that
management  make  certain  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.  The reported  amounts of
revenues and expenses  during the  reporting  period may also be affected by the
estimates and  assumptions  management is required to make.  Actual  results may
differ from those estimates.

       Reclassifications: Certain amounts from prior years' financial statements
have been  reclassified to conform to the current year presentation.

2.  UTILITY PLANT IN SERVICE

       The original cost of utility plant in service at December 31, segregated
by functional classifications, follows:

                                            1997                   1996
--------------------------------------------------------------------------------
                                                    (In Thousands)

Production.........................       $1,687,190            $1,684,705
Transmission.......................          237,547               235,218
Distribution.......................          743,251               712,391
General  ..........................          132,458               130,991
                                         -----------           -----------
   Total utility plant in service..       $2,800,446            $2,763,305
                                         ===========           ===========

       Substantially  all of  IPL's  property  is  subject  to the  lien  of the
indentures securing IPL's First Mortgage Bonds.

       In 1997,  IPL retired and sold its CC Perry W Plant site,  including land
and  improvements,  to the state of Indiana White River State Park Commission at
an  approximate  pretax net gain of $5.7  million  included in other  income and
deductions, other net.
<PAGE>

3. CUMULATIVE EFFECT OF ACCOUNTING CHANGE

       In December  1997, IPL changed its method of accounting  (retroactive  to
January 1,  1997) to record  revenues  of all  electricity  and steam  delivered
during the period.  Prior to 1997, IPL  recognized  revenues on a cycle basis as
meters were read. The new accounting method more accurately  reports revenues in
the period in which  electricity and steam is used by customers.  The cumulative
effect of the change in  accounting at January 1, 1997 was $18.3 million (net of
income taxes of $11.2  million and other taxes of $.4  million).  The change had
the effect of decreasing 1997 income before  cumulative effect of the accounting
change by $1.9 million (net of taxes).

       If this method had been applied  retroactively,  net income would have
been $120.4  million and $107.7  million for the years ended December 31, 1996,
and 1995, respectively.

4.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

       The  estimated  fair value  amounts of  financial  instruments  have been
determined by IPL, using available market information and appropriate  valuation
methodologies. However, considerable judgment is required in interpreting market
data  to  develop  the  estimates  of fair  value.  Accordingly,  the  estimates
presented  herein are not  necessarily  indicative of the amounts that IPL could
realize in a current market exchange.  The use of different  market  assumptions
and/or  estimation  methodologies may have an effect on the estimated fair value
amounts.

       Cash, Cash  Equivalents and Notes Payable:  The carrying amount 
approximates  fair value due to the short maturity of these instruments.

       Long-Term   Debt,   Including   Current   Maturities   and  Sinking  Fund
Requirements: Interest rates that are currently available to IPL for issuance of
debt with  similar  terms and  remaining  maturities  are used to estimate  fair
value.  The  variable  rate debt has been  included  at the face amount for both
carrying  amount  and fair  value.  The fair  value of the  interest  rate  swap
agreement has been estimated at $3.3 million and $1.2 million,  which represents
the amount that IPL would have to pay to enter into an  equivalent  agreement at
December 31, 1997, and 1996,  respectively,  with a swap counter party. The fair
value of the debt  outstanding  has been determined on the basis of the specific
securities issued and outstanding.  Accordingly,  the purpose of this disclosure
is not to  approximate  the  value  on  the  basis  of how  the  debt  might  be
refinanced.  At  December  31,  1997,  and 1996,  the  carrying  amount of IPL's
long-term debt, including current maturities and sinking fund requirements,  and
the approximate fair value are as follows:

                                               1997               1996
----------------------------------------------------------------------
                                                    (In Thousands)

Carrying amount                             $627,840          $639,041
Approximate fair value                      $651,620          $644,988


<PAGE>

5.  REGULATORY ASSETS

       The amounts of regulatory  assets at December 31, 1997,  and 1996, are as
follows:
<TABLE>
<CAPTION>

                                                                 1997                 1996
------------------------------------------------------------------------------------------
                                                                        (In Thousands)

<S>                                                         <C>                 <C>        
Related to deferred taxes (Note 1)                          $    44,099         $    39,175
Postretirement benefit costs in excess of cash payments
   and amounts capitalized (Note 12)                             17,152              23,584
Unamortized reacquisition premium on debt (Note 1)               23,751              25,151
Unamortized Petersburg Unit 4 carrying charges
    and certain other costs (Note 1)                             30,228              34,005
Demand side management costs (Note 10)                           10,308              13,841
Other                                                             1,246               2,218
                                                            -----------        ------------
      Total regulatory assets                               $   126,784        $    137,974
                                                            ===========        ============
</TABLE>

6.  CAPITAL STOCK

       Common Stock:  There were no changes in IPL common stock during 1997,
1996 and 1995.

       Restrictions on the payment of cash dividends or other  distributions  on
common stock and on the purchase or  redemption  of such shares are contained in
the indenture  securing IPL's First  Mortgage  Bonds.  In addition,  pursuant to
IPL's  Articles of  Incorporation,  no  dividends  may be paid or accrued and no
other  distribution  may be made on the Common  Stock  unless  dividends  on all
outstanding  shares of its  preferred  stock have been paid or declared  and set
apart for payment.  All of the retained earnings at December 31, 1996, were free
of such restrictions.

       Cumulative  Preferred Stock of Subsidiary:  Preferred stock  shareholders
are entitled to two votes per share for IPL matters,  and if four full quarterly
dividends are in default on all shares of the preferred stock then  outstanding,
they are entitled to elect the smallest  number of IPL Directors to constitute a
majority.  Preferred stock is redeemable  solely at the option of IPL and can be
redeemed in whole or in part at any time at specific call prices.

