FORM 10-K

                       SECURlTlES AND EXCHANGE COMMlSSlON
                             WASHINGTON, D. C. 20549

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

   For the fiscal year ended
       December 31, 1997                   Commission File Number  1-8644

                            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. (X)

As of January 31, 1998, the aggregate market value of the voting stock held
by  non-affiliates of the registrant was: $1,635,286,835 based on the average
of the high and low price of the common stock on such date.  As of
January 31, 1998, there were 44,863,302 shares 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 15, 1998, are incorporated by
reference into Part III of this Report.

<PAGE>


                                  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.  It
has 14 employees.  IPALCO 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.

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.  Existing Indiana law provides for
electricity suppliers to have an exclusive retail service area.

       IPL's business is not dependent on any single  customer or group of a few
customers. IPL's historical retail sales to ultimate consumers for 1993-1997 are
depicted at page I-5.

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

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

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

REGULATION

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

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

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

RETAIL RATEMAKING

       IPL's tariffs for electric and steam service to retail  customers  (basic
rates and charges) are set and approved by the IURC after public hearings.  Such
proceedings,  which have occurred at irregular intervals, involve IPL, the staff
of the IURC, the Office of the Indiana Utility  Consumer  Counselor,  as well as
other interested consumer groups and IPL customers.  In Indiana, basic rates and
charges are determined after giving  consideration,  on a proforma basis, to all
allowable  costs for  ratemaking  purposes  including  a fair return on the fair
value of the utility property dedicated to providing service to customers.  Once
set, the basic rates and charges  authorized do not assure the  realization of a
fair return on the fair value of  property.  Other  numerous  factors  including
weather,  inflation,  customer growth and usage, the level of actual maintenance
and capital  expenditures and IURC restrictions on the level of operating income
can  impact the  return  realized.  Substantially  all of IPL's  retail  tariffs
provide for the monthly  billing or  crediting  to  customers  of  increases  or
decreases,  respectively,  in the actual costs of fuel consumed  from  estimated
fuel costs  embedded in base  tariffs.  Additionally,  all such  retail  tariffs
provide for billing of "lost revenue margins" on estimated  kilowatt-hour  (KWH)
sales reductions along with current and deferred costs resulting from IPL's 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.   Upon  deregulation,   adjustments  to  IPL's
accounting  records  may be  required  to  eliminate  the  historical  impact of
regulatory accounting.  Such adjustments,  as required by Statement of Financial
Accounting Standards No. 101 (SFAS 101), "Regulated Enterprises - Accounting for
the  Discontinuation  of Application of FASB Statement No. 71," would  eliminate
the "effects of any actions of  regulators  that have been  recognized as assets
and  liabilities...."  Required  adjustments  could  include  expensing  of  any
unamortized net regulatory assets,  elimination of certain tax liabilities and a
write down of any impaired utility plant balances.  IPL does not expect to be in
a position to be required to adopt SFAS 101 in the near term and accordingly has
not attempted to estimate the impact of adopting SFAS 101.
<PAGE>

FUEL

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

       IPL's  long-term  coal  contracts  provide  for the  supply  of the major
portion of its burn  requirements  through  the year 1999.  The  long-term  coal
agreements are with three  suppliers and the coal is mined entirely in the state
of Indiana. See Exhibits listed under Part IV Item 14(a)2 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.

EMPLOYEE RELATIONS

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

DISPOSITION OF ASSETS

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

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

GENERAL

       Mid-America,  the  holding  company  for the  unregulated  activities  of
IPALCO, has as subsidiaries  Indianapolis  Campus Energy, Inc. (ICE), Store Heat
And Produce  Energy,  Inc.,  which conducts  business as SHAPE Energy  Resources
(SHAPE),  Cleveland Thermal Energy Corporation  (Cleveland  Thermal),  Cleveland
District  Cooling   Corporation   (Cleveland  Cooling)  and  Mid-America  Energy
Resources, Inc. (Energy Resources). Energy Resources operates a district cooling
system in downtown Indianapolis, Indiana.

       Cleveland Thermal owns and operates a district heating system in downtown
Cleveland,  Ohio.  Cleveland Cooling owns and operates a district cooling system
also located in downtown Cleveland. Operations at Cleveland Cooling commenced in
April 1993, and the system became fully  subscribed  during 1996. Both Cleveland
Thermal and Cleveland  Cooling jointly conduct business under the name Cleveland
Energy Resources.

       At December 31, 1997,  Mid-America held 80% of the common stock of SHAPE.
SHAPE conducts research and development of energy storage technology.
<PAGE>

       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. This chilled water facility,  located near Morris Street
and Kentucky  Avenue in Indianapolis  began providing  chilled water to Lilly in
1996.

EMPLOYEES

       As of  December  31,  1997,  Mid-America  and  its  subsidiaries  had  93
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 Thousands):       1997 (1)             1996                1995                1994                1993
----------------------------------------------------    ---------------     ---------------     ---------------     ---------------
<S>                                 <C>                 <C>                 <C>                 <C>                 <C>           
  Residential                       $       261,832     $      261,819      $      243,055      $      230,805      $      225,138
  Small industrial and commercial           125,998            132,361             130,780             129,346             127,551
  Large industrial and commercial           306,761            298,720             275,803             266,703             255,945
  Public lighting                             8,457              8,147               7,598               6,949               7,186
  Miscellaneous                              12,050              9,264               8,289               7,186               7,373
                                    ----------------    ---------------     ---------------     ---------------     ---------------
    Revenues - ultimate consumers           715,098            710,311             665,525             640,989             623,193
  Sales for resale - REMC                     1,082              1,141               1,105               1,098                 897
  Sales for resale - other                   21,954             13,312               6,758               7,680               5,237
                                    ----------------    ---------------     ---------------     ---------------     ---------------
      Total electric revenues       $       738,134     $      724,764      $      673,388      $      649,767      $      629,327
                                    ================    ===============     ===============     ===============     ===============

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

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

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

</TABLE>
<PAGE>


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

IPL

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

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

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

       Total Electric Stations:

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

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

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

       Combination Electric and Steam Station:

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

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

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

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

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

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

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

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
five 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.

       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  Mid-America  property  is  subject to the lien of
existing debt and/or credit agreements of Mid-America, Energy Resources and ICE.
<PAGE>


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

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


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

       None

<PAGE>



EXECUTIVE OFFICERS OF THE REGISTRANT AT FEBRUARY 24, 1998.

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

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

Ramon L. Humke (65)
  Vice Chairman of IPALCO                     May, 1991
  President and Chief Operating
    Officer of IPL                            February, 1990

John R. Brehm (44)
  Vice President and Treasurer
    of IPALCO                                 May, 1989
  Senior Vice President -
    Finance and Information
    Services of IPL                           May, 1991

N. Stuart Grauel (53)
  Vice President - Public Affairs
    of IPALCO                                 May, 1991

Joseph A. Gustin (50)
  President of Mid-America                    December, 1994
  President of ICE                            April, 1993
  President of Energy Resources               May, 1991
  Vice President of SHAPE                     May, 1993          January, 1995
  Vice President of Mid-America               May, 1991          December, 1994

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

Bryan G. Tabler (54)
  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

Gerald D. Waltz (58)
  Senior Vice President -
    Electric Delivery of IPL                  May, 1996
  Senior Vice President -
    Business Development of IPL               May, 1991          May, 1996
                                              
Paul S. Mannweiler (48)
  Senior Vice President -
    External Affairs of IPL                   January, 1997
  Partner, Locke Reynolds Boyd and Weisell    July, 1980         December,1996

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

Michael P. Holstein (40)
  Vice President - Corporate
    Strategy and Marketing                    April, 1996
  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 (39)
  Assistant Treasurer of IPALCO               May, 1993
  Treasurer of IPL                            December, 1992

Stephen J. Plunkett (49)
  Controller of IPALCO
    and IPL                                   May, 1991

<PAGE>
                                     PART II
                                     -------

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

        On February 25, 1997, IPALCO's Board of Directors (Board) authorized the
repurchase of up to 12 million shares of IPALCO's  common stock through a "Dutch
Auction" self-tender offer. On March 27, the Dutch Auction ended with 12,539,428
shares of common stock having been  tendered to the Company and not withdrawn at
or below $32 dollars per share. The Board  subsequently  elected to purchase all
shares  tendered  at or below $32 per share for $32 per  share.  All  12,539,428
shares remain in Treasury stock.

