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

                                    FORM 10-K/A
                               AMENDMENT NO. 1 TO

[X]     ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF  THE  SECURITIES
        EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998

                                       or
[ ]
        TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15 (d) OF THE  SECURITIES
        EXCHANGE ACT OF 1934

        For the transition period from ______ to _______

                  Name of Registrant, State of
                  Incorporation, Address of
Commission        Principal Executive                     IRS Employer
File Number       Offices and Telephone Number            Identification Number
-----------       ----------------------------            ---------------------
1-9894            ALLIANT ENERGY CORPORATION                          39-1380265
                  (a Wisconsin corporation)
                  222 West Washington Avenue
                  Madison, Wisconsin 53703
                  Telephone (608)252-3311

0-4117-1          IES UTILITIES INC.                                  42-0331370
                  (an Iowa corporation)
                  Alliant Tower
                  Cedar Rapids, Iowa 52401
                  Telephone (319)398-4411

0-337             WISCONSIN POWER AND LIGHT COMPANY                   39-0714890
                  (a Wisconsin corporation)
                  222 West Washington Avenue
                  Madison, Wisconsin 53703
                  Telephone (608)252-3311

                  Interstate Energy Corporation
                  (Former name of Alliant Energy Corporation)

Securities registered pursuant to Section 12 (b) of the Act:
<TABLE>
<CAPTION>

                                                                              Name of Each
                                 Title of Class                               Exchange on Which Registered
                                 --------------                               ----------------------------
<S>                           <C>                                             <C>
Alliant Energy Corporation    Common Stock, $.01 Par Value                    New York Stock Exchange
Alliant Energy Corporation    Common Stock Purchase Rights                    New York Stock Exchange
IES Utilities Inc.            7-7/8% Quarterly Debt Capital Securities        New York Stock Exchange
                              (Subordinated Deferrable Interest Debentures)
</TABLE>

Securities registered pursuant to Section 12 (g) of the Act:

                                    Title of Class
                                    --------------
IES Utilities Inc.                  4.80% Cumulative Preferred Stock, Par Value
                                    $50 per share
Wisconsin Power and Light Company   Preferred Stock (Accumulation without Par
                                    Value)

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

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

This combined Form 10-K/A is separately filed by Alliant Energy Corporation, IES
Utilities  Inc. and Wisconsin  Power and Light  Company.  Information  contained
herein relating to any individual  registrant is filed by such registrant on its
own behalf.  Each registrant makes no representation as to information  relating
to the other registrants.

The aggregate  market value of the voting and  non-voting  common equity held by
nonaffiliates as of January 31, 1999:

Alliant Energy Corporation            $2.24 billion
IES Utilities Inc.                    $0
Wisconsin Power and Light Company     $0

Number of shares  outstanding  of each class of common  stock as of January  31,
1999:

Alliant Energy Corporation            Common Stock, $.01 par value, 77,667,444
                                      shares outstanding

IES Utilities Inc.                    Common Stock, $2.50 par value, 13,370,788
                                      shares outstanding (all of which are owned
                                      beneficially and of record by  Interstate
                                      Energy Corporation)

Wisconsin Power and Light Company     Common Stock, $5  par  value,  13,236,601
                                      shares outstanding (all of which are owned
                                      beneficially  and of  record by Interstate
                                      Energy Corporation)

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statements  relating to Alliant Energy  Corporation's 1999
Annual  Meeting of  Shareowners  and Wisconsin  Power and Light  Company's  1999
Annual Meeting of  Shareowners  are, or will upon filing with the Securities and
Exchange Commission, be incorporated by reference into Part III hereof.

                                       2
<PAGE>

The undersigned registrants hereby amend Items 8 and 14 of their combined Annual
Report on Form 10-K for the year  ended  December  31,  1998 to provide in their
entirety as follows:


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

Interstate Energy Corporation                                       Page Number
        Report of Management                                              5
        Report of Independent Public Accountants                          6
        Consolidated Statements of Income for the Years Ended
           December 31, 1998, 1997 and 1996                               7
        Consolidated Balance Sheets, December 31, 1998 and 1997           8
        Consolidated Statements of Cash Flows for the Years Ended
           December 31, 1998, 1997 and 1996                              10
        Consolidated Statements of Capitalization, December 31,
           1998 and 1997                                                 11
        Consolidated Statements of Changes in Common Equity for the
           Years Ended December 31, 1998, 1997 and 1996                  13
        Notes to Consolidated Financial Statements                       14

IES Utilities Inc.
        Report of Independent Public Accountants                         38
        Consolidated Statements of Income and Retained Earnings
           for the Years Ended December 31, 1998, 1997 and 1996          39
        Consolidated Balance Sheets, December 31, 1998 and 1997          40
        Consolidated Statements of Cash Flows for the Years Ended
           December 31, 1998, 1997 and 1996                              42
        Consolidated Statements of Capitalization, December 31,
           1998 and 1997                                                 43
        Notes to Consolidated Financial Statements                       44

Wisconsin Power and Light Company
        Report of Independent Public Accountants                         52
        Consolidated Statements of Income and Retained Earnings for
           the Years Ended December 31, 1998, 1997 and 1996              53
        Consolidated Balance Sheets, December 31, 1998 and 1997          54
        Consolidated Statements of Cash Flows for the Years Ended
           December 31, 1998, 1997 and 1996                              56
        Consolidated Statements of Capitalization, December 31, 1998
           and 1997                                                      57
        Notes to Consolidated Financial Statements                       58

Refer to Note 16 of IEC's,  IESU's and WP&L's "Notes to  Consolidated  Financial
Statements" for the quarterly financial data required by this Item.


                                       3
<PAGE>



                          INTERSTATE ENERGY CORPORATION

                                FINANCIAL SECTION



                                       4
<PAGE>


        INTERSTATE ENERGY CORPORATION REPORT ON THE FINANCIAL INFORMATION

Interstate Energy Corporation  management is responsible for the information and
representations  contained  in the  financial  statements  and in certain  other
sections of this Annual  Report.  The  consolidated  financial  statements  that
follow have been  prepared in  accordance  with  generally  accepted  accounting
principles.   In  addition  to  selecting  appropriate   accounting  principles,
management is responsible for the manner of presentation and for the reliability
of the financial information. In fulfilling that responsibility, it is necessary
for management to make estimates  based on currently  available  information and
judgments of current conditions and circumstances.

Through a well-developed system of internal controls, management seeks to ensure
the integrity and  objectivity  of the financial  information  presented in this
report.  This  system of internal  controls  is  designed to provide  reasonable
assurance  that  the  assets  of  the  company  are  safeguarded  and  that  the
transactions  are executed  according  to  management's  authorizations  and are
recorded in accordance with the appropriate accounting principles.

The Board of  Directors  participates  in the  financial  information  reporting
process through its Audit Committee.






Erroll B. Davis Jr.
President and Chief Executive Officer
Interstate Energy Corporation




Thomas M. Walker
Executive Vice President and Chief Financial Officer
Interstate Energy Corporation




John E. Ebright
Vice President - Controller
Interstate Energy Corporation




January 29, 1999


                                       5
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareowners of Interstate Energy Corporation:

We have audited the accompanying  consolidated  balance sheets and statements of
capitalization  of Interstate Energy  Corporation (a Wisconsin  Corporation) and
subsidiaries  as of  December  31, 1998 and 1997,  and the related  consolidated
statements  of income,  cash flows and changes in common  equity for each of the
three years in the period ended December 31, 1998.  These  financial  statements
and the supplemental  schedule  referred to below are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and supplemental schedule based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial position of Interstate Energy Corporation
and  subsidiaries  as of December  31,  1998 and 1997,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31,1998, in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements  taken as a whole.  The schedule listed in Item 14(a)(2) is presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and is not  part of the  basic  financial  statements.  This  schedule  has been
subjected to the auditing procedures applied in the audit of the basic financial
statements  and, in our  opinion,  fairly  states in all  material  respects the
financial  data  required  to be set  forth  therein  in  relation  to the basic
financial statements taken as a whole.



ARTHUR ANDERSEN LLP



Milwaukee, Wisconsin,
January 29, 1999
(except with respect to the matters discussed in
Notes 5c and 17, as to which the date is October 29, 1999)


                                       6
<PAGE>
<TABLE>
<CAPTION>
                          INTERSTATE ENERGY CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                                                                           Year Ended December 31,
                                                                 1998                1997                1996
--------------------------------------------------------------------------------------------------------------------
                                                                   (in thousands, except per share amounts)
Operating revenues:
<S>                                                             <C>                 <C>                 <C>
  Electric utility                                              $ 1,567,442         $ 1,515,753         $ 1,440,375
  Gas utility                                                       295,590             393,907             375,955
  Nonregulated and other                                            267,842             390,967             416,510
                                                           -----------------   -----------------    ----------------
                                                                  2,130,874           2,300,627           2,232,840
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Operating expenses:
  Electric and steam production fuels                               297,685             280,558             256,609
  Purchased power                                                   255,332             256,306             231,014
  Cost of utility gas sold                                          166,453             259,222             240,324
  Other operation                                                   620,234             681,977             696,596
  Maintenance                                                       122,737             123,121             111,657
  Depreciation and amortization                                     279,505             259,663             232,363
  Taxes other than income taxes                                     105,626             103,397              98,838
                                                           -----------------   -----------------    ----------------
                                                                  1,847,572           1,964,244           1,867,401
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Operating income                                                    283,302             336,383             365,439
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------

Interest expense and other:
  Interest expense                                                  129,363             122,563             113,321
  Allowance for funds used during construction                       (6,812)             (5,274)             (5,574)
  Preferred dividend requirements of subsidiaries                     6,699               6,693               6,687
  Miscellaneous, net                                                   (736)            (13,910)            (11,843)
                                                           -----------------   -----------------    ----------------
                                                                    128,514             110,072             102,591
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Income before income taxes                                          154,788             226,311             262,848
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Income taxes                                                         58,113              81,733             105,760
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Income from continuing operations                                    96,675             144,578             157,088
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Discontinued operations:
  Loss on disposal of subsidiary, net of applicable
  tax benefit of $575                                                     -                   -              (1,297)
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Net income                                                         $ 96,675           $ 144,578           $ 155,791
                                                           =================   =================    ================
--------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding                          76,912              76,210              75,481
                                                           =================   =================    ================
--------------------------------------------------------------------------------------------------------------------
Earnings per average common share (basic and diluted):
  Income from continuing operations                                  $ 1.26              $ 1.90              $ 2.08
  Discontinued operations                                                 -                   -               (0.02)
                                                           -----------------   -----------------    ----------------
  Net income                                                         $ 1.26              $ 1.90              $ 2.06
                                                           =================   =================    ================
--------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>

                                       7
<PAGE>
<TABLE>
<CAPTION>

                          INTERSTATE ENERGY CORPORATION
                           CONSOLIDATED BALANCE SHEETS

                                                                                       December 31,
ASSETS                                                                           1998                 1997
-----------------------------------------------------------------------------------------------------------------
                                                                                      (in thousands)
<S>                                                                             <C>                  <C>
Property, plant and equipment:
  Utility -
    Plant in service -
      Electric                                                                  $ 4,866,152          $ 4,733,222
      Gas                                                                           515,074              495,155
      Other                                                                         409,711              366,395
                                                                           -----------------    -----------------
                                                                                  5,790,937            5,594,772
    Less - Accumulated depreciation                                               2,852,605            2,631,582
                                                                           -----------------    -----------------
                                                                                  2,938,332            2,963,190
    Construction work in progress                                                   119,032               86,511
    Nuclear fuel, net of amortization                                                44,316               55,777
                                                                           -----------------    -----------------
                                                                                  3,101,680            3,105,478
  Other property, plant and equipment, net of accumulated
    depreciation and amortization of $178,248 and $139,920, respectively            355,100              329,264
                                                                           -----------------    -----------------
                                                                                  3,456,780            3,434,742
                                                                           -----------------    -----------------
-----------------------------------------------------------------------------------------------------------------
Current assets:
  Cash and temporary cash investments                                                31,827               27,329
  Accounts receivable:
    Customer, less allowance for doubtful accounts
      of $2,518 and $2,400, respectively                                            102,966              123,545
    Other, less allowance for doubtful accounts
      of $490 and $224, respectively                                                 26,054               20,824
  Notes receivable                                                                   13,392               23,410
  Production fuel, at average cost                                                   54,140               40,656
  Materials and supplies, at average cost                                            53,490               49,845
  Gas stored underground, at average cost                                            26,013               32,364
  Regulatory assets                                                                  27,089               36,330
  Prepaid gross receipts tax                                                         22,222               22,153
  Other                                                                              30,767               35,786
                                                                           -----------------    -----------------
                                                                                    387,960              412,242
                                                                           -----------------    -----------------
-----------------------------------------------------------------------------------------------------------------
Investments:
  Investment in McLeodUSA Inc.                                                      320,280              328,022
  Nuclear decommissioning trust funds                                               225,803              190,238
  Investment in foreign entities                                                     68,882               57,072
  Other                                                                              54,776               49,319
                                                                           -----------------    -----------------
                                                                                    669,741              624,651
                                                                           -----------------    -----------------
-----------------------------------------------------------------------------------------------------------------
Other assets:
  Regulatory assets                                                                 341,684              352,365
  Deferred charges and other                                                        103,172               99,550
                                                                           -----------------    -----------------
                                                                                    444,856              451,915
                                                                           -----------------    -----------------
Total assets                                                                    $ 4,959,337          $ 4,923,550
                                                                           =================    =================
-----------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>

                                       8
<PAGE>
<TABLE>
<CAPTION>

                          INTERSTATE ENERGY CORPORATION
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                                                                December 31,
CAPITALIZATION AND LIABILITIES                                           1998                  1997
-----------------------------------------------------------------------------------------------------------
                                                                               (in thousands)
Capitalization (See Consolidated Statements of Capitalization):
<S>                                                                      <C>                   <C>
  Common stock                                                                 $ 776                 $ 765
  Additional paid-in capital                                                 905,130               868,903
  Retained earnings                                                          537,372               581,376
  Accumulated other comprehensive income                                     163,017               173,512
                                                                   ------------------    ------------------
    Total common equity                                                    1,606,295             1,624,556
                                                                   ------------------    ------------------

  Cumulative preferred stock of subsidiaries, net                            113,498               113,369
  Long-term debt (excluding current portion)                               1,543,131             1,467,903
                                                                   ------------------    ------------------
                                                                           3,262,924             3,205,828
                                                                   ------------------    ------------------
-----------------------------------------------------------------------------------------------------------
Current liabilities:
  Current maturities and sinking funds                                        63,414                18,329
  Variable rate demand bonds                                                  56,975                56,975
  Commercial paper                                                            64,500               114,500
  Notes payable                                                               51,784                42,000
  Capital lease obligations                                                   11,978                13,197
  Accounts payable                                                           204,297               192,634
  Accrued taxes                                                               84,921                78,923
  Other                                                                      111,685               133,233
                                                                   ------------------    ------------------
                                                                             649,554               649,791
                                                                   ------------------    ------------------

-----------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
  Accumulated deferred income taxes                                          691,624               719,899
  Accumulated deferred investment tax credits                                 77,313                82,862
  Environmental liabilities                                                   68,399                70,955
  Customer advances                                                           37,171                36,619
  Capital lease obligations                                                   13,755                23,634
  Other                                                                      158,597               133,962
                                                                   ------------------    ------------------
                                                                           1,046,859             1,067,931
                                                                   ------------------    ------------------
-----------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 12)
-----------------------------------------------------------------------------------------------------------
Total capitalization and liabilities                                     $ 4,959,337           $ 4,923,550
                                                                   ==================    ==================
-----------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>


                                       9
<PAGE>
<TABLE>
<CAPTION>
                          INTERSTATE ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                          Year Ended December 31,
                                                                  1998             1997             1996
--------------------------------------------------------------------------------------------------------------
                                                                              (in thousands)
Cash flows from operating activities:
<S>                                                                <C>             <C>              <C>
  Net income                                                       $ 96,675        $ 144,578        $ 155,791
  Adjustments to reconcile net income to net cash flows
  from operating activities:
    Depreciation and amortization                                   279,505          259,663          232,363
    Amortization of nuclear fuel                                     17,869           18,308           21,336
    Amortization of deferred energy efficiency expenditures          27,083           15,786            6,669
    Deferred taxes and investment tax credits                       (27,720)         (11,661)          14,715
    Refueling outage provision                                       (4,001)           9,290           (6,374)
    Impairment of oil and gas properties                              9,678            9,902                -
    Impairment of regulatory assets                                   8,969                -                -
    Other                                                            (3,616)           5,468           (6,777)
  Other changes in assets and liabilities:
    Accounts receivable                                              15,349           18,638          (13,935)
    Notes receivable                                                 10,018           (3,621)          14,663
    Production fuel                                                 (13,484)           2,814              271
    Materials and supplies                                           (3,645)            (874)           5,615
    Gas stored underground                                            6,351           (6,603)          (4,170)
    Accounts payable                                                 11,663          (27,726)          33,505
    Accrued taxes                                                     5,998           13,375          (11,676)
    Benefit obligations and other                                    31,070           16,152            9,280
                                                             ---------------   --------------   --------------
       Net cash flows from operating activities                     467,762          463,489          451,276
                                                             ---------------   --------------   --------------
--------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
    Common stock dividends declared                                (140,679)        (145,631)        (143,344)
    Dividends payable                                               (15,458)             285              310
    Proceeds from issuance of common stock                           33,832           15,535           17,393
    Net change in Alliant Energy Resources, Inc. credit
     facility                                                        70,492            9,908           47,860
    Proceeds from issuance of other long-term debt                   77,544          295,000           61,370
    Reductions in other long-term debt                              (27,663)        (146,590)         (20,679)
    Net change in short-term borrowings                             (40,216)        (109,884)          16,654
    Principal payments under capital lease obligations              (13,250)         (12,964)         (19,108)
    Other                                                            (2,333)          (2,410)          (2,336)
                                                             ---------------   --------------   --------------
        Net cash flows used for financing activities                (57,731)         (96,751)         (41,880)
                                                             ---------------   --------------   --------------
--------------------------------------------------------------------------------------------------------------
Cashflows used for investing activities:
   Construction and acquisition
    expenditures:
       Utility                                                     (269,133)        (256,760)        (297,196)
       Other                                                       (102,925)         (71,280)        (115,078)
    Deferred energy efficiency expenditures                               -          (13,344)         (24,792)
    Nuclear decommissioning trust funds                             (20,305)         (17,435)         (15,994)
    Proceeds from disposition of assets                              16,677           15,993           69,838
    Shared savings expenditures                                     (27,780)         (17,610)          (5,196)
    Other                                                            (2,067)          (1,790)         (18,026)
                                                             ---------------   --------------   --------------
       Net cash flows used for investing activities                (405,533)        (362,226)        (406,444)
                                                             ---------------   --------------   --------------
--------------------------------------------------------------------------------------------------------------
Net increase in cash and temporary cash investments                   4,498            4,512            2,952
                                                             ---------------   --------------   --------------
--------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period           27,329           22,817           19,865
                                                             ---------------   --------------   --------------
--------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period               $ 31,827         $ 27,329         $ 22,817
                                                             ===============   ==============   ==============
--------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
   Cash paid during the period for:
       Interest                                                   $ 126,376        $ 117,255        $ 107,970
                                                             ===============   ==============   ==============
       Income taxes                                                $ 84,916         $ 69,272        $ 111,006
                                                             ===============   ==============   ==============
    Noncash investing and financing activities:
       Capital lease obligations incurred                           $ 1,426         $ 16,781         $ 14,281
                                                             ===============   ==============   ==============
--------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>

                                       10
<PAGE>
<TABLE>
<CAPTION>

                          INTERSTATE ENERGY CORPORATION
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION

                                                                                      December 31,
                                                                                1998                1997
---------------------------------------------------------------------------------------------------------------
                                                                           (in thousands, except share amounts)
<S>                                                                              <C>                 <C>
Common equity:
  Common stock - $.01 par value - authorized 200,000,000 shares;
    outstanding 77,630,043 and 76,481,102 shares, respectively                       $ 776               $ 765
  Additional paid-in capital                                                       905,130             868,903
  Retained earnings                                                                537,372             581,376
  Accumulated other comprehensive income                                           163,017             173,512
                                                                           ----------------    ----------------
                                                                                 1,606,295           1,624,556
                                                                           ----------------    ----------------
<CAPTION>

---------------------------------------------------------------------------------------------------------------
Cumulative preferred stock of subsidiaries:
  Par/Stated      Authorized       Shares                     Mandatory
     Value          Shares      Outstanding      Series       Redemption
<S>                <C>            <C>         <C>                 <C>              <C>                 <C>
     $ 100            *           449,765     4.40% - 6.20%       No                44,977              44,977
     $ 25             *           599,460         6.50%           No                14,986              14,986
     $ 50          466,406        366,406     4.30% - 6.10%       No                18,320              18,320
     $ 50             **          216,381     4.36% - 7.76%       No                10,819              10,819
     $ 50             **          545,000         6.40%           Yes ***           27,250              27,250
                                                                           ----------------    ----------------
                                                                                   116,352             116,352
    Less:  unamortized expenses                                                     (2,854)             (2,983)
                                                                           ----------------    ----------------
                                                                                   113,498             113,369
                                                                           ----------------    ----------------
*    3,750,000 authorized shares in total
**   2,000,000 authorized shares in total
***  $53.20 mandatory redemption price
<CAPTION>

---------------------------------------------------------------------------------------------------------------
Long-term debt:
  IES Utilities Inc. -
    Collateral Trust Bonds:
<S>                                                                                <C>                 <C>
      7.65% series, due 2000                                                        50,000              50,000
      7.25% series, due 2006                                                        60,000              60,000
      6-7/8% series, due 2007                                                       55,000              55,000
      6% series, due 2008                                                           50,000              50,000
      7% series, due 2023                                                           50,000              50,000
      5.5% series, due 2023                                                         19,400              19,400
                                                                           ----------------    ----------------
                                                                                   284,400             284,400
    First Mortgage Bonds:
      Series Y, 8-5/8%, due 2001                                                    60,000              60,000
      Series Z, 7.6%, due 1999                                                      50,000              50,000
      9-1/8% series, due 2001                                                       21,000              21,000
      7-1/4% series, due 2007                                                       30,000              30,000
                                                                           ----------------    ----------------
                                                                                   161,000             161,000
    Pollution control obligations:
      5.75%, due serially 1999 to 2003                                               3,136               3,276
      5.95%, retired in 1998                                                             -              10,000
      Variable rate (4.20% at December 31, 1998), due 2000 to 2010                  11,100              11,100
      Variable/fixed rate series 1998 (4.25% through 2003), due 2023                10,000                   -
                                                                           ----------------    ----------------
                                                                                    24,236              24,376
    Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025                   50,000              50,000
    Senior Debentures, 6-5/8%, due 2009                                            135,000             135,000
                                                                           ----------------    ----------------
        Total IES Utilities Inc.                                                   654,636             654,776
                                                                           ----------------    ----------------

</TABLE>


                                       11
<PAGE>
<TABLE>
<CAPTION>
                          INTERSTATE ENERGY CORPORATION
              CONSOLIDATED STATEMENTS OF CAPITALIZATION (Continued)

                                                                                      December 31,
                                                                                1998                1997
---------------------------------------------------------------------------------------------------------------
                                                                                     (in thousands)
  Wisconsin Power and Light Company -
    First Mortgage Bonds:
<S>                                                                                <C>                 <C>
      Series L, 6.25%, retired in 1998                                                 $ -             $ 8,899
      1984 Series A, variable rate (3.85% at December 31, 1998), due 2014            8,500               8,500
      1988 Series A, variable rate (4.20% at December 31, 1998), due 2015           14,600              14,600
      1990 Series V, 9.3%, due 2025                                                 27,000              27,000
      1991 Series A-D, variable rate (5.15% at December 31, 1998),
        due 2000 to 2015                                                            33,875              33,875
      1992 Series W, 8.6%, due 2027                                                 90,000              90,000
      1992 Series X, 7.75%, due 2004                                                62,000              62,000
      1992 Series Y, 7.6%, due 2005                                                 72,000              72,000
                                                                           ----------------    ----------------
                                                                                   307,975             316,874
    Unsecured Debt:
      Debentures, 7%, due 2007                                                     105,000             105,000
      Debentures, 5.7%, due 2008                                                    60,000                   -
                                                                           ----------------    ----------------
        Total Wisconsin Power and Light Company                                    472,975             421,874
                                                                           ----------------    ----------------

  Interstate Power Company -
    First Mortgage Bonds:
      8% series, due 2007                                                           25,000              25,000
      8-5/8% series, due 2021                                                       25,000              25,000
      7-5/8% series, due 2023                                                       94,000              94,000
                                                                           ----------------    ----------------
                                                                                   144,000             144,000
    Pollution Control Revenue Bonds:
      5.95%, retired in 1998                                                             -               5,850
      6-3/8%, due serially 1999 to 2007                                             10,950              11,400
      5.75%, due 2003                                                                1,000               1,000
      6.25%, due 2009                                                                1,000               1,000
      6.30%, due 2010                                                                5,600               5,600
      6.35%, due 2012                                                                5,650               5,650
      Variable/fixed rate series 1998 (4.30% through 2003),
       due 2005 to 2008                                                              4,950                   -
                                                                           ----------------    ----------------
                                                                                    29,150              30,500
                                                                           ----------------    ----------------
        Total Interstate Power Company                                             173,150             174,500
                                                                           ----------------    ----------------

  Alliant Energy Resources, Inc. -
    Credit facility (5.15% - 5.85% at December 31, 1998)                           252,505             182,013
    Multifamily Housing Revenue Bonds issued by various housing and
      community development authorities, 4.20% - 7.55%, due 2004 to 2024            35,494              36,503
    Other subsidiaries' debt, 0% - 10.75%, due 1999 to 2042                         57,579              56,795
                                                                           ----------------    ----------------
        Total Alliant Energy Resources, Inc.                                       345,578             275,311
                                                                           ----------------    ----------------

  Interstate Energy Corporation -
    8.59% Senior notes, due 2004                                                    24,000              24,000
                                                                           ----------------    ----------------
                                                                                 1,670,339           1,550,461
                                                                           ----------------    ----------------
  Less:
    Current maturities                                                             (63,414)            (18,329)
    Variable rate demand bonds                                                     (56,975)            (56,975)
    Unamortized debt premium and (discount), net                                    (6,819)             (7,254)
                                                                           ----------------    ----------------
Total long-term debt                                                             1,543,131           1,467,903
                                                                           ----------------    ----------------

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

Total capitalization                                                           $ 3,262,924         $ 3,205,828
                                                                           ================    ================

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

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>

                                       12
<PAGE>
<TABLE>
<CAPTION>

                          INTERSTATE ENERGY CORPORATION
               CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY

                                                                                                     Accumulated
                                                                      Additional                        Other           Total
                                                        Common         Paid-In        Retained       Comprehensive      Common
                                                         Stock         Capital        Earnings      Income (Loss)       Equity
----------------------------------------------------------------------------------------------------------------------------------
                                                                                    (in thousands)
1996:
<S>                                                          <C>        <C>             <C>                <C>        <C>
Beginning balance                                            $ 750      $ 832,670       $ 569,982              $ -    $ 1,403,402

 Comprehensive income:
   Net income                                                                             155,791                         155,791
   Other comprehensive loss net of tax:
       Minimum pension liability adjustment (a)                                                               (809)          (809)
                                                                                                                     -------------
   Total comprehensive income                                                                                             154,982

 Common stock dividends                                                                  (143,344)                       (143,344)
 Common stock issued                                             8         18,447                                          18,455
 Treasury stock                                                              (269)                                           (269)
                                                     --------------  -------------  --------------  ---------------  -------------
Ending balance                                                 758        850,848         582,429             (809)     1,433,226

1997: Comprehensive income:
   Net income                                                                             144,578                         144,578
   Other comprehensive income (loss):
       Unrealized gain on securities, net of tax (b)                                                       174,688        174,688
       Foreign currency translation adjustment                                                                 (20)           (20)
       Minimum pension liability adjustment, net of tax (a)                                                   (347)          (347)
                                                                                                                     -------------
   Total comprehensive income                                                                                             318,899

 Common stock dividends                                                                  (145,631)                       (145,631)
 Common stock issued                                             7         18,138                                          18,145
 Treasury stock                                                               (83)                                            (83)
                                                     --------------  -------------  --------------  ---------------  -------------
Ending balance                                                 765        868,903         581,376          173,512      1,624,556

1998: Comprehensive income:
   Net income                                                                              96,675                          96,675
   Other comprehensive income (loss):
       Unrealized loss on securities, net of tax (b)                                                        (4,589)        (4,589)
       Foreign currency translation adjustment                                                              (7,062)        (7,062)
       Minimum pension liability adjustment, net of tax (a)                                                  1,156          1,156
                                                                                                                     -------------
   Total comprehensive income                                                                                              86,180

 Common stock dividends                                                                  (140,679)                       (140,679)
 Common stock issued                                            11         36,263                                          36,274
 Treasury stock                                                               (36)                                            (36)
                                                     --------------  -------------  --------------  ---------------  -------------
Ending balance                                               $ 776      $ 905,130       $ 537,372        $ 163,017    $ 1,606,295
                                                     ==============  =============  ==============  ===============  =============

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

(a) Net of tax expense  (benefit) of $(565),  $(243) and $808 in 1996,  1997 and
    1998, respectively.
(b) Net of tax  expense  (benefit)  of $124,271  and  $(3,218) in 1997 and 1998,
    respectively.

