CENTRAL ILLINOIS LIGHT CO - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ........ to ........

Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.

2-95569 CILCORP Inc. 37-1169387
(An Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 677-5230

1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050
(An Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 677-5230

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

Name of each exchange
Title of each class so registered on which registered

CILCO Preferred Stock, Cumulative
$100 par, 4 1/2% series New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.

Yes [X]. No [ ].

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

Indicate by check mark whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ]. No [X].

1

As of June 28, 2002, The AES Corporation held all 1,000 outstanding shares of
common stock, without par value, of CILCORP Inc. At June 28, 2002, there was no
voting stock of CILCORP Inc. held by non-affiliates. At March 31, 2003, Ameren
Corporation held all 1,000 outstanding shares of common stock, without par
value, of CILCORP Inc., as a result of Ameren Corporation's acquisition of the
shares from The AES Corporation on January 31, 2003.

As of June 28, 2002, and March 31, 2003, CILCORP Inc. held all 13,563,871 shares
of common stock, without par value, of Central Illinois Light Company. The
aggregate market value of the voting preferred stock held by non-affiliates of
Central Illinois Light Company at June 28, 2002, was $36.0 million.

OMISSION OF CERTAIN INFORMATION

CILCORP Inc. meets the conditions set forth in General Instruction (I)(1)(a) and
(b) of Form 10-K as a wholly owned subsidiary of Ameren Corporation and is
therefore filing this form with the reduced disclosure format allowed under that
General Instruction.

DOCUMENT INCORPORATED BY REFERENCE

Portions of Central Illinois Light Company's Proxy Statement, to be filed not
later than April 25, 2003, in connection with its Annual Meeting of Shareholders
to be held on May 20, 2003, is incorporated by reference into Part III hereof.

2

CILCORP INC. and
Central Illinois Light Company
2002 Form 10-K Annual Report

This combined Form 10-K is filed separately by CILCORP Inc. and its subsidiaries
(CILCORP or the Company) and Central Illinois Light Company and its subsidiaries
(CILCO). Information herein relating to each individual registrant is filed by
such registrant on its own behalf. Accordingly, except for its subsidiaries,
CILCO makes no representation as to information relating to any other subsidiary
of CILCORP Inc.

Table of Contents

This Form 10-K contains "forward-looking" statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements should be read with the cautionary statements and important factors
included in this Form 10-K at page 52 under the heading Forward-Looking
Statements. Forward-looking statements are all statements other than statements
of historical fact, including those statements that are identified by the use of
the words "anticipates," "estimates," "expects," "intends," "plans," "predicts,"
"projects," and similar expressions.

3

GLOSSARY OF TERMS

When used herein, the following terms have the meanings indicated.

AEG -- Ameren Energy Generating Company

AER -- Ameren Energy Resources Company

AES -- The AES Corporation, parent of CILCORP Inc. prior to acquisition of
CILCORP Inc. by Ameren Corporation on January 31, 2003.

AFUDC -- Allowance for Funds Used During Construction

Ameren -- Ameren Corporation, parent of CILCORP Inc. upon completion of
acquisition on January 31, 2003.

AmerenCILCO or CILCO -- Central Illinois Light Company

AmerenCIPS -- Central Illinois Public Service Company

AmerenEnergy -- AmerenEnergy, Inc.

AmerenUE or Union Electric -- Union Electric Company

Ameren Services -- Ameren Services Company

APB - Accounting Principles Board

BTU -- British Thermal Unit. The quantity of heat required to raise the
temperature of one pound of water one degree Fahrenheit.

Bcf -- Billion cubic feet

Caterpillar -- Caterpillar Inc., CILCO's largest customer

CECO -- CILCO Energy Corporation

CEDCO -- CILCO Exploration and Development Company

CESI -- CILCORP Energy Services Inc.

CIGI -- Central Illinois Generation, Inc. (renamed AmerenEnergy Resources
Generating Company in April 2003)

CII -- CILCORP Infraservices Inc.

CILCORP -- CILCORP Inc. and subsidiaries

CILCORP Inc. -- the Holding Company

CIM -- CILCORP Investment Management Inc.

CIPS -- Central Illinois Public Service

CLM -- CILCORP Lease Management Inc.

Company -- CILCORP Inc. and subsidiaries

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Cooling Degree Day -- The measure of the extent to which the average of high and
low temperatures for a day rises above 65 degrees
Fahrenheit (annual degree days above historic average
indicate warmer than average temperatures); the historic
average provided by The National Weather Service for
30-year period.

CVI -- CILCORP Ventures Inc.

DSM -- Demand Side Management. The process of helping customers control how they
use energy resources.

EEI -- Electric Energy, Inc.

EITF -- Emerging Issues Task Force

EPA -- U.S. Environmental Protection Agency

FAC -- Fuel Adjustment Clause

FASB -- Financial Accounting Standards Board

FERC -- Federal Energy Regulatory Commission

Generating Company -- AmerenEnergy Generating Company

Heating Degree Day -- The measure of the extent to which the average of high and
low temperatures for a day falls below 65 degrees
Fahrenheit (annual degree days above historic average
indicates cooler than average temperatures); the historic
average provided by The National Weather Service for
30-year period.

Holding Company -- CILCORP Inc.

ICC -- Illinois Commerce Commission

IEPA -- Illinois Environmental Protection Agency

KW -- Kilowatt, a thousand watts

kWh -- Kilowatt-hour, one thousand watts used for one hour (unit of work)

Marketing Company -- AmerenEnergy Marketing Company

MCF -- One thousand cubic feet

MW -- Megawatt, a million watts

NOx - Nitrogen oxide

PGA -- Purchased Gas Adjustment

PUHCA -- Public Utility Holding Company Act of 1935

QST -- QST Enterprises Inc.

QST Energy -- QST Energy Inc.

QST Trading -- QST Energy Trading Inc.

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Resources Company -- AmerenEnergy Resources Company

SEC -- Securities and Exchange Commission

SFAS -- Statement of Financial Accounting Standards

SO2 -- Sulfur dioxide

Therm -- Unit of measurement for natural gas; a therm is equal to one hundred
cubic feet (volume); a therm is also equal to 100,000 BTUs (energy).

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PART I

Item 1. Business

CILCORP INC. AND SUBSIDIARIES

CILCORP Inc. (the Holding Company) was incorporated as a holding company in the
state of Illinois in 1985. The financial condition and results from continuing
operations of CILCORP Inc. and its subsidiaries (CILCORP or the Company)
primarily reflect the operations of Central Illinois Light Company (CILCO),
CILCORP Inc.'s principal business subsidiary. In the fourth quarter of 1998, the
operations of CILCORP Inc.'s first-tier subsidiary QST Enterprises Inc. (QST)
and its subsidiaries (excluding ESE Land Corporation and CILCORP Infraservices
Inc.) were discontinued (see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations) and, therefore, are being
reported as discontinued operations in the financial statements. The Holding
Company also has two other first-tier subsidiaries, CILCORP Investment
Management Inc. (CIM) and CILCORP Ventures Inc. (CVI), whose operations,
combined with those of ESE Land Corporation, CILCORP Infraservices Inc., and the
Holding Company itself, are collectively referred to herein as CILCORP Other.
CILCORP Inc. owns 100% of the common stock of all of its subsidiaries.

At December 31, 2002, CILCORP Inc. was a wholly-owned subsidiary of The AES
Corporation (AES). On April 29, 2002, AES announced an agreement with Ameren
Corporation (Ameren) to sell 100% of its ownership interest in CILCORP Inc. and
its subsidiaries. Ameren completed the acquisition of the Company on January 31,
2003. Refer to Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations for discussion regarding this transaction.

CILCO is engaged in the generation, transmission, distribution and sale of
electric energy in an area of approximately 3,700 square miles in central and
east-central Illinois, and the purchase, distribution, transportation and sale
of natural gas in an area of approximately 4,500 square miles in central and
east-central Illinois.

CILCO has three wholly-owned subsidiaries, CILCO Exploration and Development
Company (CEDCO), CILCO Energy Corporation (CECO) and Central Illinois
Generation, Inc. (CIGI). CEDCO was formed to engage in the exploration and
development of gas, oil, coal and other mineral resources. CECO was formed to
research and develop new sources of energy, including the conversion of coal and
other minerals into gas. The operations of CEDCO and CECO are not significant.
CIGI is an inactive subsidiary incorporated on November 15, 2001. CIGI was
formed in anticipation of CILCO's filing with the Illinois Commerce Commission
(ICC) seeking approval to transfer substantially all of its electric generation
assets to a non rate-regulated subsidiary. CILCO filed a Notice of Transfer of
Assets with the ICC on February 13, 2002. The ICC approved this filing on April
10, 2002. The Transfer of Assets was contingent upon FERC approval of a
long-term power supply agreement (PSA). Final FERC approval was granted on
December 27, 2002. Due to the acquisition of CILCORP by Ameren, this transaction
is expected to be completed by the third quarter of 2003.