         IPALCO reduced dividends paid during 1997 compared to the previous year
to  be  more  consistent  with  companies   operating  today  in  a  competitive
environment.   This   policy   was   established   at  the  same   time  as  the
recapitalization described above.

       At December 31, 1997, IPALCO had 20,862 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 1997 and 1996 as reported on the Composite Tape in
The Wall Street Journal were as follows:
    ---- ------ -------
                            1997                             1996
                 ----------------------------     ---------------------------
                     High           Low               High           Low
                  Sale Price     Sale Price        Sale Price     Sale Price
First Quarter     $32 5/8         $26 1/2           $27 3/8        $25
Second Quarter     32              29 3/8            26 3/4         24 5/8
Third Quarter      34 1/2          30 13/16          27 5/8         25 1/8
Fourth Quarter     42 5/16         32 5/8            28 1/4         26 1/8

       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, 1998,
through February 20, 1998, were: High - $43 9/16, Low - $39 13/16.

       Quarterly dividends paid on the common stock during 1997 and 1996 were as
               follows:

                                  1997                1996
                                  ----                ----
    First Quarter                 $.37                $.36
    Second Quarter                 .25                 .37
    Third Quarter                  .25                 .37
    Fourth Quarter                 .25                 .37

       At its  meeting  on  February  24,  1998,  the Board  declared  a regular
quarterly dividend on common stock of $.275 per share, payable April 15, 1998,
to shareholders of record on March 20, 1998.

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, 1997,  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)            1997             1996            1995             1994             1993
---------------------------------------
                                             ---------------  --------------   --------------   --------------   --------------

<S>                                          <C>              <C>              <C>              <C>              <C>          
Total utility operating revenues (1)         $      776,427   $     762,503    $     709,206    $     686,076    $     664,303
Utility operating income                            167,315         163,219          147,588          143,310          142,368
Allowance for funds used during
  construction                                        4,407           9,321           11,370            9,381            5,527
Income before cumulative effect of
  accounting change                                  95,699         114,275           98,778           92,994           75,422
Cumulative effect of accounting change (1)           18,347               -                -                -                -
Net income (2)                                      114,046         114,275           98,778           92,994           75,422
Utility plant - net                               1,766,383       1,787,969        1,792,007        1,711,772        1,608,871
Total assets                                      2,154,349       2,183,069        2,231,197        2,099,361        1,966,023
Common shareholders' equity                         526,129         857,726          822,803          801,945          787,211
Cumulative preferred stock of subsidiary              9,135          51,898           51,898           51,898           51,898
Long-term debt (less current
  maturities and sinking
  fund requirements)                              1,032,846         662,591          698,600          665,971          541,760
Utility construction expenditures                    73,130          78,543          166,874          178,295          145,765
Nonutility construction expenditures                  1,569           4,187           34,745            9,402            8,788

BASIC EARNINGS PER SHARE (3)
Income before cumulative effect of
  accounting change                                    2.00            2.01             1.74             1.64             1.33
Cumulative effect of accounting change (1)              .38               -                -                -                -
Net Income (2,4)                                       2.38            2.01             1.74             1.64             1.33

DILUTED EARNINGS PER SHARE (3)
Income before cumulative effect of
  accounting change                                    1.98            2.00             1.74             1.64             1.33
Cumulative effect of accounting change (1)              .38               -                -                -                -
Net Income (2,4)                                       2.36            2.00             1.74             1.64             1.33

Dividends declared per share of
  common stock (4)                                     1.00            1.48             1.44             1.41             1.36

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) During 1993,  IPALCO  incurred a one-time  charge against  earnings of $21.1
    million,  net of income taxes,  for costs  pertaining to IPALCO's efforts to
    acquire PSI Resources, Inc.
(3) See Note 6 in the Notes to Consolidated Financial Statements
(4) Per share  amounts for 1993 through  1995 have been  adjusted to reflect the
    3-for-2 common stock split issued in March 1996.

</TABLE>
<PAGE>

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

     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.
Mid-America is the holding company for the unregulated activities of IPALCO. IPL
represents the regulated subsidiary.

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),  IPALCO  Enterprises,  Inc. and
subsidiaries (collectively,  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.  Many of these  statements are
contained in this Item 7 under the IPALCO section entitled "Recapitalization and
Dividend Change," and the IPL section entitled "Future  Performance." The Reform
Act defines forward-looking statements as statements that express an expectation
or belief and contain a  projection,  plan or  assumption  with regard to, among
other things, future revenues,  income, earnings per share or capital structure.
Such  statements of future events or  performance  are not  guarantees of future
performance  and  involve  estimates,  assumptions,  and  uncertainties  and are
qualified  in their  entirety  by  reference  to,  and are  accompanied  by, the
following  important  factors that could cause  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 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  impact  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.

LIQUIDITY AND CAPITAL RESOURCES

IPALCO
------

                      Recapitalization and Dividend Change
                      ------------------------------------

       On February  25, 1997,  the Board of  Directors of IPALCO  approved a new
financial strategy designed to maximize shareholder value and position it for an
increasingly competitive business environment.
<PAGE>

The plan included:

      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.  The leveraged  recapitalization
     was  accomplished  through a  self-tender  offer  (Offer)  resulting in the
     purchase  of  12,539,428   shares,   representing  about  21%  of  IPALCO's
     outstanding  common stock. The Offer was effected through a "Dutch Auction"
     which resulted in a price of $32.00 per share. The transaction was financed
     through the issuance of long-term  debt in the amount of $401 million.  The
     recapitalization  was effected by the parent company,  IPALCO  Enterprises,
     Inc. and did not affect the capitalization of its subsidiaries.

      A reduced quarterly  dividend of $.25 per share ($1.00 annually)  compared
     to the previous $.37 per share ($1.48  annually).  Future  dividend  action
     will be guided by, among other  factors,  a policy of paying out 45% to 50%
     of the prior year's earnings.

      A target consolidated  maximum  debt-to-capital  ratio of 45% which IPALCO
      believes can be achieved on or before 2002.

       Reducing the common  stock  dividend  rate  improves  IPALCO's  financial
flexibility  going forward.  A dividend payout ratio of 45% to 50% of prior year
earnings is more  consistent  with  companies  operating  today in a competitive
environment compared to the  traditional  utility  payout ratio of 70% or more.
IPALCO increased the quarterly dividend declared to an amount of $.275 per share
($1.10 annually) on February 24, 1998, compared to $.25 per quarter 
($1.00 annually) in 1997.  The  declaration and payment of future dividends will
be  dependent on IPALCO's earnings and financial condition, economic and market
conditions and other factors deemed relevant by the Board.

       IPALCO  incurred  $401 million of debt in  connection  with the Offer.  A
reduction in common  shareholders'  equity  resulted from  purchasing the common
stock  according to the Offer and when  combined with the newly  incurred  debt,
increased  IPALCO's  debt-to-capital  ratio from 42.6% at  December  31, 1996 to
65.9% at December 31, 1997. IPALCO believes that, in a competitive environment a
target  debt-to-total  capital ratio of 45% is appropriate.  During 1997, IPALCO
reduced  the  original  debt  amount  by  a  net  $78  million,  resulting  in a
recapitalization  debt balance of $323  million at December  31,  1997.  Per the
credit  agreement,  $80.2  million  was due to mature in each of the years 1998,
1999,  2000,  2001 and 2002. As a result of payments made during 1997, only $2.2
million remains due on the March 31, 1998, anniversary date. IPALCO believes its
earnings  and cash flow will be  sufficient  to allow it to retain  earnings and
reduce  debt so that a target  ratio of 45% can be  achieved  on or  before  the
predicted  2002 date.  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.

       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 also a key element for having
adequate liquidity and financial flexibility.  As of December 31, 1997, IPALCO's
credit rating was A+ as rated by Standard & Poor's.
<PAGE>

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).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

IPALCO's Position on Industry Deregulation
------------------------------------------

       In general,  the  foregoing  FERC  wholesale  and  state-by-state  retail
initiatives  are  inconsistent  with  IPALCO  beliefs.   IPALCO  favors  federal
legislation  to  deregulate  the industry for all  companies  and all  customers
across  the  country  at  the  same  time.   IPALCO   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.  IPALCO
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,  IPALCO  believes  state  policy  makers must
recognize and make allowances for the distorted  markets that will inevitably be
created by state-by-state approaches.

