<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

      For the quarterly period ended March 31, 2000


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

      For the transition period from ____________ to ____________


                         Commission file number: 1-11156

                              DYNEGY HOLDINGS INC.
             (Exact name of registrant as specified in its charter)


               DELAWARE                                     94-3248415
      (State or other jurisdiction of                    (I.R.S. Employer
      incorporation or organization)                    Identification No.)


                           1000 LOUISIANA, SUITE 5800
                              HOUSTON, TEXAS 77002
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (713) 507-6400
              (Registrant's telephone number, including area code)

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 such filing
requirements for the past 90 days. YES [X]   NO [ ]

All outstanding equity of Dynegy Holdings Inc. is held by its parent Dynegy Inc.

                                  PAGE 1 OF 26
<PAGE>   2



                              DYNEGY HOLDINGS INC.
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                          PAGE
<S>                                                                                                       <C>
PART I.  FINANCIAL INFORMATION

     Item 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

     Condensed Consolidated Balance Sheets:
         March 31, 2000 and December 31, 1999................................................................3
     Condensed Consolidated Statements of Operations:
         For the three months ended March 31, 2000 and 1999..................................................4
     Condensed Consolidated Statements of Cash Flows:
         For the three months ended March 31, 2000 and 1999..................................................5
     Notes to Condensed Consolidated Financial Statements....................................................6

     Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS.........................................................11


PART II.  OTHER INFORMATION

     Item 1.    Legal Proceedings...........................................................................24

     Item 2.    Not Applicable..............................................................................--

     Item 3.    Not Applicable..............................................................................--

     Item 4.    Not Applicable..............................................................................--

     Item 5.    Not Applicable..............................................................................--

     Item 6.    Exhibits and Reports on Form 8-K............................................................25
</TABLE>

                                  PAGE 2 OF 26
<PAGE>   3

DYNEGY HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                         MARCH 31,         DECEMBER 31,
                                                                                            2000               1999
                                                                                      --------------       ------------
                                                                                        (unaudited)
<S>                                                                                   <C>                  <C>
                                                          ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                                             $          ---       $     45,230
Accounts receivable, net                                                                   1,916,995          1,992,450
Accounts receivable, related parties                                                          60,454             48,966
Inventories                                                                                   79,064            271,884
Assets from risk management activities                                                       882,035            379,833
Prepayments and other assets                                                                  80,795             66,717
                                                                                      --------------       ------------
                                                                                           3,019,343          2,805,080
                                                                                      --------------       ------------

PROPERTY, PLANT AND EQUIPMENT                                                              2,058,594          2,575,100
Less: accumulated depreciation                                                              (427,074)          (557,219)
                                                                                      --------------       ------------
                                                                                           1,631,520          2,017,881
                                                                                      --------------       ------------
OTHER ASSETS:

Investments in unconsolidated affiliates                                                     584,363            627,335
Accounts receivable, affiliates                                                              851,238                ---
Assets from risk management activities                                                       562,584            452,913
Other assets                                                                                 504,593            621,962
                                                                                      --------------       ------------
                                                                                       $   7,153,641       $  6,525,171
                                                                                       =============       ============

                                           LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable                                                                       $   1,550,588       $  1,667,199
Accounts payable, related parties                                                            177,099            161,500
Accrued liabilities                                                                          228,120            184,013
Liabilities from risk-management activities                                                  717,772            334,080
Notes payable and current portion of long-term debt                                          342,678            191,731
                                                                                       -------------       ------------
                                                                                           3,016,257          2,538,523

LONG-TERM DEBT                                                                             1,282,322          1,299,333

OTHER LIABILITIES:

Non-Recourse Debt                                                                                ---             34,593
Liabilities from risk management activities                                                  473,242            321,252
Deferred income taxes                                                                        354,241            335,190
Other long-term liabilities                                                                  455,090            486,798
                                                                                       -------------       ------------
                                                                                           5,581,152          5,015,689
                                                                                       -------------       ------------

COMPANY OBLIGATED PREFERRED SECURITIES OF SUBSIDIARY TRUST                                   200,000            200,000

COMMITMENTS AND CONTINGENCIES (NOTE 6)

STOCKHOLDERS' EQUITY:

Preferred Stock, $0.01 par value, 50,000,000 shares authorized;
    8,000,000 shares designated as Series A Participating Preferred Stock,
    7,815,363 shares issued and outstanding at  December 31, 1999                                ---             75,418
Common stock, $0.01 par value, 400,000,000 shares authorized;
    157,499,001 shares issued and outstanding at December 31, 1999                               ---              1,575
Additional paid-in capital                                                                       ---            973,000
Cumulative translation adjustment                                                             (1,440)               ---
Retained earnings                                                                            341,521            277,074
Less: treasury stock, at cost; 1,200,700 shares at December 31, 1999                             ---            (17,585)
Stockholder's Equity                                                                       1,032,408                ---


                                                                                      --------------       ------------
                                                                                           1,372,489          1,309,482
                                                                                      --------------       ------------
                                                                                      $    7,153,641       $  6,525,171
                                                                                      ==============       ============
</TABLE>

            See notes to condensed consolidated financial statements.

                                  PAGE 3 OF 26
<PAGE>   4

DYNEGY HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

 <TABLE>
 <CAPTION>
                                                                                        THREE MONTHS ENDED
                                                                                             MARCH 31,
                                                                                     --------------------------
                                                                                         2000              1999
                                                                                     ------------      ------------
<S>                                                                                  <C>               <C>
 Revenues                                                                            $  4,798,745      $  3,044,973
 Cost of sales                                                                          4,594,787         2,924,896
                                                                                     ------------      ------------

     Operating margin                                                                     203,958           120,077

 Depreciation and amortization                                                             50,058            31,288
 General and administrative expenses                                                       57,841            49,542
                                                                                     ------------      ------------

     Operating income                                                                      96,059            39,247

 Equity in earnings of unconsolidated affiliates                                            9,202            15,063
 Other income                                                                              60,529            13,918
 Interest expense                                                                         (18,698)          (19,234)
 Other expenses                                                                           (40,203)           (4,153)
 Minority interest in income of a subsidiary                                               (4,158)           (4,158)
                                                                                     ------------      ------------

 Income before income taxes                                                               102,731            40,683
 Income tax provision                                                                      38,284            12,612
                                                                                     ------------      ------------

 NET INCOME                                                                          $     64,447      $     28,071
                                                                                     ============      ============
 </TABLE>

            See notes to condensed consolidated financial statements.

                                  PAGE 4 OF 26
<PAGE>   5

DYNEGY HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                      THREE MONTHS ENDED
                                                                                           MARCH 31,
                                                                             ---------------------------------
                                                                                 2000                 1999
                                                                             ------------          -----------
<S>                                                                          <C>                   <C>

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                                   $     64,447          $     28,071
Items not affecting cash flows from operating activities:
    Depreciation and amortization                                                  50,548                29,316
    Equity in earnings of affiliates, net of cash distributions                    (6,114)               (9,593)
    Risk management activities                                                    (76,192)               (8,424)
    Deferred income taxes                                                          38,284                14,568
     Other                                                                        (27,038)               (2,519)
Changes in assets and liabilities resulting from operating activities:
    Accounts receivable                                                           (37,681)              189,963
    Inventories                                                                   165,060                35,314
    Prepayments and other assets                                                  (11,892)               28,494
    Accounts payable                                                              (18,885)             (288,038)
    Accrued liabilities                                                            17,372               (20,852)
Other, net                                                                        (73,975)               (8,059)
                                                                             ------------          ------------

Net cash provided by (used in) operating activities                                83,936               (11,759)
                                                                             ------------          ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures                                                             (121,594)              (99,918)
Investment in unconsolidated affiliates, net                                       (5,806)               (1,418)
Proceeds from asset sales                                                         667,111                16,650
Other, net                                                                            ---               (39,060)
                                                                             ------------          -------------

Net cash provided by (used in) investing activities                               539,711              (123,746)
                                                                             ------------          ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from long-term borrowings                                                296,697                   ---
Repayments of long-term borrowings                                                    ---                (6,319)
Net proceeds from commercial paper and money market lines of credit              (111,471)              127,072
Affiliate transactions                                                           (851,238)                  ---
Other, net                                                                         (2,865)               (1,531)
                                                                             ------------          ------------

Net cash (used in) provided by financing activities                              (668,877)              119,222
                                                                             ------------          ------------

Net change in cash and cash equivalents                                           (45,230)              (16,283)
Cash and cash equivalents, beginning of period                                     45,230                28,367
                                                                             ------------          ------------

Cash and cash equivalents, end of period                                     $        ---          $     12,084
                                                                             ============          ============
</TABLE>

            See notes to condensed consolidated financial statements.
                                  PAGE 5 OF 26
<PAGE>   6

                              DYNEGY HOLDINGS INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

NOTE 1 -- ACCOUNTING POLICIES

         The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to interim financial
reporting as prescribed by the Securities and Exchange Commission ("SEC"). These
interim financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999, filed with the SEC.