The  accompanying  Notes to Condolidated  Financial  Statements are an intergral
part of these statements.

</TABLE>

                                       13
<PAGE>

                          INTERSTATE ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    (a) General -

The Consolidated  Financial Statements include the accounts of Interstate Energy
Corporation (IEC) and its consolidated subsidiaries. IEC resulted from the April
1998 merger between WPL Holdings,  Inc.  (WPLH),  IES Industries  Inc. (IES) and
Interstate Power Company (IPC) (refer to Note 2 for a discussion of the merger).
IEC is an  investor-owned  holding  company  currently doing business as Alliant
Energy Corporation whose  subsidiaries are IES Utilities Inc. (IESU),  Wisconsin
Power and Light Company (WP&L),  IPC, Alliant Energy  Resources,  Inc.  (Alliant
Energy  Resources) and Alliant Energy Corporate  Services,  Inc. (Alliant Energy
Corporate  Services).  IESU,  WP&L  and  IPC  are  engaged  principally  in  the
generation,  transmission,   distribution  and  sale  of  electric  energy;  the
purchase,  distribution,  transportation  and sale of natural gas; and water and
steam services in selective markets. The principal markets of IESU, WP&L and IPC
are located in Iowa, Wisconsin, Minnesota and Illinois. Alliant Energy Resources
(through its numerous direct and indirect subsidiaries) provides energy products
and services to domestic and international markets; provides industrial services
including  environmental,  engineering and transportation  services;  invests in
affordable  housing   initiatives;   and  invests  in  various  other  strategic
initiatives.  Alliant  Energy  Corporate  Services is the  subsidiary  formed to
provide  administrative  services to IEC and its  subsidiaries as required under
the Public Utility Holding Company Act of 1935 (PUHCA).

The  consolidated   financial   statements  reflect  investments  in  controlled
subsidiaries on a consolidated basis. All significant  intercompany balances and
transactions,  other than certain  energy-related  transactions  affecting IESU,
WP&L and IPC, have been eliminated from the Consolidated  Financial  Statements.
Such  energy-related  transactions  are made at prices that  approximate  market
value and the associated costs are recoverable  from customers  through the rate
making  process.  The  financial  statements  are  prepared in  conformity  with
generally  accepted  accounting  principles,  which give recognition to the rate
making and  accounting  practices of the Federal  Energy  Regulatory  Commission
(FERC) and state commissions having regulatory jurisdiction.

Unconsolidated  investments for which IEC has at least a 20% voting interest are
generally accounted for under the equity method of accounting. These investments
are stated at acquisition  cost,  increased or decreased for IEC's equity in net
income or loss,  which is included in  "Miscellaneous,  net" in the Consolidated
Statements of Income and decreased for any dividends received.  Investments that
do not meet the criteria for  consolidation  or the equity  method of accounting
are accounted for under the cost method.

The  preparation  of  the  financial  statements  requires  management  to  make
estimates and  assumptions  that affect:  1) the reported  amounts of assets and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the  financial  statements,  and 2) the  reported  amounts  of  revenues  and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Certain prior period amounts have been  reclassified on a basis  consistent with
the current year presentation.

    (b) Regulation -

IEC is a registered  public utility holding company subject to regulation by the
Securities and Exchange Commission (SEC) under the PUHCA. IESU, WP&L and IPC are
subject  to  regulation  by the  FERC  and  their  respective  state  regulatory
commissions (Iowa Utilities Board (IUB),  Public Service Commission of Wisconsin
(PSCW),  Minnesota  Public  Utilities  Commission  (MPUC) and Illinois  Commerce
Commission (ICC)).

    (c) Regulatory Assets -

IESU,  WP&L and IPC are subject to the  provisions  of  Statement  of  Financial
Accounting   Standards,   "Accounting  for  the  Effects  of  Certain  Types  of
Regulation"  (SFAS 71). SFAS 71 provides that  rate-regulated  public  utilities
record certain costs and credits allowed in the rate making process in different
periods than for unregulated  entities.  These are


                                       14
<PAGE>

deferred as regulatory  assets or regulatory  liabilities  and are recognized in
the  Consolidated  Statements of Income at the time they are reflected in rates.
At December 31, 1998 and 1997,  regulatory  assets of $368.8  million and $388.7
million, respectively, were comprised of the following items (in millions):
<TABLE>
<CAPTION>

                                                  IESU                     WP&L                     IPC
                                           --------------------    ---------------------    ------------------
                                             1998       1997         1998       1997         1998      1997
                                           ---------- ---------    ---------- ----------    -------- ---------
<S>                                          <C>        <C>         <C>         <C>          <C>      <C>
Tax-related (Note 1(d))                       $81.4      $80.3       $49.3       $55.5        $29.8    $29.7
Energy efficiency program costs                39.8       59.4        53.5        29.5         25.9     30.0
Environmental liabilities (Note 12(f))         35.2       42.9        19.5        22.2         17.5      6.2
Other                                           5.0       17.0        11.2        13.6          0.7      2.4
                                           ---------- ---------    ---------- ----------    -------- ---------
Total                                        $161.4     $199.6      $133.5      $120.8        $73.9    $68.3

                                           ========== =========    ========== ==========    ======== =========
</TABLE>

Refer to the  individual  notes  referenced  above for a further  discussion  of
certain items reflected in regulatory  assets.  Regulators allow IESU and IPC to
earn a return on energy efficiency program costs but not on the other regulatory
assets. In Wisconsin,  WP&L is allowed to earn a return on all regulatory assets
other than those associated with manufactured gas plants (MGP).

If a portion of IESU's,  WP&L's or IPC's operations  become no longer subject to
the provisions of SFAS 71 as a result of competitive restructuring or otherwise,
a write-down of related regulatory assets would be required, unless some form of
transition cost recovery is established by the appropriate  regulatory body that
would meet the requirements under generally accepted  accounting  principles for
continued  accounting as  regulatory  assets  during such  recovery  period.  In
addition,  IESU,  WP&L or IPC would be required to determine  any  impairment to
other assets and write-down such assets to their fair value.

    (d) Income Taxes -

IEC follows the liability method of accounting for deferred income taxes,  which
requires  the   establishment  of  deferred  tax  assets  and  liabilities,   as
appropriate,  for all temporary  differences between the tax basis of assets and
liabilities and the amounts reported in the financial statements. Deferred taxes
are recorded using currently enacted tax rates as shown in Note 6.

Except as noted below, income tax expense includes provisions for deferred taxes
to  reflect  the tax  effects of  temporary  differences  between  the time when
certain  costs are  recorded in the  accounts and when they are deducted for tax
return  purposes.  As temporary  differences  reverse,  the related  accumulated
deferred  income taxes are reversed to income.  Investment tax credits have been
deferred and are  subsequently  credited to income over the average lives of the
related property. As part of the affordable housing business, IEC is eligible to
claim affordable housing credits. These tax credits reduce current federal taxes
to the extent IEC has consolidated taxes payable.

Consistent  with Iowa  rate  making  practices  for IESU and IPC,  deferred  tax
expense is not recorded for certain temporary differences  (primarily related to
utility  property,  plant and  equipment).  As the deferred taxes become payable
(over periods exceeding 30 years for some generating plant differences) they are
recovered  through rates.  Accordingly,  IESU and IPC have recorded deferred tax
liabilities  and  regulatory  assets  for  certain  temporary  differences,   as
identified  in Note 1(c).  In  Wisconsin,  the PSCW has allowed rate recovery of
deferred taxes on all temporary  differences since August 1991. WP&L established
a regulatory  asset  associated  with temporary  differences  occurring prior to
August 1991, which is recovered through rates.

    (e) Common Shares Outstanding -

The weighted average common shares  outstanding used in the calculation of basic
earnings per share for IEC were 76,912,219;  76,209,935 and 75,480,539 for 1998,
1997 and 1996,  respectively.  The  common  stock  shares  used for  calculating
diluted  earnings per share for IEC were  76,928,631;  76,212,073 and 75,484,281
for 1998, 1997 and 1996, respectively.


                                       15
<PAGE>

    (f) Temporary Cash Investments -

Temporary cash investments are stated at cost, which approximates  market value,
and are considered  cash  equivalents  for the  Consolidated  Statements of Cash
Flows.  These  investments  consist of short-term  liquid  investments that have
maturities of less than 90 days from the date of acquisition.

    (g) Depreciation of Utility Property, Plant and Equipment -

IESU,  WP&L  and IPC use a  combination  of  remaining  life  and  straight-line
depreciation methods as approved by their respective regulatory commissions. The
remaining  life  of the  Duane  Arnold  Energy  Center  (DAEC),  IESU's  nuclear
generating facility, is based on the Nuclear Regulatory Commission (NRC) license
life of 2014. The remaining life of the Kewaunee Nuclear Power Plant (Kewaunee),
of which WP&L is a co-owner,  is based on the PSCW approved revised  end-of-life
of 2002 (prior to May 1997 the  calculation was based on the NRC license life of
2013).  Depreciation expense related to the decommissioning of DAEC and Kewaunee
is discussed in Note 12(h). WP&L implemented higher depreciation rates effective
January  1,  1997.  The  average  rates of  depreciation  for  electric  and gas
properties of IESU, WP&L and IPC, consistent with current rate making practices,
were as follows:
<TABLE>
<CAPTION>

                            IESU                                 WP&L                                  IPC
              ----------------------------------   ----------------------------------    ---------------------------------
                1998        1997        1996         1998        1997        1996           1998       1997       1996
              ---------- ----------- -----------   ---------- ----------- -----------    ----------- ---------- ----------
<S>             <C>         <C>         <C>          <C>          <C>        <C>            <C>        <C>        <C>
Electric        3.5%        3.5%        3.5%         3.6%         3.6%       3.3%           3.6%       3.6%       3.6%
Gas             3.5%        3.5%        3.5%         3.8%         3.8%       3.7%           3.4%       3.4%       3.4%
</TABLE>

    (h) Property, Plant and Equipment -

Utility plant (other than acquisition  adjustments at IESU of $26.8 million, net
of  accumulated  amortization,  recorded at cost) is recorded at original  cost,
which includes overhead and administrative costs and an allowance for funds used
during  construction  (AFUDC).  The AFUDC,  which represents the cost during the
construction period of funds used for construction purposes, is capitalized as a
component of the cost of utility plant.  The amount of AFUDC  applicable to debt
funds and to other  (equity)  funds,  a non-cash item, is computed in accordance
with the prescribed FERC formula. These capitalized costs are recovered in rates
as the cost of the utility plant is depreciated.  The aggregate gross rates used
were as follows:
                        1998                 1997                 1996
                 -------------------   ------------------  -------------------
         IESU           8.9%                 6.7%                 5.5%
         WP&L           5.2%                 6.2%                10.2%
         IPC            7.0%                 6.0%                 5.8%

Other  property,  plant  and  equipment  is  recorded  at  original  cost.  Upon
retirement  or sale of other  property  and  equipment,  the  cost  and  related
accumulated  depreciation  are removed from the accounts and any gain or loss is
included  in  "Miscellaneous,  net" in the  Consolidated  Statements  of Income.
Normal repairs, maintenance and minor items of utility plant and other property,
plant and  equipment  are  expensed.  Ordinary  retirements  of  utility  plant,
including   removal  costs  less  salvage  value,  are  charged  to  accumulated
depreciation  upon removal from  utility  plant  accounts and no gain or loss is
recognized.

    (i) Restatement  of  Consolidated   Financial   Statements  /  Oil  and  Gas
        Properties -

During  the  third  quarter  of  1998,  IEC's  oil and gas  subsidiary,  Whiting
Petroleum Corporation  (Whiting),  changed its accounting method for oil and gas
properties  from the full cost method to the successful  efforts  method.  While
both methods are acceptable  under  generally  accepted  accounting  principles,
successful  efforts  is the  preferred  method.  Management  believes  that  the
successful  efforts  method more  accurately  presents  the results of Whiting's
exploration,   development   and  production   activities  and  minimizes  asset
impairments caused by temporary declines in oil and gas prices, which may not be
representative of overall or long-term markets or management's  estimate of fair
market  value.  As a  result,  impairments  will  only be  recognized  under the
successful  efforts  method when there has been a permanent  decline in the fair
value  of the  oil  and  gas  properties.  As  required  by  generally  accepted
accounting  principles,  all prior period financial  statements of IEC presented
herein have been restated to reflect the change in accounting method.


                                       16
<PAGE>

Under the successful efforts method of accounting, Whiting capitalizes all costs
related  to  property   acquisitions  and  successful   exploratory  wells,  all
development  costs and the costs of support  equipment and facilities.  Unproved
leasehold costs are capitalized  and are reviewed  periodically  for impairment.
All costs related to unsuccessful exploratory wells are expensed when such wells
are  determined to be  non-productive  and other  exploration  costs,  including
geological  and  geophysical  costs,  are  expensed as  incurred.  Depreciation,
depletion and  amortization  of proved oil and gas properties is determined on a
field-by-field  basis using the  unit-of-production  method over the life of the
remaining  proved  reserves.  Estimated  costs  (net of  salvage  value) of site
remediation,  including  offshore  platform  dismantlement,  are included in the
depreciation  and  depletion  calculation.  Proved  oil and gas  properties  are
reviewed on a  field-by-field  basis whenever events or  circumstances  indicate
that the carrying value of such properties may be impaired.

The  cumulative  effect of the  restatement at January 1, 1994, was an after-tax
reduction in retained earnings of $2.7 million.  The restated net income amounts
for 1994 through 1997 are as follows (in thousands):
<TABLE>

                                                          1997         1996         1995         1994
                                                       ------------ ------------ ------------ ------------
<S>                                                      <C>          <C>          <C>          <C>
Net income prior to restatement                          $ 154,290    $ 158,675    $ 147,806    $ 150,281
Adjustment for change in accounting method for
   oil and gas properties from the full cost method
   to the successful efforts method
                                                           (9,712)      (2,884)      (1,835)      (4,391)
                                                       ------------ ------------ ------------ ------------
Restated net income                                      $ 144,578    $ 155,791    $ 145,971    $ 145,890
                                                       ============ ============ ============ ============

The  restated  earnings  per average  common  share (basic and diluted) for 1994
through 1997 are as follows:
<CAPTION>

                                                          1997         1996         1995         1994
                                                       ------------ ------------ ------------ ------------
<S>                                                         <C>          <C>          <C>          <C>
Earnings per average common share prior
   to restatement (basic and diluted)                       $ 2.02       $ 2.10       $ 1.97       $ 2.04
Adjustment for change in accounting method for
   oil and gas properties from the full cost method
   to the successful efforts method                         (0.12)       (0.04)       (0.02)       (0.06)
                                                       ------------ ------------ ------------ ------------
Restated earnings per average common
   share (basic and diluted)                                $ 1.90       $ 2.06       $ 1.95       $ 1.98
                                                       ============ ============ ============ ============
</TABLE>

    (j) Operating Revenues -

IEC accrues revenues for services rendered but unbilled at month-end in order to
more properly match revenues with expenses.

In accordance with an order from the PSCW, effective January 1, 1998, off-system
gas sales for WP&L are included in the  Consolidated  Statements  of Income as a
reduction  of the  cost of gas  sold  rather  than  as gas  revenues.  In  1997,
off-system gas sales were included in the  Consolidated  Statements of Income as
gas revenue.

    (k) Utility Fuel Cost Recovery -

IESU's and IPC's tariffs provide for subsequent  adjustments to its electric and
natural  gas rates for changes in the cost of fuel and  purchased  energy and in
the  cost of  natural  gas  purchased  for  resale.  Changes  in the  under/over
collection of these costs are reflected in "Electric and steam production fuels"
and "Cost of utility gas sold" in the  Consolidated  Statements  of Income.  The
cumulative effects are reflected on the Consolidated Balance Sheets as a current
asset or current liability,  pending automatic  reflection in future billings to
customers.  At IESU and IPC,  purchased  capacity  costs are not recovered  from
electric  customers through energy adjustment  clauses.  Recovery of these costs
must be addressed in base rates in a formal rate proceeding.

WP&L's  retail  electric  rates  are  based  in  part  on  forecasted  fuel  and
purchased-power  costs. Under PSCW rules,


                                       17
<PAGE>

Wisconsin  utilities can seek  emergency  rate increases if the annual costs are
more than 3% higher than the estimated costs used to establish rates. WP&L has a
gas performance  incentive which includes a sharing mechanism whereby 40% of all
gains  and  losses  relative  to  current  commodity  prices,  as well as  other
benchmarks,  are  retained  by WP&L rather than  refunded to or  recovered  from
customers.

    (l) Nuclear Refueling Outage Costs -

The IUB allows IESU to collect,  as part of its base  revenues,  funds to offset
other operating and maintenance  expenditures  incurred during refueling outages
at DAEC. As these  revenues are  collected,  an equivalent  amount is charged to
other  operating  and  maintenance  expenses  with a  corresponding  credit to a
reserve.  During a  refueling  outage,  the  reserve is  reversed  to offset the
refueling  outage  expenditures.  Operating  expenses  incurred during refueling
outages at Kewaunee are expensed by WP&L as incurred.

    (m) Nuclear Fuel -

Nuclear fuel for DAEC is leased.  Annual nuclear fuel lease expenses include the
cost of fuel,  based on the  quantity of heat  produced  for the  generation  of
electric energy, plus the lessor's interest costs related to fuel in the reactor
and  administrative  expenses.  Nuclear  fuel for  Kewaunee  is  recorded at its
original  cost and is  amortized  to  expense  based upon the  quantity  of heat
produced  for the  generation  of  electricity.  This  accumulated  amortization
assumes  spent  nuclear  fuel  will have no  residual  value.  Estimated  future
disposal costs of such fuel are expensed based on kilowatt-hours generated.

    (n) Translation of Foreign Currency -

Assets and liabilities of international  investments where the local currency is
the  functional  currency have been  translated at year-end  exchange  rates and
related income  statement  results have been translated  using average  exchange
rates prevailing  during the year.  Adjustments  resulting from translation have
been recorded in other comprehensive income.

    (o) Comprehensive Income -

On January 1, 1998, IEC adopted SFAS 130, "Reporting Comprehensive Income." SFAS
130  establishes  standards  for  reporting  of  comprehensive  income  and  its
components  in a full set of  general  purpose  financial  statements.  SFAS 130
requires reporting a total for comprehensive income which includes,  in addition
to net income: (1) unrealized holding  gains/losses on securities  classified as
available-for-sale  under SFAS 115; (2) foreign currency translation adjustments
accounted for under SFAS 52; and (3) minimum pension liability  adjustments made
pursuant to SFAS 87. Refer to the "Consolidated  Statements of Changes in Common
Equity" for additional information regarding comprehensive income.

    (p) Derivative Financial Instruments -

From time to time,  IEC enters into  interest  rate swaps to reduce  exposure to
interest rate  fluctuations in connection with short and variable rate long-term
debt  issues.  The swap's  cash flows  correspond  with those of the  underlying
exposures. The related costs associated with these agreements are amortized over
their respective lives as components of interest expense.

IEC,  through  its  consolidated  subsidiaries,  currently  utilizes  derivative
financial and commodity instruments to reduce price risk inherent in its gas and
electric activities on a very limited basis and such instruments may not be used
for trading  purposes.  The costs or benefits  associated  with any such hedging
activities are recognized  when the related  purchase or sale  transactions  are
completed.

(2) MERGER:

On April 21,  1998,  IES,  WPLH and IPC  completed a three-way  merger  (Merger)
forming IEC.  Each  outstanding  share of common stock of IES,  WPLH and IPC was
exchanged  for 1.14,  1.0 and 1.11  shares,  respectively,  of IEC


                                       18
<PAGE>

common stock resulting in the issuance of approximately 77 million shares of IEC
common stock, $.01 par value per share. The outstanding debt and preferred stock
securities  of IEC and its  subsidiaries  were not  affected by the  Merger.  In
connection with the Merger,  the number of authorized shares of IEC common stock
was increased to 200,000,000.

The Merger was  accounted  for as a pooling of  interests  and the  accompanying
Consolidated  Financial Statements,  along with the related notes, are presented
as if the companies were combined as of the earliest period  presented.  As part
of the pooling, the accrued pension liability (and offsetting regulatory asset),
of IES was  recomputed  using  the  method  used by  WPLH  and IPC to  recognize
deferred asset gains. In addition,  IPC adopted unbilled revenues as part of the
pooling  to  conform  to the  revenue  accounting  method  used by WPLH and IES.
Neither of these  adjustments  had any income  statement  impact for the periods
presented in this report.

Operating revenues and net income for the three months ended March 31, 1998, and
for the years ended  December 31, 1997,  and December 31, 1996,  were as follows
(in millions):
<TABLE>
<CAPTION>

                                              WPLH              IES             IPC             IEC
                                           ------------     ------------    ------------    -------------
Three months ended March 31, 1998
<S>                                           <C>              <C>              <C>             <C>
   Operating revenues                         $229.5           $241.7           $85.1           $556.3
   Net income                                  $15.8             $8.1            $5.0            $28.9

Year ended December 31, 1997
   Operating revenues                         $978.7           $990.1          $331.8         $2,300.6
   Net income                                  $61.3            $56.6           $26.7           $144.6

Year ended December 31, 1996
   Operating revenues                         $932.8           $973.9          $326.1         $2,232.8
   Net income                                  $71.9            $58.0           $25.9           $155.8
</TABLE>

The  financial  results of IES have been  restated for all periods  presented to
reflect a change in  accounting  method  for  Whiting's  oil and gas  properties
implemented  in the  third  quarter  of 1998  from the full  cost  method to the
successful  efforts  method.  See  Note  1(i)  for  additional  information.  In
addition,  the operating  revenues of WPLH and IES for the 1998 and 1997 periods
presented have been adjusted to reflect the financial results of a joint venture
between the two companies as a consolidated subsidiary.

(3) LEASES:

IESU has a capital  lease  covering its 70%  undivided  interest in nuclear fuel
purchased  for  DAEC.  Future  purchases  of fuel  may also be added to the fuel
lease.  This lease provides for annual  one-year  extensions and IESU intends to
continue exercising such extensions. Interest costs under the lease are based on
commercial  paper  costs  incurred by the lessor.  IESU is  responsible  for the
payment  of  taxes,  maintenance,  operating  cost,  risk of loss and  insurance
relating to the leased fuel. The lessor has a $45 million credit  agreement with
a  bank  supporting  the  nuclear  fuel  lease.  The  agreement  continues  on a
year-to-year basis, unless either party provides at least a three-year notice of
termination;  no such notice of  termination  has been provided by either party.
Annual nuclear fuel lease expenses  (included in "Electric and steam  production
fuels" in the  Consolidated  Statements of Income) for 1998,  1997 and 1996 were
$14.2 million, $16.6 million and $18.2 million, respectively.

IEC's  operating  lease  rental  expenses  for 1998,  1997 and 1996  were  $21.6
million,  $20.3 million and $20.0  million,  respectively.  IEC's future minimum
lease payments by year are as follows (in thousands):


                                       19
<PAGE>

                                                  Capital            Operating
      Year                                         Leases             Leases
      -------------------------------------    ---------------   ---------------
      1999                                     $      12,293     $       23,075
      2000                                             8,051             19,743
      2001                                             4,338             14,183
      2002                                             2,674              9,649
      2003                                               561              7,333
      Thereafter                                         141             29,961
                                               ---------------
                                                                 ---------------
                                                      28,058     $       103,944
                                                                 ===============
      Less:  Amount representing interest              2,325
                                               ---------------
      Present value of net minimum
          capital lease payments               $      25,733
                                               ===============

(4) UTILITY ACCOUNTS RECEIVABLE:

Utility  customer  accounts  receivable,   including  unbilled  revenues,  arise
primarily  from the sale of  electricity  and natural gas. At December 31, 1998,
IEC was serving a diversified  base of  residential,  commercial  and industrial
customers and did not have any significant concentrations of credit risk.