       There can be no  assurance  as to the  outcome of the debate on  electric
utility industry restructuring. IPALCO 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
promulgated  final  regulations  which amended the National  Ambient Air Quality
Standards by introducing  standards for fine particulate matter and creating new
ozone  standards.  Existing  sources that cause or contribute  to  nonattainment
regions will likely be subject to additional regulatory requirements,  including
possible emission reductions.  New facilities in nonattainment areas may also be
subject to additional  control  requirements and may be required to offset their
emissions.   Because  power  plants  emit  certain  air  pollutants  that  could
contribute to the formation of ambient ozone and fine particulate matter,  there
is a possibility  that  existing IPL sources will be required to be  retrofitted
with additional air pollution controls in the future. Congressional intervention
and/or   litigation   regarding  the  standards  are  probable.   Due  to  these
uncertainties,  it is not presently  possible to predict the  potential  impacts
associated with implementation of these standards on IPL's facilities.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      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,  is a one-time  income  increase of $18.3 million ($.38 per common
share) and is  reported  as a separate  component  of net income for 1997.  This
accounting  change does not impact IPL's cash flow or  liquidity  (see Note 3 of
Notes to Consolidated Financial Statements for additional information concerning
this accounting change).

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

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

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

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

       Mid-America,  the  holding  company  for the  unregulated  activities  of
IPALCO,  has as subsidiaries  Cleveland  Thermal Energy  Corporation  (Cleveland
Thermal) and Cleveland District Cooling Corporation  (Cleveland Cooling),  which
jointly do business as Cleveland Energy Resources,  Indianapolis  Campus Energy,
Inc. (ICE),  Store Heat and Produce  Energy,  Inc.,  which conducts  business as
SHAPE Energy  Resources  (SHAPE) and was 80%-owned as of December 31, 1997,  and
Mid-America Energy Resources, Inc. (Energy Resources). Energy Resources owns and
operates a fully subscribed  district  cooling system in downtown  Indianapolis,
Indiana.  Cleveland  Thermal  owns and  operates  a district  heating  system in
downtown Cleveland, Ohio. Cleveland Cooling owns and operates a district cooling
system in downtown Cleveland. ICE provides chilled water to the Lilly Technology
Center  located  near  downtown  Indianapolis.  SHAPE  became  a  majority-owned
subsidiary of Mid-America during 1993.

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

       Total capital requirements of Mid-America and its subsidiaries, including
funds needed for construction and the establishment of product inventories,  are
estimated  to be $ 3.4  million,  $1.9  million and $.4 million  during the next
three years. Energy Resources' construction  expenditures in 1998 are forecasted
to include  $2.5 million for a 5,000-ton  chiller  expansion to meet future load
requirements.  Other  Mid-America  expenditures  are highly  contingent upon the
development of markets for the products and services  offered by the Mid-America
family of companies.  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.

<PAGE>
        During 1997, Energy Resources,  a subsidiary of Mid-America,  issued $50
million of long-term notes payable which were used to repay  intercompany  debt,
make an intercompany loan and return capital to Mid-America.

        During  1997,  IPALCO  initiated  a plan to sell  Cleveland  Thermal and
Cleveland  Cooling.  Based on fair market  value  estimates,  IPALCO  recorded a
charge of $32  million to adjust the  carrying  amounts of these  businesses  to
estimated fair value less cost to sell (see Note 2 in the Consolidated Financial
Statements). IPALCO anticipates completing this divestiture in 1998.

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

       Additional  information  regarding  IPALCO's  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.

<PAGE>


RESULTS OF OPERATIONS

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

     All per share  information  for 1995 presented  herein has been restated to
reflect the 3-for-2 common stock split in March 1996.

       Diluted  earnings  per share  during 1997 were  $2.36,  or $.36 above the
$2.00 attained in 1996.  Diluted  earnings per share during 1996 were $2.00,  or
$0.26 above the $1.74 attained in 1995. The following discussion  highlights the
factors contributing to these results.

       The 1997  weighted  average  shares used to  calculate  basic and diluted
earnings  per share were  substantially  impacted by the April 1997  purchase by
IPALCO of approximately 12.5 million shares of its  outstanding common  stock
representing approximately 21%. (See "Recapitalization and Dividend  Change.")
The 1997 earnings per share includes a one-time  cumulative  effect  adjustment
of $18.3 million, net of taxes ($.38 per  share) resulting from IPL's change to
the unbilled revenue method of accounting.  The 1997 earnings also include a
charge of $32 million ($20.8 million,  net of tax) to write down the carrying
values of Cleveland Thermal and Cleveland Cooling.The effect of this adjustment,
net of tax, was $.43 per share.  The 1997 earnings  also include a $5.7 million
($3.5 million,  net of taxes or $.07 per share) gain from the sale of a retired
IPL plant site(see Notes 2 and 3 in Notes to Consolidated Financial Statements).

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

     Operating  revenues in 1997 and 1996 increased from the prior year by $13.9
million and $53.3 million, respectively. The increases in revenues resulted from
the following:
<TABLE>
<CAPTION>
                                               
                                                             Increase (Decrease)
                                                             -------------------
                                                   1997 over 1996             1996 over 1995
                                                   --------------             --------------
                                                              (Millions of Dollars)
 <S>                                                       <C>                   <C>  
 Electric:
      Increase in retail basic rates                       $ 12.7                $ 40.8
      Change in retail KWH sales - net of fuel               (7.4)                  9.3
      Fuel revenue                                           (4.7)                 (8.7)
      Wholesale revenue                                       8.6                   6.6
      DSM tracker revenue                                     1.3                   2.4
 Steam revenue                                                 .6                   1.9
 Other revenue                                                2.8                   1.0
                                                           ------                ------
      Total change in operating revenues                   $ 13.9                $ 53.3
                                                           ======                ======
</TABLE>

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

       Other - net,  which includes the pretax  operating and investment  income
from  operations  other  than IPL,  as well as  non-operating  income  from IPL,
increased  by $10.2  million and  decreased  by $0.6 million from the prior year
during  1997 and 1996,  respectively.  The change  during 1997 was due to a $5.7
million  pretax  gain from the sale of a  retired  IPL  plant  site,  and a $4.5
million  increase  in the  pretax  operating  results  of  IPALCO's  non-utility
operations.  Contributing  to this  increase was  decreased  operating  costs at
Mid-America  of  $4.5  million,  partially  offset  by  decreased  revenues  and
decreased miscellaneous income. Also contributing to the increase in other - net
in 1997 was an increase in net revenues  for contract  work by IPL. The decrease
in 1996 was due to decreased non-operating income at IPL.

       The provision for impairment of nonutility  property 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  $15.3  million  in 1997 and
decreased by $1.1 million in 1996 from the prior years. 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
increase was an increase in interest  expense at Mid-America of $2.6 million for
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.  The  decrease in interest  for 1996 was due to the
refinancing of two of the higher rate First Mortgage Bonds, 10 5/8% Series and 9
5/8%  Series in 1995,  with debt  instruments  carrying  lower  interest  rates,
partially offset by interest paid on the ICE construction loan.

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

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

       Amortization of redemption  premiums and expenses on debt - net increased
in 1997  compared to 1996 by $.5  million.  This  increase 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 stock repurchase.
<PAGE>

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 Pronouncements
-----------------------------

       The Financial  Accounting  Standards Board has issued  Statements 130 and
131 that IPALCO will be required to adopt in future  periods  (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, 1997 and 1996, 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, 1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of IPALCO  Enterprises,  Inc. and its
subsidiaries  as of  December  31,  1997  and  1996,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.

