FORM 10-K

                       SECURlTlES AND EXCHANGE COMMlSSlON
                             WASHINGTON, D. C. 20549

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

  For the fiscal year ended
      December 31, 1998                        Commission File Number  1-8644

                     IPALCO ENTERPRISES, INC.
      (Exact name of Registrant as specified in its charter)

           Indiana                                    35-1575582
  (State or other jurisdiction                      (I.R.S. Employer
    of incorporation or organization)               Identification No.)

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

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

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

  Title of Each Class               Name of Each Exchange on Which Registered
  -------------------               -----------------------------------------
  IPALCO Enterprises, Inc.                      New York Stock Exchange
      Common Stock (without par value)          Chicago Stock Exchange
      Common Share Purchase Rights              New York Stock Exchange
                                                Chicago Stock Exchange

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

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

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

     As of January 31, 1999, the aggregate market value of the voting stock held
by  non-affiliates of the registrant was: $2,078,049,311 based on the average
of the high and low price of the common stock on such date.  As of January 31,
1999,  there were 88,154,252 shares, adjusted for the two-for-one stock split
on February 23, 1999, of  the  registrant's   common  stock (without  par
value) outstanding.
                      -------------------------------------

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the IPALCO Enterprises, Inc. definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on April 21, 1999, are incorporated by
reference into Part III of this Report.


                                     PART I
                                     ------

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

ORGANIZATION

       IPALCO   Enterprises,   Inc.  (IPALCO)  is  a  holding  company  and  was
incorporated  under the laws of the state of  Indiana  on  September  14,  1983.
IPALCO has 15 employees and has two (2) subsidiaries: Indianapolis Power & Light
Company (IPL), a regulated  electric and steam service utility,  and Mid-America
Capital  Resources,  Inc.  (Mid-America),  a  holding  company  for  unregulated
businesses.  IPALCO  and  its  subsidiaries  are  collectively  referred  to  as
"Enterprises".

       Enterprises has two business segments, electric and "all other."  Steam
operations of IPL and all subsidiaries other than IPL were combined in the "all
other" segment.  Information regarding revenues, pretax operating income and 
total assets of both segments can be found in the Consolidated Financial 
Statements and Notes thereto.

DESCRIPTION OF BUSINESS OF SUBSIDIARIES

                       INDIANAPOLIS POWER & LIGHT COMPANY

GENERAL

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

       IPL's business is not dependent on any single  customer or group of a few
customers. IPL's sales for 1994-1998 are depicted on page I-5.

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

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

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

REGULATION

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

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

       IPL is also subject to federal,  state and local  environmental  laws and
regulations,  particularly as to generating station discharges affecting air and
water quality. The impact of compliance with such regulations on the capital and
operating costs of IPL has been and will continue to be  substantial.  Estimated
new annual capital  expenditures  for air,  solid waste and water  environmental
compliance measures are $2.4 million, $1.2 million and $.4 million in 1999, 2000
and 2001, respectively.

RETAIL RATEMAKING

       IPL's tariffs for electric and steam service to retail  customers  (basic
rates and charges) are set and approved by the IURC after public hearings.  Such
proceedings,  which have occurred at irregular intervals, involve IPL, the staff
of the IURC, the Office of the Indiana Utility  Consumer  Counselor,  as well as
other  interested  consumer  groups and customers.  In Indiana,  basic rates and
charges are determined after giving consideration,  on a pro-forma basis, to all
allowable  costs for  ratemaking  purposes  including  a fair return on the fair
value of the utility property used and useful in providing service to customers.
Once set, the basic rates and charges  authorized do not assure the  realization
of a fair  return  on  the  fair  value  of  property.  Other  numerous  factors
including,  but not limited to, weather,  inflation,  customer growth and usage,
the level of actual  maintenance and capital  expenditures and IURC restrictions
on the level of operating income can affect the return realized. During 1998, in
an order  resulting  from an IPL  initiated  proceeding,  the IURC  declined  to
exercise its  jurisdiction  in part over IPL  customers who  voluntarily  select
service  under  IPL's  Elect  Plan  option.  Under  two of  these  options,  the
customer's  prices are not adjusted for changes in fuel costs or other  factors.
Substantially all other IPL customers are served pursuant to retail tariffs that
provide for the monthly  billing or  crediting  to  customers  of  increases  or
decreases,  respectively,  in the actual costs of fuel consumed  from  estimated
fuel costs  embedded in base  tariffs.  Additionally,  most such retail  tariffs
provide for billing of "lost revenue margins" on estimated  kilowatt-hour  (KWH)
sales  reductions  along with current and deferred  costs  resulting  from IPL's
IURC-approved demand side management programs (DSM). IPL maintains its books and
records consistent with generally accepted accounting  principles reflecting the
impact  of  regulation  (see  Note  1 in the  Notes  to  Consolidated  Financial
Statements  and Item 7,  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL
CONDITION AND RESULTS OF OPERATIONS"  under "Nature of Operations and Regulatory
Matters").

       Future events,  including the advent of retail  competition  within IPL's
service  territory,  could  result in the  deregulation  of all or part of IPL's
existing regulated businesses (see "Competition and Industry Changes" in Item 7,
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS"). Upon deregulation,  adjustments to IPL's accounting records may be
required to eliminate  the  historical  impact of  regulatory  accounting.  Such
adjustments,  as required by Statement of Financial Accounting Standards No. 101
(SFAS 101),  "Regulated  Enterprises  - Accounting  for the  Discontinuation  of
Application  of FASB  Statement  No. 71," would  eliminate  the  "effects of any
actions of regulators that have been  recognized as assets and  liabilities...."
Required  adjustments  could include expensing of any unamortized net regulatory
assets,  elimination of certain tax liabilities and a write down of any impaired
utility plant balances.  IPL does not expect to be required to adopt SFAS 101 in
the near term.


FUEL

       In 1998,  approximately  99% of the total KWH sold by IPL were  generated
from coal and 1% from  middle  distillate  fuel oil.  Gas and  purchased  steam,
combined,  provided  less  than 1% of the  generation  of KWH  sold  by IPL.  In
addition to use in oil-fired generating units, fuel oil is used for start up and
flame  stabilization in coal-fired  generating units as well as for coal thawing
and coal handling. Gas is used in IPL's newer combustion turbines.  During 1998,
IPL converted  part of its C.C. Perry Section K plant to gas-fired  boilers.  In
the future, approximately 50% of the fuel used by this plant will be gas and 50%
will be coal.

       IPL's long-term coal contracts  provide for the major portion of its burn
requirements  through the year 1999. The long-term coal agreements are with four
suppliers and the coal is mined  entirely in the state of Indiana.  See Exhibits
listed under Part IV Item 14(a)2 of IPL's Form 10-K.  It is  presently  believed
that all coal used by IPL will be mined by others. IPL normally carries fuel oil
and a 60-day  supply  of coal to  offset  unforeseen  occurrences  such as labor
disputes, equipment breakdowns and power sales to other utilities. IPL increases
its stockpile to an  approximate  80-day supply when strikes are  anticipated in
the coal industry.  In order to prepare for possible supply problems  associated
with Year 2000 issues,  IPL will increase its stockpile to an  approximate 85 to
90 day supply before the end of 1999.

EMPLOYEE RELATIONS

       As of  December  31,  1998,  IPL had 2,020  employees  of whom 1,015 were
represented  by the  International  Brotherhood of Electrical  Workers,  AFL-CIO
(IBEW) and 337 were represented by the Electric Utility Workers Union (EUWU), an
independent  labor  organization.  In December  1996, the membership of the IBEW
ratified a new labor  agreement  that remains in effect until December 13, 1999.
The agreement  provided for general pay  adjustments of 3.5% in 1996 and 3.0% in
both 1997 and 1998, and changes in pension and health care coverage. In February
of 1998, the membership of the EUWU ratified a new labor  agreement that remains
in effect  until  February  of 2001.  The  agreement  provides  for  general pay
adjustments of 3% in both 1998 and 1999, as well as an adjustment of 2% in 2000.
The agreement also provides for increases in pension amounts.

DISPOSITION OF ASSETS

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

                MID-AMERICA CAPITAL RESOURCES, INC. (Mid-America)

GENERAL

       Mid-America,  the  holding  company  for the  unregulated  activities  of
Enterprises,  has as subsidiaries  Mid-America  Energy  Resources,  Inc. (Energy
Resources),  Indianapolis  Campus Energy,  Inc. (ICE),  Cleveland Thermal Energy
Corporation   (Cleveland   Thermal),   Cleveland  District  Cooling  Corporation
(Cleveland Cooling) and Store Heat And Produce Energy, Inc.
which conducts business as SHAPE Energy Resources (SHAPE).

       Energy   Resources   operates  a  district  cooling  system  in  downtown
Indianapolis, Indiana.

       ICE owns and operates an energy  system  under  contract to Eli Lilly and
Company (Lilly) to provide cooling capacity to the Lilly Technology  Center,  in
Indianapolis, Indiana.

       Cleveland  Thermal  owns  and  operates  a  district  heating  system  in
Cleveland,  Ohio.  Cleveland Cooling owns and operates a district cooling system
also located in  Cleveland.  Cleveland  Thermal and  Cleveland  Cooling  conduct
business jointly under the name Cleveland Energy Resources.

       SHAPE's operations became inactive during 1998.

EMPLOYEES

       As of  December  31,  1998,  Mid-America  and  its  subsidiaries  had  82
employees. There are no labor organizations.

<PAGE>
<TABLE>

                            IPALCO ENTERPRISES, INC.
                       STATISTICAL INFORMATION - ELECTRIC

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

                                                                  Year Ended December 31,
                                      ------------------------------------------------------------------------------------
Operating Revenues (In                  1998 (1)         1997 (1)            1996              1995              1994
Thousands):
                                      ------------     ------------    --------------     -------------     --------------
<S>                                   <C>              <C>             <C>                <C>               <C>          
  Residential                         $   269,351      $   261,832     $     261,819      $    243,055      $     230,805
  Small industrial and commercial         122,082          125,131           131,465           130,009            128,597
  Large industrial and commercial         321,103          306,761           298,720           275,803            266,703
  Public lighting                           9,754            9,324             9,043             8,369              7,698
  Miscellaneous                            12,469           12,050             9,264             8,289              7,186
                                      ------------     ------------    --------------     -------------     --------------
    Revenues - ultimate consumer          734,759          715,098           710,311           665,525            640,989
  Sales for resale - REMC                     936            1,082             1,141             1,105              1,098
  Sales for resale - other                 50,140           21,954            13,312             6,758              7,680
                                      ------------     ------------    --------------     -------------     --------------
      Total electric revenues         $   785,835      $   738,134     $     724,764      $    673,388      $     649,767
                                      ============     ============    ==============     =============     ==============

Kilowatt-hour Sales (In
Millions):
  Residential                               4,320            4,255             4,367             4,277              4,077
  Small industrial and commercial           1,873            1,960             2,117             2,197              2,195
  Large industrial and commercial           7,095            6,834             6,772             6,509              6,306
  Public lighting                              70               69                71                73                 76
                                      ------------     ------------    --------------     -------------     --------------
    Sales - ultimate consumers             13,358           13,118            13,327            13,056             12,654
  Sales for resale - REMC                      31               29                29                28                 26
  Sales for resale - other                  2,252            1,111               725               394                456
                                      ------------     ------------    --------------     -------------     --------------
      Total kilowatt-hours sold            15,641           14,258            14,081            13,478             13,136
                                      ============     ============    ==============     =============     ==============

Customers at End of Year:
  Residential                             379,943          374,686           370,029           365,163            360,347
  Small industrial and commercial          42,230           41,137            40,393            39,772             38,840
  Large industrial and commercial           4,036            3,960             3,657             3,557              3,525
  Public lighting                             445              357               313               290                275
                                      ------------     ------------    --------------     -------------     --------------
    Total ultimate consumers              426,654          420,140           414,392           408,782            402,987
  Sales for resale - REMC                       1                1                 1                 1                  1
                                      ------------     ------------    --------------     -------------     --------------
      Total electric customers            426,655          420,141           414,393           408,783            402,988
                                      ============     ============    ==============     =============     ==============


(1) Includes estimated  electric  operating revenue and kilowatt-hour  sales for
services  delivered but not billed during the period (see Note 3 in the Notes to
Consolidated Financial Statements).
</TABLE>
<PAGE>

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

IPL

       IPL's executive offices are in the IPALCO Corporate Center located at One
Monument   Circle,   Indianapolis,   Indiana.   This  facility   houses  certain
administrative operations of IPALCO's subsidiaries.

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

       IPL owns and operates three primarily  coal-fired  generating plants that
are used for electric generation. During 1998, part of the C.C. Perry Section K
plant, used for a combination of electric and steam generation, was converted to
gas-fired boilers.  In the future approximately 50% of the fuel used by this
plant will be gas and 50% will be coal.  For electric generation,  the total
gross nameplate rating is 3,024 MW, winter  capability is 3,036 MW and summer
capability is 2,956 MW. For steam generation, gross capacity is 1,990 Mlbs.
(thousands of pounds) per hour.

       Total Electric Stations:

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

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

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

       Combination Electric and Steam Station:

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


       Net  electrical  generation  during 1998,  at the  Petersburg,  Stout and
Pritchard stations accounted for about 72.0%, 21.2% and 6.7%,  respectively,  of
IPL's total net generation.  Perry K produced 0.1% net electrical generation and
all of the  steam  generated  by IPL for the  steam  system.  In  addition,  IPL
purchases steam from an independent resource recovery system in Indianapolis.

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

       During 1998, IPL announced  plans to construct up to 200 megawatts of new
combustion  turbines  (CTs).  The new  turbines  would be used  during  times of
highest or "peak"  electric  demand.  One  turbine is  expected  to be placed in
service by 2001,  and is  included  in the  construction  forecast.  IPL filed a
petition with the IURC  recommending that the IURC decline its jurisdiction over
IPL's planned construction and operation of the new CTs and adopt an alternative
procedure for dealing with the sale of power produced by the CTs to IPL's retail
customers.

       IPL's  transmission  system  includes  457 circuit  miles of 345,000 volt
lines,  359  circuit  miles of 138,000  volt lines and 268 miles of 34,500  volt
lines. Distribution facilities include 4,717 pole miles and 19,892 wire miles of
overhead lines.  Underground  distribution  and service  facilities  include 596
miles of conduit and 5,990 wire miles of conductor.  Underground street lighting
facilities  include 108 miles of conduit and 726 wire miles of  conductor.  Also
included  in the  system  are 73  bulk  power  substations  and 68  distribution
substations.

       Steam  distribution  properties  include  22  miles  of  mains  with  260
services. Other properties include coal and other minerals, underlying 798 acres
in Sullivan County,  Indiana,  and coal underlying about 6,215 acres in Pike and
Gibson Counties,  Indiana.  Additional land, approximately 4,067 acres in Morgan
County,  Indiana and approximately 884 acres in Switzerland County,  Indiana has
been purchased for future plant sites.

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

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

OTHER SUBSIDIARIES

       Energy  Resources owns and operates a district  cooling  facility located
near downtown  Indianapolis,  which  distributes  chilled  water to  subscribers
located  downtown for their air  conditioning  needs. The plant is equipped with
six 5,000 ton  chillers  powered by steam  purchased  from IPL and one 2,250 ton
chiller powered by electricity purchased from IPL.

       Cleveland Thermal owns and operates two steam plants in Cleveland,  Ohio,
with a total of eight boilers  having a gross  capacity of 1,131 Mlbs. per hour.
The distribution system includes 15.5 miles of mains with 230 services.

       Cleveland  Cooling owns and operates a district  cooling facility located
near downtown Cleveland,  which distributes chilled water to subscribers located
downtown for their air conditioning  needs. The plant is equipped with two 5,000
ton chillers powered by electricity.

       In 1997,  Enterprises  initiated  a plan to sell during  1998,  Cleveland
District Cooling  Corporation and Cleveland  Thermal  Corporation  (collectively
referred to as CER) and ceased recording depreciation.  During the third quarter
of 1998,  Enterprises determined that it was not probable that CER would be sold
during 1998. Enterprises continues to have the ability to remove the assets from
operations.  Enterprises resumed depreciation on the CER assets during September
1998. Enterprises' plan currently anticipates disposal of CER in 1999.

       ICE owns and operates a chilled  water  facility in  Indianapolis,  which
serves  the  chilled  water  requirements  of  Eli  Lilly  and  Company's  Lilly
Technology  Center.  The plant is equipped with three 5,000 ton chillers powered
by electricity purchased from IPL.

       Substantially  all the property of Mid-America  and its  subsidiaries  is
subject to the lien of existing  debt and/or credit  agreements of  Mid-America,
Energy Resources and ICE.

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

       In February 1998,  Region V of the U.S.  Environmental  Protection Agency
issued to Cleveland Thermal a Notice of Violation (NOV) under the Clean Air Act.
The NOV  alleged  that  particulate  matter  emissions  from  four of  Cleveland
Thermal's  five  boilers  exceeded  applicable  limits on five dates  during the
period 1993 through 1996, and that the opacity limit was exceeded on one date in
1997 based on a visible  emission  reading.  The alleged  violations  during the
period 1993 through 1996 were .01-.02  lb/MMBtu above the applicable  limit, and
the  visible  emission  rating was not  statistically  significant  at  1.7-2.7%
opacity above the applicable  limit.  On October 9, 1998, EPA Region V issued an
Administrative Order to Cleveland Thermal. This Order requires Cleveland Thermal
to conduct  additional  particulate  emission  testing and to submit  additional
engineering, maintenance and opacity information to Region V. The Order does not
impose any fines or penalties upon Cleveland Thermal.  It is Cleveland Thermal's
belief that this Order concludes this matter.