Separate  accounts  receivable  financing  arrangements  exist  for two of IEC's
utility  subsidiaries,  IESU and  WP&L,  which  are  similar  in most  important
aspects.  In both cases,  the utility  subsidiaries  sell up to a pre-determined
maximum  amount of accounts  receivable to a financial  institution on a limited
recourse basis, including sales to customers and to other public,  municipal and
cooperative utilities, as well as billings to the co-owners of the jointly-owned
electric generating plants that the utility  subsidiaries  operate.  The amounts
are discounted at the then-prevailing market rate and additional  administrative
fees are payable  according to the activity levels  undertaken.  All billing and
collection  functions  remain the  responsibility  of the respective  utilities.
Specifics of the two agreements include (dollars in millions):

                                                        IESU            WP&L
                                                    --------------   -----------
   Year agreement expires                               1999            1999
   Maximum amount of receivables that can be sold        $65            $150
   Effective 1998 all-in cost                           6.02%          5.95%
   Average monthly sale of receivables    - 1998         $63            $83
                                          - 1997         $65            $92
   Receivables sold at December 31, 1998                 $55            $75

(5) INVESTMENTS:

    (a) McLeodUSA Inc. (McLeod) -

At  December  31,  1998,  IEC  had  the  following   investment  in  McLeod,   a
telecommunications company (in millions):

                                   Shares      Cost       Fair Market Value
                                 ----------- ---------- -------------------
   Class A common stock              9.0       $ 29.1          $ 282.0
   Unexercised vested options,
       net of cost to exercise       1.3            -             38.3
                                 ----------- ---------- -------------------
                                    10.3        $ 29.1          $ 320.3
                                 =========== ========== ===================

Pursuant to the provisions of SFAS 115, IEC's investment in McLeod is considered
an  available-for-sale  security  thus the carrying  value of the  investment is
adjusted to the estimated  fair value each quarter based on the closing price at
the  end  of the  quarter.  The  adjustment  does  not  impact  earnings  as the
unrealized gains or losses,  net of taxes,  are recorded  directly to the common
equity section of the Consolidated  Balance Sheets. In addition,  any such gains
or losses are  reflected in current  earnings only at the time they are realized
through a sale.  IEC entered  into an  agreement  in  November  1998 with McLeod
whereby   IEC's  ability  to  sell  the  McLeod  stock  is  subject  to  various
restrictions.

                                       20
<PAGE>

    (b) Foreign Entities -

At December 31, 1998, IEC had $68.9 million of  investments in foreign  entities
on its  Consolidated  Balance  Sheets that  included:  1) investments in several
generation  facilities in China;  2) investments in several New Zealand  utility
entities;  and 3) an investment in an  international  venture  capital fund. IEC
accounts  for the  China  investments  under  the  equity  method  and the other
investments  under  the  cost  method.  The  geographic  concentration  of IEC's
investments in foreign  entities at December 31, 1998,  included  investments of
approximately  $36.1  million in China,  $32.3  million in New  Zealand and $0.5
million in other countries.

    (c) Alliant Energy Resources -

Summary  financial  information for Alliant Energy  Resources was as follows (in
millions):

                                    December 31,      December 31,
                                       1998              1997
                                    ------------      ------------
Current assets                        $92.1             $92.7
Non-current assets                    777.1             745.8
Current liabilities                    63.6             101.4
Non-current liabilities
(excludes minority interest)          160.3             153.9
Minority interest                       6.2               5.4

Refer to the  "Nonregulated  Businesses"  column of Note 14 for  summary  income
statement data of Alliant Energy Resources.


(6) INCOME TAXES:

The  components  of federal and state  income  taxes for IEC for the years ended
December 31 were as follows (in millions):
<TABLE>
<CAPTION>

                                                1998                1997                1996
                                           ---------------      --------------     ---------------
<S>                                        <C>                  <C>                <C>
Current tax expense                        $     92.5           $   99.6           $     96.9
Deferred tax expense                            (22.2)              (6.1)                20.3
Amortization of investment tax credits           (5.6)              (5.6)                (5.6)
Affordable housing tax credits                   (6.6)              (6.2)                (5.8)
                                           ---------------      --------------     ---------------
                                           $     58.1           $   81.7           $    105.8
                                           ===============      ==============     ===============
</TABLE>

The overall  effective income tax rates shown below for the years ended December
31 were  computed by dividing  total income tax expense by income  before income
taxes and preferred dividend requirements of subsidiaries.
<TABLE>
<CAPTION>

                                                            1998               1997                1996
                                                        --------------     --------------      -------------
<S>                                                         <C>                 <C>                <C>
Statutory federal income tax rate                           35.0%               35.0%              35.0%
    State income taxes, net of federal benefits              8.0                 6.4                6.5
    Affordable housing tax credits                          (4.1)               (2.7)              (2.2)
    Amortization of investment tax credits                  (3.4)               (2.4)              (2.1)
    Adjustment of prior period taxes                        (0.4)               (2.2)               1.0
    Merger expenses                                          2.4                 0.5                1.2
    Oil and gas production credits                          (1.6)               (0.6)              (0.5)
    Other items, net                                         0.1                 1.1                0.3
                                                        --------------     --------------      -------------
Overall effective income tax rate                           36.0%               35.1%              39.2%
                                                        ==============     ==============      =============
</TABLE>


                                       21
<PAGE>

The  accumulated  deferred  income taxes  (assets) and  liabilities as set forth
below on the Consolidated Balance Sheets at December 31 arise from the following
temporary differences (in millions):

                                                  1998              1997
                                             ---------------    --------------
        Property related                  $        677.7     $       654.7
        McLeod investment                          121.1             124.3
        Investment tax credit related              (43.0)            (46.1)
        Decommissioning related                    (33.4)            (31.7)
        Other                                      (30.8)             18.7
                                             ---------------    --------------
                                          $        691.6     $       719.9
                                             ===============    ==============

(7) BENEFIT PLANS:

    (a) Pension Plans and Other Postretirement Benefits -

IEC  adopted  SFAS  132,  "Employers'   Disclosures  about  Pensions  and  Other
Postretirement  Benefits"  in 1998.  IEC has  several  non-contributory  defined
benefit  pension  plans that cover  substantially  all of its  employees who are
subject to a collective bargaining agreement.  Plan benefits are generally based
on years of service  and  compensation  during the  employees'  latter  years of
employment.  Eligible  employees  of IEC that are not  subject  to a  collective
bargaining  agreement  are covered by the Alliant  Energy Cash  Balance  Pension
Plan, a  non-contributory  defined  benefit  pension  plan.  During each year of
service,  IEC credits each participant's  account with a benefit credit equal to
5% of base pay as well as a guaranteed  minimum interest credit equal to 4%. The
projected unit credit actuarial cost method was used to compute pension cost and
the accumulated and projected benefit  obligations.  IEC's policy is to fund all
of the pension plans at an amount that is at least equal to the minimum  funding
requirements mandated by the Employee Retirement Income Security Act of 1974, as
amended (ERISA),  and that does not exceed the maximum tax deductible amount for
the year.

IEC also provides certain other postretirement  benefits to retirees,  including
medical   benefits  for  retirees  and  their   spouses  (and  Medicare  Part  B
reimbursement for certain retirees) and, in some cases,  retiree life insurance.
IESU's and IPC's funding of other postretirement benefits generally approximates
the  annual  rate  recovery  of  such  costs,  while  WP&L's  funding  generally
approximates the maximum tax deductible amount on an annual basis.

The weighted-average  assumptions as of the measurement date of September 30 are
as follows:
<TABLE>
<CAPTION>

                                                  Qualified Pension Benefits          Other Postretirement Benefits
                                              ----------------------------------- --------------------------------------
                                                 1998        1997        1996        1998        1997         1996
                                              ----------- ----------- ----------- ----------- ----------- --------------
<S>                                             <C>         <C>         <C>         <C>         <C>           <C>
Discount rate                                   6.75%       7.25%       7.50%       6.75%       7.25%         7.50%
Expected return on plan assets                    9%         8-9%        8-9%         9%         8-9%         8-9%
Rate of compensation increase                  3.5-4.5%    3.5-5.0%    3.5-5.0%      3.5%        3.5%       3.5%-4.5%
Medical cost trend on covered charges:
      Initial trend range                        N/A         N/A         N/A          8%          8%          8-9%
      Ultimate trend range                       N/A         N/A         N/A       5.0-6.0%    5.0-6.5%     5.0-6.5%

The  components of IEC's  qualified  pension  benefits and other  postretirement
benefits costs are as follows (in millions):
<CAPTION>

                                                 Qualified Pension Benefits           Other Postretirement Benefits
                                             ------------------------------------    ---------------------------------
                                               1998          1997          1996        1998       1997         1996
                                             ----------    ----------    ---------    -------    --------    ---------
<S>                                       <C>           <C>           <C>          <C>        <C>         <C>
Service cost                              $       13.8  $       13.1  $      13.4  $   5.1    $    4.7    $      4.9
Interest cost                                     35.4          32.2         30.0      9.7         9.8           9.6
Expected return on plan assets                   (47.2)        (39.0)       (36.8)    (3.7)       (2.6)         (1.9)
Amortization of:
   Transition obligation (asset)                  (2.4)         (2.4)        (2.4)     4.7         4.9           5.0
   Prior service cost                              2.8           2.5          1.7     (0.3)       (0.3)         (0.3)
   Actuarial (gain) / loss                        (0.9)          -            0.4     (1.2)       (0.2)         (0.1)
                                             ----------   -----------    ---------    -------    --------    ---------
Total                                     $        1.5  $        6.4  $       6.3  $   14.3   $   16.3    $     17.2
                                             ==========    ==========    =========    =======    ========    =========
</TABLE>

                                       22
<PAGE>


During 1998,  1997 and 1996,  IEC recognized an additional  $10.3 million,  $5.1
million and $4.7 million, respectively, of costs in accordance with SFAS 88. The
charges  were for  severance  and early  retirement  programs in the  respective
years. In addition,  during 1998 and 1997, IEC recognized $10.2 million and $1.7
million,   respectively,   of  curtailment   charges  relating  to  IEC's  other
postretirement  benefits.  The amounts include a December 1998 early  retirement
program.

The  measurement  date  for  accounting  purposes  is  September  30 for  IEC as
disclosed  above.  Prior to the  Merger,  WPLH,  IPC and IES used  December  31,
November 1 and September 30 measurement dates, respectively.

The assumed  medical trend rates are critical  assumptions  in  determining  the
service and interest  cost and  accumulated  postretirement  benefit  obligation
related to  postretirement  benefit  costs.  A one percent change in the medical
trend rates for 1998,  holding all other  assumptions  constant,  would have the
following effects (in millions):
<TABLE>
<CAPTION>

                                                                1 Percent Increase       1 Percent Decrease
                                                               ---------------------    ---------------------
<S>                                                                     <C>                    <C>
Effect on total of service and interest cost components                 $2.3                   ($1.8)
Effect on postretirement benefit obligation                            $15.6                  ($13.0)
</TABLE>


A reconciliation  of the funded status of IEC's plans to the amounts  recognized
on IEC's  Consolidated  Balance  Sheets at  December 31 is  presented  below (in
millions):
<TABLE>
<CAPTION>

                                                       Qualified Pension Benefits        Other Postretirement Benefits
                                                       ----------------------------     --------------------------------
                                                          1998            1997             1998               1997
                                                       -----------     ------------     ------------      --------------
Change in benefit obligation:
<S>                                                 <C>            <C>              <C>              <C>
  Net benefit obligation at beginning of year       $       474.2  $        426.6   $        146.4   $            136.5
  Service cost                                               13.8            13.1              5.1                  4.7
  Interest cost                                              35.4            32.2              9.7                  9.8
  Plan participants' contributions                            -               -                1.3                  1.4
  Plan amendments                                            (2.5)           11.8              -                    -
  Actuarial (gain) / loss                                    24.8            13.7             (3.6)                 1.0
  Curtailments                                               (3.0)            2.5              1.9                  0.7
  Special termination benefits                               10.7             5.1              -                    -
  Gross benefits paid                                       (25.0)          (30.8)            (7.5)                (7.7)
                                                       -----------     ------------     ------------      --------------
    Net benefit obligation at end of year                   528.4           474.2            153.3                146.4
                                                       -----------     ------------     ------------      --------------

Change in plan assets:
  Fair value of plan assets at beginning of year            529.1           482.6             50.7                 37.2
  Actual return on plan assets                                2.2            72.5              2.5                  3.7
  Employer contributions                                      -               4.8              7.0                 16.1
  Plan participants' contributions                            -               -                1.3                  1.4
  401(h) assets recognized                                    -               -                1.1                  -
  Gross benefits paid                                       (25.0)          (30.8)            (7.5)                (7.7)
                                                       -----------     ------------     ------------      --------------
    Fair value of plan assets at end of year                506.3           529.1             55.1                 50.7
                                                       -----------     ------------     ------------      --------------

Funded status at end of year                                (22.1)           54.9            (98.2)               (95.7)
Unrecognized net actuarial (gain) / loss                     30.3           (56.9)            (7.5)                (4.0)
Unrecognized prior service cost                              25.8            32.1             (1.7)                (2.3)
Unrecognized net transition obligation (asset)              (10.6)          (13.0)            60.6                 73.2
                                                       -----------     ------------     ------------      --------------
    Net amount recognized at end of year            $        23.4  $         17.1   $        (46.8)  $            (28.8)
                                                       ===========     ============     ============      ==============

Amounts recognized on the Consolidated
 Balance Sheets consist of:
    Prepaid benefit cost                            $        38.9  $         42.7   $          0.9   $              0.9
    Accrued benefit cost                                    (15.5)          (25.6)           (47.7)               (29.7)
    Additional minimum liability                             (7.7)            -                -                    -
    Intangible asset                                          7.7             -                -                    -
                                                       -----------     ------------     ------------      --------------
    Net amount recognized at measurement date                23.4            17.1            (46.8)               (28.8)
                                                       -----------     ------------     ------------      --------------

Contributions paid after 9/30 and prior to 12/31              -               -                6.8                  -
                                                       -----------     ------------     ------------      --------------
    Net amount recognized at 12/31/98               $        23.4  $         17.1   $        (40.0)  $            (28.8)
                                                       ===========     ============     ============      ==============
</TABLE>

                                       23
<PAGE>

The  benefit  obligation  and fair value of plan  assets for the  postretirement
welfare  plans with  benefit  obligations  in excess of plan  assets were $146.5
million and $45.3  million,  respectively,  as of September  30, 1998 and $139.8
million and $46.3 million,  respectively,  as of the prior measurement date. The
projected benefit  obligation,  accumulated benefit obligation and fair value of
plan assets for the pension  plans with  benefit  obligations  in excess of plan
assets were $250.5 million, $241.1 million and $217.9 million,  respectively, as
of September 30, 1998.

IEC also  sponsors  several  non-qualified  pension  plans which  cover  certain
current and former officers. Funding of such plans at December 31, 1998, totaled
approximately $4 million. IEC's pension benefit obligation under these plans was
$25.8  million and $18.7  million at December  31, 1998 and 1997,  respectively.
IEC's pension expense under these plans was $4.5 million, $3.7 million, and $2.0
million in 1998, 1997 and 1996, respectively.

A significant  number of IEC employees also participate in defined  contribution
pension plans (401(k) plans).  IEC's contributions to the plans, which are based
on the participants' level of contribution,  were $7.7 million, $5.5 million and
$4.9 million in 1998, 1997 and 1996, respectively.

    (b) Long-Term Equity Incentive Plan -

IEC  has  a  long-term   equity  incentive  plan  which  permits  the  grant  of
non-qualified  stock  options,   incentive  stock  options,   restricted  stock,
performance  shares and performance  units to key employees.  As of December 31,
1998, only non-qualified stock options and performance units had been granted to
key  employees.  The  maximum  number of shares of IEC common  stock that may be
issued  under the plan may not exceed one  million.  Options  are granted at the
fair market  value of the shares on the date of grant and vest over three years.
Options outstanding will expire no later than 10 years after the grant date. The
first options were granted in 1995 and became  exercisable  in January 1998. All
options  granted prior to the  consummation of the Merger were issued by WPLH. A
summary of the stock option activity for 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>

                                                  1998                       1997                      1996
                                         -----------------------    -----------------------   -----------------------
                                                      Weighted                  Weighted                   Weighted
                                                      Average                    Average                   Average
                                                      Exercise                  Exercise                   Exercise
                                           Shares      Price          Shares      Price         Shares      Price
                                         -----------------------    -----------------------   -----------------------
<S>                                          <C>        <C>           <C>        <C>              <C>        <C>
Outstanding at beginning of year             191,800    $28.98        114,150    $29.56           41,900     $27.50
Options granted                              636,451     31.32         77,650     28.12           72,250      30.75
Options exercised                            (8,900)     28.59              -      -                -           -
Options forfeited                           (68,267)     30.49              -      -                -           -
                                        -----------------------    -----------------------   -----------------------
Outstanding at end of year                   751,084    $30.83         191,800   $28.98          114,150     $29.56
                                         =======================    =======================   =======================
Exercisable at end of year                    38,250    $27.50               -                         -

</TABLE>

The range of exercise  prices for the options  outstanding  at December 31, 1998
was $27.50 to $31.56.

                                       24
<PAGE>

The value of the  options  at the grant  date  using the  Black-Scholes  pricing
method is as follows:
<TABLE>
<CAPTION>

                                                             1998             1997            1996
                                                          ------------     ------------    ------------
<S>                                                        <C>              <C>             <C>
Value of options based on Black-Scholes model                $4.93            $3.30           $3.47
Volatility                                                    21%              15%             16%
Risk free interest rate                                      5.75%            6.43%           5.56%
Expected life                                              10 years         10 years        10 years
Expected dividend yield                                      7.0%             7.0%            7.0%
</TABLE>

IEC follows Accounting  Principles Board (APB) Opinion 25, "Accounting for Stock
Issued to  Employees,"  to account for stock options.  No  compensation  cost is
recognized because the option exercise price is equal to the market price of the
underlying stock on the date of grant.  Had compensation  cost for the plan been
determined  based on the  Black-Scholes  value at the grant  dates for awards as
prescribed by SFAS 123 "Accounting for Stock-Based  Compensation," pro forma net
income and earnings per share would have been:

                                             1998          1997         1996
                                          -----------   -----------  -----------
  Net income (in millions)                  $93.5         $144.3       $155.5
  Earnings per share (basic and diluted)    $1.22         $1.89        $2.06

The performance units represent  accumulated  dividends on the shares underlying
the  non-qualified  stock  options and are expensed  over a  three-year  vesting
period based on the annual dividend rate at the grant date. The performance unit
payout is contingent  upon  three-year  performance  criteria.  The cost of this
program in 1998, 1997 and 1996 was not significant.


(8) COMMON, PREFERRED AND PREFERENCE STOCK:

    (a) Common Stock -

During 1998,  1997 and 1996, IEC issued  890,035;  687,962 and 777,649 shares of
common stock under its various stock plans, respectively. Shares issued prior to
the Merger  consummation  by IES and IPC have been  adjusted for the  applicable
conversion ratios. In addition, 260,039 shares were issued in 1998 in connection
with the acquisition of oil and gas properties.  At December 31, 1998, IEC had a
total of 4.0 million  shares  available for issuance  pursuant to its Shareowner
Direct Plan,  Long-Term  Equity  Incentive Plan and 401(k) Savings Plan. IEC has
declared  a  quarterly  dividend  of 50 cents per share each  quarter  since the
consummation of the Merger.

During 1998, 1997 and 1996, IEC reacquired 1,133 shares, 3,278 shares and 10,771
shares,  respectively,  of its common stock on the open market. Such shares were
reacquired by IES prior to the consummation of the Merger and have been adjusted
for the IES conversion ratio.  These shares were subsequently  issued to various
IEC directors and  employees.  At December 31, 1998, no shares  remained held as
treasury stock.

In October 1998, the Board of Directors of IEC adopted a new  Shareowner  Rights
Plan (new plan) to replace  IEC's former plan that expired on February 22, 1999.
The new plan was  approved on January 15, 1999 by the SEC. On January 20,  1999,
the Board of Directors  declared a dividend of one common share  purchase  right
(right) on each  outstanding  share of IEC's  common  stock  which was issued on
February 22, 1999 to coincide  with the  expiration  of the former plan.  Rights
under the new plan will be exercisable  only if a person or group  acquires,  or
announces a tender  offer to acquire,  15% or more of IEC's common  stock.  Each
right will initially  entitle  shareowners to buy one-half of one share of IEC's
common  stock.  The rights will only be  exercisable  in  multiples of two at an
initial price of $95.00 per full share, subject to adjustment. If any shareowner
acquires 15% or more of the outstanding common stock of IEC, each right (subject
to limitations) will entitle its holder to purchase, at the right's then current
exercise  price,  a number of common  shares of IEC or of the acquirer  having a
market value at the time of twice the right's per full share exercise price. The
Board of Directors is also  authorized to reduce the 15%  thresholds to not less
than 10%.

                                       25
<PAGE>

In rate order  UR-110,  the PSCW  ordered  that it must  approve  the payment of
dividends by WP&L to IEC that are in excess of the level  forecasted in the rate
order ($58.3  million),  if such  dividends  would reduce WP&L's  average common
equity ratio below 52.00% of total capitalization. The dividends paid by WP&L to
IEC since the rate order was issued have not  exceeded the level  forecasted  in
the rate order.

    (b) Preferred and Preference Stock -

In 1993, IPC issued 545,000 shares of 6.40%,  $50 par value preferred stock with
a final  redemption  date of May 1, 2022.  Under the provisions of the mandatory
sinking fund, beginning in 2003, IPC is required to redeem annually $1.4 million
of 6.40% preferred stock (27,250 shares).

(9) DEBT:

    (a) Short-Term Debt

IEC  maintains  committed  bank lines of  credit,  most of which are at the bank
prime rates, to obtain  short-term  borrowing  flexibility,  including  pledging
lines of  credit as  security  for any  commercial  paper  outstanding.  Amounts
available  under these lines of credit  totaled  $150 million as of December 31,
1998.  Commitment  fees  are paid to  maintain  these  lines  and  there  are no
conditions  which restrict the unused lines of credit.  Alliant Energy Resources
also  maintains  a credit  agreement  with  various  banking  institutions.  The
unborrowed  portion of this  agreement  is also used to support  Alliant  Energy
Resources'  commercial paper program.  The amount available under this agreement
as of December 31, 1998, was $150 million. Information regarding short-term debt
and lines of credit is as follows (in millions):

<TABLE>
<CAPTION>

                                                         1998                1997               1996
                                              ----------------     ---------------    ---------------
As of year end--
<S>                                                <C>                 <C>                <C>
   Commercial paper outstanding                         $64.5              $114.5             $198.2
   Notes payable outstanding                            $51.8               $42.0              $68.3
   Discount rates on commercial paper              5.10-6.55%          5.82-5.90%         5.35-6.05%
   Interest rates on notes payable                 5.44-7.00%          5.00-5.90%         5.28-6.59%

For the year ended--
   Average amount of short-term debt
      (based on daily outstanding balances)            $126.6              $211.0             $207.9
   Average interest rate on short-term debt             5.55%               5.61%              5.57%
</TABLE>

    (b) Long-Term Debt

IESU's  Indentures  and  Deeds  of  Trust  securing  its  First  Mortgage  Bonds
constitute  direct first mortgage liens upon  substantially  all tangible public
utility  property.  IESU's  Indenture and Deed of Trust  securing its Collateral
Trust Bonds  constitutes  a second lien on  substantially  all  tangible  public
utility  property while First Mortgage Bonds remain  outstanding.  Substantially
all of WP&L's and IPC's  utility plant is secured by its First  Mortgage  Bonds.
WP&L also  maintains  an  unsecured  indenture  relating to the issuance of debt
securities.  In addition,  IEC's long-term debt includes  unsecured  debentures,
notes payable and revenue bonds related to its affordable housing properties.

Alliant  Energy  Resources is a party to a 3-Year Credit  Agreement with various
banking institutions.  The agreement extends through October 2000, with one-year
extensions   available   upon  agreement  by  the  parties.   Unused   borrowing
availability  under  this  agreement  is also  used to  support  Alliant  Energy
Resources'  commercial  paper  program.  A combined  maximum of $450  million of
borrowings  under  this  agreement  and  the  commercial  paper  program  may be
outstanding  at any one time.  Interest rates and maturities are set at the time
of borrowing.  The rates are based upon quoted market prices and the  maturities
are less than one year. At December 31, 1998,  Alliant Energy Resources had $253
million of commercial  paper  outstanding  backed by this facility with interest
rates  ranging from  5.15%-5.85%.  (See Note 11(a) for a  discussion  of several
interest rate swaps Alliant  Energy  Resources has entered into relative to $200
million of short-term  borrowings under, or backed by, this agreement).  Alliant
Energy  Resources  intends to continue  issuing  commercial paper backed by this
facility and no  conditions  existed at December 31, 1998 that would prevent the
issuance of commercial paper or direct borrowings on its bank lines.
Accordingly, this debt is classified as long-term.

                                       26
<PAGE>

Debt maturities  (excluding  periodic sinking fund requirements,  which will not
require additional cash expenditures) for 1999 to 2003 are $318.1 million, $56.0
million, $84.7 million, $3.8 million and $9.3 million,  respectively.  Depending
upon  market  conditions,  it is  currently  anticipated  that a majority of the
maturing debt will be refinanced with the issuance of long-term securities.

Refer to  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" (MD&A) for a further discussion of IEC's debt.

(10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments:

o   Current Assets and Current  Liabilities - The carrying  amount  approximates
    fair value because of the short maturity of such financial instruments.
o   Nuclear  Decommissioning  Trust Funds - The carrying  amount  represents the
    fair value of these trust funds, as reported by the trustee.  The balance of
    the  "Nuclear  decommissioning  trust  funds"  as shown on the  Consolidated
    Balance  Sheets  included  $43.0 million and $35.7 million of net unrealized
    gains at December  31, 1998 and  December  31,  1997,  respectively,  on the
    investments   held  in  the  trust  funds.   The  accumulated   reserve  for
    decommissioning costs was adjusted by a corresponding amount.
o   Cumulative  Preferred  Stock  - Based  upon  the  market  yield  of  similar
    securities  and quoted  market  prices.
o   Long-Term  Debt - Based upon the  market  yield of  similar  securities  and
    quoted market prices.
o   Investment in McLeod - Pursuant to the  provisions of SFAS 115, the carrying
    value of the McLeod  investment is adjusted to estimated fair value based on
    the closing price at the end of the quarter.
o   Investments in New Zealand - Fair value of the New Zealand  investments  are
    generally based on quoted market prices.