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


Deloitte & Touche LLP

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

                                   IPALCO ENTERPRISES, INC. AND SUBSIDIARIES

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

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


                                                                       1997             1996             1995
-----------------------------------------------------------------------------------------------------------------
                                                                     (In Thousands Except Per Share Amounts)
UTILITY OPERATING REVENUES (Note 3 and 10):
<S>                                                               <C>              <C>              <C>         
  Electric                                                        $    738,134     $    724,764     $    673,388
  Steam                                                                 38,293           37,739           35,818
                                                                  -------------    -------------    -------------
    Total operating revenues                                           776,427          762,503          709,206
                                                                  -------------    -------------    -------------

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

OTHER INCOME AND (DEDUCTIONS):
  Allowance for equity funds used during construction                    3,462            5,967            6,003
  Other - net                                                            2,124           (8,056)          (7,407)
  Provision for impairment of nonutility property (Note 2)             (32,000)               -                -
  Income taxes - net (Note 9)                                           19,004            3,645            3,097
                                                                  -------------    -------------    -------------
    Total other income and (deductions) - net                           (7,410)           1,556            1,693
                                                                  -------------    -------------    -------------
INCOME BEFORE INTEREST AND OTHER CHARGES                               159,905          164,775          149,281
                                                                  -------------    -------------    -------------

INTEREST AND OTHER CHARGES:
  Interest on long-term debt                                            60,385           45,110           46,170
  Other interest                                                         1,783            4,202            5,293
  Allowance for borrowed funds used during construction                   (945)          (3,354)          (5,367)
  Amortization of redemption premiums and expenses on
    debt - net                                                           1,903            1,360            1,225
  Preferred dividend requirements of subsidiary                          1,080            3,182            3,182
                                                                  -------------    -------------    -------------
    Total interest and other charges - net                              64,206           50,500           50,503
                                                                  -------------    -------------    -------------
INCOME BEFORE CUMULATIVE EFFECT OF
  ACCOUNTING CHANGE                                                     95,699          114,275           98,778

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

NET INCOME                                                        $    114,046     $    114,275     $     98,778
                                                                  =============    =============    =============

BASIC EARNINGS PER SHARE (Note 6)

INCOME BEFORE CUMULATIVE EFFECT
   OF ACCOUNTING CHANGE                                           $       2.00     $       2.01     $       1.74
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3)                                                               
                                                                           .38                -                -      
                                                                  -------------    -------------    -------------

NET INCOME                                                        $       2.38     $       2.01     $       1.74
                                                                  =============    =============    =============

DILUTED EARNINGS PER SHARE (Note 6)

INCOME BEFORE CUMULATIVE EFFECT
   OF ACCOUNTING CHANGE                                           $       1.98     $       2.00     $       1.74
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3)                                                               
                                                                           .38                -                -
                                                                  -------------    -------------    -------------

NET INCOME                                                        $       2.36     $       2.00     $       1.74
                                                                  =============    =============    =============


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

                                    IPALCO ENTERPRISES, INC. and SUBSIDIARIES

                                          Consolidated Balance Sheets
                                           December 31, 1997 and 1996
-----------------------------------------------------------------------------------------------------

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

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



OTHER ASSETS:
  Nonutility property (Note 2)                                       90,344                  121,443
  Less accumulated depreciation                                      17,479                   13,153
                                                            ----------------         ----------------
      Nonutility property - net                                      72,865                  108,290
  Other investments                                                  13,023                    5,371
                                                            ----------------         ----------------
        Other assets - net                                           85,888                  113,661
                                                            ----------------         ----------------



CURRENT ASSETS:
  Cash and cash equivalents                                          17,293                   19,317
  Accounts receivable and unbilled 
      revenue (less allowance for doubtful
      accounts - 1997, $1,202,000 and 
      1996, $1,159,000) (Note 3)                                     47,033                   11,099
  Fuel - at average cost                                             35,257                   30,625
  Materials and supplies - at average cost                           48,416                   52,727
  Prepayments and other current assets                                9,100                    9,931
                                                            ----------------         ----------------
        Total current assets                                        157,099                  123,699
                                                            ----------------         ----------------



DEFERRED DEBITS:
  Regulatory assets (Note 5)                                        126,784                  137,974
  Miscellaneous                                                      18,195                   19,766
                                                            ----------------         ----------------
        Total deferred debits                                       144,979                  157,740
                                                            ----------------         ----------------

      TOTAL                                                 $     2,154,349          $     2,183,069
                                                            ================         ================

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

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

CAPITALIZATION:
<S>                                                             <C>                       <C>
  Common shareholders' equity (Note 6):
    Common stock, no par, authorized - 290,000,000 shares,
      57,189,272 issued and 44,649,844 outstanding in 1997,
      57,034,912 shares issued and outstanding in 1996          $       395,851           $       389,966
    Premium on 4% cumulative preferred stock                                649                     1,363
    Retained earnings                                                   532,730                   466,397
    Treasury stock, at cost                                            (403,101)                        -
                                                                ----------------          ----------------
      Total common shareholders' equity                                 526,129                   857,726
  Cumulative preferred stock of subsidiary (Note 6)                       9,135                    51,898
  Long-term debt (Notes 2 and 7)                                      1,032,846                   662,591
                                                                ----------------          ----------------
        Total capitalization                                          1,568,110                 1,572,215
                                                                ----------------          ----------------



CURRENT LIABILITIES:
  Notes payable - banks and commercial paper (Note 8)                    33,700                    46,000
  Current maturities and sinking fund requirements (Note 7)               3,094                    11,250
  Accounts payable and accrued expenses                                  66,105                    62,222
  Dividends payable                                                      11,523                    22,212
  Taxes accrued                                                          22,126                    23,159
  Interest accrued                                                       15,493                    13,354
  Other current liabilities                                              12,555                    14,519
                                                                ----------------          ----------------
        Total current liabilities                                       164,596                   192,716
                                                                ----------------          ----------------



DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
  Deferred income taxes - net (Note 9)                                  314,869                   303,473
  Unamortized investment tax credit                                      44,783                    47,722
  Accrued postretirement benefits (Note 12)                              17,144                    23,635
  Accrued pension benefits (Note 11)                                     39,821                    37,283
  Miscellaneous                                                           5,026                     6,025
                                                                ----------------          ----------------
        Total deferred credits and other long-term liabilities          421,643                   418,138
                                                                ----------------          ----------------

COMMITMENTS AND CONTINGENCIES (Note 14)

        TOTAL                                                   $     2,154,349           $     2,183,069
                                                                ================          ================

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, 1997, 1996 and 1995
----------------------------------------------------------------------------------------------------------------------------------

                                                                                 1997                1996                1995
----------------------------------------------------------------------------------------------------------------------------------
                                                                                             (In Thousands)
CASH FLOWS FROM OPERATIONS:
<S>                                                                       <C>                 <C>                 <C>            
  Net income                                                              $       114,046     $       114,275     $        98,778
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation and amortization                                                 103,841             102,677             103,045
    Amortization of regulatory assets                                              15,405              17,680               6,748
    Deferred income taxes and investment tax credit adjustments - net               3,533               3,145              (4,517)
    Allowance for funds used during construction                                   (4,407)             (9,321)            (11,370)
    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)             (2,506)
    Change in certain assets and liabilities:
      Accounts receivable - excluding cumulative effect
         of accounting change                                                      (6,019)             47,974             (10,414)
      Fuel, materials and supplies                                                   (321)              4,503               7,130
      Accounts payable and accrued expenses                                         3,883             (19,762)              6,727
      Taxes accrued                                                                (1,033)              1,934               2,656
      Accrued pension benefits                                                      2,538               5,449               4,731
      Other - net                                                                  (5,944)            (17,484)              4,684
                                                                          ----------------    ----------------    ----------------
Net cash provided by operating activities                                         227,607             247,942             205,692
                                                                          ----------------    ----------------    ----------------

CASH FLOWS FROM INVESTING:
  Proceeds from maturities of marketable securities                                     -               3,810               7,984
  Construction expenditures - utility                                             (73,130)            (78,543)           (166,874)
  Construction expenditures - nonutility                                           (1,569)             (4,187)            (34,745)
  Other                                                                            (6,566)            (16,607)            (19,416)
                                                                          ----------------    ----------------    ----------------
Net cash used in investing activities                                             (81,265)            (95,527)           (213,051)
                                                                          ----------------    ----------------    ----------------

CASH FLOWS FROM FINANCING:
  Issuance of long-term debt                                                      451,300              37,600             130,100
  Retirement of long-term debt                                                    (89,250)            (79,900)            (80,350)
  Reacquired common stock (Note 6)                                               (403,101)                  -                   -
  Preferred stock redemptions (Note 6)                                            (41,814)                  -                   -
  Short-term debt - net                                                           (12,300)            (23,122)             39,369
  Common dividends paid                                                           (57,653)            (83,629)            (81,289)
  Issuance of common stock related to incentive compensation plans                  4,089               4,524               1,549
  Other                                                                               363                (125)              1,386
                                                                          ----------------    ----------------    ----------------
Net cash provided by (used in) financing activities                              (148,366)           (144,652)             10,765
                                                                          ----------------    ----------------    ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               (2,024)              7,763               3,406
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                     19,317              11,554               8,148
                                                                          ----------------    ----------------    ----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                  $        17,293     $        19,317     $        11,554
                                                                          ================    ================    ================