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

            None

EXECUTIVE OFFICERS OF THE REGISTRANT AT FEBRUARY 23, 1999.

       Name, age (at December 31, 1998),  and positions and offices held for the
past five years:

                                                From                To
                                                ----                --
John R. Hodowal (53)
  Chairman of the Board and
    President of IPALCO                      May, 1989
  Chairman of the Board of IPL               February, 1990
  Chief Executive Officer of IPL             May, 1989

Ramon L. Humke (66)
  Vice Chairman of IPALCO                    May, 1991
  President and Chief Operating
    Officer of IPL                           February, 1990

John R. Brehm (45)
  Vice President and Treasurer
    of IPALCO                                May, 1989
  Senior Vice President - Finance of IPL     May, 1998
  Senior Vice President - Finance
    and Information Services of IPL          May, 1991            May, 1998

Stephen M. Powell (48)
  Senior Vice President -
    Energy Supply of IPL                     May, 1998
  Manager of Engineering and
    Production Services                      June, 1994           May, 1998

N. Stuart Grauel (54)
  Vice President - Public Affairs
    of IPALCO                                May, 1991

Bryan G. Tabler (55)
  Vice President -
    Secretary and General Counsel of IPALCO  January, 1995
  Senior Vice President -
    Secretary and General Counsel of IPL     January, 1995
  Partner, Barnes & Thornburg                January, 1979        October, 1994

Ralph E. Canter (42)
  Senior Vice President -
    Customer Services of IPL                 May, 1998
  Vice President-
    Steam Operations                         May, 1995            May, 1998
  Manager of Steam Operations                October, 1990        May, 1995

Paul S. Mannweiler (49)
  Senior Vice President -
    External Affairs of IPL                  January, 1997
  Partner, Locke Reynolds Boyd and Weisell   July, 1980           December,1996

Max Califar (45)
  Vice President - Human
    Resources of IPL                         December, 1992

Michael P. Holstein (41)
  Vice President - Strategic Business
        Initiatives of IPALCO                May, 1998
  Vice President - Corporate
    Strategy and Marketing                   April, 1996          May, 1998
  Corporate Strategies of IPL                July, 1995           April, 1996
  Senior Manager, Deloitte & Touche LLP      March, 1994          July, 1995
  Vice President, EDS/
     Energy Management Associates            April, 1984          March, 1994

Steven L. Meyer (40)
  Assistant Treasurer of IPALCO              May, 1993
  Treasurer of IPL                           December, 1992

Stephen J. Plunkett (50)
  Controller of IPALCO
    and IPL                                  May, 1991

<PAGE>

                                     PART II
                                     -------

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

        On February 23, 1999, the IPALCO Board of Directors (Board) authorized a
two-for-one  stock split of IPALCO's  common stock issuable to  shareholders  of
record on March 5, 1999. All references to share amounts of common stock and per
share  information have been restated to reflect the stock split (see Note 14 in
the Notes to Consolidated Financial Statements).

        On November 24, 1998,  IPALCO's Board authorized the repurchase of up to
6 million  shares of IPALCO's  common  stock on the open market and in privately
negotiated  transactions.  The repurchase program is intended to be completed as
soon as  possible,  although  the Board  authorization  for the program does not
expire  until  December  31,  1999.  As of December  31,  1998,  IPALCO had
repurchased 2,470,644 shares, which remain in Treasury stock.  As of
February 19, 1999, IPALCO had repurchased 4,864,562 shares, which remain in
Treasury stock.

       During 1997, the Board  approved the  repurchase of 25,078,856  shares of
IPALCO's common stock which remain in Treasury stock.

       At December 31, 1998, IPALCO had 19,580 holders of common stock of record
(including  shareholders  whose  shares  are  held in  IPALCO  PowerInvest,  the
Dividend  Reinvestment  and Direct Stock  Purchase  Plan of IPALCO  Enterprises,
Inc.).  IPALCO's  common  stock is  principally  traded  on the New  York  Stock
Exchange  and the  Chicago  Stock  Exchange.  The high and low sale  prices  for
IPALCO's  common stock during 1998 and 1997 as reported on the Composite Tape in
The Wall Street Journal were as follows:

                            1998                             1997
                 --------------------------        -------------------------
                    High            Low               High           Low
                 Sale Price      Sale Price        Sale Price     Sale Price

First Quarter     $22 5/8         $19 15/16           $16 5/16      $13 1/4
Second Quarter     23 1/16        20  1/8              16            14 11/16
Third Quarter      23 7/8         20  3/4              17 1/4        15 7/16
Fourth Quarter     27 13/16       22  3/4              21 3/16       16 5/16

       The high and low sale prices for IPALCO's  common  stock  reported on the
Composite  Tape in The Wall  Street  Journal  for the  period  January  1, 1999,
through February 19, 1999, were: High - $28 7/16, Low - $23 1/4.

     Quarterly dividends paid on the common stock, adjusted for the common stock
split, during 1998 and 1997 were as follows:

                                          1998           1997
                                         ------          ------
        First Quarter                    $.125          $.185
        Second Quarter                    .1375          .125
        Third Quarter                     .1375          .125
        Fourth Quarter                    .1375          .125

        At its  meeting  on  February  23,  1999,  the Board  declared a regular
quarterly dividend on common stock of $.15 per share , payable  April 15, 1999,
to shareholders of record on March 30, 1999.


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

       The  following  restrictions  pertain to IPL but,  to the extent that the
dividends of IPALCO depend upon IPL earnings,  may have an effect on IPALCO.  So
long as any of the several  series of bonds of IPL issued under the Mortgage and
Deed of Trust,  dated as of May 1, 1940, as supplemented and modified,  executed
by IPL to  American  National  Bank and Trust  Company of  Chicago,  as Trustee,
remain  outstanding,  IPL  is  restricted  in the  declaration  and  payment  of
dividends, or other distribution on shares of its capital stock of any class, or
in the  purchase or  redemption  of such  shares,  to the  aggregate  of its net
income, as defined in Section 47 of such Mortgage,  after December 31, 1939. The
amount which these Mortgage  provisions  would have permitted IPL to declare and
pay as dividends at December 31, 1998,  exceeded retained earnings at that date.
Such  restrictions  do not apply to the declaration or payment of dividends upon
any shares of capital  stock of any class to an amount in the  aggregate  not in
excess of $1,107,155, or to the application to the purchase or redemption of any
shares of capital  stock of any class of amounts not to exceed in the  aggregate
the net  proceeds  received  by IPL from the sale of any  shares of its  capital
stock of any class  subsequent  to December 31, 1939.  In addition,  pursuant to
IPL's  Articles of  Incorporation,  no  dividends  may be paid or accrued and no
other  distribution  may be made on IPL's common  stock unless  dividends on all
outstanding  shares of IPL  preferred  stock have been paid or declared  and set
apart for payment.  The management of IPL believes these  restrictions  will not
materially restrict anticipated dividends.

<PAGE>
<TABLE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
        ------------------------------------

<CAPTION>

(In Thousands Except Per Share Amounts)           1998             1997             1996             1995             1994
---------------------------------------
                                              --------------   --------------   --------------   --------------  ---------------

<S>                                           <C>              <C>              <C>              <C>             <C>           
Total utility operating revenues (1)          $     821,256    $     776,427    $     762,503    $     709,206   $      686,076
Utility operating income                            179,511          167,315          163,219          147,588          143,310
Allowance for funds used during
  construction                                        2,300            4,407            9,321           11,370            9,381
Income before cumulative effect of
  accounting change                                 130,119           95,699          114,275           98,778           92,994
Cumulative effect of accounting change (1)                -           18,347                -                -                -
Net income                                          130,119          114,046          114,275           98,778           92,994
Utility plant - net                               1,748,460        1,766,383        1,787,969        1,792,007        1,711,772
Total assets                                      2,118,945        2,155,558        2,182,701        2,230,029        2,099,361
Common shareholders' equity                         574,191          524,546          857,358          821,635          801,945
Cumulative preferred stock of subsidiary             59,135            9,135           51,898           51,898           51,898
Long-term debt (less current
  maturities and sinking
  fund requirements)                                907,974        1,032,846          662,591          698,600          665,971
Utility construction expenditures                    79,458           73,130           78,543          166,874          178,295
Nonutility construction expenditures                    975            1,569            4,187           34,745            9,402

BASIC EARNINGS PER SHARE (2) (3)
Income before cumulative effect of
  accounting change                                    1.45             1.00             1.00              .87              .82
Cumulative effect of accounting change (1)                -              .19                -                -                -
Net Income                                             1.45             1.19             1.00              .87              .82

DILUTED EARNINGS PER SHARE (2) (3)
Income before cumulative effect of
  accounting change                                    1.43              .99             1.00              .87              .82
Cumulative effect of accounting change (1)                -              .19                -                -                -
Net Income                                             1.43             1.18             1.00              .87              .82

Dividends declared per share of
  common stock  (3)                                     .55              .50              .74              .72              .71


See consolidated financial statements.

(1) In 1997,  IPL  adopted  the  unbilled  revenues  method  of  accounting  for
    electricity and steam delivered during the period.  Revenues are accrued for
    services  provided  but unbilled at the end of each month (see Note 3 in the
    Notes to Consolidated Financial Statements).
(2) See Note 6 in the Notes to Consolidated Financial Statements.
(3) Per share amounts have been adjusted to reflect the two-for-one common stock
    split to be issued in March  1999 (see Note 14 in the Notes to  Consolidated
    Financial Statements).

</TABLE>

<PAGE>

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
        ----------------------------------------------------------- 
          AND RESULTS OF OPERATIONS (INCLUDING ITEM 7A)
          ---------------------------------------------

       IPALCO Enterprises, Inc. (IPALCO) is a holding company incorporated under
the laws of the state of Indiana.  Indianapolis  Power & Light Company (IPL) and
Mid-America  Capital  Resources,  Inc.  (Mid-America) are subsidiaries of IPALCO
Enterprises, Inc. (collectively referred to as Enterprises).  Mid-America is the
holding  company for the  unregulated  activities of IPALCO.  IPL represents the
regulated  subsidiary.  Enterprises has two business segments (electric and "all
other").  Steam and all  subsidiaries  other than IPL were  combined in the "all
other" category (See the Notes to Consolidated Financial Statements).

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

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

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

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

       Enterprises'  ability to predict  results or effects of issues related to
the Year 2000 is inherently uncertain,  and is subject to factors that may cause
actual results to differ  materially  from those  projected.  Factors that could
affect the actual results  include the  possibility  that  contingency  plans or
remediation efforts will not operate as intended; Enterprises' failure to timely
or completely identify all software, hardware or embedded chip devices requiring
remediation; unexpected costs; and the uncertainty associated with the impact of
Year 2000 issues on the utility industry and on Enterprises' customers,  vendors
and others with whom it does business.  See "Year 2000" under the caption IPALCO
ENTERPRISES CONSOLIDATED, "Other," for information about Enterprises' efforts.

LIQUIDITY AND CAPITAL RESOURCES

IPALCO
------

       On February 25, 1997, the Board of Directors (Board) of IPALCO approved a
new financial  strategy  designed to maximize  shareholder value and position it
for an increasingly competitive business environment.  The principal elements of
the strategy include:

      A recapitalization  of IPALCO to employ a higher degree of leverage in the
      capital structure while the electric  utility  industry is in a transition
      period between regulation and competition.

      A dividend policy guided by, among other factors,  paying out 45% to 50%
      of the prior year's  earnings  (adjusted for
      one-time events).

      A  target  debt-to-capital  ratio of 45%,  which  IPALCO  believes  can be
      achieved in 2002.

       Consistent with the strategy, during 1997, IPALCO purchased approximately
25.1  million  shares,  or about 21%,  of its  outstanding  common  stock.  Such
purchase was accomplished in a single  transaction  through a self-tender  offer
(1997  Tender  Offer)  at a  price  of  $32  per  share,  resulting  in a  total
transaction value of approximately $401 million.  On November 24, 1998, IPALCO's
Board authorized the purchase of up to 6 million  additional  shares of IPALCO's
common stock on the open market and in privately negotiated transactions. IPALCO
intends to complete  this  purchase  program as soon as  possible,  although the
Board  authorization for the program does not expire until December 31, 1999. As
of December 31, 1998,  IPALCO had purchased  approximately  2.5 million of the 6
million shares at a total cost of $65.6 million.

       The 1997 Tender Offer was financed with a $401 million  revolving  credit
facility  (revolver)  which was  issued in April  1997.  By July 15,  1998,  the
outstanding balance under the revolver had been reduced to $234 million. At that
time,  IPALCO  replaced  the  revolver  with a commercial  paper  facility.  The
outstanding  balance of the commercial  paper facility at December 31, 1998, was
$197 million.  Enterprises  believes such commercial paper balance will increase
during  early  1999  until  it  completes  the  remainder  of its  common  stock
open-market purchase program.

       As a result of the common stock and debt  transactions  enumerated above,
Enterprises' debt-to-capital ratio increased from 42.6% at December 31, 1996, to
66.0% at December 31, 1997. At December 31, 1998, the debt-to-capital  ratio was
59.0%.  Enterprises  believes its earnings and cash flow will be  sufficient  to
allow it to retain  earnings and reduce debt so that the target  debt-to-capital
ratio of 45% can be achieved in 2002. There can be no assurances,  however, that
such a target  ratio can be achieved or that  economic or industry  factors will
not make achieving such a ratio impractical or undesirable.

       Also  consistent  with its financial  strategy,  simultaneously  with the
announcement  of the 1997 Tender Offer on February 25, 1997,  IPALCO reduced its
quarterly dividend from $.185 per share ($.74 annually) to $.125 per share ($.50
annually).  On February 24, 1998, the Board increased the quarterly  dividend to
$.1375 per share ($.55  annually);  and on February 23, 1999,  the Board further
increased the dividend to $.15 per share ($.60 annually).

       IPALCO believes its financial strategy will enable it to raise sufficient
funds, when necessary,  to replace existing assets and undertake  investments in
new growth while  maintaining a prudent  balance  between debt and equity in the
capital   structure.   IPALCO  believes  its  actions   preserve  the  financial
flexibility necessary to accommodate unexpected future cash needs. The increased
use of debt is a tangible expression of management's confidence in IPALCO.

       Sustaining  investment  grade debt  ratings is a key  element  for having
adequate liquidity and financial flexibility.  As of December 31, 1998, IPALCO's
corporate credit rating was A+ as rated by Standard & Poor's.

IPL
---

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

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

Voluntary Early Retirement and Separation Program
-------------------------------------------------

       During  1998,  Enterprises  offered  a  voluntary  early  retirement  and
separation program for certain individuals. Those eligible to participate in the
program were selected by virtue of their  positions or job  classifications  and
because  of  the  impact  of  efficiency  improvements  from  new  technologies.
Enterprises provided 42 employees, who accepted the offer, a lump sum payment in
the aggregate amount of $2.2 million.

Demand Side Management (DSM) Agreement
--------------------------------------

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

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

       During  quarterly  fuel  adjustment   clause   proceedings,   the  annual
jurisdictional operating income of IPL's electric business is subject to review.
IPL's steam business is subject to annual fuel  adjustment  clause  proceedings.
Customer refunds could result if actual annual  jurisdictional  operating income
exceeds levels  authorized by the IURC (see Note 1 in the Notes to  Consolidated
Financial  Statements).  IPL does not anticipate any customer  refunds to result
from such reviews during 1999.

Elect Plan
----------

       During 1998, the IURC approved a plan that allows IPL to offer  customers
with less than 2,000  kilowatts of demand an opportunity to choose from optional
payment or service plans. Under the plan,  eligible IPL customers may enter into
written contracts for:

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

       Additionally,  residential  customers  may choose a "Sure  Bill"  option,
paying  the  same  bill  each  month  for 12  months,  regardless  of  how  much
electricity  is used.  Customers not choosing one of these  options  continue to
receive electric service under existing  tariffs.  (See Item 1, BUSINESS,  under
the subheading "Retail Ratemaking.")
 
                        Competition and Industry Changes
                        --------------------------------

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

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

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

       IPL  requested  and was initially  denied a waiver from  compliance  with
Orders 888 and 889. On October 11, 1996, IPL was granted a stay by FERC, pending
disposition of its request for rehearing.  IPL requested a waiver because, among
other reasons,  the estimated costs of compliance are expected to exceed revenue
derived from its transmission service for others. To date, FERC has not acted on
IPL's request for rehearing.

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

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

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

       In  1995,  the  Indiana   General   Assembly,   anticipating   increasing
competitive  forces in the  regulated  public  utility  industry,  enacted  I.C.
8-1-2.5,  which  enables  the IURC to consider  and  approve,  on an  individual
utility  basis,  utility-initiated  proposals  that the IURC decline to exercise
jurisdiction  over the whole or any part of the  utility,  or its retail  energy
service or both. The IPL Elect Plan was approved by the IURC under this law.