       IPALCO  purchased  shares of IPL's  preferred  stock on October 17, 1997,
pursuant to the terms of a self-tender  offer  concluded on October 8, 1997. The
following  table shows the number of shares  purchased on October 17, 1997,  for
each class of preferred stock:

                                                                Amount
 Class                    Shares                Rate        (In Thousands)
---------------------------------------------------------------------------
4% Series.............    52,389              $71.38           $ 3,740
4.2% Series...........    19,669               77.72             1,529
4.6% Series...........    27,519               85.12             2,342
4.8% Series...........    28,070               88.82             2,493
6% Series.............    59,200              103.00             6,098
8.2% Series...........    65,828              102.00             6,714
                          ------                               -------
Shares purchased         252,675                               $22,916
                         =======                               =======

       All tendered  shares  subsequently  were  purchased from IPALCO by IPL at
cost and canceled.

       On  October  28,  1997,  the Board of  Directors  of IPL  authorized  the
redemption  of the remaining  40,800  shares of its 6.0% and  remaining  134,157
shares of its 8.2% Cumulative Preferred Stock issued and outstanding on December
15, 1997, at a price per share,  payable to  shareholders  of record of $102 and
$101,  respectively,  together  with  dividends  accrued  through  the  date  of
redemption.  IPL recorded a net gain of $1.7  million,  included in "Premium and
net gain on preferred  stock" at December 31, 1997,  with the  redemption of the
preferred stock.
<PAGE>

At December 31, preferred stock consisted of the following:

                                   
                                  December 31, 1997
                                  -----------------
                                  Shares        Call           December 31
                               Outstanding      Price        1997      1996
                               -----------   -----------   -------     ------
                                                             (In Thousands)
 Cumulative $100 Par Value,                          
   authorized 2,000,000 shares


4% Series.....................     47,611   $118.00        $4,761       $10,000
4.2% Series...................     19,331    103.00         1,933         3,900
4.6% Series...................      2,481    103.00           248         3,000
4.8% Series...................     21,930    101.00         2,193         5,000
6% Series.....................          -    102.00             -        10,000
8.2% Series...................          -    101.00             -        19,998
                                  -------                  ------       -------
Total cumulative preferred stock   91,353                  $9,135       $51,898
                                  =======                  ======       =======



       During 1997, 1996 and 1995, preferred stock dividends were $2.8 million,
$3.2 million and $3.2 million, respectively.

       On  January  13,  1998,   Indianapolis   Power  &  Light  Company  issued
$50,000,000  of Cumulative  Preferred  Stock with a rate of 5.65% 500,000 shares
were issued at $100 par value  each.  The stock will be  redeemable,  subject to
certain  restrictions,  in whole or in part,  at any time on or after January 1,
2008, at the option of IPL.

<PAGE>

7.  LONG-TERM DEBT

  Long-term debt consists of the following:
                                                             December 31,
                                                             ------------
                                                          1997           1996
                                                          ----           ----
    Series                  Due                           (In Thousands)
    ------                  ---                     
First Mortgage Bonds:
  5 5/8%            May 1997.......................   $       -       $  11,250
  6.05%             February 2004..................      80,000          80,000
  8%                October 2006...................      58,800          58,800
  7 3/8%            August 2007....................      80,000          80,000
  6.10% *           January 2016...................      41,850          41,850
  5.40% *           August 2017....................      24,650          24,650
  7.45%             August 2019....................      23,500          23,500
  5.50% *           October 2023...................      30,000          30,000
  7.05%             February 2024..................     100,000         100,000
  6 5/8% *          December 2024..................      40,000          40,000
Unamortized discount - net.........................        (960)         (1,009)
                                                      ---------       ---------
  Total first mortgage bonds.......................     477,840         489,041

IPL Variable Series Notes *
  1991              August 2021....................      40,000          40,000
  1994A             December 2024..................      20,000          20,000
  1995B             January 2023...................      40,000          40,000
  1995C             December 2029..................      30,000          30,000
  1996              November 2029..................      20,000          20,000
Current maturities and sinking fund requirements...           -         (11,250)
                                                      ---------       ---------
  Total long-term debt ............................   $ 627,840       $ 627,791
                                                      =========       =========

* Notes are issued to the city of Petersburg, Indiana, by IPL to secure the loan
of proceeds from various tax-exempt instruments issued by the city.

       IPL  redeemed  the $15  million,  5 1/8%  Series  in May 1996 and the $50
million, 9 5/8% Series in December 1996.

       The Series 1991 note  provides for an interest rate which varies with the
tax-exempt commercial paper rate. The 1994A, 1995B, 1995C and 1996 notes provide
for an interest rate which varies with the tax-exempt  weekly rate.  IPL, at its
option,  can change the interest  rate mode for these notes to be based on other
short-term  rates.  Additionally,  the variable rate notes can be converted into
long-term  fixed  interest  rate  instruments  by the  issuance  of an IPL First
Mortgage  Bond. The notes are  classified as long-term  liabilities  because IPL
maintains  long-term  credit  facilities  supporting these agreements which were
unused at December 31, 1997.