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

    Interest (net of amount capitalized)                                  $        59,761     $        47,857     $        47,310
                                                                          ================    ================    ================
    Income taxes                                                          $        63,915     $        64,650     $        50,557
                                                                          ================    ================    ================


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, 1997, 1996 and 1995
-----------------------------------------------------------------------------------------------------------------------------------
                                                  Common Stock
                                                   Outstanding         Premium on 4%                   
                                             -----------------------     Cumulative       Retained        Treasury 
                                             Shares           Amount   Preferred Stock    Earnings          Stock           Total
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                 (In Thousands)
                       
<S>                                         <C>          <C>             <C>           <C>              <C>            <C>         
Balance at January 1, 1995                     56,634    $    381,228    $    1,363    $    419,354                    $    801,945
  Net income                                                                                 98,778                          98,778
  Cash dividends declared ($1.44 per share)                                                 (81,724)                        (81,724)
  Exercise of stock options                        81           1,549                                                         1,549
  Restricted stock grants                          87           2,255                                                         2,255
                                            ----------   -------------   -----------   -------------                   -------------
Balance at December 31, 1995                   56,802         385,032         1,363         436,408                         822,803
  Net income                                                                                114,275                         114,275
  Cash dividends declared ($1.48 per share)                                                 (84,286)                        (84,286)
  Post-split fractional shares                     (1)            (36)                                                          (36)
  Exercise of stock options                       227           4,560                                                         4,560
  Restricted stock grants                           7             410                                                           410
                                            ----------   -------------   -----------   -------------                   -------------
Balance at December 31, 1996                   57,035         389,966         1,363         466,397                         857,726
  Net income                                                                                114,046                         114,046
  Cash dividends declared ($1.00 per share)                                                 (47,713)                        (47,713)
  Reacquired Common Stock (Note 6)            (12,539)                                                  $  (403,101)       (403,101)
  Reacquired and retired Preferred Stock                                       (714)                                           (714)
  Exercise of stock options                       153           4,089                                                         4,089
  Restricted stock grants                           1           1,796                                                         1,796
                                            ----------   -------------   -----------   -------------    -------------  -------------
Balance at December 31, 1997                   44,650    $    395,851    $      649    $    532,730     $  (403,101)   $    526,129
                                            ==========   =============   ===========   =============    =============  =============



See notes to consolidated financial statements.

Per  share  amounts  and the  number of shares  have been  adjusted  for 1995 to
reflect the 3-for-2 no par value
  common stock split issued in March 1996.
</TABLE>
<PAGE>


                    IPALCO ENTERPRISES, INC. and SUBSIDIARIES
                    -----------------------------------------

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

 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),  Cleveland District Cooling Corporation (Cleveland Cooling)
and Store Heat and Produce Energy,  Inc. (SHAPE), an 80%-owned  subsidiary.  All
significant intercompany items have been eliminated in consolidation.

       The  operating  components of all  subsidiaries  other than IPL which had
revenue of $33.0  million,  $33.6 million and $23.0  million for 1997,  1996 and
1995,   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.  On February 23, 1998,  the contract of  approximately  25% of those
employees covered by collective bargaining agreements will expire.

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

       Revenues:  Effective  January 1, 1997, IPL adopted the unbilled  revenues
method of accounting for 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.
<PAGE>

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

       Effective July 1, 1996,  IPL's  authorized  annual electric 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 1997,  IPL's rolling  annual
electric  operating income was less than the authorized  annual operating income
at each of the quarterly  measurement dates (January,  April, July and October).
At October 31, 1997,  IPL's most recent  quarterly  measurement  date, IPL had a
cumulative  net operating  deficiency of $78.9  million,  of which $39.9 million
expires at varying  amounts  during the period  ending  September  1, 2000.  The
operating  deficiency  is  calculated  by summing the 20 most  recent  quarterly
measurement period 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.

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

       Utility Plant and Depreciation:  Utility plant is stated at original cost
as defined for regulatory  purposes.  The cost of additions to utility plant and
replacements of retirement units of property, as distinct from renewals of minor
items 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 1997,  3.4% during 1996 and 3.5% during 1995.  Depreciation  expense
for 1997 and 1996 include  adjustments to spare parts  inventory of $0.6 million
and $4.5 million, respectively,  resulting from recognition of the impairment in
value of excess spare parts.  Depreciation expense for 1995 includes adjustments
to property held for future use of approximately $12.3 million.  The adjustments
in 1995 reflect incurred costs of expired  regulatory  permits and for designing
and engineering a future generating station in Patriot, Indiana.

       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 $4.4 million,  $4.5
million and $3.1 million for 1997, 1996 and 1995, respectively.
<PAGE>

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

       Regulatory  Assets:  Regulatory assets represent deferred costs that have
been,  or that are expected to be,  included as allowable  costs for  ratemaking
purposes.  IPL has  recorded  regulatory  assets  relating  to certain  costs as
authorized by the IURC.  Specific  regulatory assets are disclosed in Note 5. As
of December 31, 1997, all nontax-related regulatory assets have been included as
allowable  costs in orders of the IURC (see  Note 10).  IPL is  amortizing  such
regulatory   assets  to  expense  over  periods   authorized  by  these  orders.
Tax-related  regulatory  assets  represent  the  net  income  tax  costs  to  be
considered in future regulatory proceedings generally as the related tax 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:   IPALCO  has  only  limited   involvement  with  derivative
financial instruments and does not use them for trading purposes. IPALCO 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.

       Statements of Cash Flows - 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 and
certain  management  employees of Mid-America  are covered by a defined  benefit
pension plan, a defined contribution plan and a group benefits plan.
<PAGE>

       The defined benefit pension plan is noncontributory and is funded through
two trusts.  Additionally, a select group of management employees of IPALCO, IPL
and  Mid-America  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.  Employees  elect to make
contributions  to the Thrift  Plan based on a  percentage  of their  annual base
compensation.  IPL matches each employee's  contributions  in amounts up to, but
not exceeding, 4% of the employee's annual base compensation.

       The  group  benefits  plan  is  sponsored  by IPL  and  provides  certain
healthcare  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.

       Substantially  all  non-management   employees  of  Mid-America  and  its
subsidiaries are covered by a contributory 401(k) plan.

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

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

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

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

       Earnings per Share:  All references to earnings per share in the notes 
to the consolidated  financial  statements are fully diluted.

       Reclassifications:Certain amounts from prior years' 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:
                                              1997                    1996
--------------------------------------------------------------------------------
                                                      (In Thousands)

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

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

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

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

       The original cost of nonutility property at December 31 follows:

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

District Cooling.....................       $ 79,165              $100,294
District Heating.....................          7,977                16,984
General  ............................          3,202                 4,165
                                            --------              --------
    Total nonutility property........       $ 90,344              $121,443
                                            ========              ========

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

       During  1997,  IPALCO  initiated  a plan  to  sell  two  subsidiaries  of
Mid-America,  Cleveland  District  Cooling  Corporation  and  Cleveland  Thermal
Corporation.  Based on fair market value estimates,  IPALCO recorded a charge of
$32 million to write down the carrying  amounts of these businesses to estimated
fair value less cost to sell.  The charge is included in IPALCO's  other  income
and deductions for the year ended December 31, 1997.  IPALCO will not depreciate
or amortize any of the long-term  assets of these businesses while they are held
for disposal.  IPALCO  anticipates  completing this divestiture  effort in 1998.
Excluding the charge described above, these businesses contributed a net loss of
$2.5  million,   $1.7  million  and  $1.8  million  in  1997,   1996  and  1995,
respectively.  The amounts  that IPALCO will  ultimately  realize  could  differ
materially  from the  amounts  assumed in arriving  at the  write-down  of these
businesses.
<PAGE>

3.  CUMULATIVE EFFECT OF ACCOUNTING CHANGE

       In December  1997, IPL changed its method of accounting  (retroactive  to
January 1,  1997) to record  revenues  of all  electricity  and steam  delivered
during the period.  Prior to 1997, IPL  recognized  revenues on a cycle basis as
meters were read. The new accounting method more accurately  reports revenues in
the period in which  electricity and steam is used by customers.  The cumulative
effect of the change in accounting at January 1, 1997, was $18.3 million (net of
income taxes of $11.2 million and other taxes of $.4 million) or $.38 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 $.04 per share.

     If this method had been applied  retroactively,  net income would have been
$112.1  million  ($1.97 per share) and $100.2  million ($1.76 per share) for the
years ended December 31, 1996, and 1995, respectively.