         The financial statements include all material adjustments, which, in
the opinion of management, were necessary for a fair presentation of the results
for the interim periods. Interim period results are not necessarily indicative
of the results for the full year. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to develop estimates and make assumptions that affect reported
financial position and results of operations and that impact the nature and
extent of disclosure, if any, of contingent assets and liabilities. Actual
results could differ from those estimates.

         On June 14, 1999, Dynegy Inc. announced its intent to acquire Illinova
Corporation ("Illinova"), and completed this acquisition early in the first
quarter 2000. As part of the acquisition of Illinova, Former Dynegy, which was
renamed Dynegy Holdings Inc., became a wholly owned subsidiary of a new holding
company, Dynegy Inc. The assets, liabilities and operations of the former Dynegy
Inc. before the acquisition became the assets, liabilities and operations of
Dynegy Holdings Inc. after the acquisition.

         Dynegy routinely conducts business with subsidiaries of Dynegy Inc.
that are not a part of this consolidated group. These transactions include the
purchase or sale of commodities and other commercial operations as well as
certain other services. Dynegy's results of operations include allocations of
certain overhead, interest, tax and other similar revenues and costs pursuant to
entity-wide sharing arrangements. Affiliate transactions have been conducted at
prices and terms equivalent to those available to and transacted with unrelated
parties, in all material respects.

NOTE 2 -- BUSINESS COMBINATION

On February 1, 2000, the former Dynegy Inc., a Delaware corporation since
renamed Dynegy Holdings Inc. ("Dynegy"), and Illinova Corporation ("Illinova")
merged in a transaction (the "Merger") in which Former Dynegy and Illinova
became wholly owned subsidiaries of Dynegy Inc., a newly formed Illinois
corporation. This Merger, which was approved by shareholders of both Dynegy and
Illinova on October 11, 1999, resulted in each share of Dynegy common stock and
Series A Participating Preferred stock being converted into 0.69 shares of
Dynegy Inc. equity pursuant to the Merger terms. This Merger was accounted for
under the purchase method of accounting and Dynegy was the acquirer for
accounting purposes. As a result of the Merger, Dynegy Inc. is now the Company's
sole shareholder.

NOTE 3 - ACCOUNTING POLICY CHANGE

         The Company continues to analyze the effects of adoption of the rules
promulgated by Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133") as amended by
Financial Accounting Standard No. 137. Provisions in Statement No. 133 will
affect the accounting and disclosure of contractual arrangements and operations
of the Company. Provisions of Statement No. 133 must be applied to fiscal
periods beginning after June 15, 2000. Dynegy intends to adopt the provisions of
Statement No. 133 within the timeframe and in accordance with the requirements
provided by that statement. Management is currently assessing the financial
statement impact of the adoption, however, such impact is not determinable at
this time.

         Management believes the adoption of the provisions of Statement No. 133
may affect the variability of future periodic results reported by Dynegy, as
well as its competitors, as market conditions and resulting trading portfolio
valuations change from time to time. Such earnings variability, if any, will
likely result principally from valuation issues arising from imbalances between
supply and demand created by illiquidity in certain commodity markets resulting
from, among other things, a

                                  PAGE 6 OF 26
<PAGE>   7
lack of mature trading and price discovery mechanisms, transmission and/or
transportation constraints resulting from regulation or other issues in certain
markets and the need for a representative number of market participants
maintaining the financial liquidity and other resources necessary to compete
effectively.

NOTE 4 -- UNCONSOLIDATED AFFILIATES

        At March 31, 2000, Dynegy's investment in unconsolidated affiliates
accounted for by the equity method included: a 25 percent participating
preferred stock interest in Accord Energy Limited, a United Kingdom limited
company; an approximate 23 percent interest in Venice Energy Services Company,
L.L.C.; a 38.75 percent partnership interest in Gulf Coast Fractionators; a 25
percent interest in Midstream Barge Company, L.L.C.; a 39 percent partnership
interest in West Texas LPG Pipeline, Limited Partnership; interests ranging from
eight to 50 percent in seven various entities, each formed to build (or buy),
own and operate power generation facilities located in the United States; a
33.33 percent interest in Waskom Gas Processing Company, a partnership that owns
and operates a natural gas processing, extraction and fractionation facility; a
50 percent interest in NICOR Energy L.L.C., a retail energy alliance located in
the Midwest; and a 20 percent interest in SouthStar Energy Services L.L.C., a
retail energy alliance located in the Southeast.

         Also at March 31, 2000, the Company had three cost basis investments:
Altra Energy Technologies, Inc., Canadian Midstream Services, Ltd. and Compton
Petroleum Corporation. Summarized unaudited combined income statement
information for the unconsolidated affiliates accounted for by the equity method
is presented in the table below:

<TABLE>
<CAPTION>
                                                        THREE-MONTHS ENDED MARCH 31,
                                            ----------------------------------------------------

                                                      2000                        1999
                                            -------------------------   ------------------------
                                                             EQUITY                     EQUITY
                                               TOTAL         SHARE         TOTAL        SHARE
                                            -----------   -----------   -----------  -----------
                                                            ($ IN THOUSANDS)
<S>                                         <C>           <C>           <C>          <C>
      Revenues (1)                          $   392,389   $   128,654   $   237,304  $    93,670
                                            ===========   ===========   ===========  ===========

      Operating margin (1)                  $    89,320   $    30,210   $    85,762  $    34,098
                                            ===========   ===========   ===========  ===========

      Net income (1)                        $    27,175   $     3,356   $    23,733  $    10,247
                                            ===========   ===========   ===========  ===========
</TABLE>
----------------------
(1)  The interim financial data for both periods presented is exclusive of
     amounts attributable to the Company's investment in Accord as such
     information was unavailable.

NOTE 5 -- COMMITMENTS AND CONTINGENCIES

         On August 3, 1998, Modesto Irrigation District ("MID") filed a lawsuit
against PG&E and Destec Energy, Inc. ("Destec") in federal court for the
Northern District of California, San Francisco division. The lawsuit alleges
violation of federal and state antitrust laws and breach of contract against
Destec. The allegations are related to a power sale and purchase arrangement in
the city of Pittsburg, CA. MID seeks actual damages from PG&E and Destec in
amounts not less than $25 million. MID also seeks a trebling of any portion of
damages related to its antitrust claims. By order dated February 2, 1999, the
federal District Court dismissed MID's state and federal antitrust claims
against PG&E and Destec; however, the Court granted MID leave of thirty days to
amend its complaint to state an antitrust cause of action. On March 3, 1999, MID
filed an amended complaint recasting its federal and state antitrust claims
against PG&E and Destec and restating its breach of contract claim against
Destec. PG&E and Destec have filed motions to dismiss MID's revised federal and
state antitrust claims. The hearing on the motions to dismiss was held in July
1999. On August 20, 1999, the District Court again dismissed MID's antitrust
claims against PG&E and Destec, this time without leave to amend the complaint.
As a result of the dismissal of the antitrust claims, the District Court also
dismissed the pendant state law claims. MID has appealed the District Court's
dismissal of its suit to the Ninth Circuit Court of Appeal. Following dismissal
of its federal court suit, MID filed suit in California state court asserting
breach of contract and tortious interference with prospective economic relations
claims against Destec and tortious interference with contract and tortious
interference with prospective economic relations claims against PG&E. Motions to
dismiss MID's state

                                  PAGE 7 OF 26
<PAGE>   8
 court claims were heard by the state court and by order dated April 6, 2000,
MID was directed to amend its complaint. MID filed its amended complaint on
April 20, 2000, including Dynegy as a defendant. Dynegy plans to file a motion
to dismiss MID's amended complaint against Dynegy. Dynegy believes the
allegations made by MID are meritless and will continue to vigorously defend
MID's claims. In the opinion of management, the amount of ultimate liability
with respect to these actions will not have a material adverse effect on the
financial position or results of operations of the Company.