<PAGE>


       The year-end interest rates for the variable rate notes are as follows:

                                       Interest Rate at
                                          December 31
                                   1997              1996
------------------------------------------------------------

Series 1991                        3.78%             3.47%
Series 1994A                       3.75%             4.10%
Series 1995B                       5.21%             5.21%
Series 1995C                       3.75%             4.10%
Series 1996                        3.75%             4.05%

       In  conjunction  with the issuance of the 1995B note, IPL entered into an
interest  rate swap  agreement.  Pursuant  to the swap  agreement,  IPL will pay
interest  at a fixed rate of 5.21% to a swap  counter  party and will  receive a
variable  rate of interest in return,  which is identical  to the variable  rate
payment made on the 1995B note. The result is to  effectively  establish a fixed
rate of interest on the 1995B note of 5.21%. The interest rate swap agreement is
accounted for on a settlement  basis. IPL is exposed to credit loss in the event
of  nonperformance  by the counterparty for the net interest  differential  when
floating rates exceed the fixed maximum rate.  However,  IPL does not anticipate
nonperformance by the counterparty.

       There are no maturities or sinking fund  requirements  on long-term  debt
for the five years subsequent to December 31, 1997.

8.  LINES OF CREDIT

       IPL has  committed  lines of credit with banks of $75 million at December
31, 1997, to provide loans for interim financing and also require the payment of
commitment  fees.  These lines of credit,  based on separate formal and informal
agreements, have expiration dates ranging from February 1, 1998, to December 31,
1998.  Lines of credit  used to support  commercial  paper  were $10  million at
December 31, 1997. IPL has a Liquidity facility in the amount of $150 million to
support  certain  floating rate  tax-exempt  facilities (see Note 7). IPL has an
uncommitted  line of credit with a bank in the amount of $25 million  which does
not require the payment of a commitment fee. At December 31, 1997, $11.3 million
was unused.  The weighted  average interest rate on notes payable and commercial
paper  outstanding  was  6.69%  and  6.16%  at  December  31,  1997,  and  1996,
respectively.
<PAGE>


9.  INCOME TAXES
<TABLE>
<CAPTION>

       Federal and state income taxes charged to income are as follows:

                                                                         1997           1996           1995
-----------------------------------------------------------------------------------------------------------
Operating Expenses:                                                                (In Thousands)
  Current income taxes:
<S>                                                                     <C>            <C>            <C>     
    Federal.....................................................        $ 64,553       $ 56,676       $ 51,331
    State.......................................................           9,474          8,378          7,732
                                                                        --------       --------       --------
      Total current taxes.......................................          74,027         65,054         59,063
                                                                        --------       --------       --------

    Deferred federal income taxes...............................           1,444          6,507         (1,748)
    Deferred state income taxes.................................             803           (398)           309
                                                                        --------       ---------      --------
      Total deferred  income taxes..............................           2,247          6,109         (1,439)
                                                                        --------       ---------      --------

  Net amortization of investment credit.........................          (2,939)        (2,915)        (3,125)
                                                                        --------       --------       --------
      Total charge to operating expenses........................          73,335         68,248         54,499
  Net credit to other income and deductions.....................           1,105           (982)          (931)
                                                                        --------       --------       --------
                                                                          74,440         67,266         53,568
  Cumulative effect of change in accounting principle...........          11,209              -              -
                                                                        --------       --------       --------
      Total federal and state income tax provisions.............        $ 85,649       $ 67,266       $ 53,568
                                                                        ========       ========       ========
</TABLE>

       The provision for federal  income taxes  (including  net  investment  tax
credit  adjustments)  is less than the amount computed by applying the statutory
tax  rate to  pretax  income.  The  reasons  for  the  difference,  stated  as a
percentage of pretax income, are as follows:

                                                1997         1996       1995
------------------------------------------------------------------------------
Federal statutory tax rate..................    35.0%        35.0%        35.0%
Effect of state income taxes................    (1.7)        (1.5)        (1.8)
Amortization of investment tax credits......    (1.2)        (1.5)        (2.0)
Removal cost adjustments....................       -           -          (1.7)
Other - net.................................    (0.9)        (0.7)        (1.0)
                                               -----        -----        -----
  Effective tax rate........................    31.2%        31.3%        28.5%
                                               =====        =====        =====

       The  significant  items  comprising  IPL's  net  deferred  tax  liability
recognized  in the balance  sheets as of December  31,  1997,  and 1996,  are as
follows:
                                                   1997                1996
----------------------------------------------------------------------------
                                                         (In Thousands)
Deferred tax liabilities:
     Relating to utility property............    $405,164           $376,121
     Other...................................      15,546             19,200
                                                 --------           --------
         Total deferred tax liabilities......     420,710            395,321
                                                 --------           --------
Deferred tax assets:
     Relating to utility property............      40,731             28,298
     Investment tax credit...................      27,251             29,156
     Employee Benefit Plans..................      22,019             15,396
     Unbilled revenue........................           -             10,517
     Other...................................       5,143              7,100
                                                 --------           --------
         Total deferred tax assets...........      95,144             90,467
                                                 --------           --------
Net deferred tax liability...................     325,566            304,854
     Current deferred tax liability..........         180                  -
                                                 --------           --------
Deferred income taxes - net..................    $325,386           $304,854
                                                 ========           ========
<PAGE>

10.  RATE MATTERS

       Electric Rate Settlement  Agreement:  On August 24, 1995, the IURC issued
an order  approving  without  amendment a Stipulation  and Settlement  Agreement
(Settlement  Agreement)  resolving  all  issues in IPL's then  pending  electric
general rate proceeding.

       As provided for by the  Settlement  Agreement,  IPL  increased  its basic
rates and charges for retail  electric  service in two steps designed to provide
the following additional annual revenues:

                    Step 1 - $35 million on September 1, 1995
                    Step 2 - $25 million on July 1, 1996

       Effective  with  the  implementation  of new  tariffs  in Step 1, IPL was
authorized to begin  amortization of certain  regulatory  assets.  Additionally,
IPL's existing depreciation rates were reapproved.