QST, formed in December 1995, provided energy and energy-related services to a
broad spectrum of retail and wholesale customers through its subsidiary, QST
Energy Inc. (QST Energy). QST Energy has one wholly-owned subsidiary - QST
Energy Trading Inc. (QST Trading), which purchased and sold energy in the
wholesale market. In the fourth quarter of 1998, QST decided to discontinue its
energy operations and report their results as discontinued. Refer to the

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caption "QST Enterprises Discontinued Operations" of Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.

CIM manages the Company's investment portfolio. CIM holds seven leveraged lease
investments through three wholly-owned subsidiaries: CILCORP Lease Management
Inc., which was formed in 1985, and CIM Leasing Inc. and CIM Air Leasing Inc.,
which were both formed in 1993. CIM's other wholly-owned subsidiary is CIM
Energy Investments Inc., which was formed in 1989 to invest in non
rate-regulated, independent power production facilities. CIM also directly owns
limited partnership interests in affordable housing portfolios.

CVI primarily invests in ventures in energy-related products and services. CVI
has an 80% interest in the Agricultural Research and Development Corporation and
has one wholly-owned subsidiary, CILCORP Energy Services Inc. (CESI). CESI was
formed to pursue energy-related opportunities in the non rate-regulated market.
CESI's primary business is gas management services, which includes commodity
procurement and re-delivery to retail customers.

The following table summarizes the relative contribution of each business group
to consolidated assets at December 31, 2002, and to revenue and net income for
the year ended December 31, 2002. The financial information as of and for the
years ended December 31, 2001 and 2000 has been restated. See Note 19 --
Restatement to CILCORP's consolidated financial statements and Note 17 --
Restatement to CILCO's consolidated financial statements for additional
information.

8

BUSINESS OF CILCO

CILCO was incorporated under the laws of Illinois in 1913. CILCO's principal
business is the generation, transmission, distribution and sale of electric
energy in an area of approximately 3,700 square miles in central and
east-central Illinois, and the purchase, distribution, transportation and sale
of natural gas in an area of approximately 4,500 square miles in central and
east-central Illinois.

CILCO is continuing to experience, in varying degrees, the impact of
developments common to the electric and gas industries. These include increased
competition in wholesale and retail markets, changes in regulation and
legislation affecting utilities, uncertainties as to the future demand for
electricity and natural gas, structural and competitive changes in the markets
for these commodities, the high cost of compliance with environmental and safety
laws and regulations and uncertainties in regulatory and political processes. At
the same time, CILCO has sought to provide reliable service at reasonable rates
for its customers and a fair return for its investors. Refer to the caption
"Regulatory Matters" of Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.

ELECTRIC SERVICE

CILCO furnishes electric service to retail customers in 136 Illinois communities
(including Peoria, East Peoria, Pekin, Lincoln and Morton). At December 31,
2002, CILCO had approximately 200,000 retail electric customers.

CILCO owns and operates two coal-fired base load generating plants, a natural
gas-fired cogeneration plant, two natural gas combustion turbine generators and
16 diesel-fueled power modules. The natural gas combustion turbine generators
and the power modules are typically used for peaking service. The 2002 system
peak demand was 1,270 MW on August 1, 2002. The all-time system peak demand of
1,287 MW was set on July 31, 2001.

The system peak demand for 2003 is estimated to be 1,242 MW with a planned
reserve margin in excess of 16%. The planned reserve margin takes into account
100 MW of net firm purchased power, approximately 64 MW of interruptible
industrial load and 137 MW of unit or system power purchases and other related
Demand Side Management (DSM) programs.

Studies conducted by CILCO indicate that it has sufficient base load generating
capacity to provide an adequate and reliable supply of electricity to satisfy
base load demand; however, CILCO must purchase capacity and energy to meet its
summer peak demands and reserve requirements. CILCO has a power purchase
agreement with Aquila for 75 MW of capacity and firm energy through December
2003, and with AmerenCIPS for 100 MW of capacity and firm energy for the months
of June through September in 2003.

CILCO is interconnected with AmerenCIPS, Commonwealth Edison Company, Illinois
Power Company and the Springfield City Water, Light and Power Department to
provide for the interchange of electric energy on an emergency and mutual help
basis.

GAS SERVICE

CILCO provides gas service to customers in 128 Illinois communities (including
Peoria, East Peoria, Pekin, Lincoln and Springfield). At December 31, 2002,
CILCO had approximately 205,000 gas customers, including 170 industrial,
commercial and residential gas transportation customers that purchase gas

9

directly from suppliers for transportation through CILCO's system. For further
discussion of gas transportation, refer to the caption "CILCO Gas Operations" of
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

CILCO's all-time maximum daily send-out of 443,167 MCF occurred on January 15,
1972. The 2002 peak day send-out of 344,945 MCF occurred on March 3, 2002. CILCO
has been able to meet all of its existing customer requirements during the
2002-2003 heating season. CILCO believes that its present and planned supplies
of gas will continue to be sufficient to serve all of its existing customer
requirements during the 2003-2004 heating season.

REGULATION

CILCO is a public utility under the laws of the State of Illinois and is subject
to the jurisdiction of the Illinois Commerce Commission (ICC). The ICC has
general power of supervision and regulation with respect to services and
facilities, rates and charges, classification of accounts, valuations of
property, determination of depreciation rates, construction, contracts with any
affiliated interest, the issuance of stock and evidences of indebtedness and
various other matters. In Illinois, the Electric Service Customer Choice and
Rate Relief Law of 1997 (the Illinois Law) began a transition process to a fully
competitive market for electricity. The ICC's supervision and regulatory
oversight of certain transactions by electric utilities is reduced or suspended
during the mandatory transition period (which terminates on January 1, 2007)
and, for certain non-utility transactions, is permanently eliminated under the
Illinois Law. Refer to the caption "Regulatory Matters" of Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations. With
respect to certain electric matters, CILCO is subject to regulation by the
Federal Energy Regulatory Commission (FERC). CILCO is exempt from the provisions
of the Natural Gas Act, but is affected by orders, rules and regulations issued
by the FERC with respect to certain gas matters.

ELECTRIC FUEL AND PURCHASED GAS ADJUSTMENT CLAUSES

CILCO's former tariffs provided for adjustments to its electric rates through
the Fuel Adjustment Clause (FAC) to recover the cost of energy purchased from
other suppliers and to reflect increases or decreases in the cost of fuel used
in its generating stations. The transportation costs of coal were not included
in the FAC, but were collected through base rates.

CILCO filed a proposal to eliminate the FAC on September 10, 2001. Tariffs
eliminating CILCO's FAC became effective on October 29, 2001. Elimination of the
FAC is a prerequisite to utility restructuring, as provided for in the Illinois
Law. Elimination of the FAC exposes CILCO to market risk with respect to the
cost of fuel and purchased power required to serve native load customers.

CILCO's current tariffs also provide for adjustments to its gas rates through
the Purchased Gas Adjustment clause (PGA) to reflect increases or decreases in
the cost of natural gas purchased for sale to customers.

10

FUEL SUPPLY - COAL

Substantially all of CILCO's electric generation capacity is coal-fired.
Approximately 2.7 million tons of coal were burned during 2002. Existing coal
contracts with three suppliers in Illinois and an additional Colorado supplier
are expected to supply all of the 2003 requirements.

During the years 2002, 2001, and 2000, the average cost per ton of coal burned,
including transportation, was $35.42, $40.94, and $34.80, respectively. The cost
of coal burned per million BTU's was $1.61, $1.84, and $1.57, respectively.

On November 21, 2001, Freeman United Coal Mining Company (Freeman) and CILCO
entered into a Termination Agreement and Mutual Release which terminated the
coal supply contract the parties entered into in 1986. The 1986 contract had
obligated CILCO to purchase between 500,000 and 1,000,000 tons annually through
2010 from Freeman's Crown II mine. As part of the agreement, CILCO agreed to
make termination payments to Freeman and both parties agreed to dismiss any
pending lawsuits or arbitration between the parties. Also on November 21, 2001,
CILCO and Prairie Energy Sales Corporation, a subsidiary of Freeman, entered
into a new Coal Supply and Transportation Agreement. The new contract obligates
CILCO to purchase 1,000,000 tons of coal per year for 2002 through 2004 and
800,000 tons in 2005.

NATURAL GAS SUPPLY

During 2002, CILCO continued to maintain a natural gas supply portfolio that is
structured around firm and interruptible gas transportation service provided by
five interstate pipeline suppliers and firm and interruptible gas purchase
arrangements of varying terms made directly with approximately 20 gas suppliers.
Reliability is enhanced through natural gas injections and withdrawals at
CILCO's two natural gas storage fields and contracted storage facilities. The
supply and pipeline capacity portfolio continues to provide reliable supplies at
prevailing market prices. CILCO believes that its present and planned supply of
gas will continue to be sufficient to serve all of its present and projected
firm customer requirements.