       During 1997, the Indiana General Assembly  authorized a legislative study
committee to assess the issue of electric utility competition and restructuring.
A comprehensive restructuring bill was introduced in the Indiana Senate in 1998,
but failed to pass. Another  comprehensive  restructuring bill, Senate Bill 648,
has been submitted in 1999.

Enterprises' Position on Industry Deregulation
----------------------------------------------

       In general,  the  foregoing  FERC  wholesale  and  state-by-state  retail
initiatives are  inconsistent  with  Enterprises'  beliefs.  Enterprises  favors
federal  legislation  to  deregulate  the  industry  for all  companies  and all
customers  across  the  country  at the same  time.  Enterprises  believes  that
customers, particularly residential and small businesses, are best served by the
creation of large,  diverse  markets.  Such markets  enable the  development  of
residential  aggregators who can deliver the same benefits of volume  purchasing
to  residential   customers  as  are  enjoyed  by  large  industrial  customers.
Enterprises advocates a single, nondistance-based transmission access price over
wide geographic areas to maximize competition;  turning over transmission system
operation to an independent  system operator to avoid gamesmanship by incumbents
who own both transmission and generation assets; rejecting the piecemeal opening
of markets in favor of national access to all markets and rejecting  recovery of
"stranded  costs" due to  competition  because  such  recovery  would  subsidize
certain  high-cost  generators  to  the  detriment  of  competition.   Absent  a
comprehensive  national approach,  Enterprises believes state policy makers must
recognize and make allowances for the distorted  markets that will inevitably be
created by state-by-state approaches. IPL does not support Senate Bill 648.

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

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

       On July 16, 1997, the United States Environmental Protection Agency (EPA)
promulgated  final  regulations  which amended the National  Ambient Air Quality
Standards by introducing  standards for fine particulate matter and creating new
ozone  standards.  On October 27, 1998,  the EPA issued a final rule calling for
Indiana,  along with 22 other  jurisdictions  in the eastern third of the United
States,  to impose more  stringent  limits on  emission of nitrogen  oxides from
fossil-fuel  fired  steam  electric  generators,   such  as  those  operated  by
Enterprises.  Because power plants emit nitrogen oxides,  as well as certain air
pollutants that could  contribute to the formation of fine  particulate  matter,
there  is a  possibility  that  existing  IPL  sources  will be  required  to be
retrofitted  with  additional  air  pollution  controls in the future.  Numerous
entities,  including  eight  states,  Enterprises  and scores of other  electric
utilities,  have  challenged  EPA's 1998 rule on  nitrogen  oxides in the United
States  Court  of  Appeals.  Due to  these  uncertainties,  it is not  presently
possible to predict the effects of these standards on Enterprises.

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

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

       Sustaining investment grade debt ratings is also a key element for having
adequate  liquidity and financial  flexibility.  As of December 31, 1998,  IPL's
senior secured debt was rated AA- by Standard & Poor's,  Aa2 by Moody's Investor
Services and AA by Duff & Phelps,  and IPL's  commercial paper was rated A-1+ by
Standard & Poor's and P-1 by Moody's Investor  Services.  IPL expects to be able
to maintain investment grade debt ratings into the foreseeable future.

       IPL has no  long-term  debt that  matures  during  1999.  However,  other
existing higher-rate debt may be refinanced depending upon market conditions.

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

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

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

       Traditionally,   retail  KWH  sales,   after   adjustments   for  weather
variations,  have grown in close  correlation  with growth in service  territory
economic  activity.  During the past 10 years, IPL's retail KWH sales have grown
at a compound  annual rate of 2.1%,  while the  Indianapolis  economy grew at an
annual rate of 2.3%. The  Indianapolis  economy is expected to grow at an annual
rate of 2.4% for 1999 through 2003.

       IPL's  wholesale  KWH sales  doubled in 1998 over the level  achieved  in
1997. As IPL's retail sales grow,  the amount of generating  capacity  available
for wholesale  sales is more limited.  Moreover,  IPL plans to perform  overhaul
maintenance on more megawatts of generating capacity in 1999 than in 1998, which
further reduces the amount of generating capacity available for wholesale sales.
The  ability to sell power in the highly  competitive  wholesale  market is also
highly dependent on market conditions. IPL is unable to predict, with any degree
of certainty, the level of wholesale sales that may be achieved in 1999.

       Operating and  maintenance  expenses were $423.3  million in 1998.  These
expenses in 1999 will be influenced by the level of KWH  generation,  generating
unit availability and overhaul costs,  expected increased  purchased power costs
(see Note 13 in the Notes to Consolidated  Financial  Statements),  cost control
programs and inflation.

       IPL's  construction  program  for  the  three-year  period  1999-2001  is
estimated to cost $259.5  million  including  AFUDC.  The estimated  cost of the
program by year (in millions) is $96.2 in 1999, $95.6 in 2000 and $67.7 in 2001.
It includes  $147.8  million  for  additions,  improvements  and  extensions  to
transmission  and  distribution  lines,  substations,  power  factor and voltage
regulating   equipment,    distribution   transformers   and   street   lighting
distribution.  The construction program includes $26.5 million for construction
of a 100-megawatt combustion turbine expected to be in service by 2001.


                                      Other
                                      -----

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

       On December 31, 1997, effective January 1, 1997, IPL adopted the unbilled
revenues  method of accounting  for all electric and steam sales to more closely
match revenues with expenses.  Under this method,  IPL accrues  revenues for all
electric and steam energy  delivered  to  customers  during the period,  whether
billed or not. Previously,  IPL recognized these revenues only as customers were
billed,  with the service rendered after monthly meter reading dates through the
end of a calendar month recognized as operating revenues in the following month.
The cumulative effect of this change in accounting method as of January 1, 1997,
net of taxes,  was a one-time  income increase of $18.3 million ($.19 per common
share) and was  reported as a separate  component  of net income for 1997.  This
accounting  change does not impact IPL's cash flow or  liquidity  (see Note 3 of
the  Notes to  Consolidated  Financial  Statements  for  additional  information
concerning this accounting change).

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

       Restrictions on IPL's ability  to issue  certain  securities  or pay cash
dividends  are  contained in its Mortgage and Deed of Trust  (Mortgage)  and its
Amended Articles of Incorporation (Articles).  The Articles require that the net
income of IPL, as  specified  therein,  be at least one and  one-half  times the
total interest on the funded debt and the pro forma dividend requirements on the
outstanding,  and any proposed,  preferred stock before any additional preferred
stock  is  issued.  The  Mortgage  requires  that  net  earnings  as  calculated
thereunder be two and one-half  times the annual  interest  requirements  before
additional bonds can be authenticated on the basis of property additions.  Based
on IPL's net  earnings for the 12 months  ended  December  31, 1998,  the ratios
under the Articles and the Mortgage are 5.09 and 11.62, respectively (see Note 6
in  the  Notes  to  Consolidated  Financial  Statements).   IPL  believes  these
requirements  will  not  restrict  any  anticipated  future  financings  or cash
dividend   payments.   At  December  31,  1998,  and  considering  all  existing
restrictions,  IPL had the  capacity  to issue  approximately  $1.1  billion  of
additional long-term debt.


MID-AMERICA
-----------

                              Nature of Operations
                              --------------------

        Mid-America,  the holding  company  for the  unregulated  activities  of
Enterprises,  has as subsidiaries  Mid-America  Energy  Resources,  Inc. (Energy
Resources),  Indianapolis  Campus Energy,  Inc. (ICE),  Cleveland Thermal Energy
Corporation  (Cleveland  Thermal) and  Cleveland  District  Cooling  Corporation
(Cleveland  Cooling),  which jointly do business as Cleveland Energy  Resources,
and Store Heat and Produce Energy, Inc., which conducts business as SHAPE Energy
Resources  (SHAPE) and was 80% owned as of December 31, 1998.  Energy  Resources
owns and  operates  a fully  subscribed  district  cooling  system  in  downtown
Indianapolis, Indiana. ICE provides chilled water to the Lilly Technology Center
located  near  downtown  Indianapolis.  Cleveland  Thermal  owns and  operates a
district heating system in Cleveland,  Ohio. Cleveland Cooling owns and operates
a district  cooling  system in Cleveland.  SHAPE's  operations  became  inactive
during 1998.

                       Capital and Financing Requirements
                       ----------------------------------

       Total capital requirements of Mid-America and its subsidiaries, including
funds needed for construction and maturing debt obligations, are estimated to be
$2.7  million,  $2.5 million and $3.7 million  during the next three years.  The
cash  requirements  of  Mid-America  subsidiaries  are  expected to be funded by
Mid-America  from  its  existing  liquid  assets,  future  cash  flows  from its
operations and from temporary short-term borrowings.

        During 1997, Energy Resources,  a subsidiary of Mid-America,  issued $50
million of long-term notes payable.

       In  1997,  Enterprises  initiated  a  plan  to  sell,  during  1998,  two
subsidiaries  of  Mid-America, Cleveland Thermal and Cleveland Cooling 
(collectively  referred  to as CER) and  ceased recording depreciation. During
the third quarter of 1998, Enterprises determined that it was not probable that
CER  would  be sold  during  1998.  Enterprises continues to have the ability to
remove the assets from operations.  Enterprises resumed depreciation on the CER
assets during September 1998.  Enterprises' plan currently anticipates disposal
of CER in 1999.

<PAGE>

IPALCO ENTERPRISES CONSOLIDATED
-------------------------------


                 Market Risk Sensitive Instruments and Positions
                 -----------------------------------------------

       The  primary  market risk to which  Enterprises  is exposed is related to
interest  rate risk.  Enterprises  uses  long-term  debt as a primary  source of
capital in its business.  A portion of this debt has an interest  component that
resets on a periodic basis to reflect current market  conditions.  The following
table  presents the  principal  cash  repayments  and related  weighted  average
interest rates by maturity date for Enterprises'  long-term  fixed-rate debt and
its other types of long-term debt at December 31, 1998:
<TABLE>
<CAPTION>

                                                   Expected Maturity Date
                                                                                                       Fair
(Dollars in Millions)               1999    2000     2001     2002     2003  Thereafter   Total        Value
---------------------------------------------------------------------------------------------------------------
Long-term debt
<S>                                 <C>     <C>      <C>      <C>      <C>      <C>        <C>         <C>   
Fixed rate                          $1.4    $2.4     $3.3     $3.4     $3.8     $539.7     $554.0      $595.8
  Average rate                      7.9%    7.9%     7.9%     7.9%     7.9%     6.9%       6.9%
Variable                            -       -        -        -        -        $159.3     $159.3      $159.3
  Average rate                      -       -        -        -        -        4.0%       4.0%
Recapitalization debt               -       $36.6    $80.2    $80.2    -        -          $197.0      $197.0
  Average rate                      -       6.7%     6.7%     6.7%     -        -          6.7%

</TABLE>

       To manage Enterprises'  exposure to fluctuations in interest rates and to
lower  funding  costs,  Enterprises  constantly  evaluates  the use of,  and has
entered  into,  interest  rate swaps.  Under  these  swaps,  Enterprises  or its
subsidiaries agree with counterparties to exchange, at specified intervals,  the
difference between  fixed-rate and floating-rate  interest amounts calculated on
an agreed  notional  amount.  This  interest  differential  paid or  received is
recognized in the  consolidated  statements of income as a component of interest
expense.

       At  December  31,  1998,  IPALCO  had an  interest  rate  swap  agreement
outstanding with a notional amount of $250 million, of which the notional amount
decreases $25 million each quarter.  Enterprises  has agreed to pay a fixed rate
of 6.3575% and receive a floating rate based on applicable LIBOR.

       At December  31, 1998,  IPL had an interest  rate swap  agreement  with a
notional amount of $40 million, which expires in January 2023. IPL agrees to pay
interest at a fixed rate of 5.21% to a swap counter party and receive a variable
rate based on the tax-exempt weekly rate.

                                      Other
                                      -----

Year 2000
---------

       Enterprises is potentially  subject to  operational  problems  associated
with the inability of various computer hardware, software and devices containing
embedded  chips to properly  process  the year  change  from 1999 to 2000.  Such
problems could conceivably affect Enterprises'  ability to deliver  electricity,
steam  or  chilled  water to its  customers,  as well as  Enterprises'  internal
operations  such as billing or payroll  functions.  Further,  Year 2000 problems
experienced by other entities,  over which  Enterprises has no control,  such as
certain  suppliers  or  other  electric  utilities  with  which  Enterprises  is
interconnected, could adversely affect Enterprises' operations.

       In 1997,  Enterprises  established  a Year  2000  Committee.  Enterprises
currently  manages the Year 2000 project  through two employee  committees,  the
Compliance Testing Committee and the Contingency Planning Committee, each headed
by corporate officers.  Each of those committees reports to a Year 2000 Steering
Committee composed of officers.  The Year 2000 Steering Committee reports to the
Office of the Chairman, who reports to the Board of Directors. Enterprises has a
formal Year 2000 Plan approved by the Board of Directors.

       The IURC has ordered all Indiana public utilities, including Enterprises,
to "use their best efforts to identify  their mission  critical  operations  and
conduct an  inventory  of all  electronic  devices  that may be affected by date
processing  logic,  assess  the status of these  devices,  take steps to correct
problems in the devices and test the devices to determine  compliance"  in order
to be "Year 2000 ready."

       The Compliance  Testing Committee is engaged in inventorying,  reviewing,
analyzing,  correcting  and testing  computer-related  systems and embedded chip
devices.  The  Contingency  Planning  Committee  is in the process of  assessing
various  operating  scenarios  associated  with potential Year 2000 problems and
formulating plans by which to operate Enterprises in the event of such problems.
Both the Compliance Testing Committee and the Contingency Planning Committee are
concentrating  first on  systems  critical  to the  continuity  of  Enterprises'
business.  Non-critical  systems  have lower  priorities  in terms of  committee
efforts.

       Enterprises is  participating  in an Electric  Power  Research  Institute
program  on the  Year  2000  issue,  as  well  as the  North  American  Electric
Reliability Council system readiness assessments.

       Enterprises'  Year  2000  Plan  includes   attention  to  its  generating
facilities,  energy management systems,  telecommunications  systems, substation
control and protection systems,  transmission and distribution systems, business
information  systems,  financial  systems  and  business  partners.  It includes
efforts,  such as assessing Year 2000 risks to computer  hardware,  software and
embedded  systems;  identifying  options and  solutions;  evaluating  solutions;
repairing,  upgrading and replacing  systems;  testing systems;  and contingency
planning.

State of Readiness

A. Identification and Assessment

       The  Compliance  Testing  Committee is  coordinating  and  reviewing  the
enterprise-wide use of information  technology and assessing potential Year 2000
problems.  That effort involves making an inventory of applications  and systems
and evaluating exposures associated with, for example,  vendor-provided software
and hardware,  Enterprises-developed  software,  and various devices  containing
embedded  chips.  The  Committee  is also in contact  with  vendors to determine
product  compliance and vendors'  timeframes for  compliance.  Computer  systems
being  reviewed  include  hardware,  machine  microcode and firmware,  operating
systems,  generic  applications  software,   billing  software,   communications
software and financial software.

       The Compliance Testing Committee continues to assess computer systems and
embedded chip devices related to Enterprises':

      Electricity  generating stations and plants producing steam and/or chilled
        water;
      Energy management systems;
      Substation controls, system protection, and transmission and
        distribution systems;
      Telecommunications systems; and
      Business information systems.

       The identification,  inventory and assessment phases for critical systems
are now essentially complete.

B. Remediation and Testing

       The Compliance Testing Committee is coordinating,  modifying or replacing
legacy  systems  which may not be Year  2000  compliant.  Enterprises  is in the
process of replacing most of its key financial software  applications.  Although
that  project was not  specifically  initiated  as a Year 2000  effort,  it will
coincidentally result in replacement of non-compliant software.

       The  Compliance  Testing  Committee is also engaged in  establishing  and
operating appropriate testing environments to determine, to the extent possible,
the Year 2000  compliance of existing  systems and/or devices and the compliance
of replacement or upgraded  systems and devices.  Enterprises  may employ one or
more of the following techniques: component tests, simulations, outside testing,
vendor verifications or upgrades or change-outs.  Some devices or systems,  such
as satellite  communication  links, may not be susceptible to testing,  in which
cases Enterprises must rely on the service providers' verifications.

       Enterprises  has  inquired  of its  suppliers  and  vendors of  software,
computer-related  equipment,  devices and services  about Year 2000  compliance.
Some provided the required information and/or assurances and some did not.

       Enterprises'  operations could be adversely affected by Year 2000-related
failures of other companies,  such as telecommunication  providers,  that supply
Enterprises with  mission-critical  services.  Similarly,  Year 2000 failures of
other utilities with which Enterprises is interconnected  could adversely affect
Enterprises' ability to deliver services to its customers.

       Enterprises  currently  expects to complete the  remediation  and testing
phases for critical  systems by the end of the second quarter 1999 and estimates
that it is now approximately 65% complete.

Costs to Address Enterprises' Year 2000 Issues

       Not including the cost of replacing  Enterprises'  business  software,  a
project not initiated  specifically for Year 2000 reasons but which will provide
Year  2000  benefits  through  replacing  non-compliant  software,   Enterprises
currently estimates that its costs of the phases of identification,  assessment,
remediation  and testing may be  approximately  $4.2 million  which  Enterprises
believes is not material to its results of  operations,  liquidity and financial
condition. Of that figure, Enterprises has currently expended approximately $1.2
million.  A substantial  proportion of the costs of  remediation  are associated
with  functional  areas  of  Enterprises   other  than   Information   Services.
Enterprises  currently  estimates that its cost of contingency  planning efforts
may be approximately $1.5 million.