       IPL has  agreed  not to file a  request  to build  any  large,  base-load
generating  capacity  before  January 1, 2000.  This  provision can be waived in
extreme  circumstances.  In addition,  the parties  agreed to, and  subsequently
resolved, pending litigation involving IPL's Clean Air Act compliance plan.

Steam Rate Order: By an order dated January 13, 1993, the IURC authorized IPL to
increase its steam system  rates and charges over a six-year  period.  The final
increase  associated with this order took effect on January 13, 1998. The amount
of additional  annual revenues from the January 13, 1998,  increase is estimated
to be $370,000.

       Demand Side Management Program: In compliance with certain orders, IPL is
deferring  certain  approved DSM costs and carrying  charges.  In the Settlement
Agreement  approved  by the IURC on  August  24,  1995,  IPL was  authorized  to
amortize  $5.3 million of such costs  deferred  prior to February  1995,  over a
four-year period beginning  September 1, 1995. On December 19, 1996, IPL filed a
petition with the IURC requesting  review,  modification  and/or termination of,
and related  regulatory  treatment for, DSM programs approved in the order dated
September  8, 1993.  On July 30, 1997,  IPL  received an IURC order  approving a
settlement  agreement  authorizing  IPL  to  recognize  in  rates  the  existing
regulatory  asset  (consisting  of DSM costs  deferred  after January 31, 1995),
along with carrying charges, and also to approve changes to IPL's DSM programs.

<PAGE>


11.  EMPLOYEE PENSION BENEFIT PLANS
<TABLE>
<CAPTION>

       Pension expense includes the following components:

                                                            1997         1996        1995
------------------------------------------------------------------------------------------
                                                                    (In Thousands)

<S>                                                      <C>          <C>          <C>     
Service cost--benefits earned during the period.....     $  6,584     $  6,482     $  6,375
Interest cost on projected benefit obligation.......       16,873       16,335       15,348
Actual return on plan assets........................      (37,813)     (23,307)     (29,529)
Net amortization and deferral.......................       18,304        5,758       13,499
                                                         --------     --------     --------
  Net periodic pension cost.........................        3,948        5,268        5,693
  Less:
    Amount allocated to related parties.............           60         121            98
                                                         --------     --------     --------
IPL net periodic pension cost.......................        3,888        5,147        5,595
  Less amount capitalized...........................          621        1,061        1,199
                                                         --------     --------     --------
Amount charged to expense...........................     $  3,267     $  4,086     $  4,396
                                                         ========     ========     ========
</TABLE>

       A summary of the Plans'  funding  status at their October 31, 1997,  plan
year-end,  evaluation  date and the amount  recognized in the balance  sheets at
December 31, 1997 and 1996, follows:
<TABLE>
<CAPTION>

                                                                                      1997              1996
-------------------------------------------------------------------------------------------------------------
                                                                                          (In Thousands)
Actuarial present value of benefit obligations:
<S>                                                                                 <C>             <C>       
    Vested benefit obligation..............................................         $(194,352)      $(173,654)
    Nonvested benefit obligation...........................................           (35,293)        (32,705)
                                                                                    ---------       ---------
Accumulated benefit obligation.............................................          (229,645)       (206,359)
                                                                                    =========       =========

    Projected benefit obligation...........................................          (254,540)       (229,937)
    Plan assets at fair value..............................................           262,126         235,250
                                                                                    ---------       ---------
Funded status..............................................................             7,586           5,313
    Unrecognized net gain from past experience different
        from that assumed..................................................           (46,671)        (36,126)
    Unrecognized past service costs........................................            12,477           8,132
    Unrecognized net asset at January 1, 1987, being
        amortized over an original life of 18.9 years......................           (11,169)        (12,583)
    Adjustment required to recognize minimum liability.....................            (2,044)         (2,019)
                                                                                    ---------       ---------
Net accrued pension benefits included in other long-term
    liabilities at December 31.............................................         $ (39,821)      $ (37,283)
                                                                                    =========       =========

</TABLE>

       Approximately  45.2% of the Plans' assets were in equity  securities at
October 31, 1997,  with the remainder in fixed income securities.

       Assumptions used in determining this information were:
                                                      1997      1996     1995
-------------------------------------------------------------------------------

Discount rate......................................   7.25%     7.50%     7.50%
Rate of increase in future compensation levels.....   5.10%     5.10%     5.10%
Expected long-term rate of return on assets........   8.00%     8.00%     8.00%
<PAGE>

12.  EMPLOYEE POSTRETIREMENT BENEFITS

       Postretirement benefit expense includes the following components:
<TABLE>
<CAPTION>

                                                                               1997         1996         1995
-------------------------------------------------------------------------------------------------------------
                                                                                       (In Thousands)

<S>                                                                        <C>          <C>          <C>      
Service cost -- benefits earned during the period......................    $   3,942    $   3,891    $  3,855
Interest cost on accumulated postretirement benefit obligation.........       11,088       10,450      10,796
Actual (return) loss on plan assets....................................          314        1,280        (319)
Net amortization and deferral..........................................        1,497        2,233       4,661
                                                                           ---------    ---------    --------
  Net periodic postretirement benefit cost.............................       16,841       17,854      18,993
  Less:
    Amount capitalized.................................................        2,930        3,511       3,891
    Regulatory asset deferral..........................................            -            -       6,978
                                                                           ---------    ---------    --------
Amount charged to expense..............................................    $  13,911    $  14,343    $  8,124
                                                                           =========    =========    ========
</TABLE>

       Also, during 1997 and 1996, IPL expensed postretirement regulatory asset
amortization of $6.4 million each year.