4.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

       The  estimated  fair value  amounts of  financial  instruments  have been
determined by 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, Cash Equivalents and Notes Payable:  The carrying amount approximates
fair value due to the short maturity of these instruments.

       Long-Term   Debt,   Including   Current   Maturities   and  Sinking  Fund
Requirements:  Interest  rates that are currently  available to IPALCO,  IPL and
Mid-America for issuance of debt with similar terms and remaining maturities are
used to estimate  fair value.  The variable  rate debt has been  included at the
face amount for both carrying  amount and fair value.  The fair value of the IPL
interest  rate swap  agreement  has been  estimated  to be $3.3 million and $1.2
million,  which  represents  the  amount  IPL would have to pay to enter into an
equivalent agreement at December 31, 1997, and 1996,  respectively,  with a swap
counter  party.  The fair value of the IPALCO  interest rate swap  agreement has
been  estimated to be $2.6  million at December 31, 1997.  The fair value of the
debt  outstanding  has been  determined on the basis of the specific  securities
issued and  outstanding.  Accordingly,  the purpose of this disclosure is not to
approximate  the  value on the  basis of how the debt  might be  refinanced.  At
December 31, 1997, and 1996, the  consolidated  carrying  amount of Enterprises'
long-term debt, including current maturities and sinking fund requirements,  and
the approximate fair value are as follows:

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

  Carrying amount                             $1,035,940        $673,841
  Approximate fair value                      $1,066,354        $680,532
<PAGE>


5.  REGULATORY ASSETS

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

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

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

6.  CAPITAL STOCK

       Stock Split: In February 1996, the IPALCO Board of Directors authorized a
3-for-2  stock split of IPALCO's  common stock issued to  shareholders  in March
1996. All references to share amounts of common stock and per share  information
have been restated to reflect the stock split.

       Stock  Repurchase:  In 1997,  Enterprises  conducted  a  "Dutch  Auction"
self-tender  offer and  purchased  12,539,428  shares of common stock at a total
cost of approximately  $403.1 million.  All 12,539,428 shares remain in Treasury
stock.

       Common Stock:  IPALCO has a Rights Agreement 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 July 11, 2000,  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 60 million shares for issuance.

       During 1997, IPALCO adopted SFAS 128, "Earnings per Share."  Accordingly,
the accompanying consolidated statements of income have been restated to reflect
"diluted" as well as "basic"  earnings  per share  amounts.  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,
                                          -------------------------------
                                     1997             1996              1995
                                     ----------------------------------------
                                                 (In thousands)


Weighted average common shares       47,942           56,924           56,745
Dilutive effect of stock options        285              117               87
                                    -------          -------         --------
Weighted average common
   and incremental shares            48,227           57,041           56,832
                                     ======           ======           ======
<PAGE>


       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  1,473,455  additional  shares  as of  December  31,  1997,
pursuant to this plan. All purchases in 1997 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 2.2 million additional shares available for issue under the Thrift
Plan as of  December  31,  1997.  All  purchases  in 1997  were made on the open
market.

       IPALCO is  authorized to issue 34,787  additional  shares of common stock
pursuant to the Energy Resources 401(k) plan. All purchases in 1997 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.  Two million shares of common stock were authorized for
issuance  under the 1997 Plan.  As of  December  31,  1997,  932,750  shares are
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.  One and
one-half  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
nonemployee 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 ten-year  anniversary  of, the grant date.  Under the 1991
Plan,  375,000  shares of common stock were  authorized for issuance and 126,000
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>               <C>      
Outstanding, January 1, 1995..................     $ 22.51             $ 16.8317 - $ 25.3725         1,226,250
  Granted.....................................       20.91                           20.9146            45,000
  Reinstated..................................       16.83                           16.8317            15,000
  Exercised...................................       17.19               16.8317 -   18.7481           (81,000)
                                                                                                     ---------
Outstanding, December 31, 1995................       22.74               16.8317 -   25.3725         1,205,250
  Granted.....................................       25.25                           25.25              45,000
  Exercised...................................       17.02               16.8317 -   25.3308          (226,680)
                                                                                                     ---------
Outstanding, December 31, 1996................       24.12               16.8317 -   25.3725         1,023,570
  Granted.....................................       31.38                           31.375          1,132,500
  Granted.....................................       30.50                           30.50              42,000
  Exercised...................................       24.05               16.8317 -   31.375           (152,732)
                                                                                                     ---------
Outstanding, December 31, 1997................       28.27               16.8317 -   31.375          2,045,338
                                                                                                     =========
</TABLE>

       The number of shares  exercisable  at December  31,  1997,  1996 and 1995
were: 2,045,338,  1,023,570 and 983,012,  respectively,  with a weighted average
exercise price of $28.27, $24.12 and $22.15, respectively.  The weighted average
remaining contractual life of the options outstanding at December 31, 1997, 1996
and 1995 was 7.7 years, 6.3 years and 6.7 years, respectively.
<PAGE>

       IPALCO has a Long-Term  Performance  and Restricted  Stock Incentive Plan
(1995 Plan). Pursuant to the 1995 Plan, 600,000 shares of common stock of IPALCO
have been  authorized  and reserved for issuance,  and initial  awards of 87,304
shares of  restricted  common  stock  were made to  participating  employees  on
January 1, 1995.  On January  1, 1997 and 1996,  an  additional  1,628 and 7,319
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  9,432  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 (73,740  shares).  Participants may choose from one of four payout
options for vested shares,  including partial cash payout. Of the vested shares,
33,719 were paid out in the form of stock.

       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,"  IPALCO's net income for the year ended December 31,
1997,  would have  decreased  from $114.0  million  ($2.36 per share) to the pro
forma  amount of $110.4  million  ($2.29  per  share).  IPALCO's  net income and
earnings  per share for the  similar  period in 1996 would have  decreased  from
$114.3  million  ($2.00  per  share) to the pro forma  amount of $114.2  million
($2.00 per share).  IPALCO's  net income and  earnings per share for the similar
period in 1995 would not have changed. IPALCO estimated the SFAS 123 fair values
by utilizing the binomial options pricing model with the following  assumptions:
dividend yields of 3.2% 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 $3.4 million,  $1.2 million and $1.1 million for
1997, 1996 and 1995, 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.

       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, 1997, 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.
<PAGE>

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

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

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

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

At December 31, preferred stock consisted of the following:

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

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

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

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

<PAGE>

7.  LONG-TERM DEBT

       Long-term debt consists of the following:


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

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

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. Revolving 
   Credit Facility, due March 2002....................    323,000             -
Energy Resources-8.03% notes payable, due June 2012 ..     50,000             -
SHAPE -7.50% notes payable, due December 1998 ........        300             -
Current maturities....................................     (3,094)            -
                                                       ----------     ---------
Total long-term debt - other..........................    405,006        34,800
                                                       ----------     ---------

Total long-term debt.................................. $1,032,846     $ 662,591
                                                       ==========     =========

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


       IPL  redeemed  the $15  million,  5 1/8% Series in May 1996,  and the $50
million,  9 5/8% Series in December 1996. ICE redeemed the $13.2 million project
loan in December  1996,  with the proceeds  from a 7.59%  long-term  note in the
amount of $16 million.

       The Series 1991 note  provides for an interest  rate that varies with the
tax-exempt commercial paper rate. The 1994A, 1995B, 1995C and 1996 notes provide
for an interest rate which varies with the tax-exempt  weekly rate.  IPL, at its
option,  can change the interest  rate mode for these notes to be based on other
short-term  rates.  Additionally,  the 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, 1997. Energy Resources' 1995 variable  long-term note due
2030 was issued to the Indiana  Development Finance Authority and bears interest
which varies with the tax-exempt weekly rate.
<PAGE>

       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 capital stock. Interest
is payable  monthly  and is based on a spread over LIBOR.  During  1997,  IPALCO
reduced the original debt amount by a net $78 million.

       The interest rate swap agreement is accounted for on a settlement  basis.
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.

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

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

Series 1991                        3.78%             3.47%
Series 1994A                       3.75%             4.10%
Series 1995B                       5.21%             5.21%
Series 1995C                       3.75%             4.10%
Series 1996                        3.75%             4.05%
Energy Resources
  variable note                    4.17%             4.35%
IPALCO Revolver                    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%.

       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.  The
result is to  effectively  establish  a 6.6825%  fixed rate of  interest on $300
million of the Revolver.