         On July 30, 1999, The Dow Chemical Company ("Dow") filed a lawsuit in
the United States District Court for the District of Delaware against Dynegy
Power Corporation ("DPC"), a wholly-owned subsidiary of the Company. Dow sought
contribution from DPC in connection with claims against Dow asserted by The AES
Corporation ("AES") in a lawsuit filed on November 30, 1998 in the United States
District Court for the Southern District of Texas. AES asserts various federal
and Texas securities laws claims, and Texas claims for fraud and civil
conspiracy, arising out of AES' September 1997 purchase of stock of Destec
Engineering, a subsidiary of DPC (at that time Destec Power Corp). Specifically,
AES alleges that Destec Power made certain misrepresentations about the expected
profits that Destec Engineering would earn in connection with the construction
of the Elsta power plant in The Netherlands, and the anticipated completion date
of the Elsta plant. AES alleges that Dow is liable because it "controlled" or
had the power to control the management of Destec Power. AES's original
complaint did not assert any claims against Destec Power or any other Dynegy
entity. Dow is vigorously defending against AES' claims. In response to a motion
to transfer filed by Dow, the United States District Court for the Southern
District of Texas transferred the suit to the United States District Court for
Delaware. Following transfer of the litigation, AES added DPC as a defendant,
asserting claims similar to the claims asserted against Dow. Dow subsequently
dismissed the suit against DPC without prejudice. AES and DPC have reached a
settlement of AES's claims against DPC, which was approved by the District Court
on April 20, 2000. The order approving the settlement also contains a bar
against any claim for contribution that might otherwise be asserted by Dow
against DPC. The settlement dismisses AES's suit against DPC with prejudice. The
settlement had no impact on Dynegy's results of operations or financial
position.

        The Company is subject to various legal proceedings and claims, which
arise in the normal course of business. Further, in addition to certain
disclosures made previously herein, the Company assumed liability for various
claims, assessments and litigation in connection with its strategic
acquisitions. In the opinion of management, the amount of ultimate liability
with respect to these actions will not have a material adverse effect on the
financial position or results of operations of the Company.

NOTE 6 -- SEGMENT INFORMATION

         Dynegy's operations are divided into three reportable segments: Dynegy
Marketing & Trade ("DMT"), Dynegy Midstream Services ("DMS") and Dynegy Energy
Services ("DES").

o   Dynegy Marketing and Trade focuses on energy convergence - the marketing,
    trading and arbitrage opportunities that exist among power, natural gas and
    coal that can be enhanced by the control and optimization of related
    physical assets.

o   Dynegy's natural gas liquids subsidiary, Dynegy Midstream Services,
    includes North American midstream liquids operations, global natural gas
    liquids transportation and marketing operations.

o   Dynegy Energy Services markets energy products and services to the retail
    sector through direct marketing and strategic alliances with leading
    utility companies

Operating segment information for the three-month periods ended March 31, 2000
and 1999 is presented below.

                                  PAGE 8 OF 26
<PAGE>   9

<TABLE>
<CAPTION>

                                 DYNEGY HOLDINGS INC.'S SEGMENT DATA FOR QUARTER ENDED MARCH 31, 2000
      ==========================================================================================================================


                                                 DMT             DMS              DES         ELIMINATION          TOTAL
                                             -----------      ----------       ---------      ------------       -----------
     <S>                                      <C>             <C>               <C>           <C>                <C>

        Unaffiliated revenues:
           Domestic                           $2,529,562      $1,264,364       $  16,705      $         ---      $ 3,810,631
           Canadian                              373,466         183,509             ---                ---          556,975
           Europe                                431,139             ---             ---                ---              ---
                                              ----------      ----------       ---------      -------------      -----------
                                               3,334,167       1,447,873          16,705                ---        4,798,745
                                              ----------      ----------       ---------      -------------      -----------
        Intersegment revenues:
          Domestic                                15,662          52,332             162            (68,156)             ---
          Canadian                                34,511           8,205             ---            (42,716)             ---
          Europe                                     ---             ---             ---                ---              ---
                                              ----------      ----------       ---------      -------------      -----------
                                                  50,173          60,537             162           (110,872)             ---
                                              ----------      ----------       ---------      -------------      -----------
          Total revenues                       3,384,340       1,508,410          16,867           (110,872)       4,798,745
                                              ----------      ----------       ---------      -------------      -----------

        Operating margin                         129,810          74,079              69                ---          203,958

        Depreciation and amortization             (4,477)        (45,354)           (227)               ---          (50,058)

        Interest expense                         (11,697)         (6,278)           (721)               ---          (18,698)

        Other income (expense)                    54,702         (34,339)            (37)               ---           20,326

        Equity earnings (losses)                  (4,622)          6,274           7,550                ---            9,202

        Income tax (provision) benefit           (47,958)         11,302          (1,628)               ---          (38,284)

        Net income                                73,222         (10,904)          2,129                ---           64,447

        Identifiable assets:
           Domestic                           $4,419,310      $1,897,570        $ 84,847      $         ---      $ 6,401,727
           Canadian                              317,927         121,210             ---                ---          439,137
           Europe                                232,639             ---             ---                ---          232,639


        Investment in unconsolidated
          affiliates                             389,196         173,710          21,457                ---          584,363
        Capital expenditures                    (107,771)        (17,091)         (2,538)               ---         (127,400)
        </TABLE>



                                  PAGE 9 OF 26
<PAGE>   10

<TABLE>
<CAPTION>
                              DYNEGY HOLDINGS INC.'S SEGMENT DATA FOR QUARTER ENDED MARCH 31, 1999
  ========================================================================================================================

                                            DMT               DMS                 DES         ELIMINATION         TOTAL
                                       -------------     -------------          --------     -------------    ------------

    <S>                                <C>               <C>                    <C>          <C>              <C>
    Unaffiliated revenues:
       Domestic                        $   1,630,795     $     698,579          $    ---     $         ---    $  2,329,374
       Canadian                              321,013            43,560               ---               ---         364,573
       Europe                                351,026               ---               ---               ---         351,026
                                       -------------     -------------          --------     -------------    ------------
                                           2,302,834           742,139               ---               ---       3,044,973
                                       -------------     -------------          --------     -------------    ------------
    Intersegment revenues:
      Domestic                                51,752            42,253               ---           (94,005)            ---
      Canadian                                11,293               ---               ---           (11,293)            ---
      Europe                                     ---               ---               ---               ---             ---
                                       -------------     -------------          --------     -------------    ------------
                                              63,045            42,253               ---          (105,298)            ---
                                       -------------     -------------          --------     -------------    ------------
      Total revenues                       2,365,879           784,392               ---          (105,298)      3,044,973
                                       -------------     -------------          --------     -------------    ------------

    Operating margin                          70,106            49,971               ---               ---         120,077

    Depreciation and amortization             (8,561)          (22,727)              ---               ---         (31,288)

    Interest expense                          (9,569)           (9,665)              ---               ---         (19,234)

    Other income (expense)                    10,653              (888)              ---               ---           9,765

    Equity earnings (losses)                  13,286             2,426              (649)              ---          15,063

    Income tax (provision) benefit           (15,751)            2,912               227               ---         (12,612)

    Net income                                26,920             1,573              (422)              ---          28,071

    Identifiable assets:
       Domestic                        $   2,840,733     $   2,047,501          $ 10,443     $         ---    $  4,898,677
       Canadian                              253,927            42,458               ---               ---         296,385
       Europe                                119,323               ---               ---               ---         119,323

    Investment in unconsolidated
    affiliates                               340,756           160,409            10,443               ---         511,608

    Capital expenditures                     (80,431)          (20,905)              ---               ---        (101,336)
</TABLE>

                                  PAGE 10 OF 26
<PAGE>   11

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

         The following discussion and analysis should be read in conjunction
with the unaudited condensed consolidated financial statements of Dynegy
Holdings Inc. included elsewhere herein and with the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.

GENERAL

         COMPANY PROFILE. Dynegy Holdings Inc. ("Dynegy" or the "Company") is a
holding company that conducts substantially all of its business through its
subsidiaries. The Company is a leading provider of energy products and services
in North America, the United Kingdom and continental Europe. Products marketed
by the Company's wholesale marketing operations include natural gas,
electricity, coal, emissions, natural gas liquids, crude oil, liquid petroleum
gas and related services. The Company's wholesale marketing operations are
supported by ownership or control of an extensive asset base and transportation
network that includes unregulated power generation, gas and liquids storage
capacity, gas, power and liquids transportation capacity and gas gathering,
processing and fractionation assets.

         From inception of operations in 1984 until 1990, the Company limited
its activities primarily to natural gas marketing. Starting in 1990, business
operations began expanding through acquisitions and strategic alliances
resulting in the formation of a mid-stream energy asset business and established
energy marketing operations in both Canada and the United Kingdom. The Company
initiated domestic electric power marketing operations in February 1994.
Effective March 1, 1995, the Company acquired Trident NGL Holding, Inc., a fully
integrated natural gas liquids company. On August 31, 1996, NGC completed a
strategic combination with Chevron whereby substantially all of Chevron's
mid-stream assets were acquired. Effective July 1, 1997, the Company acquired
Destec Energy, Inc., a leading independent power producer and developer. During
1998, the Company changed its name to Dynegy Inc. in order to reflect its
evolution from a natural gas marketing company to an energy services company
capable of meeting the growing demands and diverse challenges of the dynamic
energy market of the 21st Century. In 1999, the Company initiated electric power
marketing operations in the United Kingdom and in Europe.