The following  table  presents the carrying  amount and estimated  fair value of
certain financial instruments for IEC as of December 31 (in millions):
<TABLE>
<CAPTION>

                                                               1998                           1997
                                                    ---------------------------    ----------------------------
                                                     Carrying          Fair         Carrying           Fair
                                                       Value          Value           Value           Value
                                                    ------------    -----------    ------------     -----------

<S>                                              <C>             <C>            <C>             <C>
Nuclear decommissioning trust funds              $      226      $      226     $      190      $       190
Cumulative preferred stock                              113             109            113              105
Long-term debt, including current portion             1,664           1,753          1,543            1,600
Investment in McLeod (Note 5(a))                        320             320            328              328
Investments in New Zealand (Note 5(b))                   32              44             34               33
</TABLE>

Since IESU, WP&L and IPC are subject to regulation,  any gains or losses related
to the  difference  between  the  carrying  amount  and the  fair  value  of its
financial instruments may not be realized by IEC's shareowners.


(11) DERIVATIVE FINANCIAL INSTRUMENTS:

IEC,  through its consolidated  subsidiaries,  has historically had only limited
involvement  with  derivative  financial  instruments  and has not used them for
speculative  purposes.  They have been used to manage well-defined interest rate
and commodity price risks.

    (a) Interest Rate Swaps and Forward Contracts -

At December 31,  1998,  Alliant  Energy  Resources  had two  interest  rate swap
agreements  outstanding  (both  expiring  in April  2000 with the bank  having a
1-year  extension  option for one of the agreements) each with a notional amount
of $100  million.  WP&L also had two interest rate swap  agreements  outstanding
(both expiring in 2000) at December 31, 1998, and the combined  notional  amount
of the two agreements  was $30 million.  These  agreements  were entered into in
order to reduce the impact of changes in variable  interest  rates by converting
variable rate borrowings into fixed rate borrowings thus all agreements  require
Alliant  Energy  Resources  and WP&L to pay a fixed rate and  receive a variable
rate.  Had Alliant  Energy  Resources  and WP&L  terminated  the  agreements  at
December 31, 1998, they would have had to make payments of $2.9 million and $0.3
million, respectively.


                                       27
<PAGE>

On September  14, 1998,  WP&L  entered  into an interest  rate forward  contract
related to the anticipated issuance of $60 million of debentures. The securities
were issued on October 30, 1998,  and the forward  contract  was settled,  which
resulted in a cash payment of $1.5 million by WP&L.

    (b) Gas Commodities Instruments -

WP&L uses gas commodity swaps to reduce the impact of price  fluctuations on gas
purchased and injected  into storage  during the summer months and withdrawn and
sold at current market prices during the winter months.  The notional  amount of
gas  commodity  swaps  outstanding  as of  December  31,  1998,  was 5.8 million
dekatherms.  Had WP&L terminated all of the agreements  existing at December 31,
1998, it would have realized an estimated gain of $0.8 million.

    (c) Electricity Trading Joint Venture -

IEC has a 50%  interest in an  electricity  trading  joint  venture with Cargill
Incorporated  (Cargill)  which is  accounted  for  under  the  equity  method of
accounting.  The joint  venture's  trading  activities  principally  consist  of
marketing  and trading  over-the-counter  contracts for the purchase and sale of
electricity.  The majority of the forward  contracts  represent  commitments  to
purchase  or  sell  electricity  at  fixed  prices  in the  future  and  require
settlement by physical  delivery of  electricity or are netted out in accordance
with industry trading standards.  The value-at-risk of the joint venture for its
forward contracts outstanding at December 31, 1998, was not significant.

(12) COMMITMENTS AND CONTINGENCIES:

    (a) Construction and Acquisition Program -

Plans for IEC's  construction and acquisition  program can be found elsewhere in
this  report in the  "Liquidity  and Capital  Resources - Capital  Requirements"
section of MD&A.

    (b) Purchased-Power, Coal and Natural Gas Contracts

IEC has entered into purchased-power capacity and coal contracts and its minimum
commitments are as follows (dollars in millions,  megawatt-hours (MWHs) and tons
in thousands):

                                                           Coal
                                                 (including transportation
                      Purchased-Power                     costs)
                ---------------------------   --------------------------------
                 Dollars          MWHs          Dollars             Tons
                -----------    ------------   -------------    ---------------
1999              $ 104.0         1,691          $ 49.2            11,560
2000                102.4         1,571            24.6             4,457
2001                 71.0           925            15.7             2,695
2002                 43.5           280             5.4             1,036
2003                 36.2           280             0.3                95

IEC is in the process of negotiating several new coal contracts. In addition, it
expects to supplement its coal  contracts with spot market  purchases to fulfill
its future fossil fuel needs.

IEC also has various natural gas supply,  transportation  and storage  contracts
outstanding.  The minimum dekatherm commitments,  in millions, for 1999-2003 are
194.8,  162.8,  146.8,  122.3  and  95.1,   respectively.   The  minimum  dollar
commitments for 1999-2003,  in millions,  are $158.7,  $95.9,  $83.5,  $58.8 and
$46.1, respectively. The gas supply commitments are all index-based. IEC expects
to supplement its natural gas supply with spot market purchases as needed.

    (c) Information Technology Services -

In May 1998, IEC entered into an agreement,  expiring in 2004,  with  Electronic
Data  Systems  Corporation  (EDS) for  information  technology  services.  IEC's
anticipated  operating and capital expenditures under the agreement for 1999 are
estimated to total  approximately $21 million.  Future costs under the agreement
are  variable  and are  dependent  upon  IEC's  level of usage of  technological
services from EDS.

                                       28
<PAGE>

    (d) Financial Guarantees and Commitments

IEC has financial guarantees, which were generally issued to support third-party
borrowing  arrangements  and similar  transactions,  amounting to $18.1  million
outstanding  at December  31, 1998.  Such  guarantees  are not  reflected in the
consolidated  financial  statements.  Management believes that the likelihood of
IEC having to make any material cash payments under these agreements is remote.

In addition,  as part of IEC's  electricity  trading joint venture with Cargill,
Cargill has made guarantees to certain counterparties  regarding the performance
of contracts entered into by the joint venture.  Guarantees of approximately $50
million have been issued of which  approximately  $5 million were outstanding at
December 31, 1998. Under the terms of the joint venture agreement,  any payments
required  under the  guarantees  would be shared by IEC and  Cargill  on a 50/50
basis to the extent the joint venture is not able to reimburse the guarantor for
payments made under the guarantee.

As of December 31, 1998,  Alliant Energy  Resources had extended  commitments to
provide  $7.2  million  in  nonrecourse,  fixed  rate,  permanent  financing  to
developers which are secured by affordable housing  properties.  IEC anticipates
other lenders will ultimately finance these properties.

    (e) Nuclear Insurance Programs-

Public liability for nuclear  accidents is governed by the Price Anderson Act of
1988,  which sets a statutory  limit of $9.8 billion for liability to the public
for a single  nuclear  power plant  incident  and requires  nuclear  power plant
operators to provide  financial  protection for this amount.  As required,  IESU
provides  this  financial  protection  for a nuclear  incident at DAEC through a
combination   of  liability   insurance   ($200   million)   and   industry-wide
retrospective  payment plans ($9.6 billion).  Under the industry-wide plan, each
operating  licensed  nuclear  reactor  in the  United  States is  subject  to an
assessment in the event of a nuclear incident at any nuclear plant in the United
States.  The owners of DAEC could be  assessed  a maximum of $88.1  million  per
nuclear incident,  with a maximum of $10 million per incident per year (of which
IESU's 70 %  ownership  portion  would be  approximately  $61.7  million  and $7
million, respectively) if losses relating to the incident exceeded $200 million.
These  limits  are  subject  to  adjustments   for  changes  in  the  number  of
participants  and inflation in future years.  On a similar note,  WP&L, as a 41%
owner of Kewaunee,  is subject to an overall  assessment of approximately  $36.1
million per incident, not to exceed $4.1 million payable in any given year.

IESU and WP&L are members of Nuclear  Electric  Insurance  Limited (NEIL).  NEIL
provides  $1.9 billion of insurance  coverage for IESU and $1.8 billion for WP&L
on certain  property losses for property damage,  decontamination  and premature
decommissioning.  The proceeds from such insurance,  however, must first be used
for reactor  stabilization and site decontamination  before they can be used for
plant repair and premature decommissioning. NEIL also provides separate coverage
for  additional  expense  incurred  during  certain  outages.  Owners of nuclear
generating  stations  insured  through NEIL are subject to  retroactive  premium
adjustments  if losses exceed  accumulated  reserve  funds.  NEIL's  accumulated
reserve  funds are  currently  sufficient to more than cover its exposure in the
event of a single  incident  under the  primary  and excess  property  damage or
additional expense coverages. However, IESU could be assessed annually a maximum
of $1.9 million for NEIL primary property, $3.5 million for NEIL excess property
and $0.7 million for NEIL  additional  expenses if losses exceed the accumulated
reserve  funds.  WP&L could be assessed  annually a maximum of $1.1  million for
NEIL primary  property,  $2.0 million for NEIL excess  property and $0.6 million
for NEIL additional expense coverage.  IESU and WP&L are not aware of any losses
that they believe are likely to result in an assessment.

In the unlikely event of a catastrophic  loss at Kewaunee or DAEC, the amount of
insurance   available   may  not  be   adequate   to  cover   property   damage,
decontamination and premature  decommissioning.  Uninsured losses, to the extent
not  recovered  through  rates,  would be borne by IEC and could have a material
adverse effect on IEC's financial position and results of operations.

    (f) Environmental Liabilities -

IEC has recorded environmental liabilities of approximately $78.4 million on its
Consolidated   Balance   Sheets  at  December   31,  1998.   IEC's   significant
environmental liabilities are discussed below.


                                       29
<PAGE>

    Manufactured Gas Plant Sites

IESU,  WP&L  and IPC  all  have  current  or  previous  ownership  interests  in
properties  previously  associated  with the  production of gas at MGP sites for
which they may be liable for  investigation,  remediation  and monitoring  costs
relating to the sites.
A summary of information relating to the sites is as follows:
<TABLE>
<CAPTION>

                                                               IESU         WP&L         IPC
<S>                                                           <C>          <C>          <C>
Number of known sites for which liability may exist              34           14           9
Liability recorded at December 31, 1998 (millions)            $26.6         $7.7       $17.5
Regulatory asset recorded at December 31, 1998 (millions)     $26.6        $14.1       $17.5
</TABLE>

The companies are working  pursuant to the  requirements  of various federal and
state agencies to investigate, mitigate, prevent and remediate, where necessary,
the  environmental  impacts to property,  including  natural  resources,  at and
around the sites in order to protect  public  health  and the  environment.  The
companies  each  believe that they have  completed  the  remediation  at various
sites,  although they are still in the process of obtaining  final approval from
the applicable environmental agencies for some of these sites.

Each company records environmental liabilities based upon periodic studies, most
recently updated in the fourth quarter of 1998,  related to the MGP sites.  Such
amounts are based on the best  current  estimate of the  remaining  amount to be
incurred for  investigation,  remediation  and monitoring  costs for those sites
where the investigation process has been or is substantially  completed, and the
minimum of the estimated cost range for those sites where the  investigation  is
in its earlier stages. It is possible that future cost estimates will be greater
than current estimates as the  investigation  process proceeds and as additional
facts  become  known.  The amounts  recognized  as  liabilities  are adjusted as
further  information   develops  or  circumstances   change.   Costs  of  future
expenditures  for  environmental  remediation  obligations are not discounted to
their fair value.

Management  currently  estimates the range of remaining costs to be incurred for
the   investigation,   remediation  and  monitoring  of  all  IEC  sites  to  be
approximately $35 million to $66 million.  IESU, WP&L and IPC currently estimate
their  share of the  remaining  costs to be  incurred  to be  approximately  $17
million to $36 million, $5 million to $9 million and $13 million to $21 million,
respectively.

Under  the  current  rate  making  treatment  approved  by  the  PSCW,  the  MGP
expenditures of WP&L, net of any insurance proceeds,  are deferred and collected
from gas customers over a five-year period after new rates are implemented.  The
MPUC also allows the deferral of MGP-related  costs  applicable to the Minnesota
sites and IPC has been successful in obtaining approval to recover such costs in
rates in Minnesota. While the IUB does not allow for the deferral of MGP-related
costs,  it has permitted  utilities to recover  prudently  incurred  costs. As a
result,  regulatory  assets have been recorded by each company which reflect the
probable future rate recovery,  where  applicable.  Considering the current rate
treatment,  and assuming no material change therein,  IESU, WP&L and IPC believe
that the  clean-up  costs  incurred for these MGP sites will not have a material
adverse effect on their respective financial positions or results of operations.

In April 1996, IESU filed a lawsuit  against  certain of its insurance  carriers
seeking  reimbursement  for its MGP-related  costs.  Settlement has been reached
with all its carriers and all issues have been  resolved.  In 1994,  IPC filed a
lawsuit  against  certain of its insurance  carriers to recover its  MGP-related
costs.  Settlements have been reached with eight carriers. IPC is continuing its
pursuit of  additional  recoveries  but is unable to  predict  the amount of any
additional recoveries they may realize. Amounts received from insurance carriers
are being  deferred by IESU and IPC pending a  determination  of the  regulatory
treatment of such recoveries. WP&L has settled with all of its carriers.

                                       30
<PAGE>

    National Energy Policy Act of 1992

The National  Energy Policy Act of 1992 requires  owners of nuclear power plants
to pay a special  assessment  into a  "Uranium  Enrichment  Decontamination  and
Decommissioning   Fund."  The  assessment  is  based  upon  prior  nuclear  fuel
purchases.  IESU is recovering the costs associated with this assessment through
its electric  fuel  adjustment  clauses over the period the costs are  assessed.
IESU's 70% share of the future  assessment at December 31, 1998 was $7.8 million
and has been  recorded as a liability  with a related  regulatory  asset for the
unrecovered  amount. WP&L had a regulatory asset and a liability of $5.4 million
and $4.6 million recorded at December 31, 1998,  respectively.  IEC continues to
pursue relief from this assessment through litigation.

    Oil and Gas Properties Dismantlement and Abandonment Costs

Whiting is responsible for certain  dismantlement  and abandonment costs related
to various  off-shore oil and gas  platforms  (and related  on-shore  plants and
equipment),  the  most  significant  of  which  is  located  off  the  coast  of
California.  Whiting  estimates  the  total  costs for  these  properties  to be
approximately $13 million and the most significant expenditures are not expected
to  be  incurred   until  2004.  In  accordance   with   applicable   accounting
requirements,  Whiting has accrued these costs resulting in a recorded liability
of $13 million at December 31, 1998.

    (g) Spent Nuclear Fuel -

The  Nuclear  Waste  Policy  Act of 1982  assigned  responsibility  to the  U.S.
Department of Energy (DOE) to establish a facility for the ultimate  disposition
of high level waste and spent nuclear fuel and  authorized the DOE to enter into
contracts  with parties for the disposal of such  material  beginning in January
1998.  IESU and WP&L  entered  into  such  contracts  and have  made the  agreed
payments to the Nuclear Waste Fund held by the U.S. Treasury. The companies were
subsequently  notified  by the DOE that it was not able to begin  acceptance  of
spent nuclear fuel by the January 31, 1998  deadline.  Furthermore,  the DOE has
experienced  significant  delays in its efforts and material  acceptance  is now
expected to occur no earlier  than 2010 with the  possibility  of further  delay
being likely. IEC has participated in several litigation proceedings against the
DOE  on  this  issue  and  the   respective   courts  have  affirmed  the  DOE's
responsibility for spent nuclear fuel acceptance.  IEC is evaluating its options
for recovery of damages due to the DOE's delay in accepting spent nuclear fuel.

The Nuclear Waste Policy Act of 1982 assigns  responsibility for interim storage
of spent nuclear fuel to generators of such spent nuclear fuel, such as IESU and
WP&L. In accordance  with this  responsibility,  IESU and WP&L have been storing
spent  nuclear  fuel on site at DAEC and  Kewaunee,  respectively,  since  plant
operations  began. IESU will have to increase its spent fuel storage capacity at
DAEC to store all of the spent fuel that will be  produced  before  the  current
license  expires  in 2014.  To provide  assurance  that both the  operating  and
post-shutdown  storage needs are satisfied,  construction  of a dry cask modular
facility is being contemplated.  With minor  modifications,  Kewaunee would have
sufficient  fuel  storage  capacity  to store  all of the fuel it will  generate
through  the end of the  license  life in 2013.  No  decisions  have  been  made
concerning  post-shutdown storage needs.  Legislation is being considered on the
federal level that would,  among other  provisions,  expand the DOE's  permanent
spent nuclear fuel storage to include  interim storage for spent nuclear fuel as
early as 2002.  This  legislation  has been  submitted  in the U.S.  House.  The
prospects  for  passage  by  the  U.S.  Congress,   and  subsequent   successful
implementation by the DOE, are uncertain at this time.

    (h) Decommissioning of DAEC and Kewaunee -

Pursuant to the most  recent  electric  rate case order,  the IUB and PSCW allow
IESU and WP&L to recover $6 million and $16 million  annually for their share of
the  cost to  decommission  DAEC  and  Kewaunee,  respectively.  Decommissioning
expense is included  in  "Depreciation  and  amortization"  in the  Consolidated
Statements  of Income and the  cumulative  amount is  included  in  "Accumulated
depreciation" on the Consolidated Balance Sheets to the extent recovered through
rates.

                                       31
<PAGE>

Additional  information  relating to the  decommissioning  of DAEC and  Kewaunee
includes (dollars in millions):
<TABLE>
<CAPTION>

                                                                       DAEC                        Kewaunee
                                                             -------------------------     --------------------------
Assumptions relating to current rate recovery figures:
<S>                                                           <C>                           <C>
     IEC's share of estimated decommissioning cost                    $252.8                        $189.7
     Year dollars in                                                   1993                          1998
     Method to develop estimate                                NRC minimum formula            Site-specific study
     Annual inflation rate                                            4.91%                          5.83%
     Decommissioning method                                   Prompt dismantling and        Prompt dismantling and
                                                                     removal                        removal
     Year decommissioning to commence                                  2014                          2013
     Average after-tax return on external investments                 6.82%                          6.21%
External trust fund balance at December 31, 1998                      $91.7                         $134.1
Internal reserve at December 31, 1998                                 $21.7                            -
After-tax earnings on external trust funds in 1998                     $2.7                          $5.2
</TABLE>

The rate recovery  figures for DAEC only included an inflation  estimate through
1997.  Both IESU and WP&L are funding all rate  recoveries  for  decommissioning
into  external  trust funds and funding on a  tax-qualified  basis to the extent
possible.  All of the rate recovery  assumptions are subject to change in future
regulatory   proceedings.   In  accordance  with  their  respective   regulatory
requirements,  IESU and WP&L record the earnings on the external  trust funds as
interest  income with a corresponding  entry to interest  expense at IESU and to
depreciation expense at WP&L. The earnings accumulate in the external trust fund
balances and in accumulated depreciation on utility plant.

IESU's 70% share of the estimated  cost to  decommission  DAEC based on the most
recent site-specific study completed in 1998 is $334.2 million, in 1998 dollars.
This study includes the costs to terminate  DAEC's NRC license and to return the
site to a  greenfield  condition.  IESU's  70%  share of the  estimated  cost to
decommission DAEC based on the most recent NRC minimum formula is $347.0 in 1997
dollars.  The NRC  minimum  formula  is  intended  to apply  only to the cost of
terminating DAEC's NRC license. The additional  decommissioning  expense funding
requirements which should result from these updated studies are not reflected in
IESU's rates.

    (i) Legal Proceedings -

IEC is involved in legal and  administrative  proceedings  before various courts
and agencies with respect to matters arising in the ordinary course of business.
Although  unable to predict  the outcome of these  matters,  IEC  believes  that
appropriate  reserves  have  been  established  and final  disposition  of these
actions will not have a material  adverse  effect on its  financial  position or
results of operations.

(13) JOINTLY-OWNED ELECTRIC UTILITY PLANT:

Under joint ownership agreements with other Iowa and Wisconsin utilities,  IESU,
WP&L  and IPC have  undivided  ownership  interests  in  jointly-owned  electric
generating stations and related transmission facilities.  Each of the respective
owners is  responsible  for the  financing  of its  portion of the  construction
costs.  Kilowatt-hour  generation and operating expenses are divided on the same
basis as  ownership  with each  owner  reflecting  its  respective  costs in its
Consolidated  Statements of Income.  Information relative to IESU's,  WP&L's and
IPC's ownership  interest in these facilities at December 31, 1998 is as follows
(dollars in millions):

                                       32
<PAGE>
<TABLE>
<CAPTION>

                                                                      1998                               1997
                                                        --------- ------------- --------    -------- ------------- -------
                                                                   Accumulated                        Accumulated
                                  In-service Plant                 Provision                  Plant     Provision
                      Ownership     Date       MW        Plant in     for                      in         for
                      Interest %            Capacity     Service   Depreciation  CWIP        Service  Depreciation   CWIP
-------------------- ----------- --------- --------- -- --------- ------------- -------- -- -------- ------------- -------
IESU
Coal:
<S>                      <C>       <C>        <C>       <C>           <C>        <C>       <C>         <C>         <C>
  Ottumwa Unit 1         48.0      1981       716         $193.1      $102.7      $0.8       $191.6     $96.6      $  -
  Neal Unit 3            28.0      1975       515           59.0        32.4       0.1         60.8      30.6       0.1
Nuclear:
    DAEC                 70.0      1974       520          507.1       247.2       1.4        500.6     230.8       2.8
                                                        --------- ------------- --------    -------- ------------- -------
Total IESU                                                $759.2      $382.3      $2.3       $753.0    $358.0      $2.9

WP&L
Coal:
    Columbia Energy                1975 &
      Center             46.2      1978     1,023         $161.5       $93.8      $1.4       $161.4     $89.2      $0.8
    Edgewater Unit 4     68.2      1969       330           52.4        30.8       0.4         51.5      29.5       1.0
    Edgewater Unit 5     75.0      1985       380          229.0        85.9       0.2        229.4      79.8       0.1
Nuclear:
    Kewaunee Nuclear
      Power Plant        41.0      1974       535          132.2        93.7       6.4        132.0      86.6       0.3
                                                        --------- ------------- -------    --------- ------------ -------
Total WP&L                                                $575.1      $304.2      $8.4       $574.3    $285.1      $2.2

IPC
Coal:
     Neal Unit 4         21.5      1979       640          $82.1       $48.4      $1.5        $82.2     $45.8      $  -
     Louisa Unit 1        4.0      1983       738           24.7        11.7       -           24.7      10.9         -
                                                        --------- ------------- -------    --------- ------------ -------
Total IPC                                                 $106.8       $60.1      $1.5       $106.9     $56.7      $  -

                                                        --------- ------------- -------    --------- ------------ -------
Total IEC                                               $1,441.1      $746.6     $12.2     $1,434.2    $699.8      $5.1
                                                        ========= ============= =======    ========= ============ =======
</TABLE>

(14) SEGMENTS OF BUSINESS:

In 1998, IEC adopted SFAS 131,  "Disclosures About Segments of an Enterprise and
Related Information." IEC's principal business segments are:

o    Regulated  domestic  utilities - consists of IEC's three regulated  utility
     operating  companies  (IESU,  WP&L,  and IPC)  serving  customers  in Iowa,
     Wisconsin,  Minnesota and Illinois. The regulated domestic utility business
     is broken down into three  segments which are: 1) electric  operations;  2)
     gas operations; and 3) other, which includes the water and steam businesses
     as well as the unallocated portions of the utility business.
o    Nonregulated  businesses  - represents  the  operations  of Alliant  Energy
     Resources and its  subsidiaries.  This includes the company's  domestic and
     international energy products and services businesses; industrial services,
     which includes  environmental,  engineering  and  transportation  services;
     investments in affordable housing  initiatives;  and investments in various
     other strategic initiatives.
o    Other - includes the  operations of IEC's parent company and Alliant Energy
     Corporate Services, as well as any reconciling/eliminating entries.

Intersegment  revenues  were not material to IEC's  operations  and there was no
single  customer  whose  revenues  exceeded  10% or more of  IEC's  consolidated
revenues. Refer to Note 5(b) for a breakdown of IEC's international  investments
by country.