During 2002, CILCO purchased approximately 35,581,700 MCF of natural gas at a
cost of approximately $137.5 million, or an average cost of $3.86 per MCF. The
average cost per MCF of natural gas purchased was $5.28 in 2001 and $5.17 in
2000. The decrease in the average price of natural gas during the winter of
2001-2002 was due primarily to a greater supply of natural gas as a result of
abnormally warm weather during the winter months.

FINANCING AND CAPITAL EXPENDITURES PROGRAMS

Refer to the section "Liquidity and Capital Resources" of Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.

ENVIRONMENTAL MATTERS

Refer to the caption "Environmental Matters" of Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.

11

SIGNIFICANT CUSTOMER

Caterpillar Inc. (Caterpillar) is CILCO's largest industrial customer. Gas
revenues, electric revenues, and sales of other services to Caterpillar were
7.7%, 7.3%, and 6.5% of CILCO's total revenue for 2002, 2001, and 2000,
respectively. Sales to Caterpillar from all continuing CILCORP subsidiaries
represented 8.8%, 9.5%, and 7.5% of CILCORP consolidated operating revenue from
continuing operations for 2002, 2001, and 2000, respectively. The 2001 and 2000
percentages are based on restated 2001 and 2000 results. See CILCORP Note 19 -
Restatement and CILCO Note 17 - Restatement of Item 8. Financial Statements and
Supplementary Data. See also Note 10 - Statements of Segments of Business of
Item 8. Financial Statements and Supplementary Data.

FRANCHISES

CILCO negotiates franchise agreements which authorize it to provide utility
services to the communities in its service area. The franchises are for various
terms, usually 10 to 25 years. Based on past experience, CILCO anticipates that,
as franchises expire, new franchises will be granted in the normal course of
business.

REGULATORY MATTERS

Refer to the caption "Regulatory Matters" of Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.

PEOPLE

As of December 31, 2002, the number of full-time people at CILCO was 895, and
the number of part-time people was 16. Of these, 335 gas and electric field
people were represented by Local 51 of the International Brotherhood of
Electrical Workers (IBEW), and 176 power plant people were represented by Local
8 of the National Conference of Firemen and Oilers (NCF&O).

UNION CONTRACTS

On February 21, 2002, CILCO and the IBEW agreed to extend the existing contract
through June 30, 2004. The NCF&O ratified its current contract with CILCO on
February 23, 2001. The NCF&O contract expires on July 1, 2006.

12

BUSINESS OF CILCORP OTHER

CIM

The investment portfolio of CIM at December 31, 2002, and 2001, is shown in the
following table:

At December 31, 2002, CIM held equity investments in seven leveraged leases
through its wholly-owned subsidiaries, CILCORP Lease Management Inc. (CLM), CIM
Air Leasing Inc. and CIM Leasing Inc. (In January 2001, a mining equipment lease
expired, and that equipment was sold.) According to the terms of some of the
lease agreements, under certain circumstances, subsidiaries of CIM may be
obligated to incur additional non-recourse debt to finance the cost of certain
alterations, additions, or improvements required by the lessees.

CIM, through its wholly-owned subsidiary, CIM Energy Investments Inc., had a
2.5% interest in the Energy Investors Fund, L.P. (Fund), at December 31, 2002.
The Fund invests in non-regulated, non-utility facilities for the production of
electricity or thermal energy. The equity method of accounting is used for this
investment.

CIM is a limited partner in eight affordable housing portfolios. The ownership
interests in these partnerships ranged from 3% to 10% at December 31, 2002. The
equity method of accounting is used for these investments.

CVI

CVI's net investment in CESI, its wholly-owned subsidiary, is approximately $1.5
million. CESI's primary business is gas management services, which includes
commodity procurement and re-delivery to retail customers.

BUSINESS OF QST

QST Enterprises Inc. (QST) was formed in December 1995. Through its wholly-owned
subsidiary, QST Energy Inc. (QST Energy), QST provided a portfolio of non
rate-regulated, energy-related products and services including wholesale and
retail sales of electricity and natural gas in markets that are open to
competition. QST and QST Energy ceased operations during the fourth quarter of
1998, except for fulfillment of contractual obligations for 1999, and recorded
loss provisions for the discontinued energy operations. The results of QST and
its past and present subsidiaries (excluding ESE Land Corporation and CILCORP
Infraservices Inc.) are shown as discontinued operations in the statements of
income for the year 2002 and prior periods. See also CILCORP Note 17 - QST
Enterprises Discontinued Operations and CILCORP Note 19 - Restatement, of Item
8. Financial Statements and Supplementary Data.

13

AVAILABLE INFORMATION

CILCORP and CILCO make available free of charge through Ameren's Internet
website (http://www.ameren.com) the annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and any amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 as soon as reasonably practicable after CILCORP and CILCO
electronically file such reports with, or furnish it to, the SEC. This
information for Ameren and its affiliates, AmerenCIPS, AmerenUE, and Generating
Company is also available through Ameren's Internet website.

CILCORP and CILCO also make available free of charge through Ameren's Internet
website the code of business conduct for its directors, officers and employees,
referred to as Ameren's Corporate Compliance Policy. This document is also
available in print upon written request to Secretary, P.O. Box 66149, St. Louis,
Missouri 63166-6149.

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Item 2. Properties

CILCO

CILCO owns and operates two coal-fired generating plants, a cogeneration plant,
two combustion turbine-generators and 16 diesel-fueled power modules. These
facilities had an available summer capability of 1,172 MW in 2002. The two
combustion turbine generators with a summer rating of 30 MW (15 MW each) and the
16 diesel-fueled power modules with a total rating of 26 MW are typically used
during peak periods. The cogeneration plant, which became operational during
1995, produces steam for Midwest Grain Products, Inc. (MWG) and also generates
electricity for distribution to CILCO's customers. This turbine-generator has an
available summer capability of 10 MW.

The major generating facilities of CILCO (representing 94.4% of CILCO's
available summer generating capability projected for 2003), all of which are
fueled with coal, are as follows:

(a) "Net Heat Rate" represents the amount of energy to produce a given unit
of output and is expressed as BTU per kilowatt-hour.

(b) Represents the Net Heat Rate for E. D. Edwards Units 1-3.

CILCO's transmission system includes approximately 285 circuit miles operating
at 138,000 volts, 48 circuit miles operating at 345,000 volts and 18 principal
substations with an installed capacity of approximately 3,724 megavolt-amperes.

The electric distribution system includes approximately 6,486 circuit miles of
overhead pole and tower lines and 2,046 miles of underground distribution
cables. The distribution system also includes approximately 108 substations with
an installed capacity of 1,764 megavolt-amperes.

The gas system includes approximately 3,674 miles of transmission and
distribution mains.

CILCO has an underground gas storage facility located about ten miles southwest
of Peoria near Glasford, Illinois. The facility has a present recoverable
capacity of approximately 4.5 Bcf. An additional storage facility near Lincoln,
Illinois, has a present recoverable capacity of approximately 5.2 Bcf.

15

Item 3. Legal Proceedings

Reference is made to the captions "Environmental Matters" of Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and to "Note 7 - Commitments and Contingencies" of Item 8. Financial
Statements and Supplementary Data for certain pending legal proceedings and/or
proceedings known to be contemplated by governmental authorities.

The Company and its subsidiaries are subject to certain claims and lawsuits in
connection with work performed in the ordinary course of their businesses.
Except as otherwise disclosed or referred to in this section, in the opinion of
management, all such claims currently pending are not expected to result in a
material adverse effect on the financial position and results of operations of
the Company. Risk of loss is mitigated, in some cases, by insurance or
contractual or statutory indemnification. The Company believes it has
established appropriate reserves for potential losses.

Item 4. Submission of Matters to a Vote of Security Holders

CILCORP

There were no matters submitted to a vote of security holders during the fourth
quarter of 2002.

CILCO

There were no matters submitted to a vote of security holders during the fourth
quarter of 2002.

16

INFORMATION REGARDING EXECUTIVE OFFICERS
REQUIRED BY ITEM 401(b) OF REGULATION S-K.

Executive Officers of CILCORP

Simultaneously with the acquisition of CILCORP by Ameren on January 31, 2003,
all of the executive officers and directors of CILCORP resigned and the
following new executive officers were elected or appointed by CILCORP's new
directors:

All officers are elected or appointed annually by the Board of Directors
following the election of such Board at the annual meeting of stockholders.
Except for Mr. Sullivan and Mr. Lyons, each of the above-named executive
officers has been employed by CILCORP or a CILCORP affiliate, or Ameren or an
Ameren affiliate, for more than five years in executive or management positions.
Mr. Sullivan was previously employed as an attorney by Anheuser Busch Companies,
Inc. Mr. Lyons was previously employed as an accountant by
PricewaterhouseCoopers LLP.