         On June 14, 1999, Dynegy Inc. announced its intent to acquire Illinova
Corporation ("Illinova"), and completed this acquisition early in the first
quarter 2000. As part of the acquisition of Illinova, Former Dynegy, which was
renamed Dynegy Holdings Inc., became a wholly-owned subsidiary of a new holding
company, Dynegy Inc. The assets, liabilities and operations of the former Dynegy
Inc. before the acquisition became the assets, liabilities and operations of
Dynegy Holdings Inc. after the acquisition.

         BUSINESS SEGMENTS. Dynegy's operations are divided into three
reportable segments: Dynegy Marketing & Trade ("DMT"), Dynegy Midstream Services
("DMS") and Dynegy Energy Services ("DES").

o   Dynegy Marketing and Trade focuses on energy convergence - the marketing,
    trading and arbitrage opportunities that exist among power, natural gas and
    coal that can be enhanced by the control and optimization of related
    physical assets.

o   Dynegy's natural gas liquids subsidiary, Dynegy Midstream Services,
    includes North American midstream liquids operations, global natural gas
    liquids transportation and marketing operations.

o   Dynegy Energy Services markets energy products and services to the retail
    sector through direct marketing and strategic alliances with leading
    utility companies.

         UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION. This Form
10-Q contains various forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, and information that are based on management's beliefs as well as
assumptions made by and information currently available to management. When used
in this document, words such as "anticipate", "estimate", "project", "forecast"
and "expect" reflect forward-looking statements. Although the Company believes
that the expectations reflected in such forward-

                                  PAGE 11 OF 26
<PAGE>   12

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

looking statements are reasonable; it can give no assurance that such
expectations will prove to have been correct. Such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, projected,
forecasted or expected. Among the key risk factors that may have a direct
bearing on Dynegy's results of operations and financial condition are:

o   Competitive practices in the industries in which Dynegy competes;
o   Fluctuations in commodity prices for natural gas, electricity, natural gas
    liquids, crude oil or coal;
o   Fluctuations in energy commodity prices which could not or have not been
    properly hedged or that are inconsistent with Dynegy's open position in its
    energy marketing activities;
o   Operational and systems risks;
o   Environmental liabilities which are not covered by indemnity or insurance;
o   General economic and capital market conditions, including fluctuations in
    interest rates;
o   Foreign operations risk associated with the potential volatility of emerging
    countries and fluctuations in foreign currency exchange rates; and
o   The impact of current and future laws and governmental regulations
    (particularly environmental regulations) affecting the energy industry in
    general, and Dynegy's operations in particular.

BUSINESS RISK MANAGEMENT ASSESSMENT

         Dynegy's operations and periodic returns are impacted by a myriad of
factors, some of which may not be mitigated by risk management methods. These
risks include, but are not limited to, commodity price, interest rate and
foreign exchange rate fluctuations, weather patterns, counterparty risk,
operational risks, environmental risks, management estimations, strategic
investment decisions, changes in competition and changes in regulation.

         The Company is exposed to commodity price variability related to its
natural gas, natural gas liquids, crude oil, electricity and coal businesses. In
addition, fuel requirements at its power generation and gas processing
facilities represent additional commodity price risks to the Company. In order
to manage these commodity price risks, Dynegy routinely utilizes certain types
of fixed-price forward purchase and sales contracts, futures and option
contracts traded on the New York Mercantile Exchange and swaps and options
traded in the over-the-counter financial markets to:

o   Manage and hedge its fixed-price purchase and sales commitments;
o   Provide fixed-price commitments as a service to its customers and suppliers;
o   Reduce its exposure to the volatility of cash market prices;
o   Protect its investment in storage inventories; and
o   Hedge fuel requirements at its gas processing and power generation
    facilities.

         The Company may, at times, have a bias in the market, within
established guidelines, resulting from the management of its portfolio. In
addition, as a result of marketplace liquidity and other factors, the Company
may, at times, be unable to fully hedge its portfolio for certain market risks.
Dynegy monitors its exposure to fluctuations in interest rates and foreign
currency exchange rates and may execute swaps, forward-exchange contracts or
other financial instruments to hedge and manage these exposures.

         The Company employs the mark-to-market method of accounting for a
portion of its operations, which accounts for all energy trading activities at
fair value as of each balance sheet date and recognizes currently in its results
of operations the net gains or losses resulting from the revaluation of these
contracts. As a result, substantially all of the operations of the Company's
world-wide gas marketing, power marketing, and certain liquids marketing
operations are accounted for under a mark-to-market accounting methodology. In
certain of these markets, long-term contract commitments may extend beyond the
period in which market quotations for such contracts are available. The lack of
long-term pricing liquidity requires the use of mathematical models to value
these commitments under the accounting method employed. These mathematical
models utilize historical market data to forecast future elongated pricing
curves, which are used to value the commitments that reside outside of the
liquid market

                                  PAGE 12 OF 26
<PAGE>   13

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

quotations. The application of forecasted pricing curves to contractual
commitments may result in realized cash returns on these commitments that vary,
either positively or negatively, from the results estimated through application
of the mathematical model. Dynegy believes that its mathematical models utilize
state-of-the-art technology, pertinent industry data and prudent discounting in
order to forecast certain elongated pricing curves.

         Dynegy's commercial groups manage, on a portfolio basis, the resulting
market risks inherent in commercial transactions, subject to parameters
established by the Dynegy Board of Directors. Market risks are monitored by a
risk control group that operates independently from the commercial units that
create or actively manage these risk exposures to ensure compliance with
Dynegy's risk management policies. Risk measurement is also practiced against
the Dynegy portfolios with value at risk, stress testing and scenario analysis.

         In addition to risks associated with price or interest rate movements,
credit risk is also inherent in the Company's operations. Credit risk relates to
the risk of loss resulting from the nonperformance of contractual obligations by
a counterparty. Dynegy maintains credit policies with regard to its
counterparties, which management believes minimize its overall credit risk.

         Dynegy's stated business strategy is to expand ownership or control of
merchant generation capacity in select markets across the country. Dynegy
believes that merchant generation capacity, which is designed principally to
supply power to markets during periods of peak demand, offers the greatest
flexibility in executing its strategy of an integrated gas and power marketing
and power generation business. This strategy heightens the risk for volatility
in periodic returns by increasing the Company's exposure to variability in
anticipated demand resulting from:

o   changing weather patterns,
o   unexpected delays in industry-wide construction of new capacity,
o   unforeseen supply constraints or bottlenecks resulting from transmission
    failures or other factors,
o   unforeseen new technologies, and
o   other similar factors.

         Further, as Dynegy moves forward with the execution of its strategic
plan of capturing a 10 to 15 percent share of the wholesale power market, risk
of earnings volatility increases through exposure to unanticipated variability
in generation capacity dependability factors. As a result of supply contracts
routine in the industry, Dynegy's exposure relating to performance by these
generating assets resides not only with owned and controlled assets, but also
with third-party operated facilities. The volatility of earnings, whether it be
favorable or unfavorable, will likely be most profound during periods of peak
demand when, and if, regional industry-wide generation capacity fails or is
curtailed. The increasing importance of and dependency upon physical generation
of electricity as a percentage of Dynegy's overall portfolio and strategy may
substantially alter Dynegy's earnings risk profile over time.

         Finally, the addition of these generation assets to Dynegy's portfolio
may increase enterprise exposure to environmental and regulatory laws and
regulations. These exposures could result in increased expenditures for capital
improvements to meet certain statutory requirements or expenditures for
remediation of unanticipated environmental contamination. The potential
redirection of capital to these types of expenditures could reduce the level of
available discretionary capital currently expected to be used in executing
Dynegy's strategic plan in future periods.

         Many of these risks are outside the control of Dynegy and may not be
fully mitigated through application of risk management methods and/or
state-of-the-art, first quartile operating methods.

         SEGMENT PRICE FLUCTUATION EXPOSURES. DMT's integrated component
businesses include: wholesale gas marketing, wholesale power marketing and power
generation. Operating margins earned by wholesale gas and power marketing,

                                  PAGE 13 OF 26
<PAGE>   14

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

exclusive of risk-management activities, are relatively insensitive to commodity
price fluctuations since most purchase and sales contracts do not contain
fixed-price provisions. Generally, prices contained in these contracts are tied
to a current spot or index price and, therefore, adjust directionally with
changes in overall market conditions. However, market price fluctuations for
natural gas and electricity can have a significant impact on the operating
margin derived from risk-management activities in these businesses. Dynegy
generally attempts to balance its fixed-price physical and financial purchase
and sales commitments in terms of contract volumes, and the timing of
performance and delivery obligations. To the extent a net open position exists,
fluctuating commodity market prices can impact Dynegy's financial position or
results of operations, either favorably or unfavorably. The net open positions
are actively managed, and the impact of changing prices on the Company's
financial condition at a point in time is not necessarily indicative of the
impact of price movements throughout the year. Historically, fuel costs,
principally natural gas, represented the primary variable cost impacting the
financial performance of the Company's investment in power generating
facilities. Operating margins at these facilities were relatively insensitive to
commodity price fluctuations since most purchase and sales contracts contained
variable power sales contract features tied to a current spot or index natural
gas price, allowing revenues to adjust directionally with changes in natural gas
prices. However, the Company's investment strategy, which emphasizes growth of
merchant generation capacity, is altering the makeup of its generation asset
portfolio. The growth of merchant generation capacity as a percentage of total
available capacity increases the Company's exposure to commodity price risk. The
financial performance and cash flow derived from merchant generation capacity is
impacted, either favorably or unfavorably, by changes in and the relationship
between the cost of the commodity fueling the facilities and electricity prices.