Risks of Enterprises' Year 2000 Issues

       In light of the  numerous  computer-related  systems  and  embedded  chip
devices present in business and production  equipment used by a utility, and the
interdependent  nature of control systems, a large number of potential Year 2000
failure scenarios exist,  potentially involving  Enterprises' internal functions
(such  as  billing),  as  well  as its  chilled  water,  steam  and  electricity
generation and distribution functions. Consequences could conceivably range from
essentially  no operational  problems to a massive  disruption of chilled water,
steam and electric  service lasting for a significant  period of time.  Further,
since Enterprises does not stand alone but is electrically  interconnected  with
other utilities across a substantial  portion of the nation, even if Enterprises
experiences no significant Year 2000 problems associated with its own equipment,
its  ability to deliver  electricity  could be  adversely  affected by Year 2000
failures experienced by other interconnected  utilities.  Enterprises  currently
expects to experience at least some,  hopefully minor,  problems associated with
Year 2000. Some  particularly  bleak yet conceivable Year 2000 failure scenarios
could be material to Enterprises' results of operations.

       There are both external and internal risks associated with Year 2000 that
could affect  Enterprises'  chilled  water,  steam and  electricity  generation,
transmission  and  distribution  operations.  Potential  internal  risk  factors
include, but are not limited to, increased risk of generator trips, inability to
start or restart generators, increased risk of transmission facility trips, loss
of energy management systems, loss of Company-owned  voice/data  communications,
system  protection  (relay) failures  resulting in cascading outages or facility
damage, failure of load-shedding  controls to operate properly,  failure of load
management systems to operate properly,  loss of or incorrect critical operating
data, failure of environmental  control systems, loss of distribution systems or
failure of voltage  control  devices to operate  properly.  Occurrences of those
internal problems,  alone or in combination,  could result in varying effects on
Enterprises' operations.

       External risk factors  include,  but are not limited to, loss of customer
load,  uncharacteristic load patterns, loss of leased communication  facilities,
failure of  delivery  systems to  maintain  supplies  of fuel and severe or cold
weather. Occurrences of various of those events, alone or in combination,  could
result in varying effects on Enterprises.

       Particularly  with  respect to  responding  to  contingencies  that might
occur,  unavailability of skilled labor could exacerbate Year 2000 problems. The
current  collective  bargaining  agreement  between  IPL and  the  International
Brotherhood of Electrical  Workers,  the union  representing  IPL's  production,
distribution,  construction and maintenance  employees,  expires on December 13,
1999.  That union  rejected  a proposed  one-year  extension  of the  collective
bargaining  agreement that was proposed by management so that negotiations would
not occur near the end of calendar year 1999.

       Enterprises'  insurance  policies,  including  policies for liability and
property damage,  currently expire, are up for renewal or have anniversary dates
during 1999. Enterprises currently expects that, in line with a general trend in
the insurance industry,  insurance policies purchased or renewed during 1999 may
exclude coverage of Year 2000 events or certain  elements of damage  potentially
flowing therefrom.

       In light of the many adverse  conditions that could happen to Enterprises
associated with Year 2000,  along with the speculation that some or many of them
may not happen,  it is extremely  difficult  to  hypothesize  a most  reasonably
likely worst case Year 2000 scenario with any degree of certainty.  With that in
mind,  Enterprises  currently  believes  the most  reasonably  likely worst case
scenario would be the temporary loss of one or more  generation  units resulting
in  interruptions  of  power to  Enterprises'  customers.  Enterprises  does not
believe  that  the  worst  case  scenario  will  occur  and,  should  it  occur,
Enterprises  believes that the  consequences  of that  scenario,  with regard to
either  costs of  repair or lost  revenues,  are not  likely to have a  material
effect on Enterprises' results of operations, liquidity and financial condition.

Enterprises' Contingency Plans

         The Contingency Planning Committee is engaged in reviewing hypothetical
scenarios  involving  various system or device  failures and preparing  plans by
which to operate  Enterprises  in the event those failures  occur.  Enterprises'
contingency  planning efforts are not yet complete,  but are underway within the
scope of an overall  outline.  Enterprises'  contingency  planning  involves the
phases of plan  development,  testing,  execution  and recovery  after Year 2000
events. As with compliance  testing,  contingency  planning touches  essentially
every  area  of  Enterprises'   operations,   as  well  as   interactions   with
interconnected  utilities,  customers,  critical vendors and emergency and other
governmental authorities.

       The planning phase attempts to identify and evaluate potential impacts on
business  operations,  life,  property,  and the environment;  develop emergency
plans including establishing  procedures for mitigation of failures and evaluate
contingency  planning  being done on systems that  interface  with  Enterprises'
systems;   identify  dates  of  action  for  various  contingencies;   establish
responsibility  and authority for various  response  efforts;  and establish and
perform  a  training  program  with  respect  to  responding  to  contingencies,
including  practicing and testing the  contingency  plans and  coordinating  the
efforts with governmental functions.

       Contingency planning may include consideration of potential interruptions
in the supply  chain or  transportation  of  critical  fuel,  water,  chemicals,
material supplies etc., and acquisition of appropriate  extra supplies,  as well
as potential  failures of or other problems  associated with the  interconnected
electricity  grid.   Similarly,   consideration  may  be  given  to  cooperative
arrangements  with other  utilities in the event that Year 2000 problems  impact
the supply of skilled labor to effect remediation actions. Enterprises' existing
disaster recovery plans may form bases for some Year 2000 contingency plans.

       In the testing phase,  various drills may be conducted to test the plan's
effectiveness.  Modifications may be made where testing indicates a need. In the
execution phase,  Enterprises will operate its contingency  plans in response to
events actually occurring.

       After Year 2000 events,  if any,  Enterprises will execute its post-event
contingency  plans as required.  It will test its system  functions,  review the
results,  restore and restart systems, and notify appropriate authorities of the
resolution of problems.

Cash Flows
----------

       Additional information regarding Enterprises'  historical cash flows from
operations,  investing  and  financing  for the past three years,  including the
capital expenditures of IPL and Mid-America,  are disclosed in the Statements of
Consolidated Cash Flows and in the Notes to Consolidated Financial Statements.

RESULTS OF OPERATIONS

       The  following   discussion   pertains  to  the  consolidated   financial
statements of IPALCO Enterprises, Inc.

       All per share  information  presented herein has been restated to reflect
the March 1999  common  stock split on a  retroactive  basis (see Note 14 in the
Notes to Consolidated Financial Statements).

       Diluted  earnings  per share  during 1998 were  $1.43,  or $.25 above the
$1.18 attained in 1997.  Diluted  earnings per share during 1997 were $1.18,  or
$.18 above the $1.00 attained in 1996. The following  discussion  highlights the
factors contributing to these results.

       The 1998  earnings  per share  were  affected  by a pretax  gain of $12.5
million  ($7.8  million,  net of tax or  $.09  per  share)  resulting  from  the
liquidation  and  termination  of an agreement to purchase power (see Note 13 in
the Notes to Consolidated Financial Statements).

       The weighted average shares used to calculate  diluted earnings per share
for both 1998 and 1997 were substantially affected by the April 1997 purchase by
IPALCO  of  approximately  25.1  million  shares   (approximately  21%)  of  its
outstanding  common stock.  Other factors  influencing 1997 diluted earnings per
share include: (1) a one-time cumulative effect adjustment of $18.3 million, net
of taxes ($.19 per share)  resulting  from IPL's change to the unbilled  revenue
method of accounting;  (2) a charge of $32 million ($20.8 million, net of tax or
$.22 per share) to write  down the  carrying  values of  Cleveland  Thermal  and
Cleveland  Cooling;  and (3) a $5.7 million gain ($3.5 million,  net of taxes or
$.04 per share) from the sale of a retired IPL plant site (see Notes 2 and 3 in
the Notes to Consolidated Financial Statements).

Utility Operating Revenues
--------------------------

       Operating  revenues  in 1998  and  1997  increased  from  the  prior year
by  $44.8  million  and  $13.9  million, respectively.  The increases in
revenues resulted from the following:

                                                     Increase (Decrease)
                                                     -------------------
                                              1998 over 1997    1997 over 1996
                                              --------------    --------------
                                                    (Millions of Dollars)
Electric:
     Increase in retail basic rates               $   -            $  12.7
     Change in retail KWH sales - net of fuel        14.5             (7.4)
     Fuel revenue                                     3.5             (4.7)
     Wholesale revenue                               28.0              8.6
     DSM tracker revenue                              1.3              1.3
Steam revenue                                        (2.9)              .6
Other revenue                                          .4              2.8
                                                   ------           ------
     Total change in operating revenues            $ 44.8           $ 13.9
                                                   ======           ======

       The  increase  in retail KWH sales in 1998  reflects  economic  growth in
Indianapolis  and an increase in cooling degree days during the summer partially
offset by a decrease in heating  degree days during the mild winter of 1998. The
increase in retail basic rates in 1997 is the result of new  tariffs,  effective
July 1, 1996,  designed  to  produce  additional  annual  base  revenues  of $25
million. The decrease in retail KWH sales in 1997 reflects a decrease in cooling
and heating  degree days in 1997,  compared to 1996, due to milder  weather.  In
both years, total KWH sales,  including wholesale KWH sales,  increased.  Actual
and percentage  changes in electric  customers and in heating and cooling degree
days for these periods are as follows:

                                                Increase (Decrease)
                                                -------------------
                                        1998 over 1997       1997 over 1996
                                        --------------       --------------

Electric Residential Customers          5,257      1.4%       4,657      1.3%
Commercial & Industrial Customers       1,169      2.6%       1,048      2.4%

Heating Degree Days                    (1,261)   (22.2)%       (203)    (3.4)%
Cooling Degree Days                       381     43.8%        (121)   (12.2)%

       The changes in fuel revenues in 1998 and 1997 from the prior year reflect
differences  in fuel  costs  billed to  customers.  Wholesale  sales  were $51.1
million, $23.1 million and $14.5 million for 1998, 1997 and 1996,  respectively.
The increases in wholesale revenues in 1998 and 1997 reflect increased wholesale
marketing efforts and energy requirements of other utilities in those years. The
increases in other revenues represent increased service revenues.

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

       Fuel expense increased in 1998 by $16.5 million and only slightly in 1997
from the prior years.  The increases were  primarily due to increased  total KWH
sales.

       Other  operating  expenses in 1998 and 1997 increased from the prior year
by $12.3  million and by $6.1  million,  respectively.  The increase in 1998 was
partially due to increased  administrative and general expenses of $7.7 million.
This  increase  was due to  payments  for the  voluntary  early  retirement  and
separation  program as well as increased  outside  services and increased  labor
costs.  Electric  distribution  expenses  increased  $1.7 million and production
expenses  increased $1.5 million during 1998. The increase in 1997 was primarily
due to increased  administrative  and general expense of $6.0 million  resulting
from increased  outside services and labor costs.  Also contributing to the 1997
increase  was  increased  amortization  of DSM program  expenses of $2.3 million
partially offset by decreased expense at the production plants.

       Power  purchased  decreased by $.7 million and $10.5 million  during 1998
and 1997, respectively,  compared to the prior periods. The decrease in 1998 was
due to decreased demand charges partially offset by increased  purchases of KWH.
The 1997 decrease was primarily due to reduced  demand  charges as a result of a
new power purchase contract.

       Purchased steam decreased during 1998 and 1997 primarily due to decreased
therms purchased from an independent resource recovery system located within the
city of Indianapolis.

       Maintenance  expenses decreased by $3.2 million during 1998 and increased
by $8.9 million during 1997. The decrease in 1998 was primarily due to decreased
overhaul expenses. The increase in 1997 was primarily due to an overhaul of Unit
3 at Petersburg, as well as repairs to Unit 7 at the Stout plant.

       Taxes other than income taxes  increased  $2.0 million  during 1998 while
decreasing  $.3  million  in 1997.  The  increase  in 1998 was due to  increased
property taxes,  gross income taxes and employment  taxes.  The decrease in 1997
was due to decreased property and gross income taxes.

       Income  taxes - net  increased  in both  1998 and 1997  from the  prior
years  by $6.9  million  and $5.1  million, respectively.  These changes reflect
increases in pretax operating income.

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

       Allowance  for  equity  funds used  during  construction  decreased  $2.1
million and $2.5 million  during 1998 and 1997,  respectively.  In mid 1997, the
amortization of deferred  carrying charges on a plant asset ended,  contributing
to the decreases in both 1998 and 1997.  Also  contributing to the 1997 variance
were decreased carrying charges on other regulatory assets of $1.2 million.

       Other - net, which includes the pretax income before interest  charges of
operations  other than IPL,  as well as pre-tax  non-operating  income from IPL,
decreased by $5.1 million  during 1998 and  increased  by $10.2  million  during
1997, as compared to the prior years.  The decrease in 1998 was due primarily to
the  non-recurring  gain from the sale of a retired IPL plant site in 1997 and a
charitable  contribution  by IPALCO of $3.0 million in 1998. The increase during
1997 was due to a $5.7  million  pretax  gain from the sale of the  retired  IPL
plant site,  and a $4.5 million  increase in the pretax income  before  interest
charges of IPALCO's non-utility operations.

       During 1998, a gain from the  liquidation and termination of an agreement
to purchase  power was  recognized by IPL in the amount of $12.5 million  before
taxes.

       The provision for impairment of nonutility  property during 1997 reflects
a charge of $32 million to write down the carrying  values of Cleveland  Thermal
and  Cleveland  Cooling  (see  Note 2 in the  Notes  to  Consolidated  Financial
Statements).

Interest and Other Charges
--------------------------

       Interest on long-term  debt increased by $.1 million and $15.3 million in
1998 and 1997,  respectively.  The  increase  during 1997 was  primarily  due to
interest  expense  of  $17.1  million  by the  IPALCO  holding  company  for the
recapitalization  debt facility.  Also  contributing to the 1997 increase was an
increase in interest  expense at  Mid-America  of $2.6 million  related to a $50
million  long-term  note  issued  in 1997,  partially  offset by a  decrease  in
long-term  interest expense of $4.6 million at IPL due to the retirement of debt
in late 1996 and early 1997.

       Other interest  charges  decreased by $.7 million and $2.4 million during
1998 and 1997,  respectively.  The  decreases  were  primarily  due to decreased
short-term debt borrowings and decreased interest on tax assessments.

       As compared to the prior year, the allowance for borrowed funds used
during  construction  decreased in 1997 by $2.4 million due to a decreased
construction base for that period.

       Amortization of redemption  premiums and expenses on debt - net increased
in 1998 and 1997 compared to the previous periods.  The increase during 1998 was
due to a full year of  amortization  of the costs  associated  with debt  issued
during 1997. The increase during 1997 was a result of costs  associated with the
early  retirement of IPL's $50 million,  9 5/8% Series in December 1996, as well
as the  amortization of costs  associated with IPALCO's debt used to finance the
1997 stock repurchase.

       Preferred stock  transaction costs increased $1.7 million during 1998 and
decreased  $2.1 million  during 1997 as compared to the prior  periods.  Both of
these variances reflect the gain during 1997 of $1.7 million from the retirement
of preferred stock.

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

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

New Accounting Pronouncement
----------------------------

       The  Financial   Accounting  Standards  Board  has  issued  Statement  of
Financial Standards No. 133, "Accounting for Derivative  Instruments and Hedging
Activities,"  that  Enterprises will be required to adopt in 2000 (see Note 1 in
the Notes to Consolidated Financial Statements for further discussion).

<PAGE>

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



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


To the Shareholders and Board of Directors of IPALCO Enterprises, Inc.:

We  have  audited  the  accompanying   consolidated  balance  sheets  of  IPALCO
Enterprises, Inc. and its subsidiaries as of December 31, 1998 and 1997, and the
related statements of consolidated income,  common shareholders' equity and cash
flows for each of the three years in the period ended  December 31, 1998.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of IPALCO  Enterprises,  Inc. and its
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.

As discussed in Note 3 to the Consolidated  Financial Statements,  in 1997 the
Company changed its method of accounting for unbilled revenue.