<PAGE>

       Maturities  on long-term  debt for the five years  subsequent to December
31, 1997, are as follows:

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

                           1998...........................     $  3,094
                           1999...........................       81,325
                           2000...........................       81,582
                           2001...........................       82,477
                           2002...........................       82,650

8.  LINES OF CREDIT

       IPL has  committed  lines of credit with banks of $75 million at December
31, 1997,  to provide loans for interim  financing  which require the payment of
commitment  fees.  These  lines of credit,  based on separate  agreements,  have
expiration  dates ranging from February 1, 1998, to December 31, 1998.  Lines of
credit used to support  commercial  paper were $10 million at December 31, 1997.
IPL has a Liquidity  facility in the amount of $150  million to support  certain
floating-rate tax-exempt facilities (see Note 7).

       IPL has an  uncommitted  line of credit  with a bank in the amount of $25
million that does not require the payment of a  commitment  fee. At December 31,
1997, $11.3 million was unused.

       Mid-America  has a  line  of  credit  which  requires  the  payment  of a
commitment fee. At December 31, 1997, $10 million was outstanding,  $9.3 million
was committed as  collateral  for the Energy  Resources  variable note and $10.7
million was unused.

     The weighted  average  interest rate on notes payable and commercial  paper
outstanding was 6.58% and 6.08% at December 31, 1997 and 1996, respectively.
<PAGE>


9.  INCOME TAXES

       Federal and state income taxes charged to income are as follows:
<TABLE>
<CAPTION>

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

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

    Net amortization of investment credit.......................          (2,939)        (2,915)        (3,125)
                                                                         -------        -------        -------
      Total charge to utility operating expenses................          73,335         68,248         54,499
    Net credit to other income and deductions...................         (19,004)        (3,645)        (3,097)
                                                                         -------        -------        -------
                                                                          54,331         64,603         51,402
    Cumulative effect of change in accounting principle.........          11,209             -               -
                                                                         -------        -------        -------
      Total federal and state income tax provisions.............         $65,540        $64,603        $51,402
                                                                         =======        =======        =======
</TABLE>

       The provision for federal  income taxes  (including  net  investment  tax
credit  adjustments)  is less than the amount computed by applying the statutory
tax  rate to  pretax  income.  The  reasons  for  the  difference,  stated  as a
percentage of pretax income, are as follows:
                                               1997         1996          1995
------------------------------------------------------------------------------
Federal statutory tax rate.................    35.0%        35.0%        35.0%
Effect of state income taxes...............    (2.1)        (1.5)        (1.8)
Amortization of investment tax credits.....    (1.6)        (1.6)        (2.0)
Removal cost adjustments...................      -           -           (1.8)
Preferred dividends of subsidiary..........     0.2          0.6          0.7
Other - net................................    (1.2)        (1.4)        (1.8)
                                               -----        -----        -----
  Effective tax rate.......................    30.3%        31.1%        28.3%
                                               =====        =====        =====

       The significant items comprising  Enterprises' net deferred tax liability
recognized in the consolidated balance sheets as of December 31, 1997, and 1996,
are as follows:
                                                  1997                1996
-----------------------------------------------------------------------------
                                                        (In Thousands)
Deferred tax liabilities:
     Relating to utility property...........      $405,164          $376,121
     Other..................................        16,520            21,070
                                                  --------          --------
         Total deferred tax liabilities.....       421,684           397,191
                                                  --------          --------
Deferred tax assets:
     Relating to utility property...........        40,731            28,298
     Investment tax credit..................        27,251            29,156
     Employee benefit plans.................        22,455            15,388
     Unbilled revenue.......................             -            10,517
     Other..................................        16,197            10,359
                                                  --------          --------
         Total deferred tax assets..........       106,634            93,718
                                                  --------          --------
Net deferred tax liability..................       315,050           303,473
       Current deferred tax liability.......           181                 -
                                                  --------          --------
Deferred income taxes - net.................      $314,869          $303,473
                                                  ========          ========
<PAGE>

10.  RATE MATTERS

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

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

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

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

       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. The
amount of  additional  annual  revenues  from the January 13, 1998,  increase is
estimated to be $370,000.

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

11.  EMPLOYEE PENSION BENEFIT PLANS

       Pension expense includes the following components:
<TABLE>
<CAPTION>
                                                        
                                                           1997         1996         1995
-------------------------------------------------------------------------------------------
                                                                     (In Thousands)

<S>                                                        <C>          <C>          <C>    
Service cost--benefits earned during the period.........   $ 6,584      $ 6,482      $ 6,375
Interest cost on projected benefit obligation...........    16,873       16,335       15,348
Actual return on plan assets............................   (37,813)     (23,307)     (29,529)
Net amortization and deferral...........................    18,304        5,758       13,499
                                                           -------       ------      -------
  Net periodic pension cost.............................     3,948       5,268         5,693
  Less amount capitalized...............................       621       1,061         1,199
                                                           -------      -------      -------
Amount charged to expense...............................   $ 3,327      $ 4,207      $ 4,494
                                                           =======      =======      =======
</TABLE>
<PAGE>

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

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

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

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

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


12.  EMPLOYEE POSTRETIREMENT BENEFITS

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

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

<S>                                                                       <C>           <C>          <C>      
Service cost -- benefits earned during the period......................   $    4,021    $   3,969    $   3,941
Interest cost on accumulated postretirement benefit obligation.........       11,135       10,494       10,838
Actual (return) loss on plan assets....................................          314        1,280         (319)
Net amortization and deferral..........................................        1,475        2,220        4,665
                                                                          ----------    ---------    ---------
  Net periodic postretirement benefit cost.............................       16,945       17,963       19,125
  Less:
     Amount capitalized................................................        2,930        3,511        3,891
     Regulatory asset deferral.........................................            -            -        6,978
                                                                          ----------    ---------    ---------
Amount charged to expense..............................................   $   14,015    $  14,452    $   8,256
                                                                          ==========    =========    =========
</TABLE>

     Also,  during 1997, 1996 and 1995, IPL expensed  postretirement  regulatory
asset amortization of $6.4 million, $6.4 million and $2.1 million, respectively.
<PAGE>

       A summary of the retiree  health-care  and life insurance  plan's funding
status, and the amount recognized in the consolidated balance sheets at December
31, 1997, and 1996, follows:
<TABLE>
<CAPTION>

                                                                                    1997                1996
----------------------------------------------------------------------------------------------------------------
Actuarial present value of accumulated postretirement                                     (In Thousands)
    benefit obligation:
<S>                                                                               <C>                 <C>       
    Retirees...............................................................       $ (59,125)          $ (62,856)
    Fully eligible active plan participants................................         (19,144)            (21,486)
    Other active plan participants.........................................         (58,436)            (62,702)
                                                                                  ---------           ---------
Total......................................................................        (136,705)           (147,044)
    Plan assets at fair value .............................................          68,688              49,852
                                                                                  ---------           ---------
Funded status .............................................................         (68,017)            (97,192)
    Unrecognized net gain from past experience different from that assumed.         (40,927)            (24,363)
    Unrecognized net obligation at January 1, 1993, being amortized over
        an original life of 20 years.......................................          91,800              97,920
                                                                                  ---------           ---------
Net accrued postretirement benefit cost included in deferred liabilities at
    December 31............................................................       $ (17,144)          $ (23,635)
                                                                                  =========           =========

</TABLE>

       Enterprises  has expensed  its  non-construction  related  postretirement
benefits costs  associated with its  unregulated and regulated steam  businesses
and,  subsequent to August 1995,  with its regulated  electric  business.  IPL's
electric  business  postretirement  benefit costs incurred prior to September 1,
1995,  net  of  amounts  capitalized  for  construction  and  benefits  paid  to
participants,  were deferred as a regulatory asset on the  consolidated  balance
sheets. The Settlement  Agreement approved the amortization to operating expense
of this regulatory asset over five years beginning September 1, 1995. The annual
amortization is $6.4 million. IPL funds its annual postretirement  benefit costs
in excess of actual benefits paid to participants to an irrevocable  VEBA Trust.
Annual funding is discretionary  and is based on the projected cost over time of
benefits to be provided to covered persons consistent with acceptable  actuarial
methods.  The VEBA Trust provides for full funding of  Enterprises'  accumulated
postretirement  benefit  obligation  in the event of  certain  change of control
transactions. During 1997, 1996 and 1995, Enterprises contributed $19.2 million,
$20.9 million and $19.0 million, respectively, of these costs to the VEBA.