         Operating margins associated with DMS' natural gas gathering,
processing and fractionation activities are very sensitive to changes in natural
gas liquids prices and the availability of inlet volumes. Commodity price
fluctuations may also affect the operating margins derived from the Company's
natural gas liquid marketing business. The impact from changes in natural gas
liquids prices on upstream operations results principally from the nature of
contractual terms under which natural gas is processed and products are sold. In
addition, certain processing plant assets are impacted by changes in, and the
relationship between, natural gas and natural gas liquids prices which, in turn
influences the volumes of gas processed. Based upon current levels of natural
gas processing activities and industry fundamentals, the estimated impact on
annual operating margins of each one-cent movement in the annual average price
of natural gas liquids approximates $6 to $8 million. The availability of inlet
volumes directly affects the utilization and profitability of the segment's
businesses throughout the Liquids Value Chain. The acquisition of inlet volumes
is highly competitive and the availability of such volumes to industry-wide
participants is also impacted by price variability. Unilateral decisions made by
producers to shut-in production or otherwise curtail workovers, reduce well
maintenance activities and/or delay or cancel drilling activities, as a result
of depressed commodity prices or other factors, negatively affects production
available to the entire midstream industry. Because such decisions are based
upon the pricing environment at any particular time, management cannot predict
with precision the impact that such decisions may have on its business.

         DES operating margins may be impacted by fixed-price commodity risk
imbedded in certain contractual arrangements entered into by the segment. Such
commodity price risk is managed, on a portfolio basis, with similar commodity
risks inherent in the operations of the other business segments.

         SEASONALITY. Dynegy's revenue and operating margin are subject to
fluctuations during the year, primarily due to the impact certain seasonal
factors have on sales volumes and the prices of natural gas, electricity and
natural gas liquids. Natural gas sales volumes and operating margin have
historically been higher in the winter months than in the summer months,
reflecting increased demand due to greater heating requirements and, typically,
higher natural gas prices. Conversely, power marketing operations are typically
impacted by higher demand and commodity price volatility during the summer
cooling season. Consistent with power marketing, the Company's electricity
generating facilities generally experience peak demand during the summer cooling
season, particularly for merchant plant generating facilities. Dynegy believes
that prospective seasonal fluctuations in demand and market prices for natural
gas will reduce over time as industry-wide gas-fired merchant generation
capacity expands in the United States. DMS' businesses are also subject to
seasonal factors; however, such factors typically have a greater impact on sales
prices than on sales volumes. Natural gas liquids prices typically increase
during the winter season due to greater heating requirements. The Company's
wholesale propane business is seasonally weighted in terms of volume and price,
consistent with the trend in the Company's natural gas operations, as a result
of greater demand for crop-drying and space-heating requirements in the fall and
winter months.

                                  PAGE 14 OF 26
<PAGE>   15

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

         EFFECT OF INFLATION. Although Dynegy's operations are affected by
general economic trends, management does not believe inflation has had a
material effect on the Company's results of operations.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's business strategy has historically focused on
acquisitions or construction of core operating facilities in order to capture
significant synergies existing among these types of assets and Dynegy's natural
gas, power and natural gas liquids marketing businesses. The Company's energy
convergence strategies are focused on marketing, trading and arbitrage
opportunities involving natural gas and power, centered around the control and
optimization of Btu conversion capacity within the wholesale gas and power
businesses (a.k.a., "Merchant Leverage Effect"). For the foreseeable future, the
Company's primary focus will be the acquisition and/or construction of merchant
power generating assets that will enable the Company to fully realize the
Merchant Leverage Effect of commercialization of these generating assets.

         Dynegy has historically relied upon operating cash flow and borrowings
from a combination of commercial paper issuances, money market lines of credit,
corporate credit agreements and various public debt issuances for its liquidity
and capital resource requirements. At March 31, 2000, Dynegy had access to an
aggregate $410 million of liquidity available under existing credit facilities,
including commercial paper and money market lines of credit. Approximately $450
million of shelf availability remains under outstanding registration statements,
which may be used for general corporate purposes. Management believes additional
financing arrangements can be obtained at reasonable terms, if required.

         Pursuant to part of its stated plan to finance the cash portion of the
Illinova merger, the Company successfully disposed of non-strategic,
under-performing assets and certain qualifying facilities for aggregate net
proceeds of approximately $667 million. The proceeds from these sales were first
used to retire indebtedness incurred in the acquisition of Illinova and then
redeployed into new business ventures.

         In a public offering effective March 15, 2000, Dynegy issued $300
million of 8.125% Senior Notes due March 15, 2005. Total proceeds net of
underwriting costs were $296.7 million. Interest is payable on the Senior Notes
on March 15 and September 15 of each year, beginning September 15, 2000.
Proceeds were used to repay existing indebtedness of an affiliate.

OTHER MATTERS

        STRATEGIC ECOMMERCE INVESTMENT. In April 2000, Dynegy invested $25
million for a minority interest in eSpeed, Inc. Technology employed by eSpeed
Inc. will serve as the platform for the development of at least four new
commodity-specific electronic spot and futures marketplaces in which the
marketing subsidiaries of Dynegy and other marketers, including Williams
Companies Inc., may participate. Products that could ultimately be traded
include natural gas, electricity, natural gas liquids, petrochemicals, crude oil
and bandwidth. eSpeed anticipates that an electronic marketplace for natural gas
and electricity will be made available to market participants like Dynegy and
Williams in the third quarter, with the development of additional marketplaces
by the end of 2000.

         CAPITAL ASSET PROGRAM. The Company is engaged in a continuous capital
asset expansion program consistent with its business plan and energy convergence
strategies. The emphasis of this capital asset program is on the acquisition or
construction of strategically located power generation assets. Consistent with
this strategy and as a result of the long lead time required by industry
manufacturers, the Company has executed or is currently negotiating purchase
orders to acquire in excess of forty state-of-the-art gas-fired turbines,
representing a capital commitment of approximately $1.3 billion. Delivery of the
manufactured turbines is occurring ratably through 2003. Commitments under these
purchase orders are generally payable consistent with the delivery schedule. The
purchase orders include milestone requirements by the manufacturer and provide
Dynegy with the ability to cancel each discrete purchase order commitment in
exchange for a fee, which escalates over time. The capital asset program is
subject to periodic review and revision, and the actual number of projects and
aggregate cost for

                                  PAGE 15 OF 26
<PAGE>   16

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

such projects will be dependent on various factors including available capital
resources, market conditions, legislative actions, load growth, changes in
materials, supplies and labor costs and the identification of partners in order
to spread investment risk.

         EUROPEAN INVESTMENT. In April, the company announced plans to
participate in the construction and ownership of two gas-fired power generation
plants in Germany through a consortium composed of Dynegy (10.0 percent
interest), Marubeni Corporation (64.9 percent interest) and BAW Holding West
GmbH (25.1 percent interest). The two plants will have combined generating
capacity of 1,200 megawatts. A 400-megawatt facility will be built near
Dortmund, while an 800-megawatt facility will be constructed near Ahaus.
Construction of these facilities is contingent upon obtaining certain regulatory
approvals and permitting. Upon completion in March 2003, the facilities will
provide power primarily to industrial customers and municipalities in the
northwest region of Germany. Dynegy, utilizing its experience in the U.S. and
European energy markets, will lead the development of the projects' commercial
activities, including fuel procurement and power sales.

         QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES. The Company is
exposed to certain market risks inherent in the Company's financial instruments,
which arise from transactions entered into in the normal course of business. The
Company routinely enters into financial instrument contracts to hedge purchase
and sale commitments, fuel requirements and inventories in its natural gas,
natural gas liquids, crude oil, electricity and coal businesses in order to
minimize the risk of market fluctuations. Dynegy also monitors its exposure to
fluctuations in interest rates and foreign currency exchange rates and may
execute swaps, forward-exchange contracts or other financial instruments to
hedge and manage these exposures. The absolute notional contract amounts
associated with commodity risk-management, interest rate and forward exchange
contracts, respectively, were as follows:

               <TABLE>
               <CAPTION>

                                                                             MARCH 31,       DECEMBER 31,
                                                                               2000              1999
                                                                           -------------     -------------
                  <S>                                                      <C>               <C>

                  Natural Gas (Trillion Cubic Feet)                                6.505             5.702
                  Electricity (Million Megawatt Hours)                           215.580            42.949


                  Natural Gas Liquids (Million Barrels)                           26.845            19.902
                  Crude Oil (Million Barrels)                                        ---            35.554
                  Interest Rate Swaps (in thousands of US Dollars)         $         ---     $      36,524
                  Weighted Average Fixed Interest Rate Paid on Swaps                 ---             8.210
                  U.K. Pound Sterling (in thousands of US Dollars)         $      70,625     $      85,812
                  Average U.K. Pound Sterling Contract Rate (in US
                  Dollars)                                                 $      1.6236     $      1.6191
                  Canadian Dollar (in thousands of US Dollars)             $     296,369     $     288,898
                  Average Canadian Dollar Contract Rate (in US Dollars)    $      0.6850     $      0.6775
               </TABLE>

Dynegy measures entity-wide market risk in its financial trading and
risk-management portfolios using value at risk. The quantification of market
risk using value at risk provides a consistent measure of risk across diverse
energy markets and products with different risk factors to set the overall
corporate risk tolerance, determine risk targets, and position limits. The use
of this methodology requires a number of key assumptions including the selection
of a confidence level and the holding period to liquidation. Dynegy relies on
value at risk to determine the maximum potential reduction in the trading
portfolio value allowed within a given probability over a defined period.
Because of limitations to value at risk, Dynegy uses other means to monitor
market risk in the trading portfolios. In addition to value at risk, Dynegy
performs regular stress and scenario analysis to measure extreme losses due to
exceptional events. The value at risk and stress testing results are reviewed to
determine the maximum allowable reduction in the total equity of the commodity
portfolios. Additional measures are used to determine the treatment of risks
outside the value at risk methodologies, such as market volatility, liquidity,
event and correlation risk. Dynegy estimates value at risk using a JP Morgan
RiskMetrics TM approach assuming a one-day holding period and a 95 percent
confidence level. At March 31, 2000, the value at risk for Dynegy's trading and
risk-management

                                  PAGE 16 OF 26
<PAGE>   17

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

portfolios approximated $10.2 million and the average of such value during the
three-month period ended March 31, 2000 was estimated at $6.4 million.

        YEAR 2000 ISSUES. Dynegy completed all phases of the Year 2000 Program
relative to computer systems and technology infrastructure considered essential
to the Company's business prior to the event. The year 2000 event passed without
significant incident. Dynegy's contingency plans are designed to minimize any
disruptions or other adverse effects resulting from unexpected incompatibilities
regarding core systems and business applications and to facilitate the early
identification and remediation of system problems that manifest themselves after
December 31, 1999. To date, no significant items have been identified. Dynegy
continues to assess, test and remediate business applications and technology
infrastructure that were previously determined to be other than essential to
core business operations. The extent of these activities is very insignificant
to Dynegy's overall business.

CONCLUSION

The Company continues to believe that it will be able to meet all foreseeable
cash requirements, including working capital, capital expenditures and debt
service, from operating cash flow, supplemented by borrowings under its various
credit facilities and equity sales, if required.

                                  PAGE 17 OF 26
<PAGE>   18

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

RESULTS OF OPERATIONS

Provided below is a narrative and tabular presentation of certain operating and
financial data and statistics for the Company's businesses for the three-month
periods ended March 31, 2000 and 1999, respectively.

THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999

        For the quarter ended March 31, 2000, Dynegy realized net income of
$64.4 million compared with first quarter 1999 net income of $28.1 million.
First quarter 2000 results included a non-recurring after-tax gain on the sale
of certain qualifying generation facilities of $33.8 million and after-tax
charges aggregating $37.3 million related to the sale and impairment of certain
natural gas liquids assets, the adjustment in the carrying value of the domestic
crude assets related to the anticipated sale of the business and merger related
costs. First quarter 1999 results included an after-tax $5.8 million
non-recurring gain on the sale of an investment. Recurring net income for first
quarter 2000 totaled $68.0 million compared with recurring net income for first
quarter 1999 of $22.3 million.

        First quarter 2000 results were led by a strong performance in energy
convergence operations, particularly in U.S. power and gas and a significant
contribution from Dynegy's European business unit. This quarter's results also
reflect solid returns in Dynegy's natural gas liquids businesses, which
continued to benefit from higher product prices and lower expenses. Consolidated
operating margin for the current quarter totaled $204.0 million compared to
$120.1 million for the same 1999 period, reflecting improved margins in
substantially all business. DMT contributed $129.8 million to first quarter 2000
consolidated operating margin compared to $70.1 million reported in first
quarter 1999, an increase of 85 percent. DMS contributed $74.1 million in first
quarter 2000, a $24.1 million improvement over the 1999 period.

         Operating income increased $56.8 million quarter-to-quarter, reflecting
the significantly higher operating results from the convergence and liquids
businesses partially offset by higher depreciation and amortization and general
and administrative expenses. Increases in depreciation and amortization expense
in the 2000 quarter reflect the impact of the non-recurring impairment of
natural gas liquids processing assets, continued expansion of the Company's
asset base and operations, principally in the convergence businesses, and
enhanced information technology infrastructure. The increased level of general
and administrative expenses reflects the incremental costs associated with a
larger, more diverse base of operations, non-capitalizable consulting and other
costs required to support technology infrastructure improvements and higher
variable compensation costs period-to-period.

        Incremental to Dynegy's consolidated operating income was the Company's
equity share in the earnings of its unconsolidated affiliates, which contributed
approximately $9.2 million and $15.1 million to pre-tax quarterly earnings in
the 2000 and 1999 periods, respectively. Variances period-to-period in these
results reflect the impact of weather driven demand, changes in commodity
prices, particularly as these changes impacted DMS' investments, and the sale of
the qualifying facilities. The following table provides a summary of equity
earnings by investment for the comparable periods.

                                  PAGE 18 OF 26
<PAGE>   19

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

         <TABLE>
         <CAPTION>

                 EQUITY EARNINGS FROM UNCONSOLIDATED AFFILIATES

         ===============================================================================================

                                                                    FOR THE THREE-MONTHS ENDED
                                                                            MARCH 31,
                                                                  -------------------------------
                                                                       2000              1999
                                                                  -------------     -------------

            <S>                                                   <C>               <C>

            DYNEGY MARKETING & TRADE:
               Accord                                             $       3,750     $       4,500
               Power Generation Equity Investments (in
                 aggregate)                                              (8,372)            8,620
               Other, net                                                   ---               167
                                                                  -------------     -------------
                                                                         (4,622)           13,287
                                                                  -------------     -------------

            DYNEGY ENERGY SERVICES:                                       7,550              (649)
                                                                  -------------     -------------

            DYNEGY MIDSTREAM SERVICES:
               Gulf Coast Fractionators                                     701               870
               West Texas LPG Pipeline Limited Partnership                1,304               872
               Venice Energy Services Company, L.L.C.                     2,449               294
               Other, net                                                 1,820               389
                                                                  -------------     -------------
                                                                          6,274             2,425
                                                                  -------------     -------------

                                                                  $       9,202     $      15,063
                                                                  ==============    =============
         </TABLE>


         Interest expense totaled $18.7 million for the quarter ended March 31,
2000, compared to $19.2 million for the equivalent 1999 period. The variance is
attributable to the level of capital allocated to the Company pursuant to the
entity-wide sharing arrangement, which resulted in lower principal balances
period-to-period partially offset by higher average interest rates. Accumulated
distributions associated with trust preferred securities and preferred stock of
wholly-owned subsidiaries totaled $4.2 million for each quarter ended March 31,
2000 and 1999, respectively.

         Other income and expenses, net reflected a gain of $20.3 million in the
quarter ended March 31, 2000 compared with income of $9.8 million in the 1999
period. The 2000 quarter included a pre-tax gain on the sale of certain
qualifying generation facilities of $52.0 million and pre-tax charges
aggregating $57.4 million related to the sale of certain natural gas liquids
assets and merger related costs. The 1999 period included a pre-tax gain of $8.9
million related to the sale of an investment. The remaining amounts consisted of
interest income, minority interests in consolidated subsidiaries and certain
other recurring and non-recurring income and expense items in both periods. The
2000 period includes allocations of certain income and expense items pursuant to
entity-wide sharing arrangements.

         The Company reported an income tax provision of $38.3 million for the
three-month period ended March 31, 2000, compared to an income tax provision of
$12.6 million for the 1999 period. The effective rates approximated 37 and 31
percent in 2000 and 1999, respectively. The difference between the
aforementioned effective rate and the statutory rate of 35 percent for 2000
results primarily from state income taxes and certain permanent differences. The
difference for the 1999 periods results principally from permanent differences
arising from the amortization of certain intangibles and debt premiums,
permanent differences from the effect of certain foreign equity investments and
state income taxes.