       A summary of the retiree  health-care  and life insurance  plan's funding
status, and the amount recognized in the balance sheets at December 31, 1997 and
1996, follows:
<TABLE>
<CAPTION>
                                                             
                                                                                     1997                1996
---------------------------------------------------------------------------------------------------------------
Actuarial present value of accumulated postretirement                                      (In Thousands)
    benefit obligation:
<S>                                                                                <C>                <C>       
    Retirees...............................................................        $ (59,125)         $ (62,856)
    Fully eligible active plan participants................................          (18,944)           (21,314)
    Other active plan participants.........................................          (57,913)           (61,879)
                                                                                   ---------          ---------
Total......................................................................         (135,982)          (146,049)
    Plan assets at fair value .............................................           68,006             49,274
                                                                                   ---------          ---------
Funded status..............................................................          (67,976)           (96,775)
    Unrecognized net gain from past experience different from that assumed.          (40,568)           (24,354)
    Unrecognized net obligation at January 1, 1993, being amortized over
        an original life of 20 years.......................................           91,400             97,494
                                                                                   ---------          ---------
Net accrued postretirement benefit cost included in deferred liabilities at
    December 31............................................................        $ (17,144)         $ (23,635)
                                                                                   =========          =========
</TABLE>

       IPL has expensed its  non-construction  related  postretirement  benefits
costs  associated  with its regulated  steam business and,  subsequent to August
1995,   with  its  regulated   electric   business.   IPL's  electric   business
postretirement benefit costs incurred prior to September 1, 1995, net of amounts
capitalized for construction and benefits paid to participants, were deferred as
a regulatory asset on the balance sheets. The Settlement  Agreement approved the
amortization  to  operating  expense  of this  regulatory  asset over five years
beginning September 1, 1995. The annual amortization is $6.4 million.  IPL funds
its annual  postretirement  benefit  costs in excess of actual  benefits paid to
participants to an irrevocable VEBA Trust.  Annual funding is discretionary  and
is based on the  projected  cost over time of benefits to be provided to covered
persons consistent with acceptable  actuarial  methods.  The VEBA Trust provides
for full funding of IPL's accumulated  postretirement  benefit obligation in the
event of  certain  change of control  transactions.  During  1997 and 1996,  IPL
contributed $19.0 million and $20.8 million, respectively, of these costs to the
VEBA.

       Plan assets  consist of life  insurance  policies  on certain  active and
retired employees.
<PAGE>

       The assumed health-care cost trend rate used in measuring the accumulated
postretirement  benefit obligation is 8.1% for 1998, gradually declining to 4.5%
in 2003. A 1% increase in the assumed  health care cost trend rate for each year
would increase the accumulated postretirement benefit obligation, as of December
31, 1997,  by  approximately  $19.4  million and the  combined  service cost and
interest cost for 1997 by approximately $2.4 million.

       Assumptions used in determining the information above were:
                                                      1997      1996     1995
------------------------------------------------------------------------------
Discount rate...................................      7.25%     7.50%     7.25%
Rate of increase in future compensation levels..      5.10%     5.10%     5.10%
Expected long-term rate of return on assets.....      8.00%     8.00%     8.00%

13.  OTHER EMPLOYEE BENEFIT PLANS

       IPL's  contributions  to the Thrift Plan,  net of amounts  allocated to
related  parties were $3.3 million, $3.4 million and $3.2 million in 1997, 1996
and 1995, respectively.

14.  COMMITMENTS AND CONTINGENCIES

       In 1998,  IPL  anticipates  the cost of its  construction  program  to be
approximately $102 million.

       IPL is involved in  litigation  arising in the normal course of business.
While the  results  of such  litigation  cannot  be  predicted  with  certainty,
management,  based upon advice of counsel,  believes that the final outcome will
not have a material  adverse  effect on the  financial  position  and results of
operations.

       With respect to environmental  issues,  IPL has ongoing  discussions with
various  regulatory  authorities  and  continues  to  believe  that  IPL  is  in
compliance with its various permits.



<PAGE>


15.  QUARTERLY RESULTS (UNAUDITED)

       Operating results for the years ended December 31, 1997, and 1996 by
quarter, are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                             1997
                                                                             ----
                                                 March 31          June 30       September 30        December 31
                                                 --------          -------       ------------        -----------

<S>                                              <C>              <C>               <C>              <C>     
Operating revenues.........................      $ 195,299        $ 183,777         $ 203,872        $ 193,479
Operating income...........................      $  44,534        $  39,092         $  48,820        $  34,869
Income   before cumulative effect
   of accounting change....................      $  34,766        $  30,130         $  39,507        $  28,999
Cumulative effect of
   accounting change.......................      $  18,347                -                 -                -
Net income.................................      $  53,113        $  30,130         $  39,507        $  28,999

Net income (as originally reported)........      $  37,826        $  27,025         $  43,605                -

                                                                             1996
                                                                             ----
                                                 March 31          June 30       September 30        December 31
                                                 --------          -------       ------------        -----------

Operating revenues.........................      $ 196,446        $ 177,621         $ 205,672        $ 182,764
Operating income...........................      $  44,844        $  36,122         $  51,163        $  31,090
Net income.................................      $  35,880        $  26,980         $  39,632        $  20,096

</TABLE>

       The 1997 results have been restated for the change in  accounting  method
to the unbilled  revenues method.  The change in method was made on December 31,
1997, but each quarter's results have been restated to reflect the results as if
the  change had  occurred  on January 1,  1997,  in  accordance  with  generally
accepted  accounting  principles  (see Note 3 regarding the change in accounting
method).

       The quarterly figures reflect seasonal and  weather-related  fluctuations
which are normal to IPL's operations (see Note 10 regarding rate increases).