                                       33
<PAGE>

Certain financial  information  relating to IEC's significant  business segments
and products and services is presented below:

<TABLE>
<CAPTION>

                                           Regulated Domestic Utilities
                                  -----------------------------------------------  Nonregulated                       IEC
                                   Electric      Gas       Other       Total        Businesses        Other      Consolidated
-------------------------------------------------------------------------------------------------------------------------------
                                                                         (in thousands)
1998
<S>                                <C>          <C>         <C>       <C>               <C>             <C>         <C>
Operating revenues                 $1,567,442   $295,590    $31,235   $1,894,267        $238,676        ($2,069)    $2,130,874
Depreciation and
   amortization expense               219,364     23,683      2,623      245,670          33,835              -        279,505
Operating income (loss)               271,511     16,027      5,598      293,136         (8,608)         (1,226)       283,302
Interest expense, net                                        96,951       96,951          23,298          2,302        122,551
Preferred and preference                                      6,699        6,699               -              -          6,699
   dividends
Net (income) loss from equity                                  (858)        (858)          2,197              -          1,339
   method subsidiaries
Miscellaneous, net (other than
   equity income/loss)                                        3,545        3,545          (7,973)         2,353         (2,075)
Income tax expense (benefit)                                 77,257       77,257         (17,232)        (1,912)        58,113
Net income (loss)                                           109,542      109,542          (8,898)        (3,969)        96,675
Total assets                        3,202,837    458,832    469,822    4,131,491         869,261        (41,415)     4,959,337
Investments in equity method
   subsidiaries                                               5,189        5,189          49,446              -         54,635
Construction and acquisition
   expenditures                       233,638     33,200      2,295      269,133         102,925              -        372,058

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

1997
----
<S>                                <C>          <C>         <C>       <C>               <C>             <C>         <C>
Operating revenues                 $1,515,753   $393,907    $30,882   $1,940,542        $361,961        ($1,876)    $2,300,627
Depreciation and amortization
   expense                            201,742     21,553      2,432      225,727          33,936              -        259,663
Operating income (loss)               316,880     29,330      2,169      348,379          (6,818)        (5,178)       336,383
Interest expense, net                                        95,734       95,734          23,197         (1,642)       117,289
Preferred and preference
   dividends                                                  6,693        6,693               -              -          6,693
Net (income) loss from equity
   method subsidiaries                                          (32)         (32)            849              -            817
Miscellaneous, net (other than
   equity income/loss)                                       (8,257)      (8,257)         (8,282)         1,812        (14,727)
Income tax expense (benefit)                                101,739      101,739         (18,616)        (1,390)        81,733
Net income (loss)                                           152,502      152,502          (3,966)        (3,958)       144,578
Total assets                        3,142,910    448,845    485,225    4,076,980         838,504          8,066      4,923,550
Investments in equity method
  subsidiaries                                                5,694        5,694          39,175              -         44,869
Construction and acquisition
   expenditures                       217,023     33,984      5,753      256,760          71,280              -        328,040

</TABLE>


                                       34
<PAGE>

<TABLE>
<CAPTION>

                                           Regulated Domestic Utilities
                                  ----------------------------------------------- Nonregulated                        IEC
                                   Electric      Gas       Other       Total        Businesses        Other      Consolidated
-------------------------------------------------------------------------------------------------------------------------------
                                                                         (in thousands)
1996
----
<S>                                <C>          <C>         <C>       <C>               <C>             <C>         <C>
Operating revenues                 $1,440,375   $375,955    $24,008   $1,840,338        $393,963        ($1,461)    $2,232,840
Depreciation and amortization
   expense                            180,989     18,124      1,891      201,004          31,359              -        232,363
Operating income (loss)               326,370     40,521      7,001      373,892          (6,666)        (1,787)       365,439
Interest expense, net                                        86,084       86,084          17,859          3,804        107,747
Preferred and preference
   dividends                                                  6,687        6,687               -              -          6,687
Net (income) loss from equity
   method subsidiaries                                         (372)        (372)             18              -           (354)
Miscellaneous, net (other than
   equity income/loss)                                       (1,390)      (1,390)         (9,968)          (131)       (11,489)
Income tax expense (benefit)                                115,033      115,033         (12,724)         3,451        105,760
Net income (loss) from
   continuing operations                                    167,850      167,850          (1,851)        (8,911)       157,088
Discontinued operations                                           -            -          (1,297)             -         (1,297)
Net income (loss)                                           167,850      167,850          (3,148)        (8,911)       155,791
Total assets                        3,122,761    511,110    452,885    4,086,756         546,690          6,380      4,639,826
Investments in equity method
   subsidiaries                                               6,110        6,110          11,163              -         17,273
Construction and acquisition
   expenditures                       247,323     34,738     15,135      297,196         115,078              -        412,274

<CAPTION>

Products and Services
---------------------
                                                                 Revenues
        ----------------------------------------------------------------------------------------------------------------------
            Regulated Domestic Utilities                                  Nonregulated Businesses
        ------------------------------------ ---------------------------------------------------------------------------------
                                               Environmental                                                      Total
                                                                                           Transportation,
                                              and Engineering     Oil and    Nonregulated      Rents and       Nonregulated
                                                                   Gas
Year       Electric       Gas       Other         Services      Production      Energy           Other          Businesses
-------------------------------------------- ---------------------------------------------------------------------------------
                                                            (in thousands)
<C>        <C>          <C>         <C>                <C>          <C>            <C>              <C>              <C>
1998       $1,567,442   $295,590    $31,235            $72,616      $64,622        $40,536          $60,902          $238,676

1997        1,515,753    393,907     30,882             78,105       68,922        151,128           63,806           361,961

1996        1,440,375    375,955     24,008             84,859       65,724        192,217           51,163           393,963
</TABLE>

(15) DISCONTINUED OPERATIONS:

IEC's  financial  statements  reflect the  discontinuance  of  operations of its
utility  energy and  marketing  consulting  business in 1995.  During 1996,  IEC
recognized  a loss  of $1.3  million,  net of  applicable  income  tax  benefit,
associated with the final disposition of the business.


                                       35
<PAGE>

(16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
<TABLE>
<CAPTION>

                                                                      Quarter Ended *

                                          ------------------------------------------------------------------------
                                              March 31          June 30         September 30       December 31
                                          ----------------- ----------------  ------------------ -----------------
                                                           (in thousands, except per share data)
1998**
------
<S>                                           <C>              <C>                <C>                <C>
  Operating revenues                          $556,283         $491,012           $555,313           $528,266
  Operating income                              73,880           32,627            122,196             54,599
  Net income (loss)                             28,875           (9,098)            51,704             25,194
  Earnings per average common
     share (basic and diluted)                    0.38            (0.12)              0.67               0.33

1997
----
  Operating revenues                          $663,650         $493,842           $556,858           $586,277
  Operating income                              92,319           56,987            120,297             66,780
  Net income                                    40,688           19,799             54,969             29,122
  Earnings per average common
     share (basic and diluted)                    0.54             0.26               0.72               0.38

* Financial  results  have been  restated for all  quarters  presented  with the
exception  of the  third  and  fourth  quarter  of 1998 to  reflect  a change in
accounting  method  for IEC's oil and gas  properties  implemented  in the third
quarter of 1998 from the full cost method to the successful  efforts method. See
Note 1(i) for additional information.

**Net  income  for 1998 was  impacted  by the  recording  of  approximately  $10
million,  $35  million,  $6 million  and $3  million  of pre-tax  merger-related
expenses in the first, second, third and fourth quarters, respectively.
</TABLE>

(17) SUBSEQUENT EVENT:

At the Annual  Shareowners  meeting on May 19, 1999, the shareowners  approved a
proposal  to  change  the  name  of  the  corporation  from  Interstate   Energy
Corporation to Alliant Energy Corporation. The name change was effective May 20,
1999.
                                       36
<PAGE>



                               IES UTILITIES INC.

                                FINANCIAL SECTION




                                       37
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareowners of IES Utilities Inc.:

We have audited the accompanying  consolidated  balance sheets and statements of
capitalization  of IES Utilities Inc. (an Iowa  corporation) and subsidiaries as
of  December  31,  1998 and 1997,  and the related  consolidated  statements  of
income,  retained  earnings  and cash  flows for each of the three  years in the
period ended December 31, 1998. These financial  statements and the supplemental
schedule referred to below are the  responsibility of the Company's  management.
Our  responsibility  is to express an opinion on these financial  statements and
supplemental schedule based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of IES  Utilities  Inc.  and
subsidiaries  as of  December  31,  1998  and  1997,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements  taken as a whole.  The schedule listed in Item 14(a)(2) is presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and is not  part of the  basic  financial  statements.  This  schedule  has been
subjected to the auditing procedures applied in the audit of the basic financial
statements  and, in our  opinion,  fairly  states in all  material  respects the
financial  data  required  to be set  forth  therein  in  relation  to the basic
financial statements taken as a whole.




ARTHUR ANDERSEN LLP


Milwaukee, Wisconsin
January 29, 1999


                                       38
<PAGE>

<TABLE>
<CAPTION>

                               IES UTILITIES INC.
                        CONSOLIDATED STATEMENTS OF INCOME

                                                                 Year Ended December 31,
                                                       1998               1997               1996
--------------------------------------------------------------------------------------------------------
                                                                     (in thousands)
Operating revenues:
<S>                                                     <C>                <C>                <C>
  Electric utility                                      $ 639,423          $ 604,270          $ 574,273
  Gas utility                                             141,279            183,517            160,864
  Steam and other                                          26,228             26,191             19,842
                                                  ----------------   ----------------   ----------------
                                                          806,930            813,978            754,979
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Operating expenses:
  Electric and steam production fuels                     113,181            108,344             84,579
  Purchased power                                          71,637             74,098             88,350
  Cost of gas sold                                         84,642            126,631            103,877
  Other operation                                         187,932            161,418            148,051
  Maintenance                                              52,040             53,833             45,869
  Depreciation and amortization                            93,965             89,754             84,975
  Taxes other than income taxes                            48,537             46,130             43,603
                                                  ----------------   ----------------   ----------------
                                                          651,934            660,208            599,304
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Operating income                                          154,996            153,770            155,675
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Interest expense and other:
  Interest expense                                         52,354             52,791             43,714
  Allowance for funds used during construction             (3,351)            (2,309)            (2,103)
  Miscellaneous, net                                        2,589              2,279              7,243
                                                  ----------------   ----------------   ----------------
                                                           51,592             52,761             48,854
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Income before income taxes                                103,404            101,009            106,821
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Income taxes                                               41,494             42,216             43,092
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Net income                                                 61,910             58,793             63,729
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Preferred dividend requirements                               914                914                914
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Earnings available for common stock                      $ 60,996           $ 57,879           $ 62,815
                                                  ================   ================   ================
--------------------------------------------------------------------------------------------------------
<CAPTION>

                               IES UTILITIES INC.
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

                                                                 Year Ended December 31,
                                                       1998               1997               1996
--------------------------------------------------------------------------------------------------------
                                                                     (in thousands)
<S>                                                     <C>                <C>                <C>
Balance at beginning of year                            $ 233,216          $ 231,337          $ 212,522
Net income                                                 61,910             58,793             63,729
Cash dividends declared on common stock                   (18,840)           (56,000)           (44,000)
Cash dividends declared on preferred stock                   (914)              (914)              (914)
                                                  ----------------   ----------------   ----------------
Balance at end of year                                  $ 275,372          $ 233,216          $ 231,337
                                                  ================   ================   ================

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

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>

                                       39
<PAGE>
<TABLE>
<CAPTION>

                               IES UTILITIES INC.
                           CONSOLIDATED BALANCE SHEETS

                                                                                        December 31,
ASSETS                                                                            1998                1997
-----------------------------------------------------------------------------------------------------------------
                                                                                        (in thousands)
<S>                                                                              <C>                  <C>
Property, plant and equipment:
  Utility -
    Plant in service -
      Electric                                                                   $ 2,140,322          $2,072,866
      Gas                                                                            198,488             187,098
      Steam                                                                           55,797              55,374
      Common                                                                         106,940              90,342
                                                                            -----------------   -----------------
                                                                                   2,501,547           2,405,680
    Less - Accumulated depreciation                                                1,209,204           1,115,261
                                                                            -----------------   -----------------
                                                                                   1,292,343           1,290,419
    Construction work in progress                                                     48,991              38,923
    Leased nuclear fuel, net of amortization                                          25,644              36,731
                                                                            -----------------   -----------------
                                                                                   1,366,978           1,366,073
  Other property, plant and equipment, net of accumulated
    depreciation and amortization of $1,948 and $1,709, respectively                   5,623               5,762
                                                                            -----------------   -----------------
                                                                                   1,372,601           1,371,835
                                                                            -----------------   -----------------
-----------------------------------------------------------------------------------------------------------------
Current assets:
  Cash and temporary cash investments                                                  4,175                 230
  Temporary cash investments with associated companies                                53,729                   -
  Accounts receivable:
    Customer, less allowance for doubtful accounts
      of $1,058 and $630, respectively                                                16,703              29,259
    Associated companies                                                               2,662                 907
    Other, less allowance for doubtful accounts
      of $357 and $224, respectively                                                  10,346               9,235
  Production fuel, at average cost                                                    11,863              10,579
  Materials and supplies, at average cost                                             25,591              22,976
  Gas stored underground, at average cost                                             12,284              17,192
  Regulatory assets                                                                   23,487              36,330
  Prepayments and other                                                                4,185              11,680
                                                                            -----------------   -----------------
                                                                                     165,025             138,388
                                                                            -----------------   -----------------
-----------------------------------------------------------------------------------------------------------------
Investments:
  Nuclear decommissioning trust funds                                                 91,691              77,882
  Other                                                                                6,019               5,167
                                                                            -----------------   -----------------
                                                                                      97,710              83,049
                                                                            -----------------   -----------------
-----------------------------------------------------------------------------------------------------------------
Other assets:
  Regulatory assets                                                                  137,908             163,264
  Deferred charges and other                                                          15,734              12,393
                                                                            -----------------   -----------------
                                                                                     153,642             175,657
                                                                            -----------------   -----------------
-----------------------------------------------------------------------------------------------------------------
                                                                                 $ 1,788,978          $1,768,929
                                                                            =================   =================
-----------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>

                                       40
<PAGE>
<TABLE>
<CAPTION>

                               IES UTILITIES INC.
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                                                                         December 31,
CAPITALIZATION AND LIABILITIES                                                    1998                   1997
--------------------------------------------------------------------------------------------------------------------
                                                                                        (in thousands)
Capitalization (See Consolidated Statements of Capitalization):
<S>                                                                               <C>                   <C>
  Common stock                                                                       $ 33,427              $ 33,427
  Additional paid-in capital                                                          279,042               279,042
  Retained earnings                                                                   275,372               233,216
                                                                            ------------------     -----------------
    Total common equity                                                               587,841               545,685
  Cumulative preferred stock, not mandatorily redeemable                               18,320                18,320
  Long-term debt (excluding current portion)                                          602,020               651,848
                                                                            ------------------     -----------------
                                                                                    1,208,181             1,215,853
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Current liabilities:
  Current maturities and sinking funds                                                 50,140                   140
  Capital lease obligations                                                            11,965                13,183
  Accounts payable                                                                     43,953                60,546
  Accounts payable to associated companies                                             22,487                 2,736
  Accrued payroll and vacations                                                         6,365                 7,615
  Accrued interest                                                                     12,045                12,230
  Accrued taxes                                                                        55,295                58,996
  Accumulated refueling outage provision                                                6,605                10,606
  Environmental liabilities                                                             5,660                 4,054
  Other                                                                                17,617                11,533
                                                                            ------------------     -----------------
                                                                                      232,132               181,639
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
  Accumulated deferred income taxes                                                   224,510               238,829
  Accumulated deferred investment tax credits                                          29,243                31,838
  Environmental liabilities                                                            29,195                38,256
  Pension and other benefit obligations                                                25,655                17,334
  Capital lease obligations                                                            13,679                23,548
  Other                                                                                26,383                21,632
                                                                            ------------------     -----------------
                                                                                      348,665               371,437
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
--------------------------------------------------------------------------------------------------------------------
                                                                                  $ 1,788,978           $ 1,768,929
                                                                            ==================     =================
--------------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>

                                       41
<PAGE>
<TABLE>
<CAPTION>

                               IES UTILITIES INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                          Year Ended December 31,
                                                                               1998                 1997                1996
------------------------------------------------------------------------------------------------------------------------------
                                                                                         (in thousands)
Cash flows from operating activities:
<S>                                                                         <C>                  <C>                 <C>
  Net income                                                                $ 61,910             $ 58,793            $ 63,729
  Adjustments to reconcile net income to net cash
   flows from operating activities:
     Depreciation and amortization                                            93,965               89,754              84,975
     Amortization of leased nuclear fuel                                      12,513               14,774              16,491
     Amortization of deferred energy efficiency expenditures                  18,707               10,987               5,453
     Deferred taxes and investment tax credits                               (17,921)             (16,059)              7,763
     Refueling outage provision                                               (4,001)               9,290              (6,374)
     Impairment of regulatory assets                                           8,969                    -                   -
     Other                                                                      (346)               3,952               4,602
  Other changes in assets and liabilities:
     Accounts receivable                                                       9,690               (5,670)             (6,200)
     Production fuel                                                          (1,284)               2,743              (1,168)
     Materials and supplies                                                   (2,615)              (1,261)              4,811
     Gas stored underground                                                    4,908               (3,740)               (551)
     Accounts payable                                                          3,158              (11,198)             12,147
     Accrued taxes                                                            (3,701)              18,043              (9,416)
     Adjustment clause balances                                                8,829                5,354             (13,900)
     Benefit obligations and other                                            13,332               14,538               8,293
                                                                    -----------------    -----------------   -----------------
       Net cash flows from operating activities                              206,113              190,300             170,655
                                                                    -----------------    -----------------   -----------------
------------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for) financing activities:
    Common stock dividends declared                                          (18,840)             (56,000)            (44,000)
    Dividends payable                                                          4,840                    -                   -
    Preferred stock dividends                                                   (914)                (914)               (914)
    Proceeds from issuance of long-term debt                                  10,000              190,000              60,000
    Reductions in long-term debt                                             (10,140)             (63,140)            (15,140)
    Net change in short-term borrowings                                            -             (135,000)             25,112
    Principal payments under capital lease obligations                       (13,250)             (12,964)            (19,108)
    Other                                                                       (137)                (871)               (420)
                                                                    -----------------    -----------------   -----------------
      Net cash flows from (used for) financing activities                    (28,441)             (78,889)              5,530
                                                                    -----------------    -----------------   -----------------
------------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
    Construction expenditures                                               (115,371)            (108,966)           (143,648)
    Deferred energy efficiency expenditures                                        -               (8,450)            (16,857)
    Nuclear decommissioning trust funds                                       (6,008)              (6,008)             (6,008)
    Other                                                                      1,381                  635                (798)
                                                                    -----------------    -----------------   -----------------
      Net cash flows used for investing activities                          (119,998)            (122,789)           (167,311)
                                                                    -----------------    -----------------   -----------------
------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments                57,674              (11,378)              8,874
                                                                    -----------------    -----------------   -----------------
------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period                       230               11,608               2,734
                                                                    -----------------    -----------------   -----------------
------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period                        $ 57,904                $ 230            $ 11,608
                                                                    =================    =================   =================
------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information: Cash paid during
 the period for:
    Interest                                                                $ 50,177             $ 46,377            $ 44,275
                                                                    =================    =================   =================
    Income taxes                                                            $ 41,017             $ 41,422            $ 45,383
                                                                    =================    =================   =================
  Noncash investing and financing activities -
 Capital lease obligations incurred                                          $ 1,426             $ 16,781            $ 14,281
                                                                    =================    =================   =================
------------------------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>

                                       42
<PAGE>
<TABLE>
<CAPTION>

                               IES UTILITIES INC.
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                                                                                                 December 31,
                                                                                           1998                  1997
----------------------------------------------------------------------------------------------------------------------------
                                                                                     (in thousands, except share amounts)
Common equity:
  Common stock - $2.50 par value - authorized 24,000,000 shares;
<S>                                                                                      <C>                   <C>
    13,370,788 shares outstanding                                                            $ 33,427              $ 33,427
  Additional paid-in capital                                                                  279,042               279,042
  Retained earnings                                                                           275,372               233,216
                                                                                    ------------------    ------------------
                                                                                              587,841               545,685
                                                                                    ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
Cumulative preferred stock:
  Cumulative,  par value $50 per share, not mandatorily  redeemable - authorized
      466,406 shares; 366,406 shares outstanding:
          6.10% series, 100,000 shares outstanding                                              5,000                 5,000
          4.80% series, 146,406 shares outstanding                                              7,320                 7,320
          4.30% series, 120,000 shares outstanding                                              6,000                 6,000
                                                                                    ------------------    ------------------
                                                                                               18,320                18,320
                                                                                    ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
Long-term debt:
  Collateral Trust Bonds:
      7.65% series, due 2000                                                                   50,000                50,000
      7.25% series, due 2006                                                                   60,000                60,000
      6-7/8% series, due 2007                                                                  55,000                55,000
      6% series, due 2008                                                                      50,000                50,000
      7% series, due 2023                                                                      50,000                50,000
      5.5% series, due 2023                                                                    19,400                19,400
                                                                                    ------------------    ------------------
                                                                                              284,400               284,400
  First Mortgage Bonds:
      Series Y, 8-5/8%, due 2001                                                               60,000                60,000
      Series Z, 7.6%, due 1999                                                                 50,000                50,000
      9-1/8% series, due 2001                                                                  21,000                21,000
      7-1/4% series, due 2007                                                                  30,000                30,000
                                                                                    ------------------    ------------------
                                                                                              161,000               161,000
  Pollution control obligations:
      5.75%, due serially 1999 to 2003                                                          3,136                 3,276
      5.95%, retired in 1998                                                                        -                10,000
      Variable rate (4.20% at December 31, 1998), due 2000 to 2010                             11,100                11,100
      Variable/fixed rate series 1998 (4.25% through 2003), due 2023                           10,000                     -
                                                                                    ------------------    ------------------
                                                                                               24,236                24,376
  Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025                                50,000                50,000
  Senior Debentures, 6-5/8%, due 2009                                                         135,000               135,000
                                                                                    ------------------    ------------------
                                                                                              654,636               654,776
                                                                                    ------------------    ------------------
  Less:
    Current maturities                                                                        (50,140)                 (140)
    Unamortized debt premium and (discount), net                                               (2,476)               (2,788)
                                                                                    ------------------    ------------------
                                                                                              602,020               651,848
                                                                                    ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
                                                                                          $ 1,208,181           $ 1,215,853
                                                                                    ==================    ==================
----------------------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>

                                      43
<PAGE>

                               IES UTILITIES INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Except as modified  below,  the  Interstate  Energy  Corporation  (IEC) Notes to
Consolidated  Financial Statements are incorporated by reference insofar as they
relate to IES Utilities Inc. (IESU). IEC Notes 1(e), 1(i), 1(n), 5, 8, 11 and 15
do not relate to IESU and, therefore, are not incorporated by reference.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    (a) General -

The  Consolidated  Financial  Statements  include  the  accounts of IESU and its
consolidated  subsidiaries.  IESU is a subsidiary of IEC. IEC is currently doing
business  as Alliant  Energy  Corporation.  IESU is engaged  principally  in the
generation,  transmission,   distribution  and  sale  of  electric  energy;  the
purchase,  distribution,  transportation  and sale of  natural  gas;  and  steam
services.  All of IESU's retail customers are located in Iowa.  IESU's principal
consolidated subsidiary is IES Ventures Inc.

    (o) Comprehensive Income -

IESU had no other comprehensive income in the periods presented.

(3) LEASES:

IESU's  operating  lease  rental  expenses  for  1998,  1997 and 1996  were $9.0
million,  $8.3 million and $9.0 million,  respectively.  IESU's  future  minimum
lease payments by year are as follows (in thousands):

                                               Capital             Operating
    Year                                        Leases               Leases
    ------------------------------------    ---------------     ----------------
    1999                                    $      12,278        $         9,053
    2000                                            8,037                  7,750
    2001                                            4,324                  4,852
    2002                                            2,660                  2,511
    2003                                              547                  1,868
    Thereafter                                        108                  2,325
                                            ---------------     ----------------
                                                   27,954       $         28,359
                                                                ================
    Less:  Amount representing interest             2,310
    Present value of net minimum            ---------------
    capital lease payments                  $      25,644
                                            ===============


(6)  INCOME TAXES:

The  components  of federal and state  income taxes for IESU for the years ended
December 31 were as follows (in millions):

<TABLE>
<CAPTION>

                                                      1998                1997                1996
                                                 ----------------     --------------     ---------------
<S>                                              <C>                  <C>                <C>
Current tax expense                              $     59.4           $    58.3          $     35.3
Deferred tax expense                                  (15.3)              (13.5)               10.4
Amortization of investment tax credits                 (2.6)               (2.6)               (2.6)
                                                 ----------------     --------------     ---------------
                                                 $     41.5           $    42.2          $     43.1
                                                 ================     ==============     ===============
</TABLE>

                                      44
<PAGE>

The overall  effective income tax rates shown below for the years ended December
31 were  computed by dividing  total income tax expense by income  before income
taxes.
<TABLE>
<CAPTION>

                                                                   1998              1997            1996
                                                               -------------     -------------    ------------
<S>                                                                 <C>               <C>              <C>
Statutory federal income tax rate                                   35.0%             35.0%            35.0%
    State income taxes, net of federal benefits                      6.6               7.0              6.9
    Effect of ratemaking on property related differences             1.5               3.5              2.9
    Amortization of investment tax credits                          (2.5)             (2.6)            (2.5)
    Adjustment of prior period taxes                                (1.4)             (1.4)            (3.3)
    Other items, net                                                 0.9               0.3              1.3
                                                               -------------     -------------    ------------
Overall effective income tax rate                                   40.1%             41.8%            40.3%
                                                               =============     =============    ============
</TABLE>

The  accumulated  deferred  income taxes  (assets) and  liabilities as set forth
below on the Consolidated Balance Sheets at December 31 arise from the following
temporary differences (in millions):

                                                  1998              1997
                                             ---------------    --------------
        Property related                  $       275.7      $       269.9
        Investment tax credit related             (20.8)             (22.7)
        Decommissioning related                   (15.9)             (15.7)
        Other                                     (14.5)               7.3
                                             ---------------    --------------
                                          $       224.5      $       238.8
                                             ===============    ==============

(7) BENEFIT PLANS:

(a) Pension Plans and Other Postretirement Benefits

IESU adopted Statement of Financial Accounting Standards (SFAS) 132, "Employers'
Disclosures about Pensions and Other Postretirement  Benefits" in 1998. IESU has
a non-contributory defined benefit pension plan that covers substantially all of
its  employees  who are  subject  to a  collective  bargaining  agreement.  Plan
benefits are  generally  based on years of service and  compensation  during the
employees' latter years of employment.  Effective in 1998, eligible employees of
IESU that are not subject to a collective  bargaining  agreement  are covered by
the Alliant Energy Cash Balance Pension Plan, a non-contributory defined benefit
pension  plan.  The  projected  unit  credit  actuarial  cost method was used to
compute  pension cost and the  accumulated  and projected  benefit  obligations.
IESU's policy is to fund the pension plan at an amount that is at least equal to
the minimum  funding  requirements  mandated by the Employee  Retirement  Income
Security Act of 1974 (ERISA) and that does not exceed the maximum tax deductible
amount for the year.

IESU also provides certain other postretirement benefits to retirees,  including
medical   benefits  for  retirees  and  their   spouses  (and  Medicare  Part  B
reimbursement for certain retirees) and, in some cases,  retiree life insurance.
IESU's  funding of other  postretirement  benefits  generally  approximates  the
annual rate recovery of such costs.

The weighted-average  assumptions as of the measurement date of September 30 are
as follows:
<TABLE>
<CAPTION>
                                                Qualified Pension Benefits           Other Postretirement Benefits
                                            ------------------------------------ ---------------------------------------
                                               1998        1997        1996         1998        1997          1996
                                            ----------- ------------------------ ----------- ---------------------------
<S>                                           <C>          <C>         <C>         <C>          <C>          <C>
   Discount rate                              6.75%        7.25%       7.50%       6.75%        7.25%        7.50%
   Expected return on plan assets               9%          9%          9%           9%          9%            9%
   Rate of compensation increase               3.5%        4.75%       4.75%        N/A          N/A          N/A
   Medical cost trend on covered charges:
         Initial trend range                   N/A          N/A         N/A          8%          8%            9%
         Ultimate trend range                  N/A          N/A         N/A         6.0%        6.5%          6.5%

</TABLE>

                                      45
<PAGE>

The components of IESU's  qualified  pension  benefits and other  postretirement
benefits costs are as follows (in millions):
<TABLE>
<CAPTION>

                                                Qualified Pension Benefits            Other Postretirement Benefits
                                           -------------------------------------    ----------------------------------
                                             1998           1997          1996        1998        1997          1996
                                           ----------     ----------    ---------    --------    --------     ---------
<S>                                     <C>           <C>            <C>          <C>         <C>         <C>
    Service cost                        $      2.9    $       5.4    $      5.4   $    1.5    $    1.5    $       1.7
    Interest cost                              8.0           14.1          12.4        4.2         3.5            3.6
    Expected return on plan assets           (11.3)         (15.1)        (14.6)      (1.1)       (0.7)          (0.4)
    Amortization of:
       Transition obligation (asset)          (0.2)          (0.3)         (0.3)       1.9         1.9            2.0
       Prior service cost                      0.9            1.8           1.3         -           -             -
       Actuarial gain                         (0.4)           -            (0.1)        -           -             -
                                           ----------     ----------    ---------    --------    --------     ---------
    Total                               $     (0.1)   $       5.9    $      4.1   $    6.5    $    6.2    $       6.9
                                           ==========     ==========    =========    ========    ========     =========
</TABLE>

During  1997 and 1996,  IESU  recognized  an  additional  $3.8  million and $4.5
million, respectively, of costs in accordance with SFAS 88. The charges were for
severance and early  retirement  programs in the respective  years. In addition,
during 1998,  IESU recognized  $1.2 million of curtailment  charges  relating to
IESU's other postretirement  benefits. The amounts include a December 1998 early
retirement program.