                                  PAGE 19 OF 26
<PAGE>   20

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

SEGMENT DISCLOSURES -

  <TABLE>
  <CAPTION>

                            DYNEGY MARKETING & TRADE

===============================================================================================================

                                                                    THREE MONTHS ENDED MARCH 31,
                                                             -------------------------------------------
                                                                  2000                        1999
                                                             ---------------             ---------------
                                                                          (in thousands)
<S>                                                          <C>                         <C>
   Operating Margin:
     Power Marketing and Generation                          $        46,452             $        37,432

       Natural Gas Marketing                                          32,353                      24,601
     European Gas and Power Marketing                                 51,005                       8,077
   Equity Investments                                                 (4,622)                     13,286
                                                             ---------------             ---------------

         SUBTOTAL - FINANCIAL CONTRIBUTION                           125,188                      83,392

     Depreciation                                                     (4,477)                     (8,561)
     General and Administrative Expenses                             (39,253)                    (31,539)
     Other Items                                                      54,702                      10,653
                                                             ---------------             ---------------

         EARNINGS BEFORE INTEREST AND TAXES                          136,160                      53,945
   Interest Expense                                                  (14,980)                    (11,274)
                                                             ---------------             ---------------
         PRE-TAX EARNINGS                                            121,180                      42,671
   Income Tax Provision                                               47,958                      15,751
                                                             ---------------             ---------------
         NET INCOME                                          $        73,222             $        26,920
                                                             ===============             ===============

         RECURRING NET INCOME                                $        41,480             $        21,155
                                                             ===============             ===============

   OPERATING STATISTICS:
     Natural Gas Marketing (Bcf/d) -
       U.S. Sales Volumes                                                7.3                         7.0
       Canadian Sales Volumes                                            2.3                         2.3
         Europe Sales Volumes                                            2.0                         1.6
                                                             ---------------             ---------------
                                                                        11.6                        10.9
                                                             ===============             ===============

     Power Generation (Million Megawatt Hours
    Generated) -
       Gross                                                             3.4                         3.6

       Net                                                               2.2                         2.4
      Electric Power Marketing - Million Megawatt
        Hours Sold                                                      15.1                        13.1
                                                             ---------------             ---------------
                                                                        17.3                        15.5
                                                             ===============             ===============
      </TABLE>

         Dynegy Marketing & Trade reported recurring segment net income of $41.5
million for the three-month period ended March 31, 2000, compared with recurring
net income of $21.2 million in the 1999 quarter. Included in first quarter 2000
earnings is a non-recurring after-tax gain of $33.8 million relating to the sale
of certain qualifying facilities and an after-tax $2.1 million charge related to
merger costs. Included in first quarter 1999 earnings is a non-recurring
after-tax gain of $5.8 million related to the sale of an investment. Recurring
results of operations period-to-period were influenced by:

o   increased domestic and European power origination, and
o   improved returns from worldwide power and gas marketing and trading
    operations, offset by
o   increased depreciation and general and administrative expenses reflecting
    higher variable compensation costs and increased capital and overhead costs
    required to support the larger, more diverse base of operations.

                                  PAGE 20 OF 26
<PAGE>   21

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

        Total megawatt hours produced and sold during the 2000 quarter
aggregated 17.3 million megawatt hours compared to 15.5 million megawatt hours
during the 1999 period. The increase is a result of increased trading volumes
due to more favorable market conditions. Total natural gas volumes sold
increased to 11.6 billion cubic feet per day from 10.9 billion cubic feet per
day during last year's first quarter, principally as a result of increased
volumes sold to the retail alliances and to fuel gas-fired generation in the
U.S.

  <TABLE>
  <CAPTION>

                            DYNEGY MIDSTREAM SERVICES

===============================================================================================================

                                                                    THREE MONTHS ENDED MARCH 31,
                                                             -------------------------------------------
                                                                  2000                         1999
                                                             ---------------             ---------------
                                                                          (in thousands)
<S>                                                          <C>                         <C>
   Operating Margin:
     Upstream Operations                                     $        32,368             $        18,340
     Downstream Operations                                            41,711                      31,632
   Equity Investments                                                  6,274                       2,425
                                                             ---------------             ---------------
         SUBTOTAL - FINANCIAL CONTRIBUTION                            80,353                      52,397

     Depreciation                                                    (45,354)                    (22,727)
     General and Administrative Expenses                             (15,780)                    (18,003)
     Other Items                                                     (34,339)                       (888)
                                                             ---------------             ---------------
         EARNINGS (LOSS) BEFORE INTEREST AND TAXES                   (15,120)                     10,779
   Interest Expense                                                   (7,086)                    (12,118)
                                                             ---------------             ---------------
         PRE-TAX EARNINGS (LOSS)                                     (22,206)                     (1,339)
   Income Tax Benefit                                                (11,302)                     (2,912)
                                                             ---------------             ---------------
         NET INCOME (LOSS)                                   $       (10,904)            $         1,573
                                                             ===============             ===============

         RECURRING NET INCOME                                $        24,177             $         1,573
                                                             ===============             ===============

   OPERATING STATISTICS:
     Natural Gas Liquids Processed (MBbls/d - Gross) -
       Field Plants                                                     75.4                        88.5
       Straddle Plants                                                  41.1                        28.6
                                                             ---------------             ---------------
                                                                       116.5                       117.1
                                                             ===============             ===============
     Barrels Received for Fractionation (MBbls/d)                      219.3                       161.3
     Natural Gas Liquids Sold                                          595.5                       539.4

     Average Commodity Prices:
       Henry Hub Natural Gas (First of Month)                $          2.53             $          1.75
       Crude Oil - Cushing                                             26.23                       10.39
       Average Mont Belvieu Price                                       0.53                        0.23
      </TABLE>

         Dynegy Midstream Services reported recurring net income of $24.2
million in the first quarter of 2000 compared with recurring net income of $1.6
million in the same 1999 quarter. Included in first quarter 2000 earnings is an
aggregate non-recurring after-tax charge of $35.1 million relating to the sale
and impairment of certain assets and businesses and allocated merger costs. On a
pre-tax basis, $25 million of this charge is included in depreciation expense
and $29 million is included in other items. Recurring results of operations
period-to-period were influenced by:

                                  PAGE 21 OF 26
<PAGE>   22

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

o   substantially improved natural gas liquids commodity prices,
o   volatile commodity markets,
o   on-time inventory management techniques,
o   lower operating costs,
o   an active hedging program in 2000,
o   lower depreciation costs, and
o   lower general and administrative and non-variable compensation expenses.

         Aggregate domestic natural gas liquids processing volumes totaled 116.5
thousand gross barrels per day in 2000 compared to an average 117.1 thousand
gross barrels per day during 1999. The net decrease in processing volumes is a
result of a decrease in field volumes resulting from the sale of the Ark-La-Tex
assets in fourth quarter 1999 and the mid-Continent assets in March 2000.
Increases in straddle plant volumes, which reflect the improved pricing
relationship between natural gas and natural gas liquids period-to-period,
partially offset the lower field plant production in 2000. After deducting the
impact on 1999's first quarter production of volumes related to the Ark-La-Tex
and mid-Continent assets, normalized processing volumes increased 24 percent in
2000. Fractionation volumes increased principally as a result of the
aforementioned improved relationship between natural gas and natural gas liquids
prices that induced increased straddle production period-to-period resulting in
greater volumes available for fractionation. Natural gas liquids marketing
volumes were higher period over period reflecting improved demand in the
chemicals and wholesale markets.

  <TABLE>
  <CAPTION>

                             DYNEGY ENERGY SERVICES

===============================================================================================================

                                                                   THREE MONTHS ENDED MARCH 31,
                                                             ------------------------------------------
                                                                  2000                        1999
                                                             ---------------             --------------
                                                                          (in thousands)
<S>                                                          <C>                         <C>
   Retail Operating Margin                                   $            69             $          ---
   Equity Investments                                                  7,550                       (649)
                                                             ---------------             --------------

         SUBTOTAL - FINANCIAL CONTRIBUTION                             7,619                       (649)

     Depreciation                                                       (227)                       ---
     General and Administrative Expenses                              (2,808)                       ---
     Other Items                                                         (37)                       ---
                                                             ---------------             --------------

         EARNINGS (LOSS) BEFORE INTEREST AND TAXES                     4,547                       (649)
   Interest Expense                                                     (790)                        --
                                                             ---------------             --------------
         PRE-TAX EARNINGS (LOSS)                                       3,757                       (649)
   Income Tax Provision (Benefit)                                      1,628                       (227)
                                                             ---------------             --------------
         NET INCOME (LOSS)                                   $         2,129             $         (422)
                                                             ===============             ==============

         RECURRING NET INCOME (LOSS)                         $         2,316             $         (422)
                                                             ===============             ==============
      </TABLE>

         Dynegy Energy Services reported recurring net income of $2.3 million,
compared with a recurring net loss of $422,000 in the 1999 period. Improved
earnings reflect positive results in the quarter related to the segment's
interests in its mid-west and southeast retail alliances. This segment was
formed effective with the acquisition of Illinova and is engaged in the
marketing of retail energy products and services through direct marketing and
strategic alliances with regional market leaders. Dynegy's goal is to form a
North American network of regional retail energy alliances while building upon
Illinova's retail operations, which included three distinct strategies:
commercial & industrial and retail commodity sales and services; non-commodity
energy related products and services; and, energy information software products.