18

PART II

Item 5. Market for the Registrants' Common Equity and Related Stockholder
Matters

CILCORP

CILCORP Inc's. common stock is not traded on any market. At December 31, 2002,
there were 10,000 authorized, no par value, shares of CILCORP Inc.'s common
stock. One thousand of those shares were issued, and outstanding and privately
held, beneficially and of record, by The AES Corporation at December 31, 2002.
On January 31, 2003, Ameren acquired all 1,000 outstanding shares of CILCORP
Inc.'s common stock.

Requirements which must be met before CILCORP Inc. can pay dividends or make
other distributions are described in Note 12 of CILCORP's Notes to the
Consolidated Financial Statements contained in Item 8. Financial Statements and
Supplementary Data.

CILCO

CILCO's common stock is not traded on any market. At December 31, 2002, there
were 13,563,871 shares of CILCO's Common Stock, no par value, issued, and
outstanding and privately held, beneficially and of record, by CILCORP Inc.

CILCO may not pay common stock dividends until certain retained earnings
requirements are met, as described in Note 12 of CILCO's Notes to the
Consolidated Financial Statements contained in Item 8. Financial Statements and
Supplementary Data.

19

Item 6. Selected Financial Data

The financial information as of and for the years ended December 31, 2001 and
2000 has been restated. See Note 19 -- Restatement to CILCORP's Consolidated
Financial Statements and Note 17 -- Restatement to CILCO's Consolidated
Financial Statements for additional information.

CILCORP Inc. and Subsidiaries
Selected Financial Data

For the Periods Ended

Central Illinois Light Company
Selected Financial Data

For the Years Ended December 31,

(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

(2) The AES Corporation purchased CILCORP Inc. and subsidiaries on October 18,
1999.

(3) Selected financial data for 1999 and 1998 does not reflect the impact of
the restatement described in Note 19 to the Consolidated Financial Statements.

(4) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

(5) Selected financial data for 1999 and 1998 does not reflect the impact of the
restatement described in Note 17 to the Consolidated Financial Statements.

20

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The accompanying Management's Discussion and Analysis of Financial Condition and
Results of Operations gives effect to the restatement of the financial
statements for the years ended December 31, 2001 and 2000, as described in Notes
19 and 17 to the consolidated financial statements of CILCORP Inc. and its
subsidiaries and Central Illinois Light Company, respectively.

CILCORP Inc. (the Holding Company), headquartered in Peoria, Illinois, is a
holding company and a wholly-owned subsidiary of Ameren Corporation (Ameren).
The Holding Company's principal operating subsidiary is Central Illinois Light
Company (CILCO), which operates as AmerenCILCO. CILCO's principal business is
the rate-regulated transmission and distribution of electricity, the generation
of electricity and the rate-regulated distribution of natural gas in Illinois.
Ameren completed its acquisition of CILCORP Inc. and its subsidiaries (CILCORP
or the Company) on January 31, 2003, from The AES Corporation (AES). See Recent
Developments for further information. Ameren is a public utility holding company
registered under the Public Utility Holding Company Act of 1935 (PUHCA) and is
headquartered in St. Louis, Missouri. Ameren's principal business is the
generation, transmission and distribution of electricity, and the distribution
of natural gas to residential, commercial, industrial and wholesale users in the
central United States. In addition to CILCORP Inc., Ameren's principal
subsidiaries and affiliates are as follows:

o Union Electric Company, which operates a rate-regulated electric
generation, transmission and distribution business, and a rate-regulated
natural gas distribution business in Missouri and Illinois as AmerenUE.

o Central Illinois Public Service Company, which operates a rate-regulated
electric and natural gas transmission and distribution business in Illinois
as AmerenCIPS.

o AmerenEnergy Resources Company (Resources Company), which consists of non
rate-regulated operations. Subsidiaries include AmerenEnergy Generating
Company (Generating Company) that operates non rate-regulated electric
generation in Missouri and Illinois, AmerenEnergy Marketing Company
(Marketing Company), which markets power for periods over one year,
AmerenEnergy Fuels and Services Company, which procures fuel and manages
the related risks for Ameren affiliated companies and AmerenEnergy Medina
Valley Cogen (No. 4), LLC, which indirectly owns a 40 megawatt, gas-fired
electric generation plant. On February 4, 2003, Ameren completed its
acquisition of AES Medina Valley Cogen (No. 4), LLC (Medina Valley) from
AES and renamed it AmerenEnergy Medina Valley Cogen (No. 4), LLC. See
Recent Developments for further information.

o AmerenEnergy, Inc. (AmerenEnergy) which serves as a power marketing and
risk management agent for Ameren affiliated companies for transactions of
primarily less than one year.

o Electric Energy, Inc. (EEI), which operates electric generation and
transmission facilities in Illinois. Ameren has a 60% ownership interest in
EEI, 40% owned by AmerenUE and 20% owned by Resources Company.

o Ameren Services Company (Ameren Services), which provides shared support
services to Ameren and its subsidiaries. Charges are based upon the actual
costs incurred by Ameren Services, as required by the PUHCA.

The results of operations and financial position of the Company is impacted by
many factors, including both controllable and uncontrollable factors. Weather,
economic conditions and the actions of key customers or competitors can
significantly impact the demand for the Company's services. The Company's
results are also impacted by seasonal fluctuations caused by winter heating and
summer cooling demand. With nearly all of the Company's revenues directly

21

subject to regulation by various state and federal agencies, decisions by
regulators can have a material impact on the price that the Company charges for
its services. The Company principally utilizes coal, natural gas and oil in its
operations. The prices for these commodities can fluctuate significantly due to
the world economic and political environment, weather, production levels and
many other factors. The Company does not have a fuel recovery mechanism for its
electric utility business, but does have a gas cost recovery mechanism for its
gas distribution utility business. In addition, the Company's electric rates are
largely set through 2006. The Company employs various risk management strategies
in order to try to reduce its exposure to commodity risks and other risks
inherent in its business. The reliability of the Company's power plants, and
transmission and distribution systems, and the level of operating and
administrative costs, and capital investment are key factors that the Company
seeks to control in order to optimize its results of operations, cash flows and
financial position.

The financial condition and operating results of the Company primarily reflect
the operations of subsidiary CILCO. The CILCORP Other segment includes the
activities of the Holding Company itself, its investment subsidiary, CILCORP
Investment Management Inc. (CIM), CILCORP Ventures Inc. (CVI), ESE Land
Corporation, and CILCORP Infraservices Inc., which provides utility
infrastructure operation and maintenance services. The results of QST
Enterprises Inc. (QST) and its subsidiaries (excluding ESE Land Corporation and
CILCORP Infraservices Inc.) are reported as discontinued operations. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations - QST Enterprises Discontinued Operations.

OVERVIEW

Contributions to the Company's earnings (in thousands of dollars) for the last
three calendar years are shown below.

(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

(2) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

CILCO's earnings increased $35.5 million in 2002, compared to 2001, primarily
due to events that occurred during 2001. Electric gross margin increased $59.5
million in 2002, compared to 2001, due primarily to charges related to the
termination of an out-of-market long-term coal contract in 2001 ($25.2 million)
and the adverse settlement in 2001 of the 1999 and 2000 FAC reconciliations
($20.4 million). Electric margin was also positively impacted by weather, as
cooling degree days were 24% higher in 2002 compared to 2001. Gas gross margin
increased 3% as heating degree days were 4% higher in 2002 than 2001.

CILCO's operations and maintenance expenses were $19.5 million higher in 2002,
compared to 2001, due primarily to higher employee benefit costs and maintenance
costs at the generating facilities (including an accrual of $8.5 million for
environmental remediation costs), partially offset by lower uncollectible
accounts expense.

22

CILCO's non rate-regulated electric gross margin increased $12.3 million in
2002, compared to 2001, primarily due to increased margin per MWh sold and
increased sales to non rate-regulated electric customers in Illinois outside of
CILCO's service territory. The increased margin per MWh sold is the result of
terminating an existing supply contract in 2001 and replacing the supply at a
lower cost. The higher margin per unit is not expected to continue beyond 2002
operating results.

CILCO's earnings decreased $32.3 million in 2001, compared to 2000. Electric
margin decreased $54.1 million in 2001, compared to 2000, due primarily to the
termination of the out-of-market long-term coal contract and to the FAC
reconciliation settlement discussed previously. Partially offsetting these
factors, weather positively impacted electric gross margin, as cooling degree
days were 4% higher in 2001, compared to 2000. Gas gross margin decreased $4.1
million in 2001, compared to 2000, as heating degree days were 6% lower in 2001
than in 2000.