The  pension  benefit  cost shown above (and in the  following  tables) for 1998
represents  only the pension  benefit cost for bargaining unit employees of IESU
covered under the  bargaining  unit pension plan that is sponsored by IESU.  The
pension   benefit  cost  for  IESU's   non-bargaining   employees  who  are  now
participants  in other IEC plans was $2.7 million for 1998,  including a special
charge of $1.9 million for severance and early retirement  window  programs.  In
addition,  Alliant Energy  Corporate  Services,  Inc.  (Alliant Energy Corporate
Services)  provides  services  to IESU.  The  allocated  pension  benefit  costs
associated   with  these   services  was  $0.5  million  for  1998.   The  other
postretirement  benefit  cost shown above for each period (and in the  following
tables) represents the other postretirement benefit cost for all IESU employees.
The allocated other  postretirement  benefit cost associated with Alliant Energy
Corporate Services for IESU was $0.2 million for 1998.

The assumed  medical trend rates are critical  assumptions  in  determining  the
service and interest  cost and  accumulated  postretirement  benefit  obligation
related to  postretirement  benefit  costs.  A one percent change in the medical
trend rates for 1998,  holding all other  assumptions  constant,  would have the
following effects (in millions):
<TABLE>
<CAPTION>

                                                                 1 Percent            1 Percent
                                                                  Increase            Decrease
                                                               ---------------     ---------------
<S>                                                                  <C>               <C>
Effect on total of service and interest cost components              $1.2              ($0.9)
Effect on postretirement benefit obligation                          $9.2              ($7.4)

</TABLE>

                                      46

<PAGE>

A reconciliation of the funded status of IESU's plans to the amounts  recognized
on IESU's  Consolidated  Balance  Sheets at December 31 is  presented  below (in
millions):
<TABLE>
<CAPTION>

                                                         Qualified Pension Benefits      Other Postretirement Benefits
                                                        -----------------------------    -------------------------------
                                                           1998             1997             1998              1997
                                                        ------------     ------------    -------------     -------------
Change in benefit obligation:
<S>                                                  <C>             <C>              <C>              <C>
  Net benefit obligation at beginning of year        $      206.1    $       179.4    $      50.8      $       48.0
  Transfer of obligation (to)/from other IEC plans          (99.1)             -              2.3               -
  Service cost                                                2.9              5.4            1.5               1.5
  Interest cost                                               8.0             14.1            4.2               3.5
  Plan participants' contributions                            -                -              0.4               0.3
  Plan amendments                                             -                7.4            -                 -
  Actuarial (gain) / loss                                     2.2              6.2            8.2               -
  Curtailments                                                -                2.5            0.4               -
  Special termination benefits                                -                3.8            -                 -
  Gross benefits paid                                        (7.0)           (12.7)          (2.6)             (2.5)
                                                        ------------     ------------    -------------     -------------
     Net benefit obligation at end of year                  113.1            206.1           65.2              50.8
                                                        ------------     ------------    -------------     -------------

Change in plan assets:
  Fair value of plan assets at beginning of year            225.7            205.7           19.9              12.3
  Transfer of assets to other IEC plans                     (97.5)             -              -                 -
  Actual return on plan assets                               (2.5)            32.7            0.1               2.4
  Employer contributions                                      -                -              2.7               7.4
  Plan participants' contributions                            -                -              0.4               0.3
  401(h) assets recognized                                    -                -              1.2               -
  Gross benefits paid                                        (7.0)           (12.7)          (2.6)             (2.5)
                                                        ------------     ------------    -------------     -------------
     Fair value of plan assets at end of year               118.7            225.7           21.7              19.9
                                                        ------------     ------------    -------------     -------------

Funded status at end of year                                  5.6             19.6          (43.5)            (30.9)
Unrecognized net actuarial (gain) / loss                     (7.3)           (41.7)           5.7              (4.3)
Unrecognized prior service cost                               9.8             20.1           (0.3)              -
Unrecognized net transition obligation (asset)               (1.6)            (2.6)          25.9              29.1
                                                        ------------     ------------    -------------     -------------
     Net amount recognized at end of year            $        6.5    $        (4.6)   $     (12.2)     $       (6.1)
                                                        ============     ============    =============     =============

Amounts recognized on the Consolidated Balance
 Sheets consist of:
     Prepaid benefit cost                            $        6.5    $         -      $       -        $        -
     Accrued benefit cost                                     -               (4.6)         (12.2)             (6.1)
                                                        ------------     ------------    -------------     -------------
     Net amount recognized at measurement date                6.5             (4.6)         (12.2)             (6.1)
                                                        ------------     ------------    -------------     -------------

Contributions paid after 9/30 and prior to 12/31              -                -              3.6               -
                                                        ------------     ------------    -------------     -------------
     Net amount recognized at 12/31/98               $        6.5    $        (4.6)   $      (8.6)     $       (6.1)
                                                        ============     ============    =============     =============
</TABLE>

IEC  sponsors a  non-qualified  pension plan which  covers  certain  current and
former  officers.  The pension expense  allocated to IESU for this plan was $1.4
million, $2.3 million and $0.8 million in 1998, 1997 and 1996, respectively.

IESU employees also  participate in defined  contribution  pension plans (401(k)
plans) covering substantially all employees.  IESU's contributions to the plans,
which are based on the participants'  level of contribution,  were $2.8 million,
$1.2 million and $1.5 million in 1998, 1997 and 1996, respectively.

                                      47
<PAGE>

(9) DEBT:

    (a) Short-Term Debt -

Information regarding short-term debt is as follows (dollars in millions):

<TABLE>
<CAPTION>
                                                         1998                 1997                 1996
                                                    ---------------      ---------------      ---------------
As of end of year -
<S>                                                     <C>              <C>               <C>
    Commercial paper outstanding                           -                     -           $       110.0
    Notes payable outstanding                              -                     -           $        25.0
    Discount rates on commercial paper                   N/A                   N/A               5.37-6.05%
    Interest rates on notes payable                      N/A                   N/A               6.20-6.59%

For the year ended -
    Average amount of short-term debt
        (based on daily outstanding balances)              -             $    88.4           $       120.1
    Average interest rate on short-term debt             N/A                  5.58%                   5.52%
</TABLE>


    (b) Long-Term Debt -

Debt maturities  (excluding  periodic sinking fund requirements,  which will not
require additional cash expenditures) for 1999 to 2003 are $50.1 million,  $51.2
million, $81.5 million, $0.6 million and $4.1 million,  respectively.  Depending
upon  market  conditions,  it is  currently  anticipated  that a majority of the
maturing debt will be refinanced with the issuance of long-term securities.

Refer to  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" (MD&A) for a further discussion of IESU's debt.

(10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments:

o   Current Assets and Current  Liabilities - The carrying  amount  approximates
    fair value because of the short maturity of such financial instruments.
o   Nuclear  Decommissioning  Trust Funds - The carrying  amount  represents the
    fair value of these trust funds, as reported by the trustee.  The balance of
    the  "Nuclear  decommissioning  trust  funds"  as shown on the  Consolidated
    Balance  Sheets  included  $24.3 million and $19.3 million of net unrealized
    gains at December  31, 1998 and  December  31,  1997,  respectively,  on the
    investments   held  in  the  trust  funds.   The  accumulated   reserve  for
    decommissioning costs was adjusted by a corresponding amount.
o   Cumulative  Preferred  Stock  - Based  upon  the  market  yield  of  similar
    securities and quoted market prices.
o   Long-Term  Debt - Based upon the  market  yield of  similar  securities  and
    quoted market prices.

The following  table  presents the carrying  amount and estimated  fair value of
certain financial instruments for IESU as of December 31 (in millions):

<TABLE>
<CAPTION>

                                                               1998                           1997
                                                    ---------------------------    ----------------------------
                                                     Carrying          Fair         Carrying           Fair
                                                       Value          Value           Value           Value
                                                    ------------    -----------    ------------     -----------
<S>                                              <C>             <C>            <C>             <C>
Nuclear decommissioning trust funds              $       92      $       92     $       78      $        78
Cumulative preferred stock                               18              15             18               13
Long-term debt, including current portion               652             687            652              678
</TABLE>

                                      48

<PAGE>

Since  IESU is  subject  to  regulation,  any  gains or  losses  related  to the
difference  between  the  carrying  amount and the fair  value of its  financial
instruments may not be realized by IESU's parent.

(12) COMMITMENTS AND CONTINGENCIES:

    (b) Purchased-Power, Coal and Natural Gas Contracts

IESU has  entered  into  purchased-power  capacity  and coal  contracts  and its
minimum commitments are as follows (dollars in millions,  megawatt-hours  (MWHs)
and tons in thousands):

                                                          Coal
                    Purchased-Power             (including transportation
                                                         costs)
               ---------------------------   --------------------------------
                Dollars          MWHs          Dollars             Tons
               -----------    ------------   -------------    ---------------
1999               $ 6.9          220           $ 14.1             2,028
2000                 4.8           -               9.9             1,162
2001                 5.0           -               6.4               885
2002                 2.8           -               0.5               135
2003                 2.9            -              0.2                45

IESU is in the process of negotiating  several new coal contracts.  In addition,
it expects to  supplement  its coal  contracts  with spot  market  purchases  to
fulfill its future fossil fuel needs.

IESU also has various natural gas supply,  transportation  and storage contracts
outstanding.  The minimum dekatherm commitments,  in millions, for 1999-2003 are
90.0, 79.5, 78.8, 75.0 and 70.0,  respectively.  The minimum dollar  commitments
for  1999-2003,   in  millions,  are  $56.4,  $35.9,  $33.6,  $27.6  and  $26.2,
respectively.  The gas supply  commitments are all index-based.  IESU expects to
supplement its natural gas supply with spot market purchases as needed.

    (c) Information Technology Services -

In May 1998, IEC entered into an agreement,  expiring in 2004,  with  Electronic
Data Systems  Corporation  (EDS) for  information  technology  services.  IESU's
anticipated  operating and capital expenditures under the agreement for 1999 are
estimated to total approximately $17.6 million. Future costs under the agreement
are  variable  and are  dependent  upon IESU's  level of usage of  technological
services from EDS.

    (d) Financial Guarantees and Commitments

IESU  has  financial   guarantees,   which  were  generally  issued  to  support
third-party borrowing arrangements and similar transactions,  amounting to $17.9
million  outstanding at December 31, 1998.  Such guarantees are not reflected in
the consolidated  financial statements.  Management believes that the likelihood
of IESU having to make any material  cash  payments  under these  agreements  is
remote.

                                      49

<PAGE>



(16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
<TABLE>
<CAPTION>

                                                                       Quarter Ended
                                          ------------------------------------------------------------------------
                                              March 31         June 30          September 30       December 31
                                          ----------------- ---------------   ----------------- ------------------
                                                                      (in thousands)
1998 *
<S>                                            <C>              <C>                <C>               <C>
  Operating revenues                           $208,278         $174,733           $222,190          $201,729
  Operating income                               34,289           21,756             69,940            29,011
  Net income                                     11,660            2,961             30,637            16,652
  Earnings available for common stock            11,431            2,732             30,408            16,425

1997
  Operating revenues                           $226,398         $169,623           $205,711          $212,246


  Operating income                               32,588           26,574             63,987            30,621
  Net income                                     11,851             6,891            28,636            11,415
  Earnings available for common stock            11,622             6,662            28,407            11,188

* Earnings in 1998 were impacted by the recording of  approximately  $2 million,
$10 million, $3 million and $2 million of pre-tax merger-related expenses in the
first, second, third and fourth quarters, respectively.
</TABLE>


                                      50

<PAGE>



                        WISCONSIN POWER AND LIGHT COMPANY

                                FINANCIAL SECTION



                                      51
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareowners of Wisconsin Power and Light Company:

We have audited the accompanying  consolidated  balance sheets and statements of
capitalization  of Wisconsin  Power and Light Company (a Wisconsin  corporation)
and subsidiaries as of December 31, 1998 and 1997, and the related  consolidated
statements  of income,  retained  earnings  and cash flows for each of the three
years in the period ended December 31, 1998. These financial  statements and the
supplemental  schedule referred to below are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and supplemental schedule based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of  Wisconsin  Power and Light
Company and  subsidiaries  as of December 31, 1998 and 1997,  and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements  taken as a whole.  The schedule listed in Item 14(a)(2) is presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and is not  part of the  basic  financial  statements.  This  schedule  has been
subjected to the auditing procedures applied in the audit of the basic financial
statements  and, in our  opinion,  fairly  states in all  material  respects the
financial  data  required  to be set  forth  therein  in  relation  to the basic
financial statements taken as a whole.





ARTHUR ANDERSEN LLP


Milwaukee, Wisconsin
January 29, 1999
                                      52

<PAGE>

<TABLE>
<CAPTION>
                        WISCONSIN POWER AND LIGHT COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME

                                                                 Year Ended December 31,
                                                       1998                1997               1996
---------------------------------------------------------------------------------------------------------
                                                                      (in thousands)
Operating revenues:
<S>                                                     <C>                 <C>                <C>
  Electric utility                                      $ 614,704           $ 634,143          $ 589,482
  Gas utility                                             111,737             155,883            165,627
  Water                                                     5,007               4,691              4,166
                                                  ----------------    ----------------   ----------------
                                                          731,448             794,717            759,275
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Operating expenses:
  Electric production fuels                               120,485             116,812            114,470
  Purchased power                                         113,936             125,438             81,108
  Cost of gas sold                                         61,409              99,267            104,830
  Other operation                                         143,666             131,398            140,339
  Maintenance                                              49,912              48,058             46,492
  Depreciation and amortization                           119,221             104,297             84,942
  Taxes other than income taxes                            30,169              30,338             29,206
                                                  ----------------    ----------------   ----------------
                                                          638,798             655,608            601,387
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Operating income                                           92,650             139,109            157,888
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Interest expense and other:
  Interest expense                                         36,584              32,607             31,472
  Allowance for funds used during construction             (3,049)             (2,775)            (3,208)
  Miscellaneous, net                                       (1,129)             (3,796)            (6,669)
                                                  ----------------    ----------------   ----------------
                                                           32,406              26,036             21,595
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Income before income taxes                                 60,244             113,073            136,293
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Income taxes                                               24,670              41,839             53,808
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Net income                                                 35,574              71,234             82,485
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Preferred dividend requirements                             3,310               3,310              3,310
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Earnings available for common stock                      $ 32,264            $ 67,924           $ 79,175
                                                  ================    ================   ================
---------------------------------------------------------------------------------------------------------
<CAPTION>

                        WISCONSIN POWER AND LIGHT COMPANY
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

                                                                 Year Ended December 31,
                                                       1998                1997               1996
---------------------------------------------------------------------------------------------------------
                                                                      (in thousands)
<S>                                                     <C>                 <C>                <C>
Balance at beginning of year                            $ 320,386           $ 310,805          $ 297,717
Net income                                                 35,574              71,234             82,485
Cash dividends declared on common stock                   (58,341)            (58,343)           (66,087)
Cash dividends declared on preferred stock                 (3,310)             (3,310)            (3,310)
                                                  ----------------    ----------------   ----------------
Balance at end of year                                  $ 294,309           $ 320,386          $ 310,805
                                                  ================    ================   ================
---------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>

                                      53
<PAGE>
<TABLE>
<CAPTION>

                        WISCONSIN POWER AND LIGHT COMPANY
                           CONSOLIDATED BALANCE SHEETS

                                                                               December 31,
ASSETS                                                                   1998                1997
--------------------------------------------------------------------------------------------------------
                                                                              (in thousands)
Property, plant and equipment:
  Utility -
    Plant in service -
<S>                                                                     <C>                 <C>
      Electric                                                          $ 1,839,545         $ 1,790,641
      Gas                                                                   244,518             237,856
      Water                                                                  26,567              24,864
      Common                                                                219,268             195,815
                                                                    ----------------    ----------------
                                                                          2,329,898           2,249,176
    Less - Accumulated depreciation                                       1,168,830           1,065,726
                                                                    ----------------    ----------------
                                                                          1,161,068           1,183,450
    Construction work in progress                                            56,994              42,312
    Nuclear fuel, net of amortization                                        18,671              19,046
                                                                    ----------------    ----------------
                                                                          1,236,733           1,244,808
  Other property, plant and equipment, net of accumulated
    depreciation and amortization of $44 for both years                         630                 684
                                                                    ----------------    ----------------
                                                                          1,237,363           1,245,492
                                                                    ----------------    ----------------
--------------------------------------------------------------------------------------------------------
Current assets:
  Cash and temporary cash investments                                         1,811               2,492
  Accounts receivable:
    Customer                                                                 13,372              20,928
    Associated companies                                                      3,019               5,017
    Other                                                                     8,298              11,589
  Production fuel, at average cost                                           20,105              18,857
  Materials and supplies, at average cost                                    20,025              19,274
  Gas stored underground, at average cost                                    10,738              12,504
  Prepaid gross receipts tax                                                 22,222              22,153
  Other                                                                       6,987               4,824
                                                                    ----------------    ----------------
                                                                            106,577             117,638
                                                                    ----------------    ----------------
--------------------------------------------------------------------------------------------------------
Investments:
  Nuclear decommissioning trust funds                                       134,112             112,356
  Other                                                                      15,960              14,877
                                                                    ----------------    ----------------
                                                                            150,072             127,233
                                                                    ----------------    ----------------
--------------------------------------------------------------------------------------------------------
Other assets:
  Regulatory assets                                                         133,501             120,826
  Deferred charges and other                                                 57,637              53,415
                                                                    ----------------    ----------------
                                                                            191,138             174,241
                                                                    ----------------    ----------------
--------------------------------------------------------------------------------------------------------
                                                                        $ 1,685,150         $ 1,664,604
                                                                    ================    ================
--------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.


</TABLE>
                                      54
<PAGE>
<TABLE>
<CAPTION>

                        WISCONSIN POWER AND LIGHT COMPANY
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                                                                         December 31,
CAPITALIZATION AND LIABILITIES                                                    1998                   1997
--------------------------------------------------------------------------------------------------------------------
                                                                                        (in thousands)
Capitalization (See Consolidated Statements of Capitalization):
<S>                                                                               <C>                   <C>
  Common stock                                                                       $ 66,183              $ 66,183
  Additional paid-in capital                                                          199,438               199,170
  Retained earnings                                                                   294,309               320,386
                                                                            ------------------     -----------------
    Total common equity                                                               559,930               585,739
                                                                            ------------------     -----------------
  Cumulative preferred stock, not mandatorily redeemable                               59,963                59,963
  Long-term debt (excluding current portion)                                          414,579               354,540
                                                                            ------------------     -----------------
                                                                                    1,034,472             1,000,242
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Current liabilities:
  Current maturities                                                                        -                 8,899
  Variable rate demand bonds                                                           56,975                56,975
  Commercial paper                                                                          -                81,000
  Notes payable                                                                        50,000                     -
  Notes payable to associated companies                                                26,799                     -
  Accounts payable                                                                     84,754                85,617
  Accounts payable to associated companies                                             20,315                     -
  Accrued payroll and vacations                                                         5,276                12,221
  Accrued interest                                                                      6,863                 6,317
  Other                                                                                14,600                25,162
                                                                            ------------------     -----------------
                                                                                      265,582               276,191
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
  Accumulated deferred income taxes                                                   245,489               251,709
  Accumulated deferred investment tax credits                                          33,170                35,039
  Customer advances                                                                    34,367                34,240
  Environmental liabilities                                                            11,683                13,738
  Other                                                                                60,387                53,445
                                                                            ------------------     -----------------
                                                                                      385,096               388,171
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
--------------------------------------------------------------------------------------------------------------------

                                                                                  $ 1,685,150           $ 1,664,604
                                                                            ==================     =================

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

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>
                                      55
<PAGE>
<TABLE>
<CAPTION>

                        WISCONSIN POWER AND LIGHT COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                    Year Ended December 31,
                                                                              1998               1997               1996
---------------------------------------------------------------------------------------------------------------------------
                                                                                        (in thousands)
Cash flows from operating activities:
<S>                                                                         <C>                <C>                <C>
  Net income                                                                $ 35,574           $ 71,234           $ 82,485
  Adjustments to reconcile net income to net cash
   flows from operating activities:
     Depreciation and amortization                                           119,221            104,297             84,942
     Amortization of nuclear fuel                                              5,356              3,534              4,845
     Deferred taxes and investment tax credits                                (7,529)             3,065              6,306
     (Gain) loss on disposition of other property and equipment                   38                710             (5,676)
     Other                                                                    (2,127)            (2,033)            (2,270)
  Other changes in assets and liabilities:
     Accounts receivable                                                      12,845             (3,314)              (250)
     Production fuel                                                          (1,248)            (3,016)            (1,216)
     Materials and supplies                                                     (751)               641                696
     Gas stored underground                                                    1,766             (2,512)            (3,673)
     Prepaid gross receipts tax                                                  (69)            (2,764)            (1,087)
     Accounts payable                                                         19,452             (7,102)            10,291
     Benefit obligations and other                                            (5,207)           (12,809)            16,834
                                                                     ----------------   ----------------   ----------------
       Net cash flows from operating activities                              177,321            149,931            192,227
                                                                     ----------------   ----------------   ----------------
---------------------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
    Common stock dividends                                                   (58,341)           (58,343)           (66,087)
    Preferred stock dividends                                                 (3,310)            (3,310)            (3,310)
    Proceeds from issuance of long-term debt                                  60,000            105,000                  -
    Reductions in long-term debt                                              (8,899)           (55,000)            (5,000)
    Net change in short-term borrowings                                       (4,201)            11,500             (3,000)
    Other                                                                     (1,966)            (2,601)                 -
                                                                     ----------------   ----------------   ----------------
      Net cash flows used for financing activities                           (16,717)            (2,754)           (77,397)
                                                                     ----------------   ----------------   ----------------
---------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
    Construction expenditures                                               (117,143)          (119,232)          (123,942)
    Nuclear decommissioning trust funds                                      (14,297)           (11,427)            (9,986)
    Additions to nuclear fuel                                                 (4,981)            (3,212)            (5,344)
    Proceeds from sale of other property and equipment                            53                  4             36,613
    Shared savings expenditures                                              (24,355)           (17,610)            (5,196)
    Other                                                                       (562)             2,625             (7,479)
                                                                     ----------------   ----------------   ----------------
      Net cash flows used for investing activities                          (161,285)          (148,852)          (115,334)
                                                                     ----------------   ----------------   ----------------
---------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and temporary cash investments                             (681)            (1,675)              (504)
                                                                     ----------------   ----------------   ----------------
---------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period                     2,492              4,167              4,671
                                                                     ----------------   ----------------   ----------------
---------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period                         $ 1,811            $ 2,492            $ 4,167
                                                                     ================   ================   ================
---------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information: Cash paid during the period for:
    Interest                                                                $ 33,368           $ 32,955           $ 29,092
                                                                     ================   ================   ================
    Income taxes                                                            $ 31,951           $ 37,407           $ 48,622
                                                                     ================   ================   ================
---------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>
                                      56
<PAGE>
<TABLE>
<CAPTION>

                        WISCONSIN POWER AND LIGHT COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                                                                                                 December 31,
                                                                                          1998                  1997
----------------------------------------------------------------------------------------------------------------------------
                                                                                     (in thousands, except share amounts)
<S>                                                                                       <C>                   <C>
Common equity:
    Common stock - $5.00 par value - authorized 18,000,000 shares;
      13,236,601 shares outstanding                                                          $ 66,183              $ 66,183
    Additional paid-in capital                                                                199,438               199,170
    Retained earnings                                                                         294,309               320,386
                                                                                    ------------------    ------------------
                                                                                              559,930               585,739
                                                                                    ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
Cumulative preferred stock:
    Cumulative,  without par value,  not  mandatorily  redeemable  -  authorized
      3,750,000 shares, maximum aggregate stated value $150,000,000:
        $100 stated value - 4.50% series, 99,970 shares outstanding                             9,997                 9,997
        $100 stated value - 4.80% series, 74,912 shares outstanding                             7,491                 7,491
        $100 stated value - 4.96% series, 64,979 shares outstanding                             6,498                 6,498
        $100 stated value - 4.40% series, 29,957 shares outstanding                             2,996                 2,996
        $100 stated value - 4.76% series, 29,947 shares outstanding                             2,995                 2,995
        $100 stated value - 6.20% series, 150,000 shares outstanding                           15,000                15,000
          $25 stated value - 6.50% series, 599,460 shares outstanding                          14,986                14,986
                                                                                    ------------------    ------------------
                                                                                               59,963                59,963
                                                                                    ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
Long-term debt:
    First Mortgage Bonds:
      Series L, 6.25%, retired in 1998                                                              -                 8,899
      1984 Series A, variable rate (3.85% at December 31, 1998), due 2014                       8,500                 8,500
      1988 Series A, variable rate (4.20% at December 31, 1998), due 2015                      14,600                14,600
      1990 Series V, 9.3%, due 2025                                                            27,000                27,000
      1991 Series A, variable rate (5.15% at December 31, 1998), due 2015                      16,000                16,000
      1991 Series B, variable rate (5.15% at December 31, 1998), due 2005                      16,000                16,000
      1991 Series C, variable rate (5.15% at December 31, 1998), due 2000                       1,000                 1,000
      1991 Series D, variable rate (5.15% at December 31, 1998), due 2000                         875                   875
      1992 Series W, 8.6%, due 2027                                                            90,000                90,000
      1992 Series X, 7.75%, due 2004                                                           62,000                62,000
      1992 Series Y, 7.6%, due 2005                                                            72,000                72,000
                                                                                    ------------------    ------------------
                                                                                              307,975               316,874
    Debentures, 7%, due 2007                                                                  105,000               105,000
    Debentures, 5.7%, due 2008                                                                 60,000                     -
                                                                                    ------------------    ------------------
                                                                                              472,975               421,874
                                                                                    ------------------    ------------------
    Less:
       Current maturities                                                                           -                (8,899)
       Variable rate demand bonds                                                             (56,975)              (56,975)
       Unamortized debt premium and (discount), net                                            (1,421)               (1,460)
                                                                                    ------------------    ------------------
                                                                                              414,579               354,540
                                                                                   ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
                                                                                          $ 1,034,472           $ 1,000,242
                                                                                    ==================    ==================
----------------------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>
                                     57

<PAGE>


                        WISCONSIN POWER AND LIGHT COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Except as modified  below,  the  Interstate  Energy  Corporation  (IEC) Notes to
Consolidated  Financial Statements are incorporated by reference insofar as they
relate to Wisconsin Power and Light Company (WP&L).  IEC Notes 1(e), 1(i), 1(n),
5,  8(b),  11(c),  and  15 do  not  relate  to  WP&L  and,  therefore,  are  not
incorporated by reference.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    (a) General -

The  Consolidated  Financial  Statements  include  the  accounts of WP&L and its
consolidated  subsidiaries.  WP&L is a subsidiary of IEC. IEC is currently doing
business  as Alliant  Energy  Corporation.  WP&L is engaged  principally  in the
generation,  transmission,   distribution  and  sale  of  electric  energy;  the
purchase,  distribution,  transportation  and sale of  natural  gas;  and  water
services. Nearly all of WP&L's retail customers are located in south and central
Wisconsin.  WP&L's principal consolidated  subsidiary is South Beloit Water, Gas
and Electric Company.