                                  PAGE 22 OF 26
<PAGE>   23

                              DYNEGY HOLDINGS INC.

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999

OPERATING CASH FLOW

         Cash flow from operating activities totaled $83.9 million for the
three-month period ended March 31, 2000, compared to a use of cash of $(11.8)
million reported in the same 1999 period. Changes in operating cash flow reflect
the operating results previously discussed herein and changes in working
capital, particularly investment in discretionary inventory volumes
period-to-period. Changes in other working capital accounts, which include trade
receivables and payables prepayments, other current assets and accrued
liabilities, reflect expenditures or recognition of liabilities for settlements
of certain litigation, insurance costs, certain deposits, salaries, taxes other
than on income, certain deferred revenue accounts and other similar items.
Fluctuations in these accounts, period-to-period, reflect changes in the timing
of payments or recognition of liabilities and are not directly impacted by
seasonal factors.

CAPITAL EXPENDITURES AND INVESTING ACTIVITIES

        Investing activities in the 2000 quarter included a net $127.4 million
expended principally on construction of power generation assets, maintenance
capital related to the transmission and distribution segment and investment
associated with technology infrastructure. The Company received cash inflows of
approximately $667 million in the first quarter 2000 principally related to the
sale of certain qualifying facilities and liquids assets. These cash inflows
were used primarily to retire indebtedness resulting from the acquisition.
During the three-months ended March 31, 1999, the Company spent $140.3 million,
principally on the acquisition of power generating assets, maintenance capital
improvements at existing facilities and capital investment associated with
technology infrastructure. Additionally, during the 1999 period, the Company
received proceeds of $16.7 million principally related to the sale of an
investment.

FINANCING ACTIVITIES

         In a public offering effective March 15, 2000, Dynegy issued $300
million of 8.125% Senior Notes due March 15, 2005. Total proceeds net of
underwriting costs were $296.7 million. Interest is payable on the Senior Notes
on March 15 and September 15 of each year, beginning September 15, 2000.
Proceeds were used to repay existing indebtedness of an affiliate.

                                  PAGE 23 OF 26
<PAGE>   24

                              DYNEGY HOLDINGS INC.
                           PART II. OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

                  On August 3, 1998, Modesto Irrigation District ("MID") filed a
lawsuit against PG&E and Destec Energy, Inc. ("Destec") in federal court for the
Northern District of California, San Francisco division. The lawsuit alleges
violation of federal and state antitrust laws and breach of contract against
Destec. The allegations are related to a power sale and purchase arrangement in
the city of Pittsburg, CA. MID seeks actual damages from PG&E and Destec in
amounts not less than $25 million. MID also seeks a trebling of any portion of
damages related to its antitrust claims. By order dated February 2, 1999, the
federal District Court dismissed MID's state and federal antitrust claims
against PG&E and Destec; however, the Court granted MID leave of thirty days to
amend its complaint to state an antitrust cause of action. On March 3, 1999, MID
filed an amended complaint recasting its federal and state antitrust claims
against PG&E and Destec and restating its breach of contract claim against
Destec. PG&E and Destec have filed motions to dismiss MID's revised federal and
state antitrust claims. The hearing on the motions to dismiss was held in July
1999. On August 20, 1999, the District Court again dismissed MID's antitrust
claims against PG&E and Destec, this time without leave to amend the complaint.
As a result of the dismissal of the antitrust claims, the District Court also
dismissed the pendant state law claims. MID has appealed the District Court's
dismissal of its suit to the Ninth Circuit Court of Appeal. Following dismissal
of its federal court suit, MID filed suit in California state court asserting
breach of contract and tortious interference with prospective economic relations
claims against Destec and tortious interference with contract and tortious
interference with prospective economic relations claims against PG&E. Motions to
dismiss MID's state court claims were heard by the state court and by order
dated April 6, 2000, MID was directed to amend its complaint. MID filed its
amended complaint on April 20, 2000, including Dynegy as a defendant. Dynegy
plans to file a motion to dismiss MID's amended complaint against Dynegy. Dynegy
believes the allegations made by MID are meritless and will continue to
vigorously defend MID's claims. In the opinion of management, the amount of
ultimate liability with respect to these actions will not have a material
adverse effect on the financial position or results of operations of the
Company.

         On July 30, 1999, The Dow Chemical Company ("Dow") filed a lawsuit in
the United States District Court for the District of Delaware against Dynegy
Power Corporation ("DPC"), a wholly-owned subsidiary of the Company. Dow sought
contribution from DPC in connection with claims against Dow asserted by The AES
Corporation ("AES") in a lawsuit filed on November 30, 1998 in the United States
District Court for the Southern District of Texas. AES asserts various federal
and Texas securities laws claims, and Texas claims for fraud and civil
conspiracy, arising out of AES' September 1997 purchase of stock of Destec
Engineering, a subsidiary of DPC (at that time Destec Power Corp). Specifically,
AES alleges that Destec Power made certain misrepresentations about the expected
profits that Destec Engineering would earn in connection with the construction
of the Elsta power plant in The Netherlands, and the anticipated completion date
of the Elsta plant. AES alleges that Dow is liable because it "controlled" or
had the power to control the management of Destec Power. AES's original
complaint did not assert any claims against Destec Power or any other Dynegy
entity. Dow is vigorously defending against AES' claims. In response to a motion
to transfer filed by Dow, the United States District Court for the Southern
District of Texas transferred the suit to the United States District Court for
Delaware. Following transfer of the litigation, AES added DPC as a defendant,
asserting claims similar to the claims asserted against Dow. Dow subsequently
dismissed the suit against DPC without prejudice. AES and DPC have reached a
settlement of AES's claims against DPC, which was approved by the District Court
on April 20, 2000. The order approving the settlement also contains a bar
against any claim for contribution that might otherwise be asserted by Dow
against DPC. The settlement dismisses AES's suit against DPC with prejudice. The
settlement had no impact on Dynegy's results of operations or financial
position.

         The Company is subject to various legal proceedings and claims, which
arise in the normal course of business. Further, in addition to certain
disclosures made previously herein, the Company assumed liability for various
claims, assessments and litigation in connection with its strategic
acquisitions. In the opinion of management, the amount of ultimate liability
with respect to these actions will not have a material adverse effect on the
financial position or results of operations of the Company.

                                  PAGE 24 OF 26
<PAGE>   25

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)     The following instruments and documents are included as exhibits to this
        Form 10-Q.

<TABLE>
<CAPTION>
                  EXHIBIT NUMBER                                       DESCRIPTION
                  --------------                                       -----------
                  <S>                       <C>

                        1.1                 Underwriting Agreement dated March 15, 2000 among the Company and the
                                            Underwriters named therein relating to the sale of Senior Notes. (1)

                        4.1                 Form of 8.125% Senior Note due 2005 (1)

                       27.1                 Financial Data Schedule

(b)     Current Report on Form 8-K, Commission File No.  1-11156, dated March 15, 2000, relating to the issuance
       and sale by Dynegy Holdings Inc. of $300,000,000 aggregate principal amount of 8.125% Senior Notes due
       March 15, 2005 in an underwritten public offering.
</TABLE>

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

(1)     Incorporated by reference to exhibits to the Current Report on Form 8-K
of Dynegy Holdings Inc. dated March 15, 2000.

                                  PAGE 25 OF 26
<PAGE>   26

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.

                                                   DYNEGY HOLDINGS INC.




Date:     May 15, 2000                    By:    /s/  Bradley P. Farnsworth
         -------------                           -------------------------------

                                                 Bradley P. Farnsworth, Senior
                                                 Vice President and Controller
                                                 (Principal Accounting Officer)

                                  PAGE 26 OF 26
<PAGE>   27
                                 EXHIBIT INDEX


    EXHIBIT
    NUMBER                        DESCRIPTION
    ------                        -----------

     1.1              -- Underwriting Agreement dated March 15, 2000 among the
                         Company and the Underwriters named therein relating to
                         the sale of Senior Notes.(1)

     4.1              -- Form of 8.125% Senior Note due 2005.(1)

    27.1              -- Financial Data Schedule.

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

  (1)  Incorporated by reference to exhibits to the Current Report on Form 8-K
       of Dynegy Holdings Inc. dated March 15, 2000.