DELOITTE & TOUCHE LLP

Indianapolis, Indiana
January 22, 1999
(February 23, 1999 as to Note 14)
<PAGE>
<TABLE>
<CAPTION>

                                   IPALCO ENTERPRISES, INC. AND SUBSIDIARIES

                                       Statements of Consolidated Income
                             For the Years Ended December 31, 1998, 1997 and 1996
----------------------------------------------------------------------------------------------------------------

                                                                       1998            1997             1996
----------------------------------------------------------------------------------------------------------------
                                                                     (In Thousands Except Per Share Amounts)
UTILITY OPERATING REVENUES (Notes 3 and 10):
<S>                                                               <C>             <C>              <C>         
  Electric                                                        $    785,835    $     738,134    $    724,764
  Steam                                                                 35,421           38,293          37,739
                                                                  -------------   --------------   -------------
    Total operating revenues                                           821,256          776,427         762,503
                                                                  -------------   --------------   -------------

UTILITY OPERATING EXPENSES:
  Operation:
    Fuel                                                               181,036          164,578         164,339
    Other                                                              155,610          143,311         137,192
  Power purchased                                                        7,170            7,833          18,365
  Purchased steam                                                        5,968            7,075           7,240
  Maintenance                                                           73,501           76,679          67,768
  Depreciation and amortization                                        103,223          103,230         102,769
  Taxes other than income taxes                                         35,047           33,071          33,363
  Income taxes - net (Note 9)                                           80,190           73,335          68,248
                                                                  -------------   --------------   -------------
    Total operating expenses                                           641,745          609,112         599,284
                                                                  -------------   --------------   -------------
UTILITY OPERATING INCOME                                               179,511          167,315         163,219
                                                                  -------------   --------------   -------------

OTHER INCOME AND (DEDUCTIONS):
  Allowance for equity funds used during construction                    1,389            3,462           5,967
  Other - net                                                           (2,995)           2,140          (8,056)
  Gain on termination of agreement (Note 13)                            12,500                -               -
  Provision for impairment of nonutility property (Note 2)                   -          (32,000)              -
  Income taxes - net (Note 9)                                            5,231           19,004           3,645
                                                                  -------------   --------------   -------------
    Total other income and (deductions) - net                           16,125           (7,394)          1,556
                                                                  -------------   --------------   -------------
INCOME BEFORE INTEREST AND OTHER CHARGES                               195,636          159,921         164,775
                                                                  -------------   --------------   -------------

INTEREST AND OTHER CHARGES:
  Interest on long-term debt                                            60,489           60,385          45,110
  Other interest                                                         1,071            1,799           4,202
  Allowance for borrowed funds used during construction                   (911)            (945)         (3,354)
  Amortization of redemption premiums and expenses on
    debt - net                                                           2,062            1,903           1,360
  Preferred stock transactions                                           2,806            1,080           3,182
                                                                  -------------   --------------   -------------
    Total interest and other charges - net                              65,517           64,222          50,500
                                                                  -------------   --------------   -------------
INCOME BEFORE CUMULATIVE EFFECT OF
  ACCOUNTING CHANGE                                                    130,119           95,699         114,275

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

NET INCOME                                                        $    130,119    $     114,046    $    114,275
                                                                  =============   ==============   =============

BASIC EARNINGS PER SHARE (Notes 6 and 14):

INCOME BEFORE CUMULATIVE EFFECT
   OF ACCOUNTING CHANGE                                           $       1.45    $        1.00    $       1.00
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3)                              -              .19               -
                                                                  -------------   --------------   -------------

NET INCOME                                                        $       1.45    $        1.19    $       1.00
                                                                  =============   ==============   =============

DILUTED EARNINGS PER SHARE (Notes 6 and 14):

INCOME BEFORE CUMULATIVE EFFECT
   OF ACCOUNTING CHANGE                                           $       1.43    $         .99    $       1.00
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3)                              -              .19               -
                                                                  -------------   --------------   -------------

NET INCOME                                                        $       1.43    $        1.18    $       1.00
                                                                  =============   ==============   =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                       IPALCO ENTERPRISES, INC. and SUBSIDIARIES

                                              Consolidated Balance Sheets
                                               December 31, 1998 and 1997
-------------------------------------------------------------------------------------------------------------------------

ASSETS                                                                                1998                     1997
-------------------------------------------------------------------------------------------------------------------------
 
                                                                                             (In Thousands)

UTILITY PLANT:
<S>                                                                             <C>                      <C>            
  Utility plant in service (Note 2)                                             $     2,859,899          $     2,800,446
  Less accumulated depreciation                                                       1,202,356                1,121,317
                                                                                ----------------         ----------------
      Utility plant in service - net                                                  1,657,543                1,679,129
  Construction work in progress                                                          80,198                   77,030
  Property held for future use                                                           10,719                   10,224
                                                                                ----------------         ----------------
        Utility plant - net                                                           1,748,460                1,766,383
                                                                                ----------------         ----------------



OTHER ASSETS:
  Nonutility property (Note 2)                                                           91,319                   90,344
  Less accumulated depreciation                                                          19,485                   17,479
                                                                                ----------------         ----------------
      Nonutility property - net                                                          71,834                   72,865
  Other investments                                                                      12,234                   13,023
                                                                                ----------------         ----------------
        Other assets - net                                                               84,068                   85,888
                                                                                ----------------         ----------------



CURRENT ASSETS:
  Cash and cash equivalents                                                               9,075                   17,293
  Accounts receivable and unbilled revenue (less allowance for doubtful
    accounts - 1998, $1,212,000 and 1997, $1,202,000) (Note 3)                           39,702                   47,033
  Fuel - at average cost                                                                 39,147                   35,257
  Materials and supplies - at average cost                                               48,624                   48,416
  Tax refund receivable                                                                   9,647                    4,829
  Prepayments and other current assets                                                    4,678                    4,271
                                                                                ----------------         ----------------
        Total current assets                                                            150,873                  157,099
                                                                                ----------------         ----------------



DEFERRED DEBITS:
  Regulatory assets (Note 5)                                                            116,801                  126,784
  Miscellaneous                                                                          18,743                   19,404
                                                                                ----------------         ----------------
        Total deferred debits                                                           135,544                  146,188
                                                                                ----------------         ----------------

      TOTAL                                                                     $     2,118,945          $     2,155,558
                                                                                ================         ================

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

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

CAPITALIZATION AND LIABILITIES                                                       1998                     1997
-----------------------------------------------------------------------------------------------------------------------
                                                                                            (In Thousands)

CAPITALIZATION:
<S>                                                                            <C>                     <C>
  Common shareholders' equity (Note 6):
    Common stock, no par, authorized - 580,000,000 shares,
      116,412,526 issued and 88,863,026 outstanding in 1998,
      114,378,544 shares issued and 89,299,688 outstanding in 1997 (Note 14)   $       434,681         $       395,851
    Unearned compensation - restricted stock                                            (5,384)                 (1,583)
    Premium on 4% cumulative preferred stock                                               649                     649
    Retained earnings                                                                  612,941                 532,730
    Treasury stock, at cost                                                           (468,696)               (403,101)
                                                                               ----------------        ----------------
      Total common shareholders' equity                                                574,191                 524,546
  Cumulative preferred stock of subsidiary (Note 6)                                     59,135                   9,135
  Long-term debt (Notes 2 and 7)                                                       907,974               1,032,846
                                                                               ----------------        ----------------
        Total capitalization                                                         1,541,300               1,566,527
                                                                               ----------------        ----------------



CURRENT LIABILITIES:
  Notes payable - banks and commercial paper (Note 8)                                   25,200                  33,700
  Current maturities and sinking fund requirements (Note 7)                              1,425                   3,094
  Accounts payable and accrued expenses                                                 71,835                  66,105
  Dividends payable                                                                     13,392                  11,523
  Taxes accrued                                                                         20,723                  22,126
  Interest accrued                                                                      14,376                  15,493
  Other current liabilities                                                             13,731                  12,555
                                                                               ----------------        ----------------
        Total current liabilities                                                      160,682                 164,596
                                                                               ----------------        ----------------



DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
  Deferred income taxes - net (Note 9)                                                 318,327                 314,869
  Unamortized investment tax credit                                                     41,993                  44,783
  Accrued postretirement benefits (Note 11)                                             10,768                  17,144
  Accrued pension benefits (Note 11)                                                    39,953                  39,821
  Miscellaneous                                                                          5,922                   7,818
                                                                               ----------------        ----------------
        Total deferred credits and other long-term liabilities                         416,963                 424,435
                                                                               ----------------        ----------------

COMMITMENTS AND CONTINGENCIES (Note 12)

        TOTAL                                                                  $     2,118,945         $     2,155,558
                                                                               ================        ================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                          IPALCO ENTERPRISES, INC. and SUBSIDIARIES

                                            Statements of Consolidated Cash Flows
                                    For the Years Ended December 31, 1998, 1997 and 1996
------------------------------------------------------------------------------------------------------------------------------

                                                                                   1998              1997             1996
------------------------------------------------------------------------------------------------------------------------------
                                                                                               (In Thousands)
CASH FLOWS FROM OPERATIONS:
<S>                                                                          <C>               <C>              <C>          
  Net income                                                                 $     130,119     $     114,046    $     114,275
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation and amortization                                                  102,977           103,841          102,677
    Amortization of regulatory assets                                               11,507            15,405           17,680
    Deferred income taxes and investment tax credit adjustments - net               (2,056)            3,533            3,145
    Allowance for funds used during construction                                    (2,300)           (4,407)          (9,321)
    Cumulative effect of accounting change - before taxes (Note 3)                       -           (29,915)               -
    Provision for impairment of nonutility property (Note 2)                             -            32,000                -
    Premiums on redemptions of debt                                                      -                 -           (3,128)
    Change in certain assets and liabilities:
      Accounts receivable - excluding cumulative effect
         of accounting change                                                        7,331            (6,019)          47,974
      Fuel, materials and supplies                                                  (4,098)             (321)           4,503
      Accounts payable and accrued expenses                                          5,730             3,883          (19,762)
      Taxes accrued                                                                 (1,403)           (1,033)           1,934
      Accrued pension benefits                                                         132             2,538            5,449
      Other - net                                                                  (15,271)           (4,729)         (18,285)
                                                                             --------------    --------------   --------------
Net cash provided by operating activities                                          232,668           228,822          247,141
                                                                             --------------    --------------   --------------

CASH FLOWS FROM INVESTING:
  Proceeds from maturities of marketable securities                                      -                 -            3,810
  Construction expenditures - utility                                              (79,458)          (73,130)         (78,543)
  Construction expenditures - nonutility                                              (975)           (1,569)          (4,187)
  Other                                                                              3,932            (6,566)         (16,607)
                                                                             --------------    --------------   --------------
Net cash used in investing activities                                              (76,501)          (81,265)         (95,527)
                                                                             --------------    --------------   --------------

CASH FLOWS FROM FINANCING:
  Issuance of long-term debt                                                       271,500           451,300           37,600
  Issuance of preferred stock (Note 6)                                              50,000                 -                -
  Retirement of long-term debt                                                    (398,094)          (89,250)         (79,900)
  Reacquired common stock (Note 6)                                                 (65,595)         (403,101)               -
  Preferred stock redemptions (Note 6)                                                   -           (41,814)               -
  Short-term debt - net                                                             (8,500)          (12,300)         (23,122)
  Common dividends paid                                                            (48,235)          (57,653)         (83,629)
  Issuance of common stock related to incentive compensation plans                  29,869             4,089            4,560
  Other                                                                              4,670              (852)             640
                                                                             --------------    --------------   --------------
Net cash used in financing activities                                             (164,385)         (149,581)        (143,851)
                                                                             --------------    --------------   --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                (8,218)           (2,024)           7,763
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                      17,293            19,317           11,554
                                                                             --------------    --------------   --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                     $       9,075     $      17,293    $      19,317
                                                                             ==============    ==============   ==============

------------------------------------------------------------------------------------------------------------------------------
Supplemental  disclosures  of cash flow  information:  Cash paid during the year
  for:
    Interest (net of amount capitalized)                                     $      62,381     $      59,761    $      47,857
                                                                             ==============    ==============   ==============
    Income taxes                                                             $      82,067     $      63,915    $      64,650
                                                                             ==============    ==============   ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                    IPALCO ENTERPRISES, INC. and SUBSIDIARIES

             Statements of Consolidated Common Shareholders' Equity
              For the Years Ended December 31, 1998, 1997 and 1996
-----------------------------------------------------------------------------------------------------------------------------------
                                                                         
                                                                         
                                           Common Stock                                              
                                           Outstanding                         Premium on 4%           
                                      ------------------------    Unearned      Cumulative    Retained    Treasury
                                       Shares          Amount   Compensation  Preferred Stock Earnings      Stock           Total
                                                                                
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                    (In Thousands)

<S>                                     <C>        <C>          <C>            <C>         <C>           <C>            <C>  
Balance at January 1, 1996              113,604    $ 385,032    $  (1,168)     $   1,363   $ 436,408                    $  821,635
  Net income                                                                                 114,275                       114,275
  Cash dividends declared 
    ($.74 per share)                                                                         (84,286)                      (84,286)
  Amortization of restricted stock                                  1,210                                                    1,210
  Post-split fractional shares               (2)         (36)                                                                  (36)
  Exercise of stock options                 454        4,560                                                                 4,560
  Restricted stock grants                    14          410         (410)                                                       0
                                      ----------   ----------   ----------       --------   ----------                  ------------
Balance at December 31, 1996            114,070      389,966         (368)         1,363     466,397                       857,358
  Net income                                                                                 114,046                       114,046
  Cash dividends declared
    ($.50 per share)                                                                         (47,713)                      (47,713)
  Amortization of restricted stock                                    581                                                      581
  Reacquired Common Stock (Note 6)      (25,078)                                                         $  (403,101)     (403,101)
  Reacquired and retired
     Preferred Stock                                                                (714)                                     (714)
  Exercise of stock options                 306        4,089                                                                 4,089
  Restricted stock grants                     2        1,796       (1,796)                                                       0
                                      ----------   ----------   ----------      ---------   ----------     ----------   -----------
Balance at December 31, 1997             89,300      395,851       (1,583)           649     532,730        (403,101)      524,546
  Net income                                                                                 130,119                       130,119
  Cash dividends declared
    ($.55 per share)                                                                         (49,418)                      (49,418)
  Subsidiary capital stock expense                                                              (490)                         (490)
  Amortization of restricted stock                                  5,160                                                    5,160
  Reacquired Common Stock (Note 6)       (2,472)                                                             (65,595)      (65,595)
  Exercise of stock options               1,724       29,869                                                                29,869
  Forfeiture of restricted stock            (29)        (619)         619                                                        0
  Restricted stock grants                   340        9,580       (9,580)                                                       0
                                      ----------   ----------   ----------      ---------   ----------   ------------   -----------
                                                                               
Balance at December 31, 1998             88,863    $ 434,681    $  (5,384)      $    649    $612,941     $  (468,696)   $  574,191
                                      ==========   ==========   ==========      =========   =========    ============   ===========


See notes to consolidated financial statements.

Per share  amounts  and the number of shares  have been  adjusted to reflect the
two-for-one  stock split as  described  in Note 14 in the Notes to  Consolidated
Financial Statements.

</TABLE>
<PAGE>


                    IPALCO ENTERPRISES, INC. and SUBSIDIARIES
                    =========================================
                   Notes to Consolidated Financial Statements
              For the Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------------------------------------------

 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation:  IPALCO Enterprises, Inc. (IPALCO) owns all of
the outstanding  common stock of its subsidiaries  (collectively  referred to as
Enterprises).  The  consolidated  financial  statements  include the accounts of
IPALCO,  its regulated utility  subsidiary,  Indianapolis  Power & Light Company
(IPL),  and its unregulated  subsidiary,  Mid-America  Capital  Resources,  Inc.
(Mid-America).  Mid-America conducts its businesses through various wholly-owned
subsidiaries,  including Mid-America Energy Resources,  Inc. (Energy Resources),
Indianapolis  Campus Energy,  Inc. (ICE),  Cleveland Thermal Energy  Corporation
(Cleveland  Thermal)  and  Cleveland  District  Cooling  Corporation  (Cleveland
Cooling).   All   significant   intercompany   items  have  been  eliminated  in
consolidation.

       The  operating  components  of all  subsidiaries  other than IPL that had
revenue of $33.4  million,  $33.0 million and $33.6  million for 1998,  1997 and
1996,   respectively,   are  included   under  the  captions  OTHER  INCOME  AND
(DEDUCTIONS), "Other-net" and "Income taxes-net" and INTEREST AND OTHER CHARGES,
"Interest on long-term debt," "Other  Interest" and  "Amortization of redemption
premiums and expenses on debt-net" in the Statements of Consolidated Income.

       Nature of Operations:  IPL is engaged  principally in providing  electric
and steam service to the Indianapolis  metropolitan area.  Mid-America  operates
energy-related businesses in Indianapolis, Indiana and Cleveland, Ohio.

       Concentrations  of  Risk:  Substantially  all  of  Enterprises'  business
activity is with customers  located within the  Indianapolis  area. In addition,
approximately 64% of Enterprises' employees are covered by collective bargaining
agreements.  In  December  1999,  the  contract  of  approximately  75% of those
employees covered by collective bargaining agreements will expire.

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

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

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

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

       Effective July 1, 1996, IPL's authorized annual  jurisdictional  electric
net operating income, for purposes of quarterly  operating income tests, is $163
million,  as established in an IURC order dated August 24, 1995. This level will
be maintained until changed by an IURC order.  During 1998, IPL's rolling annual
jurisdictional  electric  operating  income was less than the authorized  annual
operating  income at each of the quarterly  measurement  dates (January,  April,
July and October).  At October 31, 1998, IPL's most recent quarterly measurement
date, IPL had a cumulative net operating  deficiency of $65.4 million,  of which
$14.7 million expires at varying  amounts during the period ending  September 1,
2000.  The  operating  deficiency  is  calculated  by summing the 20 most recent
quarterly measurement period annual results. As a consequence,  IPL could, for a
period of time, earn above $163 million of electric net operating income without
being required to make a customer refund.

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

       Pursuant  to an order of the  IURC,  IPL's  authorized  annual  steam net
operating  income is $6.2  million,  plus any  cumulative  annual  underearnings
occurring during the five-year period  subsequent to the  implementation  of the
new rate  tariffs.  During 1998,  IPL's annual  jurisdictional  steam  operating
income was less than the authorized  annual  operating income at the January 31,
1998, measurement date.