CILCORP Other's results were a $23.3 million loss in 2002, compared to earnings
of $12.9 million in 2001, and a loss of $33.4 million in 2000. The 2001 results
were positively impacted by the termination of an out-of-market long-term coal
contract (discussed above) as a result of removal of a preacquisition
contingency accrual related to this contract. This resulted in an $80 million
pre-tax positive impact in 2001 to fuel for generation and purchased power at
the Holding Company. CILCORP Other's results in 2002 also benefited from the
elimination of goodwill amortization ($15.3 million) due to the adoption of SFAS
No. 142, "Goodwill and Other Intangible Assets."

QST Enterprises' financial results for 2002 and 2001 were losses in excess of a
discontinued operations liability accrued in 1998, and are shown as losses for
those periods. The $1.7 million loss in 2001 primarily reflects the settlement
of a lawsuit during the year. The results of QST Enterprises for 2000 were
reflected in the discontinued operations liability, resulting in no net income
or loss. The Company expects no impact in 2003 or future results. See Note 17 -
QST Enterprises Discontinued Operations.

Recent Developments

Acquisition by Ameren

On January 31, 2003, after receipt of the necessary regulatory agency approvals
and clearance from the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act, Ameren completed the acquisition of all of the
outstanding common stock of CILCORP Inc. from AES. AES was required by the SEC
under the PUHCA to sell CILCORP as a condition to the SEC's approval of AES'
acquisition of IPALCO Enterprises, Inc. With Ameren's acquisition, CILCO became
an Ameren subsidiary, but remains a separate utility company, operating as
AmerenCILCO. On February 4, 2003, Ameren also completed the acquisition of AES
subsidiary, AES Medina Valley Cogen (No. 4), LLC (Medina Valley), which
indirectly owns a 40 megawatt, gas-fired electric generation plant. With the
acquisition, Medina Valley became a wholly-owned subsidiary of Resources Company
and was renamed AmerenEnergy Medina Valley Cogen (No. 4), LLC. The CILCORP and
AmerenEnergy Medina Valley Cogen (No. 4), LLC financial statements as of, and
for the year ended December 31, 2002, do not include any activity related to the
acquisition. When Ameren accounts for the acquisition in 2003, it intends to
push down acquisition-related purchase accounting entries to the Holding
Company, but not to the financial statements of CILCO. This accounting treatment
is the same as when AES acquired the Company.

Ameren acquired CILCORP to complement its existing Illinois electric and gas
operations. The purchase included CILCO's rate-regulated electric and natural

23

gas businesses in Illinois serving approximately 200,000 and 205,000 customers,
respectively. CILCO's service territory is contiguous to Ameren's service
territory. In addition, the purchase includes approximately 1,200 megawatts of
largely coal-fired generating capacity, most of which is expected to become non
rate-regulated in 2003.

The total purchase price was approximately $1.4 billion and included the
assumption of CILCORP and Medina Valley debt and preferred stock at closing of
approximately $900 million, with the balance of the purchase price of
approximately $500 million paid with Ameren's cash on hand. The purchase price
is subject to certain adjustments for working capital and other changes and will
be resolved in accordance with the purchase agreement. The cash component of the
purchase price came from Ameren's issuances in September 2002 of 8.05 million
common shares and in early 2003 of 6.325 million common shares.

24

RESULTS OF OPERATIONS - CILCORP INC. AND SUBSIDIARIES

CILCO ELECTRIC OPERATIONS

The following table summarizes electric operating revenue and expenses by
component.

Components of Electric Income

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

Electric gross margin increased 37% in 2002, compared to 2001, due to several
factors. In 2001, CILCO terminated an out-of-market long-term coal contract
resulting in a $25.2 million charge to cost of fuel. Also, CILCO and the
Illinois Commerce Commission (ICC) agreed to a Fuel Adjustment Clause (FAC)
settlement in 2001. In its order dated August 21, 2001, the ICC approved the
agreement requiring CILCO to refund $17.8 million related to the 1999 FAC
reconciliation and $2.6 million related to the 2000 FAC reconciliation. On
December 20, 2000, as part of the 1999 FAC reconciliation hearings, the ICC

25

ordered changes in CILCO's calculation of allowable fuel costs applicable to
sales subject to the FAC. These changes revised the allocation of generated and
purchased power between rate-regulated and non rate-regulated sales. As a result
of this order, the rate-regulated sales margin decreased and the non
rate-regulated sales margin increased for January through March 2001. (Non
rate-regulated sales are discussed in CILCO Other.) The order also affected how
costs are allocated between FAC and non-FAC customers in the CILCO service
territory, resulting in less cost being recovered through FAC customers. On
March 9, 2001, the ICC issued an emergency rule in response to the margin
shifts. The emergency rule restored the previous calculation method for
off-system non rate-regulated sales. On July 25, 2001, the ICC entered a final
order, amending the emergency rule by changing the method for allocating fuel
costs to non rate-regulated sales within CILCO's service territory. Increased
residential sales also contributed to the increase in electric gross margin for
2002.

Retail kilowatt-hour (kWh) sales increased 2% in 2002 compared to 2001.
Residential sales and commercial sales increased by 8% and 2%, respectively.
Cooling degree days were 24% higher in 2002 than in 2001. Industrial sales
volumes decreased 4% in 2002, compared to 2001, principally due to the soft
economy.

Electric gross margin decreased 25% in 2001, compared to 2000, due primarily to
the coal contract termination, FAC settlement and fuel cost allocation
methodology discussed previously. Retail kWh sales increased 1% in 2001 compared
to 2000. Residential and commercial sales volumes both increased by 2%. Cooling
degree days were 4% higher in 2001 than in 2000. Industrial sales volumes
decreased 1% in 2001 compared to 2000.

Sales for resale decreased 40% in 2002, compared to 2001, and decreased 41% in
2001 compared to 2000. Sales for resale vary based on the energy requirements of
native load customers, neighboring utilities and power marketers, CILCO's
available capacity for bulk power sales, and the price of power available for
sale.

In 2002, 65% of CILCO's total rate-regulated operating revenue was derived from
the sale of electricity. Approximately 38% of electric revenue resulted from
residential sales, 33% from commercial sales, 25% from industrial sales, 3% from
sales for resale and 1% from other sales. Electric sales, particularly
residential and commercial sales during the summer months, fluctuate based on
weather conditions.

The electric operating revenues of CILCO were derived from the following
sources:

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

26

Electric operations and maintenance expense increased 20% in 2002 compared to
2001. The increase was partially due to the accrual of environmental expenses
($8.5 million) for the remediation of elevated boron levels at the Duck Creek
recycle pond. (Refer to the section "Environmental Matters" of this Item.) Also
contributing to the unfavorable variance were increased costs for employee
benefits ($6.0 million), and power plant operations ($1.2 million), partially
offset by lower uncollectible accounts expense ($1.6 million).

Electric operations and maintenance expense increased 6% in 2001 compared to
2000. The increase was mainly due to increased costs for employee benefits ($2.3
million), uncollectible accounts ($2.4 million), and tree trimming ($1.5
million). These increases were partially offset by decreased costs for power
plant operations ($0.5 million).

The increase in depreciation and amortization expense in 2002 reflects additions
and replacements of utility plant at costs in excess of the original cost of the
property retired. Depreciation and amortization expense decreased 2% in 2001,
compared to 2000, due to a decrease in production depreciation expense. The
estimated remaining useful lives of the power plants were extended resulting in
reduced depreciation rates.

Fixed charges and other expenses decreased 11% in 2002, compared to 2001, due
primarily to decreased short-term borrowings and increased capitalized interest
related to NOx reduction projects at the power plants.

The increase in income tax expense in 2002, compared to 2001, was primarily due
to higher pre-tax income.

27

CILCO GAS OPERATIONS

The following table summarizes gas operating revenue and expenses by component.

Components of Gas Income

- ---------------
(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

Gas gross margin increased 3% in 2002 compared to 2001. Residential and
commercial sales volumes increased 7% and 1%, respectively. Heating degree days
were 4% higher in 2002 than in 2001. Industrial sales volumes decreased 14% in
2002, compared to 2001, due to soft economic conditions.

Gas gross margin decreased 5% in 2001 compared to 2000. Residential and
commercial sales volumes decreased 11% and 13%, respectively. Heating degree
days were 6% lower in 2001 than in 2000. Industrial sales volumes increased 41%
in 2001, compared to 2000, due to increased use of CILCO's system gas by certain
transportation customers.

28

Revenue from gas transportation services increased 11% in 2002, compared to
2001, while the volume of gas transported increased 13%.

Revenue from gas transportation services increased 7% in 2001, compared to 2000,
while the volume of gas transported decreased 5%. Decreases in lower margin
industrial gas transportation sales were offset by increases in higher margin
commercial gas transportation sales.

In 2002, 35% of CILCO's total rate-regulated operating revenue was derived from
the sale or transportation of natural gas. Approximately 61% of gas revenue
resulted from residential sales, 25% from commercial sales, 10% from industrial
sales, 3% from transportation and 1% from other sales. Gas sales, particularly
residential and commercial sales during the winter months, fluctuate based on
weather conditions.