    (o) Comprehensive Income -

WP&L had no other comprehensive income in the periods presented.

(3) LEASES:

WP&L's  operating  lease  rental  expenses  for  1998,  1997 and 1996  were $6.4
million,  $5.5 million and $5.3 million,  respectively.  WP&L's  future  minimum
lease payments by year are as follows (in thousands):

                                             Operating
               Year                           Leases
               ----------------------    ------------------
               1999                   $             7,772
               2000                                 6,948
               2001                                 5,925
               2002                                 5,303
               2003                                 4,146
               Thereafter                          26,042
                                         ------------------
                                      $            56,136
                                         ==================

(6)  INCOME TAXES:

The  components  of federal and state  income taxes for WP&L for the years ended
December 31 were as follows (in millions):
<TABLE>
<CAPTION>


                                                      1998                1997                   1996
                                                 ----------------     --------------        ---------------
<S>                                         <C>                   <C>                <C>
Current tax expense                         $          32.2       $        38.8      $            47.5
Deferred tax expense                                   (5.6)                4.9                    8.2
Amortization of investment tax credits                 (1.9)               (1.9)                  (1.9)
                                                 ----------------     --------------        ---------------
                                            $          24.7       $        41.8      $            53.8
                                                 ================     ==============        ===============
</TABLE>

                                      58
<PAGE>


The overall  effective income tax rates shown below for the years ended December
31 were  computed by dividing  total income tax expense by income  before income
taxes.
<TABLE>
<CAPTION>

                                                        1998               1997                1996
                                                    --------------     --------------      -------------
<S>                                                      <C>                <C>                <C>
Statutory federal income tax rate                        35.0%              35.0%              35.0%
    State income taxes, net of federal benefits           7.8                5.7                6.1
    Amortization of investment tax credits               (3.1)              (1.7)              (1.4)
    Adjustment of prior period taxes                      -                 (2.1)               0.4
    Merger expenses                                       2.5                0.3                0.4
    Amortization of excess deferred taxes                (2.5)              (1.3)              (1.3)
    Other items, net                                      1.3                1.1                0.3
                                                    --------------     --------------      -------------
Overall effective income tax rate                        41.0%              37.0%              39.5%
                                                    ==============     ==============      =============
</TABLE>

The  accumulated  deferred  income taxes  (assets) and  liabilities as set forth
below on the Consolidated Balance Sheets at December 31 arise from the following
temporary differences (in millions):

                                                   1998              1997
                                              ---------------    --------------
         Property related                  $        282.7     $       287.2
         Investment tax credit related              (22.2)            (23.5)
         Decommissioning related                    (17.5)            (16.0)
         Other                                        2.5               4.0
                                              ---------------    --------------
                                           $        245.5     $       251.7
                                              ===============    ==============

(7) BENEFIT PLANS:

(a) Pension Plans and Other Postretirement Benefits

WP&L adopted Statement of Financial  Accounting Standard (SFAS) 132, "Employers'
Disclosures about Pensions and Other Postretirement  Benefits" in 1998. WP&L has
a  noncontributory,  defined  benefit  pension plan covering  substantially  all
employees who are subject to a collective bargaining agreement. The benefits are
based upon  years of service  and  levels of  compensation.  Effective  in 1998,
eligible  employees  of WP&L that are not  subject  to a  collective  bargaining
agreement  are  covered by the Alliant  Energy  Cash  Balance  Pension  Plan,  a
non-contributory  defined  benefit  pension  plan.  The  projected  unit  credit
actuarial cost method was used to compute  pension cost and the  accumulated and
projected benefit  obligations.  WP&L's policy is to fund the pension cost in an
amount that is at least equal to the minimum  funding  requirements  mandated by
the Employee  Retirement Income Security Act of 1974 (ERISA),  and that does not
exceed the maximum tax deductible amount for the year.

WP&L also provides certain other postretirement benefits to retirees,  including
medical   benefits  for  retirees  and  their   spouses  (and  Medicare  Part  B
reimbursement for certain retirees) and, in some cases,  retiree life insurance.
WP&L's  funding of other  postretirement  benefits  generally  approximates  the
maximum tax deductible amount on an annual basis.

The weighted-average  assumptions as of the measurement date of September 30 are
as follows:
<TABLE>
<CAPTION>

                                               Qualified Pension Benefits            Other Postretirement Benefits
                                          ------------------------------------- ----------------------------------------
                                             1998         1997        1996         1998        1997           1996
                                          ------------ ----------- ------------ ------------------------ ---------------
<S>                                          <C>        <C>         <C>            <C>         <C>         <C>
Discount rate                                6.75%       7.25%        7.50%        6.75%       7.25%         7.50%
Expected return on plan assets                9%           9%          9%           9%          9%             9%
Rate of compensation increase                3.5%       3.5-4.5%    3.5-4.5%       3.5%        3.5%         3.5-4.5%
Medical cost trend on covered charges:
      Initial trend range                     N/A         N/A          N/A          8%          8%             9%
      Ultimate trend range                    N/A         N/A          N/A          5%          5%             5%

</TABLE>

                                      59
<PAGE>


The components of WP&L's  qualified  pension  benefits and other  postretirement
benefits costs are as follows (in millions):

<TABLE>
<CAPTION>
                                                Qualified Pension Benefits            Other Postretirement Benefits
                                           -------------------------------------    ----------------------------------
                                             1998           1997         1996        1998        1997          1996
                                           ----------    -----------   ---------    --------    --------     ---------
<S>                                     <C>           <C>            <C>         <C>         <C>         <C>
Service cost                            $      3.2    $      4.8     $     5.1   $    1.7    $    1.8    $       1.8
Interest cost                                  8.5          13.9          13.6        2.6         3.3            3.4
Expected return on plan assets               (12.8)        (19.2)        (17.9)      (1.5)       (1.1)          (1.0)
Amortization of:
   Transition obligation (asset)              (2.1)         (2.4)         (2.4)       1.3         1.5            1.5
   Prior service cost                          0.5           0.4           0.3         -           -             -
   Actuarial (gain)/loss                       -             -             0.5       (1.1)       (0.3)           -
                                           ----------    -----------   ---------    --------    --------     ---------
Total                                   $     (2.7)   $     (2.5)    $    (0.8)  $    3.0    $    5.2    $       5.7
                                           ==========    ===========   =========    ========    ========     =========
</TABLE>

During  1998 and 1997,  WP&L  recognized  an  additional  $0.6  million and $1.3
million, respectively, of costs in accordance with SFAS 88. The charges were for
severance and early  retirement  programs in the respective  years. In addition,
during  1998  and  1997,   WP&L   recognized  $3.6  million  and  $1.7  million,
respectively,  of curtailment  charges  relating to WP&L's other  postretirement
benefits. The amounts include a December 1998 early retirement program.

The  pension  benefit  cost shown  above (and in the  following  table) for 1998
represents  only the pension  benefit cost for bargaining unit employees of WP&L
covered under the  bargaining  unit pension plan that is sponsored by WP&L.  The
pension   benefit  cost  for  WP&L's   non-bargaining   employees  who  are  now
participants  in other IEC plans was $3.0 million for 1998,  including a special
charge of $3.6 for severance and early retirement window programs.  In addition,
Alliant Energy Corporate  Services,  Inc.  (Alliant Energy  Corporate  Services)
provides  services to WP&L. The allocated  pension benefit costs associated with
these services was $0.6 million for 1998. The other postretirement  benefit cost
shown above for each period (and in the following  tables)  represents the other
postretirement  benefit  cost  for  all  WP&L  employees.  The  allocated  other
postretirement  benefit cost associated with Alliant Energy  Corporate  Services
for WP&L was $0.2 million for 1998.

The assumed  medical trend rates are critical  assumptions  in  determining  the
service and interest  cost and  accumulated  postretirement  benefit  obligation
related to  postretirement  benefit  costs.  A one percent change in the medical
trend rates for 1998,  holding all other  assumptions  constant,  would have the
following effects (in millions):
<TABLE>
<CAPTION>

                                                               1 Percent            1 Percent Decrease
                                                                Increase
                                                           -------------------    ----------------------
<S>                                                               <C>                    <C>
Effect on total of service and interest cost components           $0.3                   ($0.3)
Effect on postretirement benefit obligation                       $1.7                   ($1.7)
</TABLE>

                                      60
<PAGE>


A reconciliation of the funded status of WP&L's plans to the amounts  recognized
on WP&L's  Consolidated  Balance  Sheets at December 31 is  presented  below (in
millions):
<TABLE>
<CAPTION>

                                                        Qualified Pension Benefits      Other Postretirement Benefits
                                                        ----------------------------    -------------------------------
                                                           1998            1997             1998              1997
                                                        -----------     ------------    --------------     ------------
Change in benefit obligation:
<S>                                                 <C>             <C>              <C>               <C>
  Net benefit obligation at beginning of year       $       205.1   $       189.6    $      47.1       $       46.6
  Transfer of obligations to other IEC plans                (91.9)            -              -                  -
  Service cost                                                3.2             4.8            1.7                1.8
  Interest cost                                               8.5            13.9            2.6                3.3
  Plan participants' contributions                            -               -              0.8                1.0
  Plan amendments                                             -               4.4            -                  -
  Actuarial (gain) / loss                                    12.2             2.9           (9.7)              (2.7)
  Curtailments                                                -               -              0.7                0.6
  Special termination benefits                                0.6             1.3            -                  -
  Gross benefits paid                                        (5.4)          (11.8)          (2.9)              (3.5)
                                                        -----------     ------------    --------------     ------------
     Net benefit obligation at end of year                  132.3           205.1           40.3               47.1
                                                        -----------     ------------    --------------     ------------

Change in plan assets:
  Fair value of plan assets at beginning of year            244.4           218.9           16.1               13.8
  Transfer of assets to other IEC plans                    (100.2)            -              -                  -
  Actual return on plan assets                               (1.3)           36.2            1.1                1.9
  Employer contributions                                      -               1.1            -                  2.9
  Plan participants' contributions                            -               -              0.8                1.0
  Gross benefits paid                                        (5.4)          (11.8)          (2.9)              (3.5)
                                                        -----------     ------------    --------------     ------------
     Fair value of plan assets at end of year               137.5           244.4           15.1               16.1
                                                        -----------     ------------    --------------     ------------

Funded status at end of year                                  5.2            39.3          (25.2)             (31.0)
Unrecognized net actuarial (gain) / loss                     26.0             0.8          (17.0)              (8.3)
Unrecognized prior service cost                               5.1             7.8           (0.2)              (0.3)
Unrecognized net transition obligation (asset)               (7.9)          (12.0)          17.2               21.0
                                                        -----------     ------------    --------------     ------------
     Net amount recognized at end of year           $        28.4   $        35.9    $     (25.2)      $      (18.6)
                                                        ===========     ============    ==============     ============

Amounts recognized on the Consolidated Balance
Sheets consist of:
     Prepaid benefit cost                           $        28.4   $        35.9    $       0.4       $        0.3
     Accrued benefit cost                                     -               -            (25.6)             (18.9)
                                                        -----------     ------------    --------------     ------------
     Net amount recognized at measurement date               28.4            35.9          (25.2)             (18.6)
                                                        -----------     ------------    --------------     ------------

Contributions paid after 9/30 and prior to 12/31              -               -              2.1                -
                                                        -----------     ------------    --------------     ------------
     Net amount recognized at 12/31/98              $        28.4   $        35.9    $     (23.1)      $      (18.6)
                                                        ===========     ============    ==============     ============
</TABLE>

IEC  sponsors a  non-qualified  pension plan which  covers  certain  current and
former  officers.  The pension expense  allocated to WP&L for this plan was $0.8
million, $0.5 million and $0.5 million in 1998, 1997 and 1996, respectively.

WP&L employees also  participate in defined  contribution  pension plans (401(k)
plans) covering substantially all employees.  WP&L's contributions to the plans,
which are based on the participants'  level of contribution,  were $2.4 million,
$2.8 million and $1.8 million in 1998, 1997 and 1996, respectively.

The  benefit  obligation  and fair value of plan  assets for the  postretirement
welfare  plans with  benefit  obligations  in excess of plan  assets  were $33.4
million and $6.2  million as of  September  31, 1998 and $40.6  million and $7.7
million, respectively, as of the prior measurement date.

                                      61
<PAGE>

(9) DEBT:

    (a) Short-Term Debt -

Information regarding short-term debt is as follows (in millions):
<TABLE>
<CAPTION>

                                                         1998              1997              1996
                                                --------------    --------------    --------------
As of year end--
<S>                                                    <C>           <C>               <C>
   Commercial paper outstanding                             -             $81.0             $59.5
   Notes payable outstanding                            $50.0                 -             $10.0
   Money pool borrowings                                $26.8                 -                 -
   Discount rates on commercial paper                     N/A        5.82-5.90%        5.35-5.65%
   Interest rates on notes payable                      5.44%               N/A             5.95%
   Interest rate on money pool borrowings               5.17%               N/A               N/A

For the year ended--
   Average amount of short-term debt
      (based on daily outstanding balances)             $48.4             $49.2             $33.9
   Average interest rate on short-term debt             5.55%             5.64%             5.86%
</TABLE>

    (b) Long-Term Debt -

Debt maturities  (excluding  periodic sinking fund requirements,  which will not
require additional cash expenditures) for 1999 to 2003 are $0, $1.9 million, $0,
$0 and $0, respectively.

Refer to  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" (MD&A) for a further discussion of WP&L's debt.

(10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments:

o   Current Assets and Current  Liabilities - The carrying  amount  approximates
    fair value because of the short maturity of such financial instruments.

o   Nuclear  Decommissioning  Trust Funds - The carrying  amount  represents the
    fair value of these trust funds, as reported by the trustee.  The balance of
    the  "Nuclear  decommissioning  trust  funds"  as shown on the  Consolidated
    Balance  Sheets  included  $18.7 million and $16.4 million of net unrealized
    gains at December  31, 1998 and  December  31,  1997,  respectively,  on the
    investments   held  in  the  trust  funds.   The  accumulated   reserve  for
    decommissioning costs was adjusted by a corresponding amount.

o   Cumulative  Preferred  Stock  - Based  upon  the  market  yield  of  similar
    securities and quoted market prices.

o   Long-Term  Debt - Based upon the  market  yield of  similar  securities  and
    quoted market prices.

The following  table  presents the carrying  amount and estimated  fair value of
certain financial instruments for WP&L as of December 31 (in millions):

<TABLE>
<CAPTION>

                                                               1998                           1997
                                                    ---------------------------    ----------------------------
                                                     Carrying          Fair         Carrying           Fair
                                                       Value          Value           Value           Value
                                                    ------------    -----------    ------------     -----------
<S>                                              <C>             <C>            <C>             <C>
Nuclear decommissioning trust funds              $      134      $      134     $      112      $       112
Cumulative preferred stock                               60              55             60               52
Long-term debt, including current portion               472             513            420              449
</TABLE>

Since  WP&L is  subject  to  regulation,  any  gains or  losses  related  to the
difference  between  the  carrying  amount and the fair  value of its  financial
instruments may not be realized by WP&L's parent.

                                      62
<PAGE>


(12) COMMITMENTS AND CONTINGENCIES:

    (b) Purchased-Power, Coal and Natural Gas Contracts

WP&L has  entered  into  purchased-power  capacity  and coal  contracts  and its
minimum commitments are as follows (dollars in millions,  megawatt-hours  (MWHs)
and tons in thousands):

                                                     Coal
               Purchased-Power             (including transportation
                                                    costs)
          ---------------------------   --------------------------------
           Dollars          MWHs          Dollars             Tons
          -----------    ------------   -------------    ---------------
1999         $ 62.3         1,290          $ 22.2            6,124
2000           66.0         1,509            10.1            2,986
2001           52.4           864             8.4            1,600
2002           31.8           219             4.4              750
2003           24.3           219             -                -

WP&L is in the process of negotiating  several new coal contracts.  In addition,
it expects to  supplement  its coal  contracts  with spot  market  purchases  to
fulfill its future fossil fuel needs.

WP&L also has various natural gas supply,  transportation  and storage contracts
outstanding.  The minimum dekatherm commitments,  in millions, for 1999-2003 are
70.3, 59.7, 45.4, 31.5 and 24.5,  respectively.  The minimum dollar  commitments
for  1999-2003,   in  millions,  are  $42.8,  $32.5,  $27.1,  $24.7  and  $17.0,
respectively.  The gas supply  commitments are all index-based.  WP&L expects to
supplement its natural gas supply with spot market purchases as needed.

    (c) Information Technology Services -

In May 1998, IEC entered into an agreement,  expiring in 2004,  with  Electronic
Data Systems  Corporation  (EDS) for  information  technology  services.  WP&L's
anticipated  operating and capital expenditures under the agreement for 1999 are
estimated to total approximately $2.8 million.  Future costs under the agreement
are  variable  and are  dependent  upon WP&L's  level of usage of  technological
services from EDS.


                                      63
<PAGE>

(16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
<TABLE>
<CAPTION>

                                          ------------------------------------------------------------------------
                                                                       Quarter Ended
                                          ------------------------------------------------------------------------
                                              March 31         June 30          September 30       December 31
                                          ----------------- ---------------   ----------------- ------------------
                                                                      (in thousands)
1998*
<S>                                            <C>              <C>                <C>               <C>
  Operating revenues                           $202,803         $172,509           $176,130          $180,006
  Operating income                               33,651           10,828             29,696            18,475
  Net income (loss)                              17,598           (1,233)            12,677             6,532
  Earnings available for common stock            16,770           (2,061)            11,850             5,705

1997
  Operating revenues                           $231,005         $176,065           $180,192          $207,455
  Operating income                               45,413           20,882             34,158            38,656
  Net income                                     23,351           11,044             15,236            21,603
  Earnings available for common stock            22,523           10,216             14,409            20,776

*Earnings for 1998 were impacted by the recording of  approximately  $3 million,
$11 million, $2 million and $1 million of pre-tax merger-related expenses in the
first, second, third and fourth quarters, respectively.

</TABLE>

                                      64
<PAGE>

                                     PART IV

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

(a) (1)      Consolidated Financial Statements

        Refer to Index to Financial Statements at Item 8. "Financial  Statements
        and Supplementary Data."

(a) (2)      Financial Statement Schedules

             Report of Independent Public Accountants on Schedules
             Schedule II.  Valuation and Qualifying Accounts and Reserves
             (Previously filed)

        NOTE: All other schedules are omitted because they are not applicable or
        not required,  or because that required  information  is shown either in
        the consolidated financial statements or in the notes thereto.

(a) (3) Exhibits Required by Securities and Exchange Commission Regulation S-K

        The  following  Exhibits are filed  herewith or  incorporated  herein by
        reference.  Documents  indicated  by an  asterisk  (*) are  incorporated
        herein by reference.

     2.1*       Agreement and Plan of Merger,  dated as of November 10, 1995, by
                and among WPL Holdings,  Inc., IES Industries  Inc.,  Interstate
                Power  Company  and  AMW  Acquisition,   Inc.  (incorporated  by
                reference  to Exhibit 2.1 to IEC's  Current  Report on Form 8-K,
                dated November 10, 1995)

     2.2*       Amendment No. 1 to Agreement and Plan of Merger and Stock Option
                Agreements, dated May 22, 1996, by and among WPL Holdings, Inc.,
                IES  Industries  Inc.,  Interstate  Power  Company,  a  Delaware
                corporation,  AMW  Acquisition,  Inc., WPLH  Acquisition Co. and
                Interstate Power Company, a Wisconsin corporation  (incorporated
                by reference to Exhibit 2.1 to IEC's Current Report on Form 8-K,
                dated May 22, 1996)

     2.3*       Amendment  No. 2 to Agreement  and Plan of Merger,  dated August
                16, 1996, by and among WPL Holdings,  Inc., IES Industries Inc.,
                Interstate   Power  Company,   a  Delaware   corporation,   WPLH
                Acquisition  Co.  and  Interstate  Power  Company,  a  Wisconsin
                corporation  (incorporated  by reference to Exhibit 2.1 to IEC's
                Current Report on Form 8-K, dated August 15, 1996)

     3.1*       Restated   Articles  of  Incorporation   of  Interstate   Energy
                Corporation,  as amended  (incorporated  by reference to Exhibit
                3.2 to IEC's Current Report on Form 8-K, dated April 21, 1998)

     3.2        Bylaws of Interstate Energy Corporation, effective as of January
                20, 1999+

     3.3*       Restated  Articles of  Incorporation  of Wisconsin Power & Light
                Company, as amended (incorporated by reference to Exhibit 3.1 to
                WP&L's Form 10-Q for the quarter ended June 30, 1994)

     3.4        Bylaws of  Wisconsin  Power and Light  Company,  effective as of
                January 20, 1999+

     3.5*       Amended and Restated  Articles of Incorporation of IES Utilities
                Inc.  (incorporated  by  reference to Exhibit 3.5 to IESU's Form
                10-Q for the quarter ended June 30, 1998)


                                       65
<PAGE>

     3.6        Bylaws of IES Utilities Inc., effective as of January 20, 1999+

     4.1*       Indenture  of Mortgage  or Deed of Trust  dated  August 1, 1941,
                between  WP&L and First  Wisconsin  Trust  Company and George B.
                Luhman,  as Trustees,  filed as Exhibit 7(a) in File No. 2-6409,
                and the indentures  supplemental  thereto  dated,  respectively,
                January 1, 1948, September 1, 1948, June 1, 1950, April 1, 1951,
                April 1,  1952,  September  1, 1953,  October 1, 1954,  March 1,
                1959,  May 1,  1962,  August 1, 1968,  June 1, 1969,  October 1,
                1970,  July 1, 1971,  April 1, 1974,  December  1, 1975,  May 1,
                1976, May 15, 1978, August 1, 1980,  January 15, 1981, August 1,
                1984,  January 15, 1986, June 1, 1986, August 1, 1988,  December
                1, 1990,  September 1, 1991, October 1, 1991, March 1, 1992, May
                1, 1992,  June 1, 1992 and July 1, 1992 (Second  Amended Exhibit
                7(b)  in File  No.  2-7361;  Amended  Exhibit  7(c) in File  No.
                2-7628; Amended Exhibit 7.02 in File No. 2-8462; Amended Exhibit
                7.02 in File No. 2-8882;  Second Amendment  Exhibit 4.03 in File
                No. 2-9526;  Amended Exhibit 4.03 in File No.  2-10406;  Amended
                Exhibit 2.02 in File No.  2-11130;  Amended Exhibit 2.02 in File
                No. 2-14816;  Amended Exhibit 2.02 in File No. 2-20372;  Amended
                Exhibit 2.02 in File No.  2-29738;  Amended Exhibit 2.02 in File
                No. 2-32947;  Amended Exhibit 2.02 in File No. 2-38304;  Amended
                Exhibit 2.02 in File No.  2-40802;  Amended Exhibit 2.02 in File
                No.  2-50308;  Exhibit  2.01(a)  in File  No.  2-57775;  Amended
                Exhibit 2.02 in File No.  2-56036;  Amended Exhibit 2.02 in File
                No. 2-61439;  Exhibit 4.02 in File No. 2-70534;  Amended Exhibit
                4.03 File No. 2-70534; Exhibit 4.02 in File No. 33-2579; Amended
                Exhibit 4.03 in File No.  33-2579;  Amended Exhibit 4.02 in File
                No.  33-4961;  Exhibit 4B to WP&L's Form 10-K for the year ended
                December 31, 1988, Exhibit 4.1 to WP&L's Form 8-K dated December
                10, 1990,  Amended  Exhibit 4.26 in File No.  33-45726,  Amended
                Exhibit 4.27 in File No.33-45726, Exhibit 4.1 to WP&L's Form 8-K
                dated  March 9, 1992,  Exhibit  4.1 to WP&L's Form 8-K dated May
                12, 1992, Exhibit 4.1 to WP&L's Form 8-K dated June 29, 1992 and
                Exhibit 4.1 to WP&L's Form 8-K dated July 20, 1992)

     4.2*       Rights  Agreement,  dated January 20, 1999,  between  Interstate
                Energy   Corporation   and   Firstar   Bank   Milwaukee,    N.A.
                (incorporated by reference to Exhibit 4.1 to IEC's  Registration
                Statement on Form 8-A, dated January 20, 1999)

     4.3*       Indenture,  dated as of June 20, 1997,  between WP&L and Firstar
                Trust  Company,   as  Trustee,   relating  to  debt   securities
                (incorporated by reference to Exhibit 4.33 to Amendment No. 2 to
                WP&L's  Registration  Statement  on Form S-3  (Registration  No.
                33-60917))

     4.4*       Officers'  Certificate,  dated as of June 25, 1997, creating the
                7%  debentures  due  June  15,  2007  of WP&L  (incorporated  by
                reference  to  Exhibit 4 to WP&L's  Current  Report on Form 8-K,
                dated June 25, 1997)

     4.5*       Officers'  Certificate,  dated as of October 27, 1998,  creating
                the 5.70% debentures due October 15, 2008 of WP&L  (incorporated
                by reference to Exhibit 4 to WP&L's  Current Report on Form 8-K,
                dated October 27, 1998)

                                      66
<PAGE>

     4.6*       Indenture of Mortgage  and Deed of Trust,  dated as of September
                1, 1993,  between IES  Utilities  Inc.  (formerly  Iowa Electric
                Light and Power  Company  (IE)) and The First  National  Bank of
                Chicago,  as Trustee  (Mortgage)  (incorporated  by reference to
                Exhibit 4(c) to IESU's Form 10-Q for the quarter ended September
                30, 1993)

     4.7*       Supplemental Indentures to the Mortgage:

                                                IESU/IES
      Number         Dated as of              File Reference          Exhibit