       Allowance  For Funds Used During  Construction:  In  accordance  with the
prescribed uniform system of accounts,  IPL capitalizes an allowance for the net
cost of funds (interest on borrowed funds and a reasonable rate on equity funds)
used  for  construction  purposes  during  the  period  of  construction  with a
corresponding  credit to income. IPL capitalized  amounts using pretax composite
rates of 9.7%, 9.1% and 7.3% during 1998, 1997 and 1996, respectively.

       Utility Plant and Depreciation:  Utility plant is stated at original cost
as defined for regulatory  purposes.  The cost of additions to utility plant and
replacements of retirement units of property, as distinct from renewals of minor
items that are charged to maintenance,  are charged to plant accounts.  Units of
property  replaced or abandoned  in the ordinary  course of business are retired
from the plant accounts at cost; such amounts plus removal costs,  less salvage,
are  charged  to  accumulated  depreciation.  Depreciation  is  computed  by the
straight-line method based on functional rates approved by the IURC and averaged
3.5% during 1998 and 1997 and 3.4% during  1996.  Depreciation  expense for 1997
and 1996 included  adjustments to spare parts inventory of $0.6 million and $4.5
million, respectively,  resulting from recognition of the impairment in value of
excess spare parts.

       Nonutility  property is recorded at cost, and  depreciation is calculated
using the  straight-line  method over the estimated service lives of the related
property (see Note 2). Nonutility  depreciation  expense was $2.7 million,  $4.4
million and $4.5 million for 1998, 1997 and 1996, respectively.

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

       Regulatory  Assets:  Regulatory assets represent deferred costs that have
been,  or that are expected to be,  included as allowable  costs for  ratemaking
purposes.  IPL has  recorded  regulatory  assets  relating  to certain  costs as
authorized by the IURC.  Specific  regulatory assets are disclosed in Note 5. As
of December 31, 1998, all nontax-related regulatory assets have been included as
allowable  costs in orders of the IURC (see  Note 10).  IPL is  amortizing  such
regulatory   assets  to  expense  over  periods   authorized  by  these  orders.
Tax-related  regulatory  assets  represent  the  net  income  tax  costs  to  be
considered in future regulatory proceedings generally as the tax related amounts
are paid.

       In accordance  with  regulatory  treatment,  IPL deferred as a regulatory
asset  certain post  in-service  date  carrying  charges and certain other costs
related  to its  investment  in  Petersburg  Unit 4. As  authorized  in the 1995
Electric Rate  Settlement  (see Note 10), IPL,  effective  September 1, 1995, is
amortizing this deferral to expense over a life that generally  approximates the
useful  life  of the  related  facility.  Also  in  accordance  with  regulatory
treatment,  IPL defers as regulatory assets  non-sinking fund debt and preferred
stock redemption  premiums and expenses,  and amortizes such costs over the life
of the original  debt or, in the case of preferred  stock  redemption  premiums,
over 20 years.

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

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

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

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

       Cash  and Cash  Equivalents:  Enterprises  considers  all  highly  liquid
investments  purchased  with  original  maturities of 90 days or less to be cash
equivalents.

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

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

       The  defined  contribution  plan is  sponsored  by IPL as the  Employees'
Thrift Plan of Indianapolis Power & Light Company (Thrift Plan). Employees elect
to make  contributions  to the Thrift Plan based on a percentage of their annual
base compensation. Each employee's contribution is matched in amounts up to, but
not  exceeding,  4%  of  the  employee's  annual  base  compensation.   Employer
contributions  to the  Thrift  Plan were $3.5  million,  $3.3  million  and $3.4
million in 1998, 1997 and 1996, respectively.

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

       New Accounting Pronouncements:  In 1998, Enterprises adopted Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Comprehensive Income," which
requires  that  changes  in the  amounts  of certain  items,  including  foreign
currency  translation  adjustments and gains and losses on certain securities be
shown in the  financial  statements.  The  adoption of SFAS 130 had no impact on
Enterprises' financial position or results of operations.

       In 1998,  Enterprises adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related  Information."  In accordance with the terms of SFAS 131,
Enterprises has two business  segments  (electric and "all other").  Adoption of
this  standard  had no impact on  Enterprises'  financial  position,  results of
operations or cash flows.  Steam  operations of IPL and all  subsidiaries  other
than IPL were combined in the "all other" category.  Pretax operating income for
the electric  segment was $255.4 million,  $233.0 million and $224.8 million and
for the "all other"  segment was $6.6 million,  $7.4 million and $2.9 million in
1998, 1997 and 1996,  respectively.  Steam operations of IPL are included in the
caption UTILITY  OPERATING INCOME.  All other operating  components of all other
subsidiaries other than IPL are included in the caption "Other-net".

       SFAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and is effective  for all fiscal  quarters of all fiscal
years beginning after June 15, 1999. This statement  establishes  accounting and
reporting standards for derivative  instruments and for hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities   in  the  statement  of  financial   condition  and  measure  those
instruments  at fair value.  If certain  conditions are met, a derivative may be
specifically  designated as a fair value hedge, a cash flow hedge, or a hedge of
a foreign currency  exposure.  The accounting for changes in the fair value of a
derivative  (that is,  gains and  losses)  depends  of the  intended  use of the
derivative and the resulting designation.  Management has not yet quantified the
effect of the new standard on the consolidated financial statements.

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

       Earnings per Share:  All references to earnings per share in the Notes to
the  Consolidated  Financial  Statements  represent  fully diluted  earnings per
share.

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


2.  PLANT IN SERVICE AND OTHER PROPERTY

       Utility Plant in Service
       ------------------------

       The original cost of utility plant in service at December 31, segregated
by functional classifications, follows:
                                                  1998                1997
--------------------------------------------------------------------------------
                                                       (In Thousands)

Production.................................     $1,716,786         $1,687,190
Transmission...............................        238,453            237,547
Distribution...............................        761,296            743,251
General  ..................................        143,364            132,458
                                               -----------       ------------
         Total utility plant in service....     $2,859,899         $2,800,446
                                                ==========         ==========

       Included  above is steam  plant in service of $107.4  million  and $103.2
million for 1998 and 1997, respectively.  Substantially all of IPL's property is
subject to the lien of the indentures securing IPL's First Mortgage Bonds.

       In 1997, IPL retired and sold its C.C. Perry W plant site, including land
and  improvements,  to the state of Indiana White River State Park Commission at
an approximate  pretax net gain of $5.7 million included under the caption OTHER
INCOME AND (DEDUCTIONS), "Other - net".

       Nonutility Property
       -------------------

       The original cost of nonutility property at December 31 follows:

                                                    1998               1997
-----------------------------------------------------------------------------
                                                         (In Thousands)

District Cooling..........................        $  80,777         $  79,165
District Heating..........................            7,672             7,977
General  .................................            2,870             3,202
                                                  ---------         ---------
         Total nonutility property........         $ 91,319         $  90,344
                                                  =========         =========

       Substantially all the District Cooling and Heating property is subject to
the lien of existing debt and/or credit agreements.

       In  1997,   Enterprises  initiated  a  plan  to  sell  during  1998, two
subsidiaries  of  Mid-America,   Cleveland  Thermal and Cleveland Cooling
(collectively  referred  to as CER) and ceased recording  depreciation.  Based
on fair  market  value  estimates,  Enterprises recorded a charge of $32 million
during 1997 to write down the carrying  amounts of these  businesses to
estimated  fair value less cost to sell.  The charge was included  in
Enterprises'  OTHER  INCOME AND  (DEDUCTIONS),  for the year ended December 31,
1997.  During 1998, it was determined that it was not probable that CER would be
sold during 1998.  Due to the delay in disposal,  depreciation  was resumed on
the CER assets during September 1998.  Enterprises  continues to have the
ability to remove the assets from operations and anticipates disposal of CER
in 1999.  Excluding the charge described above,  these businesses  contributed a
net loss of $1.5 million,  $2.5 million and $1.7 million in 1998, 1997 and 1996,
respectively.


3.  CUMULATIVE EFFECT OF ACCOUNTING CHANGE

       In December  1997, IPL changed its method of accounting  (retroactive  to
January 1,  1997) to record  revenues  of all  electricity  and steam  delivered
during the period.  Prior to 1997, IPL  recognized  revenues on a cycle basis as
meters were read. The new accounting method more accurately  reports revenues in
the period in which  electricity and steam is used by customers.  The cumulative
effect of the change in accounting at January 1, 1997, was $18.3 million (net of
income taxes of $11.2 million and other taxes of $.4 million) or $.19 per share.
The change had the effect of decreasing 1997 income before  cumulative effect of
the accounting change by $1.9 million (net of taxes) or $.02 per share.

       If this method had been  applied  retroactively,  net income would have
been $112.1  million  ($.98 per share) for the year ended December 31, 1996.

4.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

       Long-Term   Debt,   Including   Current   Maturities   and  Sinking  Fund
Requirements:  Interest rates that are currently  available to  Enterprises  for
issuance  of debt  with  similar  terms  and  remaining  maturities  are used to
estimate fair value. The variable rate debt has been included at the face amount
for both  carrying  amount and fair value.  The fair values of the interest rate
swap  agreements of  Enterprises  have been  estimated to be $(9.7)  million and
$(5.9)  million at  December  31,  1998 and 1997,  respectively.  These  amounts
represent what Enterprises would have to pay to enter into equivalent agreements
with a swap  counter  party.  The fair  value of the debt  outstanding  has been
determined  on the basis of the  specific  securities  issued  and  outstanding.
Accordingly,  the purpose of this  disclosure is not to approximate the value on
the basis of how the debt might be  refinanced.  At December 31, 1998, and 1997,
the  consolidated  carrying  amount of Enterprises'  long-term  debt,  including
current maturities and sinking fund requirements, and the approximate fair value
are as follows:

                                                   1998               1997
  ---------------------------------------------------------------------------
                                                       (In Thousands)

    Carrying amount                              $909,399          $1,035,940
    Approximate fair value                        952,121           1,066,354


5.  REGULATORY ASSETS

       The amounts of regulatory assets at December 31 are as follows:

                                                          1998          1997
------------------------------------------------------------------------------
                                                            (In Thousands)

Related to deferred taxes (Note 1)                     $  46,823     $  44,099
Postretirement benefit costs in excess of cash 
   payments and amounts capitalized (Note 11)             10,720        17,152
Unamortized reacquisition premium on debt (Note 1)        22,301        23,751
Unamortized Petersburg Unit 4 carrying charges
   and certain other costs (Note 1)                       29,174        30,228
Demand side management costs (Note 10)                     7,783        10,308
Other                                                          -         1,246
                                                       ---------     ---------
      Total regulatory assets                          $ 116,801     $ 126,784
                                                       =========     =========

6.  CAPITAL STOCK

       Stock   Repurchases:   In  1997,   IPALCO  conducted  a  "Dutch  Auction"
self-tender  offer and  purchased  25,078,856  shares of common stock at a total
cost of $403.1 million. During 1998, IPALCO's Board authorized the repurchase of
up to 6 million additional shares on the open market and in privately negotiated
transactions. As of December 31, 1998, 2,470,644 shares have been repurchased as
part of this new repurchase plan at a cost of $65.6 million.

       Common Stock:  IPALCO has a Rights Agreement,  amended and restated as of
April 28,  1998,  that is  designed  to protect  IPALCO's  shareholders  against
unsolicited  attempts  to acquire  control of IPALCO  that do not offer what the
Board  believes  is a fair and  adequate  price to all  shareholders.  The Board
declared a dividend of one Right for each share of common stock to  shareholders
of record on July 11, 1990.  The Rights will expire at the time of redemption or
exchange,  or on April 28, 2008,  whichever occurs  earliest.  At this time, the
Rights  are  attached  to and trade with the  common  stock.  The Rights are not
taxable to shareholders or to IPALCO,  and they do not affect reported  earnings
per share.  Under the Rights  Agreement,  IPALCO has authorized and reserved 120
million shares for issuance.

       The following is a  reconciliation  of the weighted average common shares
for the basic and diluted earnings per share computations:

                                          For the Year Ended December 31,
                                          -------------------------------
                                      1998               1997            1996
                                      ----               ----            ----
                                                   (In Thousands)

Weighted average common shares        89,979            95,884          113,849
Dilutive effect of stock options       1,298               571              233
                                      ------            ------          -------
Weighted average common
   and incremental shares             91,277            96,455          114,082
                                      ======            ======          =======

       IPALCO  PowerInvest,  IPALCO's  Dividend  Reinvestment  and Direct  Stock
Purchase Plan,  allows  participants  to purchase  shares of common stock and to
reinvest  dividends.  The plan provides that such shares may be purchased on the
open  market  or  directly  from  IPALCO  at the  option  of  IPALCO.  IPALCO is
authorized to issue  approximately 2.6 million  additional shares as of December
31,  1998,  pursuant to this plan.  All  purchases in 1998 were made on the open
market.

       Under the Thrift Plan,  shares may be purchased either on the open market
or, if available,  as original  issue shares  directly  from IPALCO.  There were
approximately 3.6 million additional shares available for issue under the Thrift
Plan as of  December  31,  1998.  All  purchases  in 1998  were made on the open
market.

         IPALCO is authorized to issue 62,748  additional shares of common stock
pursuant to the Energy Resources 401(k) plan. All purchases in 1998 were made on
the open market.

         On May 21, 1997,  the IPALCO  Enterprises,  Inc. 1997 Stock Option Plan
(1997  Plan)  for  officers  and  other  key   employees  was  approved  by  the
shareholders of IPALCO.  Four million shares of common stock were authorized for
issuance  under the 1997 Plan.  As of December 31, 1998,  1,685,500  shares were
available for future grants. The maximum period for exercising an option may not
exceed  10  years  and one day  after  the  grant,  provided  however,  that the
incentive stock options shall have terms not in excess of 10 years.

       IPALCO has an existing  stock  option plan (1990 Plan) for key  employees
under which  options to acquire  shares of common  stock may be  granted.  Three
million shares of common stock were  authorized for issuance under the 1990 Plan
although no shares are  available  for future  grants.  The  maximum  period for
exercising an option may not exceed 10 years and one day after grant or 10 years
for incentive stock options.

       The 1991  Directors'  Stock  Option  Plan  (1991  Plan)  provides  to the
non-employee  Directors  of IPALCO  options to acquire  shares of common  stock.
These  options  are  exercisable  for  the  period  beginning  on the  six-month
anniversary of, and ending on the 10-year  anniversary of, the grant date. Under
the 1991 Plan,  750,000 shares of common stock were  authorized for issuance and
180,000 are available for future grants.

       A summary of options issued under all plans is as follows:
<TABLE>
<CAPTION>

                                              Weighted Average          Range of Option          Number of
                                               Price per Share          Price per Share            Shares
----------------------------------------------------------------------------------------------------------------
<S>                                               <C>                  <C>                       <C>      
Outstanding, January 1, 1996..................    $  11.37             $ 8.416 -$12.686          2,410,500
  Granted.....................................       12.63                       12.625             90,000
  Exercised...................................        8.51               8.416 - 12.665           (453,360)
                                                                                                 ----------
Outstanding, December 31, 1996................       12.06               8.416 - 12.686          2,047,140
  Granted.....................................       15.69                       15.688          2,265,000
  Granted.....................................       15.25                       15.25              84,000
  Exercised...................................       12.03               8.416 - 15.688           (305,464)
                                                                                                 ----------
Outstanding, December 31, 1997................       14.14               8.416 - 15.688          4,090,676
  Granted.....................................       21.03                       21.03             150,000
  Granted.....................................       20.35                       20.345             30,000
  Granted.....................................       21.67                       21.67              72,000
  Exercised...................................       14.16               8.416 - 15.688         (1,724,378)
                                                                                                 ----------
Outstanding, December 31, 1998................       14.80               8.416 - 21.67           2,618,298
                                                                                                 ==========
</TABLE>

       The number of shares  exercisable  at December  31,  1998,  1997 and 1996
were: 2,558,298, 4,090,676, and 2,047,140, respectively, with a weighted average
exercise price of $14.65, $14.14 and $12.06, respectively.  The weighted average
remaining contractual life of the options outstanding at December 31, 1998, 1997
and 1996 was 7.0 years, 7.7 years and 6.3 years, respectively.

       IPALCO has a Long-Term  Performance  and Restricted  Stock Incentive Plan
(1995 Plan).  Pursuant to the 1995 Plan,  1.2 million  shares of common stock of
IPALCO have been  authorized  and reserved for issuance,  and initial  awards of
174,608 shares of restricted  common stock were made to participating  employees
on January 1, 1995. On January 1, 1997 and 1996, an additional  3,256 and 14,638
shares,  respectively,  were issued to reflect the addition of new participants.
Under the 1995 Plan,  shares of  restricted  common  stock with value equal to a
stated  percentage of  participants'  base salary are  initially  awarded at the
beginning of a three-year  performance period,  subject to adjustment to reflect
the  participants'   actual  base  salary.  The  shares  remain  restricted  and
nontransferable  throughout  each  three-year  performance  period,  vesting  in
one-third  increments  in  each  of the  three  years  following  the end of the
performance  period.  The first performance  period was from January 1, 1995, to
December 31, 1997.  At the end of a  performance  period,  awards are subject to
adjustment to reflect Enterprises'  performance compared to peer companies under
two   performance   criteria,   cost-effective   service  and  total  return  to
shareholders.  Depending on Enterprises' performance under these criteria, final
awards may range from 200% of the initial awards to zero. On January 5, 1998, an
additional  18,864  shares  were  issued to reflect  participants'  actual  base
salaries.  On January 15, 1998, the final performance  evaluation was performed,
resulting  in final awards of 200% of the initial  awards with  one-third of the
total vesting (147,480 shares).  Participants may choose from one of four payout
options for vested shares,  including partial cash payout. Of the vested shares,
67,438 were paid out in the form of stock.  During 1998,  an  additional  24,218
shares vested. An additional  one-third of the awards vested (115,104 shares) on
January 1, 1999, of which 38,158 shares were paid out in the form of stock.