The gas operating revenues of CILCO were derived from the following sources:

The cost of gas decreased 33% in 2002 and increased 24% in 2001, primarily due
to fluctuations in natural gas prices. These costs were passed through to
customers via the Purchased Gas Adjustment (PGA).

Gas operations and maintenance expenses increased 9% in 2002 and 3% in 2001. The
2002 increase was primarily due to increased employee benefit costs ($3.0
million), and increased information technology expenses ($0.9 million),
partially offset by decreased uncollectible accounts expense ($1.8 million). The
2001 increase was mainly due to an increased uncollectible accounts expense
($1.8 million), and increased employee benefit costs ($1.3 million), partially
offset by lower net gas operation costs at the cogeneration facility ($0.9
million), and decreased information technology expenses ($1.8 million).

The increase in depreciation and amortization expenses in 2002 and 2001 reflects
additions as well as replacements of utility plant at costs in excess of the
original cost of the property retired.

Fixed charges and other expenses decreased 12% in 2002, compared to 2001,
primarily due to decreased short-term borrowings.

The decrease in income tax expense in 2002, compared to 2001, was primarily due
to lower pre-tax income.

29

CILCO OTHER

The following table summarizes CILCO Other's income and deductions.

Components of CILCO Other
Income (Loss)

Gross margin increased $12.3 million in 2002, compared to 2001, primarily due to
increased margin per MWh sold and increased sales to non rate-regulated electric
customers in Illinois outside of CILCO's service territory. These sales are
typically backed with power purchases arranged in approximately the same time
period. The increased margin per MWh sold is the result of terminating an
existing power purchase contract (See Note 7 - Commitments and Contingencies for
a discussion of the Enron Contract.) and replacing the supply at a lower cost.
The termination of a supply contract is an unusual occurrence and therefore, the
higher margin per MWh is not expected to continue beyond 2002 operating results.
These sales of electricity were to customers eligible to choose their energy
supplier under the Illinois Law.

Gross margin increased in 2001, compared to 2000, primarily due to increased non
rate-regulated electricity sales in Illinois outside of CILCO's service
territory and ICC mandated changes in the manner in which generated and
purchased power costs are allocated between rate-regulated and non
rate-regulated sales (see CILCO Electric Operations herein). These sales of
electricity were to customers eligible to choose their energy supplier under the
Illinois Law.

Interest income increased in 2002, compared to 2001, due primarily to interest
income on receivables due from affiliated companies.

Operating expenses increased in 2002, compared to 2001, due primarily to
increased administrative and bad debt expenses for non rate-regulated sales. The
increase in expenses was partially offset by a gain on the sale of a parcel of
land. Operating expenses increased in 2001, compared to 2000, due

30

primarily to greater administration and general expenses for non rate-regulated
sales.

Preferred stock dividends decreased in 2001, compared to 2000, due to the
redemption of $25 million of auction rate preferred stock in July 2000.

Proceeds from company-owned life insurance in the third quarter of 2002 reduced
other deductions by approximately $0.5 million in 2002 compared to 2001.

31

CILCORP OTHER

The following table summarizes CILCORP Other's revenue and expenses. CILCORP
Other's results include income earned and expenses incurred at the Holding
Company, CIM, CVI, ESE Land Corporation, and CILCORP Infraservices Inc.

Components of CILCORP Other
Income (Loss)

(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

Leveraged lease income decreased 42% in 2002, compared to 2001, primarily as a
result of a $2.0 million loss related to a reduction in the estimated residual
value on one of the leveraged leases. The income tax expense related to
leveraged lease income was $2.0 million, $2.1 million, and $3.2 million for
2002, 2001, and 2000, respectively.

Leveraged lease income decreased 35% in 2001, compared to 2000, due to a $2.4
million pre-tax gain in 2000 resulting from CIM's refinancing of certain
leveraged lease investments and the termination of a lease in the first quarter
of 2001.

Gas marketing revenue increased 35% and gas purchased for resale increased 32%
in 2002, compared to 2001, due to significant increases in gas marketing sales
at CVI subsidiary CILCORP Energy Services Inc.

Gas marketing revenue increased 91% in 2001, compared to 2000, while gas
purchased for resale increased 92% at CVI subsidiary CILCORP Energy Services
Inc. due to increased gas marketing sales and higher natural gas prices.

32

Other revenue decreased 74% in 2002, compared to 2001, mainly due to the
expiration of a services contract in 2002.

Other revenue decreased 72% in 2001 compared to 2000. In 2000, there was a $5.8
million pre-tax gain on the sale of stock options of McLeod USA, Inc. The
Holding Company received the options as part of the sale of QST Communications
in August 1998.

In 2001, the $83.9 million credit to fuel for generation and purchased power
represents the effect of CILCO's settlement of the out-of-market long-term coal
contract, resulting in the Holding Company's removal of an $80 million
preacquisition contingency accrual related to this contract. The entire
preacquisition contingency accrual related to this contract was extinguished on
the Holding Company's balance sheet at December 31, 2001. The Holding Company
also reversed a $4.0 million preacquisition contingency accrual related to the
settlement of the 1999 and 2000 CILCO FAC reconciliations. See related
discussion at Item 1. Business, Business of CILCO, Fuel Supply - Coal.

Operating expenses increased 100% in 2002, compared to 2001, primarily due to
the write-off of receivables. The decrease in operating expenses in 2001,
compared to 2000, was primarily due to pension and postretirement benefit
expenses. The market value of the assets and liabilities of these plans was
adjusted on the Holding Company's balance sheet at the time of acquisition by
AES. Following these adjustments, the net periodic benefit costs are separately
calculated and recorded at CILCORP consolidated and CILCO. This resulted from
reversal of a portion of pension and postretirement benefit expenses recorded at
CILCO, which were previously accrued by the Holding Company at the time of its
acquisition by AES.

Depreciation and amortization decreased 92% in 2002, compared to 2001, following
the Company's adoption of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142) in January 2002. SFAS 142
requires that goodwill and intangible assets that have indefinite useful lives
be tested at least annually for impairment rather than be amortized.
Accordingly, the Holding Company ceased goodwill amortization, which was
approximately $15.3 million, in 2001. See related discussion in Note 1 to the
Consolidated Financial Statements.

Interest expense decreased 6% in 2002, compared to 2001, mainly due to the
retirement of CILCORP Inc.'s medium-term notes in 2001 and lower short-term debt
in 2002. This decrease was partially offset by interest on deferred compensation
arrangements for two former officers.

The income tax benefit increased significantly during 2002, compared to 2001,
due to a greater loss before income taxes.

Income taxes increased in 2001, compared to 2000, due to higher net income
resulting primarily from the elimination of the preacquisition liability related
to the out-of-market long-term coal contract.

33

QST ENTERPRISES DISCONTINUED OPERATIONS

QST Enterprises Inc. (QST) and QST Energy Inc. (QST Energy) ceased operations
during the fourth quarter of 1998, except for fulfillment of contractual
commitments for 1999. Accordingly, the results of QST and its subsidiaries are
reported as discontinued operations. An initial loss provision was recorded for
the discontinued energy operations in 1998. Subsequent purchase accounting
adjustments included additional discontinued operations loss accruals for QST.
See also CILCORP Note 17 - QST Enterprises Discontinued Operations and CILCORP
Note 19 - Restatement, of Item 8. Financial Statements and Supplementary Data.

The following table summarizes the loss from operations of discontinued
businesses, net of tax.

- ---------------
(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

QST's financial results for 2002 and 2001 were in excess of the discontinued
operations liability and are shown as losses for those periods. The results for
2000 were reflected in the discontinued operations liability, resulting in no
net income or loss.

Beginning in 1999, QST Energy was involved in litigation against two of its
California commercial customers. On July 19, 2001, QST Energy and the two
customers signed a settlement agreement and mutual release which resolved all of
the pending lawsuits. A cash settlement of $6 million was paid to QST Energy and
applied against the accounts receivable balance at QST Energy, which was $13
million at the time of settlement. A preacquisition contingency of $4.5 million
had been accrued related to this litigation. The remaining receivable of $7.0
million at QST Energy was written off during the third quarter of 2001,
resulting in the loss recorded as QST Enterprises Discontinued Operations during
2001. This loss was partially offset by the reversal of the $4.5 million
preacquisition contingency accrual.

RESULTS OF OPERATIONS - CENTRAL ILLINOIS LIGHT COMPANY

Refer to Results of Operations - CILCORP Inc. and Subsidiaries for a discussion
of the Results of Operations for Central Illinois Light Company Segments: CILCO
Electric Operations, CILCO Gas Operations and CILCO Other.