       Plan assets  consist of life  insurance  policies  on certain  active and
retired IPL employees.

       The assumed health-care cost trend rate used in measuring the accumulated
postretirement  benefit obligation is 8.1% for 1998, gradually declining to 4.5%
in 2003. A 1% increase in the assumed health- care cost trend rate for each year
would increase the accumulated postretirement benefit obligation, as of December
31, 1997,  by  approximately  $19.5  million and the  combined  service cost and
interest cost for 1997 by approximately $2.5 million.

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


13.  OTHER EMPLOYEE BENEFIT PLANS

     Enterprises'  contributions  to the  Thrift  Plan were $3.3  million,  $3.4
million and $3.2 million in 1997, 1996 and 1995, respectively.
<PAGE>

14.  COMMITMENTS AND CONTINGENCIES

       In  1998,   Enterprises   anticipates  the  cost  of  its   subsidiaries'
construction programs to be approximately $107 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,  IPL has ongoing  discussions with
various  regulatory  authorities  and  continues  to  believe  that  IPL  is  in
compliance with its various permits.

<PAGE>


15.  QUARTERLY RESULTS (UNAUDITED)

       Operating  results for the years ended  December 31, 1997,  and 1996,  by
quarter, are as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
                                                                          1997
                                                                          ----
                                                 March 31          June 30        September 30      December 31
                                                 --------         ---------       ------------      -----------

<S>                                              <C>              <C>               <C>             <C>     
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

Net income (as originally reported)........      $  36,107        $  21,085         $  37,513               -

Weighted average shares....................         57,037           45,507            44,582          44,641
Basic earnings per share...................      $     .90        $     .53         $     .75       $     .11
Weighted average diluted shares............         57,204           45,723            44,866          45,116
Diluted earnings per share.................      $     .90        $     .53         $     .74       $     .11

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

Utility operating revenues.................      $ 196,446        $ 177,621         $ 205,672       $ 182,764
Utility operating income...................      $  44,844        $  36,122         $  51,163       $  31,090
Net income.................................      $  35,548        $  24,459         $  37,168       $  17,100

Weighted average shares....................         56,863           56,906            56,930          56,999
Basic earnings per share...................      $     .63        $     .43         $     .65       $     .30
Weighted average diluted shares............         56,992           57,007            57,054          57,110
Diluted earnings per share.................      $     .62        $     .43         $     .65       $     .30

</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.

<PAGE>


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

              None.
<PAGE>

                                    PART III
                                    --------



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

                  Information  relating to the directors of the registrant,  set
                  forth in the Proxy Statement of IPALCO Enterprises, Inc. dated
                  March 9,  1998,  (the  registrant's  Proxy  Statement),  under
                  "Proposal 1-Election  of Four Directors"  at pages 5-8 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 24, 1998."

                  Information  relating to Section  16(a)  Beneficial  Ownership
                  Reporting  Compliance,  set  forth in the  registrant's  Proxy
                  Statement at page 9 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 19-22, "Compensation of
                  Directors" at page 10, "Compensation  Committee Interlocks and
                  Insider Participation" at page 10, "Pensions  Plans" at pages
                  24-25, and "Employment Contracts and Termination of Employment
                  and Change in Control  Arrangements" at pages 25-26, 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 3-4 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 pages 10-11, is
                  incorporated herein by reference.


<PAGE>


                                     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, 1997, 1996 and 1995

                                   Consolidated Balance Sheets, 
                                     December 31, 1997 and 1996

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

                                   Statements of Consolidated Common
                                     Shareholders' Equity for the Years Ended
                                     December 31, 1997, 1996 and 1995

                                   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, 1997, 1996 and 1995



YEAR ENDED DECEMBER 31, 1997:
                                                                         Basic              Diluted
                                                                      -------------      --------------
Weighted average number of shares
<S>                                                                   <C>                <C>       
        Average common shares outstanding at December 31, 1997          47,941,757          47,941,757
        Dilutive effect for stock options at December 31, 1997             -                   285,583
                                                                      -------------      --------------
        Adjusted weighted average shares at December 31, 1997           47,941,757          48,227,340
                                                                      =============      ==============

Net income to be used to compute
   diluted earnings per share                                              (Dollars in thousands)
       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                         $2.00               $1.98
Cumulative effect of accounting change                                         .38                 .38
                                                                      -------------      --------------
Net income                                                                   $2.38               $2.36
                                                                      =============      ==============


YEAR ENDED DECEMBER 31, 1996:
                                                                         Basic              Diluted
                                                                      -------------      --------------
Weighted average number of shares
        Average common shares outstanding at December 31, 1996          56,924,411          56,924,411
        Dilutive effect for stock options at December 31, 1996             -                   116,370
                                                                      -------------      --------------
        Adjusted weighted average shares at December 31, 1996           56,924,411          57,040,781
                                                                      =============      ==============

Net income to be used to compute
   diluted earnings per share                                              (Dollars in thousands)
       Net Income                                                         $114,275            $114,275
                                                                      =============      ==============

Net income                                                                   $2.01               $2.00
                                                                      =============      ==============


YEAR ENDED DECEMBER 31, 1995:
                                                                         Basic              Diluted
                                                                      -------------      --------------
Weighted average number of shares
        Average common shares outstanding at December 31, 1995          56,744,700          56,744,700
        Dilutive effect for stock options at December 31, 1995             -                    86,853
                                                                      -------------      --------------
        Adjusted weighted average shares at December 31, 1995           56,744,700          56,831,553
                                                                      =============      ==============

Net income to be used to compute
   diluted earnings per share                                              (Dollars in thousands)
       Net income                                                          $98,778             $98,778
                                                                      =============      ==============

Net income                                                                   $1.74               $1.74
                                                                      =============      ==============
</TABLE>
<PAGE>


                                                            SIGNATURES

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

                                          IPALCO ENTERPRISES, INC.

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

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



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

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

  (i) Principal Executive Officer:
                                      

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


 (ii) Principal Financial Officer:


          /s/ John R. Brehm           Vice President          February 24, 1998
         ----------------------------     and Treasurer
           (John R. Brehm)


(iii) Principal Accounting Officer:


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

<PAGE>

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


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

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


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


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


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


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


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


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


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


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


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


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


<PAGE>


                                                      EXHIBIT INDEX

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

Exhibit
    No.                    Description

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

3.2*     Bylaws of IPALCO Enterprises, Inc.  (Exhibit 3.2 to the Form 10-Q
         dated 3-31-97.)

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.  (Exhibit 4.2 to the
         Form 10-K dated 12-31-94.)

10.1*    IPALCO Enterprises,  Inc. Unfunded Deferred Compensation Plan for
         Directors dated December 27, 1983, as amended.  (Exhibit 10.1 to the
         Form 10-K dated 12-31-94.)  **

10.2*    IPALCO  Enterprises,  Inc. Unfunded Deferred  Compensation Plan for
         Officers effective January 1, 1994, as amended December 1, 1996.
         Exhibit 10.2 to the Form 10-K dated 12-31-96.)  **

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

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

10.5     Exhibit A to IPALCO  Enterprises,  Inc. Benefit Protection Fund and
         Trust Agreement dated January 1, 1998.  **

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

10.7*    IPALCO  Enterprises,  Inc.  Long-Term  Performance and Restricted 
         Stock Incentive Plan (as amended and restated effective
         January 1, 1995).  (Exhibit 10.7 to the Form 10-K dated 12-31-94.)  **

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

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

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


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

10.12*   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.)  **

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

10.14*   Mid-America  Capital  Resources  Long-Term  Incentive  Plan.  (Exhibit
         10.13  to the Form  10-K  dated 12-31-95.)  **

11.1     Computation of Per Share Earnings.

18.1     Letter regarding change in accounting principle

20.1*    Form 10-K of Indianapolis  Power & Light Company for the year ended
         December 31, 1997, and all exhibits thereto.  (SEC File No. 1-3132-2.)

21.1     Subsidiaries of the Registrant.

23.1     Independent Auditors' Consent.

27.1     Financial Data Schedule.

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

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

99.3*    Credit Agreement by and among IPALCO  Enterprises,  Inc., Bank
         One,  Indiana,  National  Association,  National  City Bank of
         Indiana,  The  First  National  Bank  of  Chicago,  and  First
         Amendment  thereto.  (Exhibit  99.1  to the  Form  10-Q  dated
         3-31-97  and  Exhibit  99.1 to the Form  10-Q  dated  6-30-97,
         respectively.)