       On  January  27,  1998,  the Board of  Directors  amended  the  Long-Term
Performance  and Restricted  Stock  Incentive Plan (1998 Plan).  Pursuant to the
1998 Plan, an additional  1.8 million shares of common stock of IPALCO have been
authorized and reserved for issuance,  for a total of 3 million shares.  Initial
awards of 225,382 shares of restricted  common stock were made to  participating
employees on January 27, 1998.  During 1998,  19,826 shares of restricted  stock
were  canceled.  On January 4, 1999, an additional  15,572 shares were issued to
reflect the addition of new participants. Awards are made on established targets
for the participants to reflect the participants' actual base salary. The shares
remain  restricted and  nontransferable  throughout each three-year  performance
period, vesting in one-third increments in each of the three years following the
end of the performance  period. At the end of a performance  period,  awards are
subject to adjustment to reflect Enterprises'  performance compared to companies
in the S&P 500 Index with  regard to  cumulative  total  return to  shareholders
during the three-year performance period. Depending on Enterprises' performance,
final awards may range from 400% of the initial awards to zero.

       APB Opinion  No. 25,  "Accounting  for Stock  Issued to  Employees,"  and
related  interpretations  in  accounting  for the  stock-based  plans  have been
applied by Enterprises.  No compensation  cost has been recognized for the 1990,
1991 and 1997 option plans because the stock option  exercise  price is equal to
the fair  value  of the  underlying  common  stock  at the  date of  grant.  Had
compensation cost been determined based on the fair value at the grant dates for
awards under the plans  consistent with the method of SFAS 123,  "Accounting for
Stock-Based  Compensation,"  Enterprises' net income for the year ended December
31, 1998,  would have decreased from $130.1 million ($1.43 per share) to the pro
forma amount of $129.6  million ($1.42 per share).  Enterprises'  net income and
earnings  per share for the  similar  period in 1997 would have  decreased  from
$114.0  million  ($1.18  per  share) to the pro forma  amount of $110.4  million
($1.15  per  share).  Enterprises'  net income  and  earnings  per share for the
similar  period in 1996 would have  decreased  from  $114.3  million  ($1.00 per
share) to the pro forma amount of $114.2 million ($1.00 per share).  Enterprises
estimated  the SFAS 123 fair values by utilizing  the binomial  options  pricing
model with the following assumptions: dividend yields of 2.5% to 6.9%, risk-free
rates  of 6.4% to  6.9%,  volatility  of 12% to 13% and  expected  lives of five
years.

        Compensation expense of $3.1 million,  $3.4 million and $1.2 million for
1998, 1997 and 1996, respectively, as measured by the market value of the common
stock at the balance sheet date,  has been  recognized  in  accordance  with the
vesting period for the 1995 Plan.  Compensation expense of $2.0 million has been
recognized in accordance with the vesting period for the 1998 Plan.

       Restrictions on the payment of cash dividends or other  distributions  of
IPL common stock held by IPALCO and on the purchase or redemption of such shares
by IPL are contained in the indentures  securing IPL's First Mortgage  Bonds. In
addition, pursuant to IPL's Articles of Incorporation,  no dividends may be paid
or accrued and no other  distribution  may be made on IPL's  common stock unless
dividends on all  outstanding  shares of IPL's preferred stock have been paid or
declared and set apart for payment.  All of IPL's retained  earnings at December
31, 1998, were free of such restrictions. There are no other restrictions on the
retained earnings of IPALCO.

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

       During  1997,  IPALCO  purchased  252,675  shares of IPL's $100 par value
Cumulative Preferred Stock pursuant to the terms of a tender offer. All tendered
shares subsequently were purchased from IPALCO by IPL at cost and canceled. Also
during 1997, IPL  authorized  the redemption of an additional  174,957 shares of
its $100 par value Cumulative Preferred Stock.

       On January  13,  1998,  IPL issued the 5.65%  Preferred  Series  which is
redeemable at par value, subject to certain  restrictions,  in whole or in part,
at any time on or after January 1, 2008, at the option of IPL.

At December 31, preferred stock consisted of the following:

                                       December 31, 1998    
                                       -----------------    
                                       Shares       Call          December 31
                                     Outstanding    Price       1998       1997
                                     ----------- ----------    ------     ------
                                                                 (In Thousands)
Cumulative $100 Par Value,
     authorized 2,000,000 shares

     4% Series......................     47,611    $118.00      $4,761    $4,761
     4.2% Series....................     19,331     103.00       1,933     1,933
     4.6% Series....................      2,481     103.00         248       248
     4.8% Series....................     21,930     101.00       2,193     2,193
     5.65% Series...................    500,000          -      50,000        -
                                        -------                -------   -------

Total cumulative preferred stock        591,353                $59,135   $ 9,135
                                        =======                =======   =======

        During 1998, 1997 and 1996, preferred stock dividends were $3.1 million,
$2.8 million and $3.2 million, respectively.
<PAGE>

7.  LONG-TERM DEBT

       Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                                          December 31,
                                                                          ------------
                                                                       1998           1997
                                                                       ----           ----
      Series                  Due                                        (In Thousands)
      ------                  ---                                   
IPL First Mortgage Bonds:
<S>                                                                <C>             <C>               
    6.05%             February 2004...........................     $  80,000       $  80,000
    8%                October 2006............................        58,800          58,800
    7 3/8%            August 2007.............................        80,000          80,000
    6.10% *           January 2016............................        41,850          41,850
    5.40% *           August 2017.............................        24,650          24,650
    7.45%             August 2019.............................        23,500          23,500
    5.50% *           October 2023............................        30,000          30,000
    7.05%             February 2024...........................       100,000         100,000
    6 5/8% *          December 2024...........................        40,000          40,000
Unamortized discount - net....................................          (907)           (960)
                                                                   ---------      ----------
    Total first mortgage bonds................................       477,893         477,840

IPL Variable Series Notes *
    1991              August 2021.............................        40,000          40,000
    1994A             December 2024...........................        20,000          20,000
    1995B             January 2023 ...........................        40,000          40,000
    1995C             December 2029 ..........................        30,000          30,000
    1996              November 2029 ..........................        20,000          20,000
                                                                   ---------      ----------
Total long-term debt - IPL....................................       627,893         627,840
                                                                   ---------      ----------

Long-Term Debt - Other:
    Energy Resources - 7.25% note, due December 2011..........         9,500           9,500
    Energy Resources - variable note, due September 2030......         9,300           9,300
    ICE - 7.59 % note, due February 2016 .....................        16,000          16,000
    IPALCO Enterprises, Inc. credit facilities................       197,000         323,000
    Energy Resources - 8.03% notes payable, due June 2012 ....        49,406          50,000
    SHAPE -7.50% notes payable, due January 1999 .............           300             300
Current maturities............................................        (1,425)         (3,094)
                                                                   ---------      -----------
    Total long-term debt - other..............................       280,081         405,006
                                                                   ---------      ----------

    Total long-term debt......................................     $ 907,974      $1,032,846
                                                                   =========      ==========
</TABLE>

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

       IPL redeemed the $11.25 million, 5 5/8% Series in May 1997.

       The IPL Series 1991 note  provides for an interest  rate that varies with
the tax-exempt commercial paper rate. The IPL 1994A, 1995B, 1995C and 1996 notes
provide for an interest rate which varies with the tax-exempt  weekly rate. IPL,
at its option,  can change the interest rate mode for these notes to be based on
other  short-term  rates.  Additionally,  the IPL  variable  rate  notes  can be
converted into long-term  fixed interest rate  instruments by the issuance of an
IPL First  Mortgage  Bond.  The notes are  classified  as long-term  liabilities
because IPL maintains  long-term credit facilities  supporting these agreements,
which  were  unused at  December  31,  1998.  Energy  Resources'  1995  variable
long-term note due 2030 was issued to the Indiana  Development Finance Authority
and bears interest that varies with the tax-exempt weekly rate.

       IPALCO's Revolving Credit Facility (Revolver) was issued in April 1997 in
the  amount of $401  million.  The  proceeds  were used to  purchase,  through a
self-tender offer,  shares of IPALCO's  outstanding  common stock.  During 1998,
IPALCO replaced the Revolver with  commercial  paper by repaying the outstanding
balance of $234 million on the Revolver  through the issuance of $230 million in
commercial paper and a cash payment of $4 million. The Revolver currently has no
outstanding  balance but is available  for future  borrowings.  According to the
credit agreement, IPALCO could borrow up to $240.6 million until March 31, 2000,
at which point the funds available  decrease to $160.4  million.  The final step
down is for the  available  borrowings to decrease to $80.2 million on March 31,
2001, and will remain available until March 31, 2002.

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

                                     Interest Rate at
                                        December 31,
                                   1998              1997
------------------------------------------------------------

Series 1991                        3.48%             3.78%
Series 1994A                       3.56%             3.75%
Series 1995B                       5.21%             5.21%
Series 1995C                       3.54%             3.75%
Series 1996                        3.54%             3.75%
Energy Resources
  variable note                    3.65%             4.17%
IPALCO credit facilities           6.65%             6.65%

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

       In conjunction with the issuance of the Revolver,  IPALCO entered into an
interest  rate swap  agreement  which fixed the interest rate on $300 million of
the Revolver. Pursuant to the swap agreement which matures April 1, 2001, IPALCO
will pay  interest at a fixed rate of 6.3575% to a swap  counter  party and will
receive a variable rate of interest in return based on one month LIBOR.  Per the
swap  agreement,  in July 1998, the amount covered by the swap began  decreasing
$25 million each quarter.  The notional amount of the swap at December 31, 1998,
was $250  million.  This  interest  rate swap  agreement is  accounted  for on a
settlement basis. This interest rate swap is designated as a hedge of the IPALCO
commercial  paper facility and other variable rate debt  instruments.  IPALCO is
exposed to credit loss in the event of  nonperformance  by the  counterparty for
the net interest differential when floating rates exceed the fixed maximum rate.
However, IPALCO does not anticipate nonperformance by the counterparty.




       Maturities  on long-term  debt for the five years  subsequent to December
31, 1998, are as follows:

                                           Maturities
                                           ----------
                           Year                                Amount
                                                           (In Thousands)

                           1999...........................     $  1,425
                           2000...........................       38,982
                           2001...........................       83,477
                           2002...........................       83,650
                           2003...........................        3,761

8.  LINES OF CREDIT

       IPL has  committed  lines of credit with banks of $75 million at December
31, 1998,  to provide  loans for interim  financing  that require the payment of
commitment  fees.  These  lines of credit,  based on separate  agreements,  have
expiration  dates  ranging from February 1, 1999, to December 31, 1999. No lines
of credit were required to support  commercial  paper at December 31, 1998.  IPL
has a  Liquidity  facility  in the amount of $150  million  to  support  certain
floating-rate tax-exempt facilities (see Note 7).

       Mid-America has a $30 million line of credit that requires the payment of
a commitment fee. At December 31, 1998, $6 million was outstanding, $9.3 million
was committed as  collateral  for the Energy  Resources  variable note and $14.7
million was unused.

       The weighted average  interest rate on notes payable and commercial
paper outstanding was 6.09% and 6.58% at December 31, 1998 and 1997,
respectively.
<PAGE>

9.  INCOME TAXES

       Federal and state income taxes charged to income are as follows:
<TABLE>
<CAPTION>
 
                                                                        1998           1997           1996
-----------------------------------------------------------------------------------------------------------
                                                                                   (In Thousands)
Utility Operating Expenses:
  Current income taxes:
<S>                                                                     <C>            <C>            <C>    
    Federal.....................................................        $ 72,094       $ 64,553       $ 56,676
    State.......................................................          10,585          9,474          8,378
                                                                        --------       --------       --------
      Total current taxes.......................................          82,679         74,027         65,054
                                                                        --------       --------       --------

    Deferred federal income taxes...............................            (414)         1,444          6,507
    Deferred state income taxes.................................             715            803           (398)
                                                                        --------       --------       --------
      Total deferred  income taxes..............................             301          2,247          6,109
                                                                        --------       --------       --------

    Net amortization of investment credit.......................          (2,790)        (2,939)        (2,915)
                                                                        --------       --------       --------
      Total charge to utility operating expenses................          80,190         73,335         68,248
    Net credit to other income and deductions...................          (5,231)       (19,004)        (3,645)
                                                                        --------       --------       --------
                                                                          74,959         54,331         64,603
    Cumulative effect of change in accounting principle.........               -         11,209              -
                                                                        --------       --------       --------
      Total federal and state income tax provisions.............        $ 74,959       $ 65,540       $ 64,603
                                                                        ========       ========       ========
</TABLE>

       The provision for federal  income taxes  (including  net  investment  tax
credit  adjustments)  is less than the amount computed by applying the statutory
tax  rate to  pretax  income.  The  reasons  for  the  difference,  stated  as a
percentage of pretax income, are as follows:
                                                1998         1997         1996
-------------------------------------------------------------------------------
Federal statutory tax rate...................   35.0%        35.0%        35.0%
Effect of state income taxes.................   (1.8)        (2.1)        (1.5)
Amortization of investment tax credits.......   (1.3)        (1.6)        (1.6)
Preferred dividends of subsidiary............    0.5          0.2          0.6
Other - net..................................   (1.5)        (1.2)        (1.4)
                                                ----        -----        -----
  Effective tax rate.........................   30.9%        30.3%        31.1%
                                                ====         ====         ====

       The significant items comprising  Enterprises' net deferred tax liability
recognized in the consolidated balance sheets as of December 31, 1998, and 1997,
are as follows:
                                                  1998                1997
----------------------------------------------------------------------------
                                                        (In Thousands)
Deferred tax liabilities:
     Relating to utility property.............    $412,922          $405,164
     Other....................................      16,542            16,520
                                                  --------         ---------
         Total deferred tax liabilities.......     429,464           421,684
                                                  --------         ---------
Deferred tax assets:
     Relating to utility property.............      44,444            40,731
     Investment tax credit....................      25,547            27,251
     Employee benefit plans...................      24,767            22,455
     Other....................................      16,271            16,197
                                                  --------         ---------
         Total deferred tax assets............     111,029           106,634
                                                  --------         ---------
Net deferred tax liability....................     318,435           315,050
       Current deferred tax liability.........         108               181
                                                  --------         ---------
Deferred income taxes - net...................    $318,327          $314,869
                                                  ========         =========

10.  RATE MATTERS

       Electric Rate Settlement  Agreement:  On August 24, 1995, the IURC issued
an order  approving  without  amendment a Stipulation  and Settlement  Agreement
(Settlement  Agreement)  resolving  all  issues in IPL's then  pending  electric
general  rate  proceeding.  As provided  for by the  Settlement  Agreement,  IPL
increased its basic rates and charges for retail  electric  service in two steps
designed  to provide  increased  annual  revenues of $35 million and $25 million
during 1995 and 1996,  respectively.  Effective with the  implementation  of new
tariffs  in  Step  1,  IPL was  authorized  to  begin  amortization  of  certain
regulatory  assets.   Additionally,   IPL's  existing  depreciation  rates  were
reapproved.

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

       Steam Rate Order: By an order dated January 13, 1993, the IURC authorized
IPL to increase its steam system rates and charges over a six-year  period.  The
final increase  associated  with this order took effect on January 13, 1998, and
authorized  IPL to  increase  rates by an  estimated  cumulative  amount of $9.9
million in additional annual operating revenues.

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

       Elect  Plan:  During  1998,  the IURC  approved  a plan that  allows  IPL
customers  with less than 2,000  kilowatts of demand,  an  opportunity to choose
optional  service or payment plans.  This includes a green power option, a fixed
rate per unit of  consumption  option and a fixed  bill  option.  Customers  not
choosing  one of these  options  continue  to  receive  electric  service  under
existing tariffs.