34

LIQUIDITY AND CAPITAL RESOURCES

OPERATING

CILCORP's net cash flows provided by operating activities totaled $100.8 million
for 2002, compared to $88.9 million for 2001 (as restated), and $97.1 million
for 2000 (as restated). Cash provided from operations increased in 2002,
primarily due to higher cash earnings resulting from favorable weather and
increased sales to non-regulated electric customers in Illinois outside CILCO's
service territory. These increases were partially offset by changes in working
capital requirements. Cash flow from operations remained relatively constant in
2001 compared to 2000.

CILCO's net cash flows provided by operating activities totaled $118.6 million
for 2002, compared to $106.0 million for 2001, and $117.4 million for 2000. Cash
provided from operations increased in 2002, primarily due to higher cash
earnings resulting from favorable weather and increased sales to non-regulated
electric customers in Illinois outside CILCO's service territory. These
increases were partially offset by changes in working capital requirements. Cash
flow from operations decreased in 2001 compared to 2000.

The tariff-based gross margin of the rate-regulated utility operating company
continues to be the principal source of cash from operating activities. The
Company's diversified retail customer mix of primarily rate-regulated
residential, commercial and industrial classes and a commodity mix of gas and
electric service provide a reasonably predictable source of cash flows.

PENSION FUNDING

CILCORP and CILCO made no cash contributions to the defined benefit retirement
plans during 2002. However, at December 31, 2002, CILCORP and CILCO recorded
respective minimum pension liabilities of $51.2 million and $28.9 million, net
of taxes, which resulted in a charge to Accumulated Other Comprehensive Income
(OCI) and a reduction to stockholders' equity.

Based on the performance of plan assets through December 31, 2002, the Company
expects to be required under the Employee Retirement Income Security Act of 1974
to fund less than $1 million in 2003 and approximately $5 million in 2004. These
amounts are estimated and may change based on actual stock market performance,
changes in interest rates and any pertinent changes in governmental regulations.
Ameren intends to merge CILCO's plans with Ameren's plans. Based on performance
of plan assets through December 31, 2002, Ameren expects to be required to fund
approximately $150 million to $175 million annually, including CILCO, in 2005,
2006 and 2007. CILCO's portion is expected to be approximately $17 million of
these annual amounts. See Benefit Plan Accounting under Accounting Matters -
Critical Accounting Policies.

INVESTING

CILCORP's net cash used in investing activities was $131.2 million in 2002,
compared to $51.4 million in 2001, and $60.0 million in 2000. CILCO's net cash
used in investing activities was $131.1 million in 2002, compared to $53.8
million in 2001 and $60.4 million in 2000. In 2002, construction expenditures
were $124.4 million (2001 - $51.3 million; 2000 - $55.5 million), consisting
primarily of nitrogen oxide (NOx) reduction equipment expenditures at the
Edwards and Duck Creek generating stations (see Environmental section below),
replacements and improvements to the existing electric transmission and
distribution and natural gas distribution systems.

35

For the five-year period 2003 through 2007, construction expenditures for
CILCORP and CILCO are estimated to be approximately $350 million, of which
approximately $100 million is expected in 2003. This estimate also includes
capital expenditures for additions, replacements and improvements to existing
electric and gas transmission and distribution facilities as well as for
compliance with NOx control regulations as discussed in Environmental below.
CILCO expects to finance its 2003 capital expenditures primarily with funds
provided by operating activities supplemented, if necessary, by external capital
sources. Future funds provided by operations may be affected by the deregulation
of the electric and natural gas utility industries.

CILCORP and CILCO's capital expenditure program is subject to periodic review
and revision, and actual capital expenditures may vary from these estimates
because of numerous factors. These factors include, but are not limited to,
changes in business conditions, changes in environmental regulations, changes in
load growth estimates, increasing costs of labor, equipment and materials, and
cost of capital.

ENVIRONMENTAL

We are subject to various environmental regulations by federal, state, and local
authorities. From the beginning phases of siting and development, to the ongoing
operation of existing or new electric generating, transmission, and distribution
facilities, our activities involve compliance with diverse laws and regulations
that address emissions and impacts to air and water, special, protected, and
cultural resources (such as wetlands, endangered species, and
archeological/historical resources), chemical and waste handling, and noise
impacts. Our activities require complex and often lengthy processes to obtain
approvals, permits, or licenses for new, existing, or modified facilities.
Additionally, the use and handling of various chemicals or hazardous materials
(including wastes) requires preparation of release prevention plans and
emergency response procedures. As new laws or regulations are promulgated, we
assess their applicability and implement the necessary modifications to our
facilities or their operations, as required.

The U. S. Environmental Protection Agency (EPA) issued a rule in October 1998
requiring 22 Eastern states and the District of Columbia to reduce emissions of
NOx in order to reduce ozone in the Eastern United States. Among other things,
the EPA's rule establishes an ozone season, which runs from May through
September, and a NOx emission budget for each state, including Illinois. The EPA
rule requires states to implement controls sufficient to meet their NOx budget
by May 31, 2004.

As a result of these state requirements, CILCORP and CILCO estimate spending an
additional $42 million (including cost of removal) for NOx reduction equipment
in 2003. A total of $69.7 million was spent in 2002.

CILCO also estimates future capital expenditures for a landfill and return water
line at the Duck Creek plant could range from $15 million to $30 million by
2007. See related discussion in Environmental Matters - Clean Air Act.

FINANCING

CILCORP's cash flows provided by financing activities totaled $44.0 million in
2002, compared to cash flows used in financing activities of $38.3 million in
2001, and $36.4 million in 2000. CILCO's cash flows provided by financing
activities totaled $22.3 million in 2002, compared to cash flows used in
financing activities of $48.5 million in 2001, and $56.7 million in 2000.
Principal financing activities for the three year period included CILCO's

36

issuance of a two year secured term loan, offset by redemptions of short-term
debt, long-term debt and preferred stock, as well as payments of dividends.

SHORT-TERM DEBT AND LIQUIDITY

Short-term debt consisted of commercial paper and bank loans at subsidiary,
CILCO. At December 31, 2002, CILCO had committed credit facilities, expiring at
various dates during 2003, totaling $60 million, all of which were unused. These
credit facilities support CILCO's commercial paper program under which $10
million was outstanding at December 31, 2002. Based on these outstanding
commercial paper borrowings, $50 million was available under CILCO's committed
credit facilities at December 31, 2002.

Subject to the receipt of regulatory approval, which is being pursued, CILCO
will participate in Ameren's utility money pool arrangement. Under this
arrangement, CILCO will have access to up to $695 million of additional
committed liquidity, subject to reduction based on use by other utility money
pool participants, but increased to the extent other pool participants have
surplus cash balances, which may be used to fund pool needs. CILCORP
participates in Ameren's non-utility money pool arrangement, which provides it
access to up to $600 million of committed liquidity, subject to reduction based
on use by other pool participants, which may also be supplemented by available
cash balances among pool participants.

CILCO had a $30 million committed credit facility which matured in November
2002. This facility is not expected to be replaced.

At December 31, 2002, Ameren and its subsidiaries had committed credit
facilities, expiring at various dates between 2003 and 2005, totaling $695
million, excluding EEI of $45 million and AmerenUE's nuclear fuel lease
facilities of $120 million. This amount does not include CILCO's $60 million of
committed credit facilities. Ameren's utility money pool arrangement, under
which AmerenUE, AmerenCIPS and Ameren Services may borrow, provides access to
$695 million of liquidity. Ameren's non-utility money pool, under which CILCORP
Inc. and its non rate-regulated subsidiaries, Generating Company and other of
Ameren's non rate-regulated subsidiaries may borrow, provides access to $600
million of this liquidity. These committed credit facilities are used to support
Ameren's and AmerenUE's commercial paper programs under which $250 million was
outstanding at December 31, 2002. Based on commercial paper outstanding at
December 31, 2002, $445 million was unused and available under these committed
credit facilities and available for borrowing through either the utility money
pool or non-utility money pool.

In July 2002, Ameren entered into new committed credit agreements for $400
million in revolving credit facilities to be used for general corporate
purposes, including support of commercial paper programs. These facilities are
accessible through both of Ameren's money pool arrangements. The $400 million in
new facilities includes a $270 million 364-day revolving credit facility and a
$130 million 3-year revolving credit facility. The 3-year facility has a $50
million sub-limit for the issuance of letters of credit. These new credit
facilities replaced AmerenUE's $300 million revolving credit facility. These
amounts are included in the total committed credit facilities of $695 million
mentioned above.

Ameren had a $200 million committed credit facility which matured in December
2002. Ameren expects to replace this bank credit agreement with two new credit
facilities and expects to extend or replace its other committed credit
facilities upon their respective maturities. These credit facilities make
borrowings available at various interest rates based on LIBOR, agreed rates and
other options.