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

     First       October 1, 1993        Form 10-Q, 11/12/93           4(d)
     Second      November 1, 1993       Form 10-Q, 11/12/93           4(e)
     Third       March 1, 1995          Form 10-Q, 5/12/95            4(b)
     Fourth      September 1, 1996      Form 8-K, 9/19/96             4(c)(i)
     Fifth       April 1, 1997          Form 10-Q, 5/14/97            4(a)

     4.8*        Indenture of Mortgage and Deed of Trust,  dated as of August 1,
                 1940,  between IES Utilities  Inc.  (formerly IE) and The First
                 National   Bank   of   Chicago,    Trustee   (1940   Indenture)
                 (incorporated   by   reference   to  Exhibit   2(a)  to  IESU's
                 Registration Statement, File No. 2-25347)

     4.9*        Supplemental Indentures to the 1940 Indenture:
<TABLE>
<CAPTION>

                                                                    IESU
               Number               Dated as of                File Reference           Exhibit
         -------------------   ----------------------    ---------------------------    ---------

<S>                            <C>                       <C>                            <C>
         First                 March 1, 1941             2-25347                        2(a)
         Second                July 15, 1942             2-25347                        2(a)
         Third                 August 2, 1943            2-25347                        2(a)
         Fourth                August 10, 1944           2-25347                        2(a)
         Fifth                 November 10, 1944         2-25347                        2(a)
         Sixth                 August 8, 1945            2-25347                        2(a)
         Seventh                July 1, 1946             2-25347                        2(a)
         Eighth                July 1, 1947              2-25347                        2(a)
         Ninth                 December 15, 1948         2-25347                        2(a)
         Tenth                 November 1, 1949          2-25347                        2(a)
         Eleventh              November 10, 1950         2-25347                        2(a)
         Twelfth               October 1, 1951           2-25347                        2(a)
         Thirteenth            March 1, 1952             2-25347                        2(a)
         Fourteenth            November 5, 1952          2-25347                        2(a)
         Fifteenth             February 1, 1953          2-25347                        2(a)
         Sixteenth             May 1, 1953               2-25347                        2(a)
         Seventeenth           November 3, 1953          2-25347                        2(a)
         Eighteenth            November 8, 1954          2-25347                        2(a)
         Nineteenth            January 1, 1955           2-25347                        2(a)
         Twentieth             November 1, 1955          2-25347                        2(a)
         Twenty-first          November 9, 1956          2-25347                        2(a)
         Twenty-second         November 6, 1957          2-25347                        2(a)
         Twenty-third          November 4, 1958          2-25347                        2(a)
         Twenty-fourth         November 3, 1959          2-25347                        2(a)
         Twenty-fifth          November 1, 1960          2-25347                        2(a)
         Twenty-sixth          January 1, 1961           2-25347                        2(a)
         Twenty-seventh        November 7, 1961          2-25347                        2(a)
         Twenty-eighth         November 6, 1962          2-25347                        2(a)
         Twenty-ninth          November 5, 1963          2-25347                        2(a)

                                      67
<PAGE>

         Thirtieth             November 4, 1964          2-25347                        2(a)
         Thirty-first          November 2, 1965          2-25347                        2(a)
         Thirty-second         September 1, 1966         Form 10-K, 1966                4.10
         Thirty-third          November 30, 1966         Form 10-K, 1966                4.10
         Thirty-fourth         November 7, 1967          Form 10-K, 1967                4.10
         Thirty-fifth          November 5, 1968          Form 10-K, 1968                4.10
         Thirty-sixth          November 1, 1969          Form 10-K, 1969                4.10
         Thirty-seventh        December 1, 1970          Form 8-K, 12/70                1
         Thirty-eighth         November 2, 1971          2-43131                        2(g)
         Thirty-ninth          May 1, 1972               Form 8-K, 5/72                 1
         Fortieth              November 7, 1972          2-56078                        2(i)
         Forty-first           November 7, 1973          2-56078                        2(j)
         Forty-second          September 10, 1974        2-56078                        2(k)
         Forty-third           November 5, 1975          2-56078                        2(l)
         Forty-fourth          July 1, 1976              Form 8-K, 7/76                 1
         Forty-fifth           November 1, 1976          Form 8-K, 12/76                1
         Forty-sixth           December 1, 1977          2-60040                        2(o)
         Forty-seventh         November 1, 1978          Form 10-Q, 6/30/79             1
         Forty-eighth          December 1, 1979          Form S-16, 2-65996             2(q)
         Forty-ninth           November 1, 1981          Form 10-Q, 3/31/82             2
         Fiftieth              December 1, 1980          Form 10-K, 1981                4(s)
         Fifty-first           December 1, 1982          Form 10-K, 1982                4(t)
         Fifty-second          December 1, 1983          Form 10-K, 1983                4(u)
         Fifty-third           December 1, 1984          Form 10-K, 1984                4(v)
         Fifty-fourth          March 1, 1985             Form 10-K, 1984                4(w)
         Fifty-fifth           March 1, 1988             Form 10-Q, 5/12/88             4(b)
         Fifty-sixth           October 1, 1988           Form 10-Q, 11/10/88            4(c)
         Fifty-seventh         May 1, 1991               Form 10-Q, 8/13/91             4(d)
         Fifty-eighth          March 1, 1992             Form 10-K, 1991                4(c)
         Fifty-ninth           October 1, 1993           Form 10-Q, 11/12/93            4(a)
         Sixtieth              November 1, 1993          Form 10-Q, 11/12/93            4(b)
         Sixty-first           March 1, 1995             Form 10-Q, 5/12/95             4(a)
         Sixty-second          September 1, 1996         Form 8-K, 9/19/96              4(f)
         Sixty-third           April 1, 1997             Form 10-Q, 5/14/97             4(b)
</TABLE>

      4.10*     Indenture or Deed of Trust dated as of February 1, 1923, between
                IES Utilities Inc. (successor to Iowa Southern Utilities Company
                (IS) as result of  merger of IS and IE) and The  Northern  Trust
                Company  (The First  National  Bank of Chicago,  successor)  and
                Harold H. Rockwell (Richard D. Manella,  successor), as Trustees
                (1923  Indenture)  (incorporated  by reference to Exhibit B-1 to
                File No. 2-1719)

      4.11*     Supplemental Indentures to the 1923 Indenture:

                       Dated as of             File Reference          Exhibit
                 ------------------------     -----------------      -----------

                 May 1, 1940                  2-4921                 B-1-k
                 May 2, 1940                  2-4921                 B-1-l
                 October 1, 1945              2-8053                 7(m)
                 October 2, 1945              2-8053                 7(n)
                 January 1, 1948              2-8053                 7(o)
                 September 1, 1950            33-3995                4(e)
                 February 1, 1953             2-10543                4(b)
                 October 2, 1953              2-10543                4(q)
                 August 1, 1957               2-13496                2(b)
                 September 1, 1962            2-20667                2(b)

                                      68
<PAGE>

                 June 1, 1967                 2-26478                2(b)
                 February 1, 1973             2-46530                2(b)
                 February 1, 1975             2-53860                2(aa)
                 July 1, 1975                 2-54285                2(bb)
                 September 2, 1975            2-57510                2(bb)
                 March 10, 1976               2-57510                2(cc)
                 February 1, 1977             2-60276                2(ee)
                 January 1, 1978              0-849                  2
                 March 1, 1979                0-849                  2
                 March 1, 1980                0-849                  2
                 May 31, 1986                 33-3995                4(g)
                 July 1, 1991                 0-849                  4(h)
                 September 1, 1992            0-849                  4(m)
                 December 1, 1994             0-4117-1               4(f)

     4.12*      Indenture (For Unsecured Subordinated Debt Securities), dated as
                of December 1, 1995,  between IES  Utilities  Inc. and The First
                National Bank of Chicago,  as Trustee  (Subordinated  Indenture)
                (incorporated  by reference to Exhibit 4(i) to IESU's  Amendment
                No. 1 to Registration Statement, File No. 33-62259)

     4.13*      Indenture (For Senior  Unsecured Debt  Securities),  dated as of
                August  1,  1997,  between  IES  Utilities  Inc.  and The  First
                National Bank of Chicago, as Trustee  (incorporated by reference
                to  Exhibit  4(j) to  IESU's  Registration  Statement,  File No.
                333-32097)

     4.14*      The Original through the Nineteenth  Supplemental  Indentures of
                Interstate Power Company to The Chase Manhattan Bank and Carl E.
                Buckley and C. J.  Heinzelmann,  as Trustees,  dated  January 1,
                1948 securing First Mortgage Bonds (incorporated by reference to
                Exhibits 4(b) through 4(t) to IPC's  Registration  Statement No.
                33-59352 dated March 11, 1993)

     4.15*      Twentieth  Supplemental Indenture of Interstate Power Company to
                The Chase  Manhattan  Bank and C. J.  Heinzelmann,  as Trustees,
                dated May 15, 1993 (incorporated by reference to Exhibit 4(u) to
                IPC's Registration Statement No. 33-59352 dated March 11, 1993)

     10.1*      Service  Agreement by and among Wisconsin Power & Light Company,
                South Beloit  Water,  Gas and Electric  Company,  IES  Utilities
                Inc.,  Interstate  Power Company,  and Alliant  Services Company
                (incorporated  by  reference  to Exhibit 10.1 to IEC's Form 10-Q
                for the quarter ended June 30, 1998)

     10.2*      Service  Agreement by and among Alliant  Industries,  Inc.,  IPC
                Development   Company,   Inc.  and  Alliant   Services   Company
                (incorporated  by  reference  to Exhibit 10.2 to IEC's Form 10-Q
                for the quarter ended June 30, 1998)

     10.3*      System  Coordination  and  Operating  Agreement  dated April 11,
                1997,  among  IES  Utilities  Inc.,  Interstate  Power  Company,
                Wisconsin  Power & Light  Company  and  Alliant  Services,  Inc.
                (incorporated  by  reference  to Exhibit 10.3 to IEC's Form 10-Q
                for the quarter ended June 30, 1998)

     10.4*      Joint Power Supply  Agreement  among  Wisconsin  Public  Service
                Corporation,  Wisconsin Power and Light Company, and Madison Gas
                and Electric  Company,  dated February 2, 1967  (incorporated by
                reference   to  Exhibit  4.09  of   Wisconsin   Public   Service
                Corporation in File No. 2-27308)

     10.5*      Joint Power Supply  Agreement  among  Wisconsin  Public  Service
                Corporation,  Wisconsin Power and Light Company, and Madison Gas
                and  Electric  Company,  dated July 26,  1973  (incorporated  by

                                      69
<PAGE>

                reference  to  Exhibit   5.04A  of  Wisconsin   Public   Service
                Corporation in File No. 2-48781)

     10.6*      Basic  Generating   Agreement,   Unit  4,  Edgewater  Generating
                Station,  dated June 5, 1967,  between Wisconsin Power and Light
                Company and Wisconsin Public Service  Corporation  (incorporated
                by  reference  to  Exhibit  4.10  of  Wisconsin  Public  Service
                Corporation in File No. 2-27308)

     10.7*      Agreement  for   Construction   and  Operation  of  Edgewater  5
                Generating  Unit,  dated  February 24, 1983,  between  Wisconsin
                Power and Light  Company,  Wisconsin  Electric Power Company and
                Wisconsin Public Service Corporation  (incorporated by reference
                to Exhibit 10C-1 to Wisconsin Public Service  Corporation's Form
                10-K for the year ended December 31, 1983 (File No. 1-3016))

     10.7a*     Amendment No. 1 to Agreement for  Construction  and Operation of
                Edgewater   5   Generating   Unit,   dated   December   1,  1988
                (incorporated  by reference to Exhibit 10C-2 to Wisconsin Public
                Service  Corporation's Form 10-K for the year ended December 31,
                1988 (File No. 1-3016))

     10.8*      Revised  Agreement  for  Construction  and Operation of Columbia
                Generating  Plant among  Wisconsin  Public Service  Corporation,
                Wisconsin Power and Light Company,  and Madison Gas and Electric
                Company,  dated July 26,  1973  (incorporated  by  reference  to
                Exhibit 5.07 of Wisconsin Public Service Corporation in File No.
                2-48781)

     10.9*      Operating and Transmission  Agreement between Central Iowa Power
                Cooperative and IESU (incorporated by reference to Exhibit 10(q)
                to IESU's Form 10-K for the year 1990)

     10.10*     Duane Arnold Energy  Center  Ownership  Participation  Agreement
                dated June 1, 1970 between Central Iowa Power Cooperative,  Corn
                Belt Power  Cooperative and IESU  (incorporated  by reference to
                Exhibit  5(kk)  to  IESU's  Registration  Statement,   File  No.
                2-38674)

     10.11*     Duane Arnold Energy  Center  Operating  Agreement  dated June 1,
                1970  between  Central Iowa Power  Cooperative,  Corn Belt Power
                Cooperative and IESU (incorporated by reference to Exhibit 5(ll)
                to IESU's Registration Statement, File No. 2-38674)

     10.12*     Duane  Arnold   Energy  Center   Agreement   for   Transmission,
                Transformation,  Switching, and Related Facilities dated June 1,
                1970  between  Central Iowa Power  Cooperative,  Corn Belt Power
                Cooperative and IESU (incorporated by reference to Exhibit 5(mm)
                to IESU's Registration Statement, File No. 2-38674)

     10.13*     Basic  Generating  Agreement  dated April 16, 1975  between Iowa
                Public   Service   Company,   Iowa  Power  and  Light   Company,
                Iowa-Illinois  Gas and  Electric  Company and IESU for the joint
                ownership   of  Ottumwa   Generating   Station-Unit   1  (OGS-1)
                (incorporated  by reference to Exhibit 1 to IESU's Form 10-K for
                the year 1977)

     10.13a*    Addendum  Agreement to the Basic Generating  Agreement for OGS-1
                dated  December 7, 1977  between  Iowa Public  Service  Company,
                Iowa-Illinois  Gas and  Electric  Company,  Iowa Power and Light
                Company  and IESU for the  purchase  of 15%  ownership  in OGS-1
                (incorporated  by reference to Exhibit 3 to IESU's Form 10-K for
                the year 1977)

     10.14*     Second  Amended  and  Restated  Credit  Agreement  dated  as  of
                September  17, 1987  between  Arnold  Fuel,  Inc.  and the First
                National  Bank of Chicago and the Amended and  Restated  Consent
                and   Agreement   dated  as  of  September   17,  1987  by  IESU
                (incorporated  by reference to Exhibit 10(j) to IESU's Form 10-K
                for the year 1987)

     10.15#*    Form  of  Supplemental  Retirement  Agreement  (incorporated  by
                reference  to Exhibit  10.15 to IEC's Form 10-Q for the  quarter
                ended June 30, 1998)
                                       70
<PAGE>

     10.16#*    Interstate    Energy    Corporation   1998   Officer   Incentive
                Compensation Plan (incorporated by reference to Exhibit 10.16 to
                IEC's Form 10-Q for the quarter ended June 30, 1998)

     10.17#*    Interstate  Energy  Corporation   Long-Term  Incentive  Program,
                revised July 1, 1998 (incorporated by reference to Exhibit 10.17
                to IEC's Form 10-Q for the quarter ended June 30, 1998)

     10.18#*    Alliant Services Company Key Employee Deferred Compensation Plan
                (incorporated  by reference to Exhibit  10.18 to IEC's Form 10-Q
                for the quarter ended June 30, 1998)

     10.19#*    Executive  Tenure  Compensation  Plan as revised  November  1992
                (incorporated by reference to Exhibit 10A to IEC's Form 10-K for
                the year ended December 31, 1992)

     10.19a#*   Amendment to Executive Tenure Compensation Plan adopted February
                23, 1998  (incorporated  by reference to Exhibit 10.19a to IEC's
                Form 10-Q for the quarter ended June 30, 1998)

     10.20#*    Forms of Deferred  Compensation  Plans,  as amended  June,  1990
                (incorporated by reference to Exhibit 10C to IEC's Form 10-K for
                the year ended December 31, 1990)

     10.20a#*   Officer's  Deferred  Compensation  Plan II, as adopted September
                1992  (incorporated  by reference to Exhibit 10C.1 to IEC's Form
                10-K for the year ended December 31, 1992)

     10.20b#*   Officer's  Deferred  Compensation  Plan III, as adopted  January
                1993  (incorporated  by reference to Exhibit 10C.2 to IEC's Form
                10-K for the year ended December 31, 1993)

     10.21#*    Deferred Compensation Plan for Directors, as amended January 17,
                1995  (incorporated  by  reference  to Exhibit 10I to IEC's Form
                10-K for the year ended December 31, 1995)

     10.22#*    Interstate  Energy  Corporation  Long-Term Equity Incentive Plan
                (incorporated by reference to Exhibit 4.1 to IEC's Form 10-Q for
                the quarter ended June 30, 1994)

     10.23#*    Key Executive  Employment and Severance Agreement by and between
                Interstate   Energy   Corporation  and  Erroll  B.  Davis,   Jr.
                (incorporated by reference to Exhibit 4.2 to IEC's Form 10-Q for
                the quarter ended June 30, 1994)

     10.23a#*   Key Executive  Employment and Severance Agreement by and between
                Interstate  Energy  Corporation and each of W.D. Harvey and E.G.
                Protsch  (incorporated by reference to Exhibit 4.3 to IEC's Form
                10-Q for the quarter ended June 30, 1994)

     10.24#*    Key Executive  Employment and Severance Agreement by and between
                Interstate  Energy  Corporation and each of E.M.  Gleason,  B.J.
                Swan, D.A.  Doyle,  P.J.  Wegner,  C. Fulenwider and K.K. Zuhlke
                (incorporated by reference to Exhibit 4.4 to IEC's Form 10-Q for
                the quarter ended June 30, 1994)

     10.25#*    Severance Agreement by and between Interstate Energy Corporation
                and Lance W. Ahearn (incorporated by reference to Exhibit 10N to
                IEC's Form 10-K for the year ended December 31, 1997)

     10.26#*    Severance Agreement by and between Interstate Energy Corporation
                and Anthony J. Amato (incorporated by reference to Exhibit 10.28
                to IEC's Form 10-Q for the quarter ended June 30, 1998)

     10.27#*    Early Retirement Agreement,  dated as of October 7, 1998, by and
                between  Interstate  Energy  Corporation  et al. and  Michael R.
                Chase  (incorporated  by reference to Exhibit 10.1 to IEC's Form
                10-Q for the quarter ended September 30, 1998)

     10.28#*    Employment Agreement, dated as of April 21, 1998, by and between
                Interstate   Energy   Corporation  and  Erroll  B.  Davis,   Jr.
                (incorporated  by  reference  to Exhibit  10.1 to IEC's Form 8-K
                dated April 21, 1998)

                                      71
<PAGE>

     10.29#*    Employment Agreement, dated as of April 21, 1998, by and between
                Interstate  Energy  Corporation  and  Lee Liu  (incorporated  by
                reference  to  Exhibit  10.2 to IEC's  Form 8-K dated  April 21,
                1998)

     10.30#*    Supplemental  Retirement  Plan  (incorporated  by  reference  to
                Exhibit 10(l) to IES's Form 10-K for the year ended December 31,
                1987)

     10.31#*    Key  Employee  Deferred   Compensation  Plan   (incorporated  by
                reference to Exhibit 10(n) to IES's Form 10-K for the year ended
                December 31, 1987)

     10.31a#*   Amendments to Key Employee Deferred  Compensation  Agreement for
                Key  Employees  (incorporated  by reference to Exhibit  10(v) to
                IES's Form 10-Q for the quarter ended March 31, 1990)

     10.32#*    Executive  Guaranty Plan  (incorporated  by reference to Exhibit
                10(p) to IES's Form 10-K for the year ended December 31, 1987)

     10.33#*    Executive   Change  of  Control   Severance   Agreement   -  CEO
                (incorporated  by reference to Exhibit  10(a) to IES's Form 10-Q
                for the quarter ended September 30, 1996)

     10.34#*    Executive   Change  of  Control   Severance   Agreement  -  Vice
                Presidents  (incorporated by reference to Exhibit 10(b) to IES's
                Form 10-Q for the quarter ended September 30, 1996)

     10.35#*    Executive Change of Control Severance Agreement - Other Officers
                (incorporated  by reference to Exhibit  10(c) to IES's Form 10-Q
                for the quarter ended September 30, 1996)

     10.36#*    Amendments to Key Employee Deferred  Compensation  Agreement for
                Directors  (incorporated  by reference to Exhibit 10(u) to IES's
                Form 10-Q for the quarter ended March 31, 1990)

     10.37#*    IES Industries Inc.  Grantor Trust for Director  Retirement Plan
                (incorporated  by reference to Exhibit  10(c) to IES's Form 10-Q
                for the quarter ended September 30, 1997)

     10.38#*    IES  Industries  Inc.  Grantor  Trust for Deferred  Compensation
                Agreements  (incorporated by reference to Exhibit 10(d) to IES's
                Form 10-Q for the quarter ended September 30, 1997)

     10.39#*    IES Industries Inc.  Grantor Trust for  Supplemental  Retirement
                Agreements  (incorporated by reference to Exhibit 10(e) to IES's
                Form 10-Q for the quarter ended September 30, 1997)

     10.40#*    IES  Utilities  Inc.  Grantor  Trust for  Deferred  Compensation
                Agreements  (incorporated by reference to Exhibit 10(f) to IES's
                Form 10-Q for the quarter ended September 30, 1997)

     10.41#*    IES Utilities  Inc.  Grantor Trust for  Supplemental  Retirement
                Agreements  (incorporated by reference to Exhibit 10(g) to IES's
                Form 10-Q for the quarter ended September 30, 1997)

     10.42#*    Interstate Power Company Irrevocable Trust Agreement dated April
                30, 1990  (incorporated  by  reference  to Exhibit 99.f to IPC's
                Form 10-K for the year ended December 31, 1993)

     10.43#*    Interstate Power Company Amended Deferred  Compensation  Plan as
                amended through January 30, 1990  (incorporated  by reference to
                Exhibit 99.e to IPC's Form 10-K for the year ended  December 31,
                1993)

     10.44#*    Interstate Power Company Supplemental Retirement Plan as amended
                and   restated   November   10,   1995  and   December  9,  1997
                (incorporated  by  reference  to Exhibit 99.5 to IPC's Form 10-K
                for the year ended December 31, 1997)

                                      72
<PAGE>

     10.45#*    Interstate  Power  Company  Irrevocable  Trust  Agreement  dated
                December  1997  (incorporated  by  reference  to Exhibit 99.7 to
                IPC's Form 10-K for the year ended December 31, 1997)

     10.46#     Early Retirement Agreement, dated as of December 4, 1998, by and
                between  Interstate  Energy  Corporation  et al. and  Richard R.
                Ewers+

     10.47      Stockholders' Agreement entered into as of November 18, 1998, by
                and among McLeodUSA  Incorporated,  Alliant Energy  Investments,
                Inc.  (formerly known as IES Investments Inc.) and certain other
                principal stockholders of McLeodUSA Incorporated+

     21         Subsidiaries of Interstate Energy Corporation+

     23         Consent of Independent  Public Accountants for Interstate Energy
                Corporation

     27.1       Financial Data Schedule for Interstate Energy Corporation at and
                for the period ended December 31, 1998+

     27.2       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended June 30, 1998+

     27.3       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended March 31, 1998+

     27.4       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended June 30, 1997+

     27.5       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended March 31, 1997+

     27.6       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended December 31, 1996+

     27.7       Financial  Data Schedule for IES  Utilities  Inc. at and for the
                period ended December 31, 1998+

     27.8       Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended March 31, 1998+

     27.9       Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended December 31, 1997+

     27.10      Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended March 31, 1997+

     27.11      Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended December 31, 1996+

     27.12      Financial Data Schedule for Wisconsin Power and Light Company at
                and for the period ended December 31, 1998+

+ Previously filed.

Pursuant to Item  601(b)(4)(iii)  of Regulation  S-K, the  registrants  agree to
furnish to the Securities and Exchange Commission,  upon request, any instrument
defining the rights of holders of  unregistered  long-term  debt not filed as an
exhibit to this Form 10-K. No such instrument authorizes securities in excess of
10% of the total assets of IEC, WP&L or IESU, as the case may be.

Documents  incorporated by reference to filings made by IEC under the Securities
Exchange  Act of  1934,  as

                                      73
<PAGE>

amended,  are under File No.  1-9894.  Documents  incorporated  by  reference to
filings made by WP&L under the Securities Exchange Act of 1934, as amended,  are
under File No. 0-337. Documents incorporated by reference to filings made by IES
under the  Securities  Exchange  Act of 1934,  as  amended,  are under  File No.
1-9187.  Documents  incorporated  by reference to filings made by IESU under the
Securities  Exchange  Act of 1934,  as  amended,  are under  File No.  0-4117-1.
Documents  incorporated by reference to filings made by IPC under the Securities
Exchange Act of 1934, as amended, are under File No. 1-3632.

# - A management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

Wisconsin  Power and Light  Company  filed a Current  Report on Form 8-K,  dated
October 27, 1998,  reporting (under Item 5) that on October 27, 1998,  Wisconsin
Power and Light Company agreed to sell $60,000,000 principal amount of its 5.70%
Debentures due October 15, 2008 in a public offering.

Interstate Energy  Corporation filed a Current Report on Form 8-K, dated January
20,  1999,  reporting  (under  Item 5) that on  January  20,  1999 the  Board of
Directors of Interstate Energy Corporation adopted a series of amendments to the
Bylaws of Interstate Energy Corporation.

Interstate Energy  Corporation filed a Current Report on Form 8-K, dated January
20,  1999,  reporting  (under  Item 5) that on January  20,  1999,  the Board of
Directors of  Interstate  Energy  Corporation  declared a dividend of one common
share purchase right for each outstanding share of common stock, $.01 par value,
of Interstate Energy Corporation.  The description and terms of the common share
purchase  rights are set forth in a Rights  Agreement  dated  January  20,  1999
between  Interstate  Energy  Corporation  and Firstar Bank  Milwaukee,  N.A., as
Rights Agent.

IESU - none.


                                      74

<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange  Act of 1934,  Alliant  Energy  Corporation,  IES  Utilities  Inc.  and
Wisconsin  Power and Light  Company  have each duly caused this  amendment to be
signed on its behalf by the  undersigned,  thereunto duly  authorized on the 1st
day of November 1999.


ALLIANT ENERGY CORPORATION
--------------------------
Registrant


By:/s/ John E. Ebright          Vice President-Controller (Principal Accounting
John E. Ebright                 Officer)


IES UTILITIES INC.
------------------
Registrant


By:/s/ John E. Ebright          Vice President-Controller (Principal Accounting
John E. Ebright                 Officer)


WISCONSIN POWER AND LIGHT COMPANY
---------------------------------
Registrant


By:/s/ John E. Ebright          Vice President-Controller (Principal Accounting
John E. Ebright                 Officer)




                                      75