<PAGE>

11.  PENSIONS AND OTHER POSTRETIREMENT BENEFITS
<TABLE>
<CAPTION>

                                                          Pension Benefits                 Other Benefits
                                                      ------------------------       --------------------------
                                                          1998          1997              1998          1997
                                                          ----          ----              ----          ----
                                                                            
(In Thousands)
Change in Benefit Obligation
<S>                                                     <C>           <C>                <C>           <C>     
Benefit obligation at beginning year                    $254,540      $229,936           $136,705      $147,044
Service cost                                               5,535         5,708              3,557         4,021
Interest cost                                             18,021        16,873              9,972        11,135
Actuarial (gain) loss                                     12,740         7,436              5,204       (21,209)
Amendments                                                (1,408)        6,083                  -             -
Benefits paid                                            (12,790)      (11,496)            (5,677)       (4,286)
                                                        --------      --------           --------      --------
Benefit obligation at end of year                        276,638       254,540            149,761       136,705
                                                        --------      --------           --------      --------


Change in plan assets
Fair value of plan assets
   at beginning of year                                  262,126       235,250             68,688        49,852
Actual return on plan assets                              37,179        37,813             11,332          (314)
Employer contribution                                      4,254           559             19,092        23,436
Benefits paid                                            (12,789)      (11,496)            (5,677)       (4,286)
                                                        --------      --------           --------      --------
Fair value of plan assets at end of year                 290,770       262,126             93,435        68,688
                                                        --------      --------           --------      --------

                                                          14,132         7,586            (56,326)      (68,017)
Funded status

Unrecognized net gain                                    (55,065)      (47,250)           (40,121)      (40,927)
Unrecognized prior service cost                           15,871        13,056                  -             -
Unrecognized net transition (asset) obligation            (9,755)      (11,169)            85,679        91,800
Adjustment to recognize minimum liability                 (5,136)       (2,044)                 -             -
                                                        --------      --------           --------      --------
                                                                                                             
Accrued benefit cost                                    $(39,953)     $(39,821)          $(10,768)     $(17,144)
                                                        ========      ========           ========      ========


Weighted-average assumptions as of
   December 31
Discount rate                                              7.00%         7.25%              7.00%         7.25%
Expected return on plan assets                             9.00%         8.00%              8.00%         8.00%
Rate of compensation increase                              5.10%         5.10%              5.10%         5.10%

</TABLE>

       For  measurement  purposes,  a 7.4%  annual  rate of  increase in the per
capita cost of covered  health care  benefits was assumed for 1999.  The year in
which the  ultimate  health  care cost  trend rate of 4.5% will be  achieved  is
assumed to be 2003.


<PAGE>
<TABLE>
<CAPTION>


                                                        Pension Benefits                           Other Benefits
                                              --------------------------------------   -------------------------------------
(In Thousands)                                       1998        1997         1996            1998        1997        1996
                                                     ----        ----         ----            ----        ----        ----

Components of net periodic
   benefit cost
<S>                                               <C>          <C>         <C>             <C>         <C>         <C>     
Service cost                                      $ 10,617     $  6,584    $  6,482        $  3,557    $  4,021    $  3,969
Interest cost                                       18,021       16,873      16,335           9,972      11,135      10,494
Expected return on plan assets                     (20,426)     (18,344)    (17,206)         (5,278)     (3,780)     (2,214)
Amortization of transition (asset) obligation       (1,414)      (1,414)     (1,414)          6,120       6,120       6,120
Amortization of prior service cost                   1,124        1,159       1,641               -           -           -
Recognized actuarial gain                           (1,545)        (910)       (570)         (1,656)       (551)       (406)
                                                  --------     --------    --------        --------    --------    --------
Net periodic benefit cost                            6,377        3,948       5,268          12,715      16,945      17,963
  Less: amounts capitalized                            339          621       1,061           1,924       2,930       3,511
                                                  --------     --------    --------        --------    --------    --------
Amount charged to expense                         $  6,038     $  3,327    $  4,207        $ 10,791    $ 14,015    $ 14,452
                                                  ========     ========    ========        ========    ========    ========
</TABLE>

       Assumed  health  care cost trend rates have a  significant  effect on the
amounts  reported for the health care plans.  A one  percentage-point  change in
assumed health care cost trend rates would have the following effects:

                                               One-Percentage-   One Percentage-
(In Thousands)                                 Point Increase    Point Decrease
                                               --------------     --------------
Effect on total of service and interest cost
   components                                      $  1,779          $ (1,779)
Effect on postretirement benefit obligation          16,560           (16,560)

12.  COMMITMENTS AND CONTINGENCIES

       In 1999, Enterprises anticipates the cost of its construction programs to
be approximately $98 million.

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

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

13.  GAIN ON TERMINATION OF AGREEMENT

       During  September  1998,  a pretax gain of $12.5  million  ($7.8  million
after-tax)  resulted from the  liquidation  and  termination  of an agreement to
purchase up to 150 megawatts of power during the summer months  through the year
2000.  IPL plans to replace  this supply  resource  and is  considering  several
alternatives.

14.  SUBSEQUENT EVENT

       On  February  23,  1999,  the  IPALCO  Board of  Directors  authorized  a
two-for-one  stock split of IPALCO's  common stock issuable to  shareholders  of
record on March 5, 1999. All references to share amounts of common stock and per
share information have been restated to reflect the stock split.


<PAGE>

15.  QUARTERLY RESULTS (UNAUDITED)

       Operating  results for the years ended  December 31, 1998,  and 1997,  by
quarter, are as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>

                                                                             1998
                                                ----------------------------------------------------------------
                                                March 31            June 30      September 30        December 31
                                                --------            -------      ------------        -----------

<S>                                               <C>              <C>               <C>              <C>     
Utility operating revenues.................       $190,321         $206,706          $222,028         $202,201
Utility operating income...................       $ 40,142         $ 49,198          $ 51,665         $ 38,506
Net income.................................       $ 25,337         $ 35,809          $ 47,299         $ 21,674

Weighted average shares....................         89,678           89,848            89,908           90,482
Basic earnings per share...................       $    .28         $    .40          $    .53         $    .24
Weighted average diluted shares............         91,022           91,198            91,210           91,678
Diluted earnings per share.................       $    .28         $    .39          $    .52         $    .24


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

Utility operating revenues.................       $195,299         $183,777          $203,872         $193,479
Utility operating income...................       $ 44,534         $ 39,092          $ 48,820         $ 34,869
Income   before cumulative effect
  of accounting change.....................       $ 33,048         $ 24,189          $ 33,415         $  5,047
Cumulative effect of
  accounting change........................       $ 18,347                -                 -                -
Net income.................................       $ 51,395         $ 24,189          $ 33,415         $  5,047

Weighted average shares....................        114,074           91,014            89,164           89,282
Basic earnings per share...................       $    .45         $    .27          $    .37         $    .06
Weighted average diluted shares............        114,408           91,446            89,732           90,232
Diluted earnings per share.................       $    .45         $    .26          $    .37         $    .06

</TABLE>

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

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

       Earnings  per share are computed  independently  for each of the quarters
presented.  Therefore, the sum of the quarterly earnings per share may not equal
the total for the year.


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

              None.


                                    PART III
                                    --------



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

                  Information  relating to the directors of the registrant,  set
                  forth in the Proxy Statement of IPALCO Enterprises, Inc. dated
                  March 15, 1999,  (the  registrant's  Proxy  Statement),  under
                  "Proposal  1-Election  of  Six  Directors"  at  pages  4-6  is
                  incorporated herein by reference.  Information relating to the
                  registrant's  executive  officers  is set forth at pages I-9 -
                  I-10  of this  Form  10-K  under  "Executive  Officers  of the
                  Registrant at February 23, 1999."

                  Information  relating to Section  16(a)  Beneficial  Ownership
                  Reporting  Compliance,  set  forth in the  registrant's  Proxy
                  Statement at page 3 is incorporated herein by reference.

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

                  Information relating to executive  compensation,  set forth in
                  the  registrant's  Proxy  Statement  under   "Compensation  of
                  Executive   Officers"   at  pages  12-14,   "Compensation   of
                  Directors" at page 8, "Compensation  Committee  Interlocks and
                  Insider Participation" at page 8, "Pensions Plans" at page 16,
                  and  "Employment  Contracts and  Termination of Employment and
                  Change in Control  Arrangements"  at page 17, is  incorporated
                  herein by reference.

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

                  Information  relating to ownership of the registrant's  common
                  stock by persons known by the  registrant to be the beneficial
                  owners  of more  than 5% of the  outstanding  shares of common
                  stock and by management,  set forth in the registrant's  Proxy
                  Statement under "Voting  Securities and Beneficial  Owners" at
                  pages 2-3 is incorporated herein by reference.

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

                  Information  relating  to certain  relationships  and  related
                  transactions,  set forth in the  registrant's  Proxy Statement
                  under  "Certain   Business   Relationships"   at  page  8,  is
                  incorporated herein by reference.

                                     PART IV

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

                   (a)   The  Consolidated  Financial  Statements  under  this
                         Item 14 (a) 1 filed in this Form 10-K are those of
                         IPALCO Enterprises, Inc. and subsidiaries.

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

                                Included in Part II of this report:

                                   Independent Auditors' Report

                                   Statements of Consolidated Income for the
                                    Years Ended December 31, 1998, 1997 and 1996

                                   Consolidated Balance Sheets, December 31,
                                    1998 and 1997

                                   Statements of Consolidated Cash Flows
                                    for the Years Ended December 31, 1998, 1997
                                    and 1996

                                   Statements of Consolidated Common
                                    Shareholders'  Equity  for the Years  Ended
                                    December 31, 1998, 1997 and 1996

                                   Notes to Consolidated Financial Statements

                         2.  Exhibits
                             --------

                                   The Exhibit  Index  beginning on page IV-5 of
                            this Annual  Report on Form 10-K lists the  exhibits
                            that are filed as part of this report.

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

                                 None

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

                         None
<PAGE>
<TABLE>
<CAPTION>

                                            IPALCO ENTERPRISES, INC.                      EXHIBIT 11.1
                                                                                                      
                                       Computation of Per Share Earnings

                              For the Years Ended December 31, 1998, 1997 and 1996
                                             (Dollars in Thousands)


YEAR ENDED DECEMBER 31, 1998:
                                                                                 Basic               Diluted
                                                                             ---------------      ---------------
Weighted average number of shares
<S>                                                                          <C>                  <C>       
        Average common shares outstanding at December 31, 1998                   89,979,192           89,979,192
        Dilutive effect for stock options at December 31, 1998                           -             1,297,978
                                                                             ---------------      ---------------
        Adjusted weighted average shares at December 31, 1998                    89,979,192           91,277,170
                                                                             ===============      ===============

Net income to be used to compute
   diluted earnings per share
       Net income                                                                  $130,119             $130,119
                                                                             ===============      ===============

Earnings per share                                                                    $1.45                $1.43
                                                                             ===============      ===============


YEAR ENDED DECEMBER 31, 1997:
                                                                                 Basic               Diluted
                                                                             ---------------      ---------------
Weighted average number of shares
        Average common shares outstanding at December 31, 1997                   95,883,514           95,883,514
        Dilutive effect for stock options at December 31, 1997                           -               571,166
                                                                             ---------------      ---------------
        Adjusted weighted average shares at December 31, 1997                    95,883,514           96,454,680
                                                                             ===============      ===============

Net income to be used to compute
   diluted earnings per share
       Income before cumulative effect of accounting change                         $95,699              $95,699
       Cumulative effect of accounting change                                        18,347               18,347
                                                                             ---------------      ---------------
       Net income                                                                  $114,046             $114,046
                                                                             ===============      ===============

Income before cumulative effect of accounting change                                  $1.00                $0.99
Cumulative effect of accounting change                                                  .19                  .19
                                                                             ---------------      ---------------
Earnings per share                                                                    $1.19                $1.18
                                                                             ===============      ===============


YEAR ENDED DECEMBER 31, 1996:
                                                                                 Basic               Diluted
                                                                             ---------------      ---------------
Weighted average number of shares
        Average common shares outstanding at December 31, 1996                  113,848,822          113,848,822
        Dilutive effect for stock options at December 31, 1996                           -               232,740
                                                                             ---------------      ---------------
        Adjusted weighted average shares at December 31, 1996                   113,848,822          114,081,562
                                                                             ===============      ===============

Net income to be used to compute
   diluted earnings per share
       Net Income                                                                  $114,275             $114,275
                                                                             ===============      ===============

Earnings per share                                                                    $1.00                $1.00
                                                                             ===============      ===============


Per share  amounts  and the number of shares  have been  adjusted to reflect the
two-for-one  stock split as  described  in Note 14 in the Notes to  Consolidated
Financial Statements.

</TABLE>


                       

                                   SIGNATURES
                                   ----------

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

                                          IPALCO ENTERPRISES, INC.

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

Date:  February 23, 1999
       -----------------


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

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

  (i) Principal Executive Officer:


 /s/ John R. Hodowal             Chairman of the Board and    February 23, 1999
------------------------------           President
  (John R. Hodowal)                         


 (ii) Principal Financial Officer:


 /s/ John R. Brehm               Vice President and           February 23, 1999
-------------------------------          Treasurer
  (John R. Brehm)


(iii) Principal Accounting Officer:


/s/ Stephen J. Plunkett          Controller                   February 23, 1999
-------------------------------
 (Stephen J. Plunkett)


 (iv) A majority of the Board of Directors of IPALCO Enterprises, Inc.:


 /s/ Joseph D. Barnett, Jr.             Director           February 23, 1999
------------------------------
 (Joseph D. Barnett, Jr.)

                         
 /s/ Robert A. Borns                    Director           February 23, 1999
------------------------------
 (Robert A. Borns)


 /s/ Mitchell E. Daniels, Jr.           Director           February 23, 1999
------------------------------
 (Mitchell E. Daniels, Jr.)


 /s/ Rexford C. Early                   Director           February 23, 1999
------------------------------
 (Rexford C. Early)


 /s/ Otto N. Frenzel III                Director           February 23, 1999
------------------------------
 (Otto N. Frenzel III)


 /s/ Max L. Gibson                      Director           February 23, 1999
------------------------------
 (Max L. Gibson)


 /s/ John R. Hodowal                    Director           February 23, 1999
------------------------------
 (John R. Hodowal)


 /s/ Andre B. Lacy                      Director           February 23, 1999
------------------------------
 (Andre B. Lacy)


 /s/ Michael S. Maurer                  Director           February 23, 1999
------------------------------
 (Michael S. Maurer)


 /s/ Andrew J. Paine, Jr.               Director           February 23, 1999
------------------------------
 (Andrew J. Paine, Jr.)


 /s/ Sallie W. Rowland                  Director           February 23, 1999
------------------------------
 (Sallie W. Rowland)


 /s/ Thomas H. Sams                     Director           February 23, 1999
------------------------------
 (Thomas H. Sams)

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

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

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

3.1*   Articles of  Incorporation  of IPALCO  Enterprises,  Inc.,  as amended.
        (Exhibit  3.1 to the Form 10-Q dated 6-30-97.)

3.2    Bylaws of IPALCO Enterprises, Inc.

4.1*   IPALCO  PowerInvest  Dividend  Reinvestment  and Direct Stock Purchase 
        Plan.  (Exhibit 4.1 to the Form 10-Q dated 9-30-96.)

4.2*   IPALCO  Enterprises,  Inc.  and  First  Chicago  Trust  Company  of New
         York  (Rights  Agent) - Rights Agreement, as amended and restated.
         (Exhibit B to the Form 8-K dated 4-29-98.)

10.1   IPALCO  Enterprises,  Inc. and Indianapolis  Power & Light Company 
         Unfunded Deferred  Compensation Plan for Officers and Directors as
         amended and restated January 1, 1999.  **

10.2   Directors' and Officers'  Liability  Insurance Policy No. DO392B1A97 
         effective June 1, 1998 to June 1, 1999.  **

10.3*  IPALCO  Enterprises,  Inc.  Benefit  Protection  Fund and Trust Agreement
         effective  November 1, 1988. (Form 10-K for year ended 12-31-88.)  **

10.4*  Exhibit A to IPALCO  Enterprises,  Inc.  Benefit  Protection  Fund and
         Trust Agreement dated January 1, 1998.   (Exhibit 10.5 to the Form 10-K
         dated 12-31-97.)  **

10.5*  IPALCO  Enterprises,  Inc. Annual Incentive Plan and  Administrative
         Guidelines  effective  January 1, 1990.  (Form 10-K for year ended
         12-31-89.)  **

10.6*  IPALCO  Enterprises,  Inc.  Long-Term  Performance and Restricted  Stock
         Incentive Plan (as amended and restated effective January 1, 1998).
         (Exhibit 10.1 to the Form 10-Q dated 3-31-98.)  **

10.7*  IPALCO Enterprises, Inc. 1990 Stock Option Plan.  (Exhibit 10.8 to the
         Form 10-K dated 12-31-94.)  **

10.8*  IPALCO  Enterprises,  Inc.  1991  Directors'  Stock Option Plan.(Exhibit
         10.9 to the Form 10-K dated 12-31-94.)  **

10.9*  IPALCO Enterprises, Inc. 1997 Stock Option Plan. (Exhibit 10.1 to the
         Form 10-Q dated 6-30-97.)**

10.10* Form of  Termination  Benefits  Agreement  together  with  schedule  of
         parties  to, and dates of, the Termination Benefits Agreements.
         (Exhibit 10.1 to the Form 10-Q dated 6-30-98.)  **

10.11* Employment Agreement between IPALCO Enterprises,  Inc.,  Indianapolis
        Power & Light Company and John R. Hodowal dated July 29, 1986. 
        (Exhibit 10.11 to the Form 10-K dated 12-31-94.)  **

10.12* Voluntary  Employee  Beneficiary  Association  (VEBA) Trust Agreement.
        (Exhibit 10.12 to the Form 10-K dated 12-31-94.)  **

11.1   Computation of Per Share Earnings.

20.1*  Form 10-K of Indianapolis  Power & Light Company for the year ended
        December 31, 1998, and all exhibits thereto.  (SEC File No. 1-3132-2.)

21.1*  Subsidiaries of the Registrant.  (Exhibit 21.1 to the Form 10-K dated
         12-31-97.)

23.1   Independent Auditors' Consent.

27.1   Financial Data Schedule.