<PAGE>

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

              None.

<PAGE>

                                    PART III
                                    --------



Item 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
              --------------------------------------------------

                  Information  relating to the directors of the registrant, set
                  forth in the Information Statement of Indianapolis Power &
                  Light Company dated March 9, 1998 (the registrant's
                  Information Statement), under "Proposal 1-Election of 14
                  Directors" at pages 3-5 is incorporated herein by reference.
                  Information relating to the registrant's executive officers is
                  set forth at page I-7 of this Form 10-K under "Executive
                  Officers of the Registrant at February 24, 1998."

Item 11.      EXECUTIVE COMPENSATION
              ----------------------

                  Information relating to executive  compensation,  set forth in
                  the registrant's Information Statement under "Compensation of
                  Executive Officers" at pages 12-15, "Compensation of
                  Directors" at page 7, "Compensation Committee Interlocks and 
                  Insider Participation" at page 6,  "Pensions  Plans" at pages
                  17-18, and "Employment Contracts and Termination of Employment
                  and Change in Control  Arrangements" at pages 18-19, is
                  incorporated herein by reference.

Item 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
              --------------------------------------------------------------

                  Information  relating to ownership of the registrant's  common
                  stock by persons known by the  registrant to be the beneficial
                  owners  of more  than 5% of the  outstanding  shares of common
                  stock and by management,  set forth in the registrant's
                  Information Statement under "Voting Securities and Beneficial
                  Owners" at page 2 is incorporated herein by reference.

Item 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
              ----------------------------------------------

                  Information  relating  to certain  relationships  and  related
                  transactions,  set forth in the  registrant's  Informaiton
                  Statement under  "Certain Business Relationships" at page 7,
                  is incorporated herein by reference.

<PAGE>

                                      PART IV
                                      -------

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

                   (a)   The  Financial Statements  under  this  Item 14 (a) 1 
                          filed in this  Form  10-K  are  those of Indianapolis
                          Power & Light Company.

                         1.  Financial Statements
                             --------------------

                                Included in Part II of this report:

                                   Independent Auditors' Report

                                   Statements of Income for the Years Ended
                                     December 31, 1997, 1996 and 1995

                                   Balance Sheets, December 31, 1997 and 1996

                                   Statements of Cash Flows for the Years
                                     Ended December 31, 1997, 1996 and 1995

                                   Statements of Retained Earnings for the Years
                                     Ended December 31, 1997, 1996 and 1995

                                   Notes to Financial Statements

                         2.  Exhibits
                              --------

                                   The Exhibit  Index  beginning on page IV-6 of
                            this Annual  Report on Form 10-K lists the  exhibits
                            that are filed as part of this report.

                         3.  Financial Statement Schedules
                             -----------------------------

                                    None

                   (b)   Reports on Form 8-K
                         -------------------

                         A report 8-K was filed on November 12,  1997.  The Form
                         8-K reported  IPL's notice of  redemption  for its 6.0%
                         Series and 8.2% Series of Cumulative Preferred Stock.


<PAGE>

<TABLE>


                       INDIANAPOLIS POWER & LIGHT COMPANY          EXHIBIT 12.1

                       Ratio of Earnings to Fixed Charges

<CAPTION>


                                                                  YEARS ENDED DECEMBER 31,
                                                     -------------------------------------------------
                                                       1997                  1996               1995
                                                     ----------          -----------        ----------
                                                                   (Thousands of Dollars)
Earnings, as defined:
<S>                                                   <C>                 <C>                 <C>     
     Net income (1)                                   $133,402            $122,588            $106,273
     Income taxes                                       74,440              67,266              53,568
     Fixed charges, as below                            41,893              48,570              51,778
                                                      --------            --------            --------

         Total earnings, as defined                   $249,735            $238,424            $211,619
                                                      ========            ========            ========

Fixed charges, as defined:
     Interest charges                                  $41,721            $ 48,406            $ 51,596
     Rental interest factor                                172                 164                 182
                                                      --------            --------            --------

         Total fixed charges, as defined               $41,893            $ 48,570            $ 51,778
                                                      ========            ========            ========

Ratio of earnings to fixed charges                        5.96                4.91                4.09
                                                      ========            ========            ========

(1) 1997 Net income excludes after-tax effect of cumulative effect of accounting
change

</TABLE>
<PAGE>


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

                                      INDIANAPOLIS POWER & LIGHT COMPANY



                                    By  /s/      John R. Hodowal
                                        --------------------------------------
                                        (John R. Hodowal, Chairman of the Board
                                         and Chief Executive Officer)

Date:  February 24, 1998
       -----------------


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

           Signature                      Title                      Date
           ---------                      -----                      ----

  (i) Principal Executive Officer:


   /s/ John R. Hodowal          Chairman of the Board and     February 24, 1998
   -----------------------         Chief Executive Officer
    (John R. Hodowal)             


 (ii) Principal Financial Officer:


   /s/ John R. Brehm            Senior Vice President -       February 24, 1998
   ------------------------        Financial and Information
    (John R. Brehm)                Services
                                          


(iii) Principal Accounting Officer:


   /s/ Stephen J. Plunkett      Controller                    February 24, 1998
   -------------------------
    (Stephen J. Plunkett)

<PAGE>

 (iv) A  majority  of the  Board  of  Directors  of  Indianapolis  Power & Light
Company:


 /s/ Joseph D. Barnette, Jr.            Director              February 24, 1998
----------------------------
 (Joseph D. Barnette, Jr.)


 /s/ Robert A. Borns                    Director              February 24, 1998
----------------------------
 (Robert A. Borns)


 /s/ Rexford C. Early                   Director              February 24, 1998
-----------------------------
 (Rexford C. Early)


 /s/ Otto N. Frenzel III                Director              February 24, 1998
-----------------------------
 (Otto N. Frenzel III)


 /s/ Max L. Gibson                      Director              February 24, 1998
-----------------------------
 (Max L. Gibson)


 /s/ Dr. Earl B. Herr, Jr.              Director              February 24, 1998
------------------------------
 (Dr. Earl B. Herr, Jr.)


 /s/ John R. Hodowal                    Director              February 24, 1998
------------------------------
 (John R. Hodowal)


 /s/ Ramon L. Humke                     Director              February 24, 1998
------------------------------
 (Ramon L. Humke)


 /s/ Sam H. Jones                       Director              February 24, 1998
------------------------------
 (Sam H. Jones)


 /s/ L. Ben Lytle                       Director              February 24, 1998
-------------------------------
 (L. Ben Lytle)


 /s/ Sallie W. Rowland                  Director              February 24, 1998
--------------------------------
 (Sallie W. Rowland)


 /s/ Thomas H. Sams                     Director              February 24, 1998
--------------------------------
 (Thomas H. Sams)


<PAGE>


                                  EXHIBIT INDEX
                                  -------------

     Copies of documents  listed below which are identified with an asterisk (*)
are  incorporated  herein by reference  and made a part hereof.  The  management
contracts or compensatory plans are marked with a double asterisk (**) after the
description of the contract or plan.

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

3.1      Articles of Incorporation of Indianapolis Power & Light Company, as
         amended.

3.2*     Bylaws of  Indianapolis Power & Light  Company, as  amended  (Exhibit
         3.2 to the Form  10-Q for the quarter ended 3-31-97.)

4.1*     Mortgage and Deed of Trust, dated as of May 1, 1940, between
         Indianapolis Power & Light Company and American National Bank and Trust
         Company of Chicago, Trustee, as supplemented and modified by 30
         Supplemental Indentures.

                Exhibits D in File No.  2-4396;  B-1 in File No. 2-6210;
         7-C File No. 2-7944;  7-D in File No. 2-72944;  7-E in File No. 2-8106;
         7-F in File No. 2-8749; 7-G in File No. 2-8749; 4-Q in File No.2-10052;
         2-I in File No. 2-12488; 2-J in File No. 2-13903; 2-K in File 
         No. 2-22553; 2-L in File No. 2-24581; 2-M in File No. 2-26156; 4-D in
         File No. 2-26884; 2-D in File No. 2-38332;  Exhibit A to Form 8-K for
         October 1970; Exhibit 2-F in File No. 2-47162; 2-F in File No. 2-50260;
         2-G in File No. 2-50260; 2-F in File No. 2-53541; 2E in File
         No. 2-55154; 2E in File no. 2-60819; 2F in File No. 2-60819; 2-G in
         File No. 2-60819; Exhibit A to Form 10-Q for the quarter ended 9-30-78
         File No. 1-3132; 13-4 in File No. 2-73213; Exhibit 4 in File 
         No. 2-93092. Twenty-eighth, Twenty-ninth and Thirtieth Supplemental
         Indentures. (Form 10-K dated for year ended 12-31-85.)

4.2*     Thirty-Second Supplemental Indenture dated as of June 1, 1989.
         (Form 10-K for year ended 12-31-89.)

4.3*     Thirty-Third Supplemental Indenture dated as of August 1, 1989. 
         (Form 10-K for year ended 12-31-89.)

4.4*     Thirty-Fourth  Supplemental Indenture  dated as of October 15, 1991.
         (Form  10-K  for  year  ended 12-31-91.)

4.5*     Thirty-Fifth Supplemental Indenture dated as of August 1, 1992. 
         (Form 10-K for year ended 12-31-92.)

4.6*     Thirty-Sixth  Supplemental  Indenture  dated  as of  April  1,  1993.
         (Form  10-Q  for  quarter  ended 9-30-93.)
         
4.7*     Thirty-Seventh  Supplemental  Indenture  dated as of  October 1, 1993.
         (Form  10-Q for  quarter  ended 9-30-93.)

4.8*     Thirty-Eighth  Supplemental  Indenture  dated as of  October  1, 1993.
         (Form  10-Q for  quarter  ended 9-30-93.)

4.9*     Thirty-Ninth Supplemental Indenture dated as of February 1, 1994.
         (Form 8-K, dated 1-25-94.)

4.10*    Fortieth Supplemental Indenture dated as of February 1, 1994.
         (Form 8-K, dated 1-25-94.)

4.11*    Forty-First Supplemental  Indenture  dated as of January 15, 1995.
         (Exhibit  4.12 to the Form 10-K dated 12-31-94.)

4.12*    Forty-Second Supplemental Indenture  dated as of October 1, 1995.
         (Exhibit  4.12 to the Form 10-K dated 12-31-95.)

10.1*    Coal Supply Agreement  between  Indianapolis  Power & Light Company
         and Peabody Coal Company  effective as of January  1, 1992 and dated
         April 7,  1993.  Confidential  portions  of this  Contract  have been
         omitted and filed separately with the SEC pursuant to 17 CFR 240.24b-2.
         (Form 10-Q for quarter ended 3-31-93.)

10.2*    Amendment to Coal Supply Agreement dated July 5, 1985,  between
         Indianapolis Power & Light Company and Black Beauty Coal Company, Inc.
         (Form 10-K for year ended 12-31-86.)

10.3*    Amendment  to Coal Supply  Agreement  dated  February  27,  1987,
         between  Indianapolis  Power & Light Company and Black Beauty Coal
         Company, Inc.  (Form 10-K for year ended 12-31-87.)

10.4*    Transportation  Contract  dated  September  28, 1987,  between
         Indianapolis Power & Light Company and Consolidated  Rail Corporation,
         together with Amendment  Number 1, 2, 3 and 4. (Exhibit 10.4 to the
         Form 10-K dated 12-31-95.)

10.5*    Coal Supply  Agreement  between  Indianapolis  Power & Light Company 
         and Triad Mining of Indiana, Inc. and Marine Coal Sales Company  dated
         December 7, 1994.  Confidential portions of this  Contract have been
         omitted and filed separately with the SEC pursuant to 17 CFR 240.24b-2.
         (Exhibit 10.2 to the Form 10-Q dated 3-31-95.)

10.6*    Interconnection  Agreement,  dated December 30, 1960,  between
         IPL and  Indiana &  Michigan  Electric  Company  (nka  Indiana
         Michigan Power Company) as modified  through  Modification  17
         and Addendum IV. (Exhibit 10.6 to the Form 10-K dated 12-31-95.)

10.7     Interconnection Agreement dated May 1, 1992, among Indianapolis Power &
         Light Company, PSI Energy, Inc. and CINERGY Services, Inc. as modified
         through Amendment Number 6.

10.8*    Facilities Agreement effective in 1968 among Indianapolis Power & Light
         Company,  Public  Service Company of Indiana, Inc. and Indiana &
         Michigan Electric Company.  (Exhibit 5-G in File No. 2-28756.)

10.9*    Facilities  Agreement dated August 16, 1977, between Indianapolis Power
         & Light Company and Public Service Company of Indiana, Inc.,  together
         with Amendment  Number 1 and 2. (Exhibit 10.9 to the Form 10-K dated
         12-31-95.)

10.10*   East Central  Area  Reliability  Agreement  dated August 1, 1967,
         between  Indianapolis  Power & Light Company and 23 other  electric
         utility  companies as  supplemented.  (Exhibit 10.10 to the Form 10-K
         dated 12-31-96.)

10.11*   Interconnection Agreement dated December 2, 1969, between Indianapolis
         Power & Light Company and Southern Indiana Gas and Electric Company as
         modified through Modification Number 9.

10.12*   Interconnection  Agreement  dated  December  1, 1981,  between
         Indianapolis Power & Light Company and Hoosier Energy Rural Electric
         Cooperative,  Inc., as modified through Modification 4.

10.13*   Interconnection Agreement, dated October 7, 1987, between Indianapolis
         Power & Light Company and Wabash Valley Power Association, as modified
         through Modification 1.

10.14*   Interchange  Agreement  between  Indianapolis  Power & Light  Company
         and ENRON Power  Marketing,  Inc. dated August 1, 1995.

10.15*   Interconnection Agreement between Indianapolis Power & Light Company 
         and Indiana  Municipal Power Agency as modified through Modification 1.

10.16*   Employment Agreement between Indianapolis Power & Light Company and
         Ramon L. Humke dated January 1, 1997.  (Exhibit 10.1 to the Form 10-Q
         dated 3-31-97.)  **

10.17*   Employment  Agreement by and among IPALCO  Enterprises,  Inc.,
         Indianapolis  Power & Light Company and John R. Hodowal dated
         July 29, 1986.  (Exhibit 10.32 to the Form 10-K dated 12-31-94.)  **

10.18    Directors' and Officers'  Liability  Insurance Policy No. DO392B1A97
         effective June 1, 1997 to June 1, 1998.  **

10.19*   Unfunded  Deferred  Compensation  Plan for Indianapolis  Power & Light
         Company Directors dated February 22, 1983, as amended. (Exhibit 10.34
         to the Form 10-K dated 12-31-94.)  **

10.20*   Unfunded Deferred  Compensation Plan for Indianapolis  Power & Light
         Company Officers effective January 1, 1994 as amended December 1, 1996.
         (Exhibit 10.20 to the Form 10-K dated 12-31-96.)  **

10.21*   Indianapolis  Power & Light  Company  Supplemental  Retirement  Plan
         and Trust  Agreement  For a Select Group of Management  Employees
         (As Amended and Restated  Effective  March 1, 1996.) (Exhibit 10.21 to
         the Form 10-K dated 12-31-95.)  **

10.22    1997 Management Incentive Program.  **

10.23    Form of  Termination  Benefits  Agreement together with  schedule of
         parties  to, and dates of, the Termination Benefits Agreements.  **

12.1     Ratio of Earnings to Fixed Charges.

18.1     Letter regarding change in accounting principle.

21.1*    Subsidiaries of the Registrant. (Exhibit 21.1 to the Form 10-K
         dated 12-31-96.)

27.1     Financial Data Schedule.

99.1*    Agreement,  dated as of October 27, 1993, by and among IPALCO
         Enterprises,  Inc.,  Indianapolis Power & Light Company, PSI Resources,
         Inc., PSI Energy, Inc., The Cincinnati Gas & Electric Company, CINergy
         Corp.,  James E. Rogers,  John R.  Hodowal and Ramon L. Humke. 
         (Form 10-Q for  quarterly  period ended 9-30-93.)

99.2*    Amendment to Agreement dated October 27, 1994, by and among IPALCO
         Enterprises,  Inc., Indianapolis Power & Light Company, PSI Resources,
         Inc., PSI Energy, Inc., The  Cincinnati Gas & Electric  Company,
         CINergy Corp., James E. Rogers, John R. Hodowal and Ramon L. Humke.
         (Exhibit 99.2 to the Form  10-K  dated 12-31-94.)