37

In addition to committed credit facilities, a further source of liquidity for
Ameren is available cash and cash equivalents. At December 31, 2002, Ameren had
$628 million of cash, all of which was available for borrowings under the
utility money pool and/or non-utility money pool. In early 2003, Ameren paid a
total of approximately $500 million, using cash on hand, to acquire CILCORP and
Medina Valley.

CILCORP and CILCO rely on access to short-term and long-term capital markets as
a significant source of funding for capital requirements not satisfied by
operating cash flows. The inability to raise capital on favorable terms,
particularly during times of uncertainty in the capital markets, could
negatively impact CILCORP and CILCO's ability to maintain and grow their
businesses. Based on current credit ratings, CILCORP and CILCO believe that they
will continue to have access to the capital markets. However, events beyond
their control may create uncertainty in the capital markets such that the cost
of capital would increase or the ability to access the capital markets would be
adversely affected.

The following table summarizes available borrowing capacity under CILCO's
committed lines of credit and credit agreements as of December 31, 2002.

The following tables summarize CILCORP and CILCO's contractual cash obligations
as of December 31, 2002.

CILCORP Inc. and Subsidiaries Contractual Cash Obligations

38

CILCO Contractual Cash Obligations

(1) Includes electric energy and capacity commitments, gas supply and
transportation commitments, and coal and transportation commitments. This
table excludes contractual cash obligations for capital expenditures.
These items are discussed under Investing within this section.

INDENTURE AND CREDIT AGREEMENT PROVISIONS AND COVENANTS

CILCORP's and CILCO's financial agreements include customary default or cross
default provisions that could impact the continued availability of credit or
result in the acceleration of repayment. Many of Ameren and its subsidiaries'
committed credit facilities require the borrower to represent, in connection
with any borrowing under the facility, that no material adverse change has
occurred since certain dates. Ameren and its subsidiaries' financing
arrangements do not contain credit rating triggers with the exception of certain
triggers within CILCO's financing arrangements.

An event of default will occur under a $25 million CILCO committed credit
facility if CILCO fails to maintain a Moody's rating on its senior secured debt
above Baa2, and a Fitch credit rating of BBB-. Under agreements governing $4.7
million of CILCO funded bank debt, CILCO must maintain a Moody's investment
grade rating or an event of default will occur. Also, under a $100 million
funded bank term loan, CILCO must maintain investment grade ratings for its
first mortgage bonds from at least two of Standard & Poor's, Moody's and Fitch.
As of February 2003, CILCO's senior secured debt ratings from these rating
agencies were A-, A2 and BBB, respectively. CILCO's Fitch ratings are on
positive credit watch.

At its current ratings level, covenants in CILCORP Inc.'s indenture governing
its $475 million senior notes and bonds require CILCORP to maintain a debt to
capital ratio of no greater than 0.67 to 1.0 and an interest coverage ratio of
at least 2.2 to 1.0 in order to make any payment of dividends or intercompany
loans to affiliates other than its direct and indirect subsidiaries including
CILCO. However, in the event CILCORP's senior long-term debt rating from Fitch
is increased by one notch to BBB, CILCORP may make any such distribution or
intercompany loan without being subject to these tests. At December 31, 2002,
CILCORP's debt to capital ratio was 0.60 to 1.0 and its interest

39

coverage ratio was 2.72 to 1.0, calculated in accordance with related provisions
in this indenture.

The common stock of CILCO is pledged as security to the holders of CILCORP
Inc.'s $475 million of senior notes and bonds.

Covenants in CILCO's $100 million bank term loan require it to maintain a
minimum level of common stockholder equity and limit CILCO's ability to pay
dividends or otherwise make distributions with respect to its common stock. Any
violation of these covenants will result in an event of default under this
facility. Under the minimum common equity requirement CILCO must maintain a
minimum level of common stockholder equity which increases from the date the
facility was entered based on ongoing earnings. The maintenance of this test is
determined upon each anniversary of the loan. If this test was performed as of
December 31, 2002, the minimum common equity level requirement would equal
approximately $301 million. At that date CILCO's common equity, calculated in
accordance with this provision, was $329 million. Under the restricted payments
provision CILCO may only pay dividends to the Holding Company up to $45 million
annually subject to limited carryforward if not fully utilized.

Covenants in Ameren's committed credit facilities require the maintenance of the
percentage of total debt to total capital of 60% or less for Ameren, AmerenUE
and AmerenCIPS. This covenant does not directly apply to CILCORP or CILCO. As of
December 31, 2002, this ratio was approximately 50%, 43% and 50% for Ameren,
AmerenUE and AmerenCIPS, respectively. Ameren's committed credit facilities also
include indebtedness cross default provisions that could trigger a default under
these facilities in the event any subsidiary of Ameren (subject to definition in
the underlying credit agreements), other than certain project finance
subsidiaries, defaults on indebtedness in excess of $50 million.

Most of Ameren and its subsidiaries' committed credit facilities include
provisions related to the funded status of Ameren's pension plan. These
provisions either require Ameren to meet minimum ERISA funding requirements or
limit the unfunded liability status of the plan. Under the most restrictive of
these provisions impacting Ameren facilities totaling $400 million, an event of
default will result if the unfunded liability status (as defined in the
underlying credit agreements) of Ameren's pension plan exceeds $300 million in
the aggregate. Based on the most recent valuation report available to Ameren at
December 31, 2002, which was based on January 2002 asset and liability
valuations, the unfunded liability status (as defined) was $31 million. Although
an updated valuation report will not be available until the second half of 2003,
Ameren believes that the unfunded liability status of our pension plans (as
defined) could exceed $300 million based on the investment performance of the
pension plan assets and interest rate changes since January 1, 2002. As a
result, Ameren may need to renegotiate the facility provisions, terminate or
replace the affected facilities, or fund any unfunded liability shortfall.
Should Ameren elect to terminate these facilities, Ameren believes it would
otherwise have sufficient liquidity to manage short-term funding requirements.

At December 31, 2002, Ameren and its subsidiaries were in compliance with their
credit agreement provisions and covenants.

40

OFF-BALANCE SHEET ARRANGEMENTS

At December 31, 2002, neither CILCORP Inc., nor any of its subsidiaries, had any
off-balance sheet financing arrangements, other than operating leases entered
into in the ordinary course of business. Neither CILCORP Inc., nor any of its
subsidiaries, expect to engage in any significant off-balance sheet financing
arrangements in the near future.

LONG-TERM DEBT AND EQUITY

The following table summarizes CILCORP and CILCO's issuances and redemptions of
long-term debt for the years ended 2002, 2001 and 2000. For additional
information, see Note 5 - Long-Term Debt and Note 6 - Preferred Stock to the
consolidated financial statements.

41

CREDIT RATINGS

As of February 2003, the ratings by Moody's and Standard & Poor's were as
follows:

Standard & Poor's increased the ratings of CILCORP and CILCO subsequent to the
acquisition of these entities by Ameren Corporation. As of February 2003, the
unsecured debt ratings of CILCORP were BBB+ and Baa2 from Standard & Poor's and
Moody's, respectively. The secured debt ratings of CILCO were A- and A2 from
Standard & Poor's and Moody's, respectively. Standard & Poor's assigned stable
outlooks to the ratings. Moody's also assigned a stable outlook to the ratings
for CILCORP and CILCO.

Any adverse change in the ratings may reduce access to capital and/or increase
the costs of borrowings resulting in a negative impact on earnings. A credit
rating is not a recommendation to buy, sell or hold securities and should be
evaluated independently of any other rating. Ratings are subject to revision or
withdrawal at any time by the assigning rating organization.

42

REGULATORY MATTERS

In 2002, all of CILCO's Illinois residential, commercial and industrial
customers had choice in electric suppliers. As a provision of the legislation
related to the restructuring of the Illinois electric industry (the Illinois
Law), a rate freeze is in effect through January 1, 2007.

The Illinois Law allows a utility to collect transition charges from customers
that elect to move from bundled retail rates to market-based rates. Utilities
have the right to collect transition charges throughout the transition period
that ends January 1, 2007. In March 2000, CILCO filed revised tariff sheets with
the ICC eliminating the collection of the customer transition charge. At a March
2000 hearing, the ICC approved CILCO's revised tariffs, thereby eliminating the
collection of any customer transition charge. CILCO cannot re-establish the
collection of a transition charge until it files, and the ICC approves, revised
tariff sheets that reinstate a transition charge.

Under the Illinois Law, we were subject to a residential electric rate decrease
of 2% in October 2000 and an additional 1% in October 2002.

The Illinois Law also contains a provision requiring that one-half of excess
earnings from the Illinois jurisdiction for the years 1998 through 2006 be
refunded to CILCO's Illinois customers. Excess earnings are defined as the
portion of the two-year average annual rate of return on common equity in excess
of 1.5% of the two-year average of an Index, as defined in the Illinois Law. The
Index is defined as the sum of the average for the twelve months ended September
30 of the average monthly yields of the long-term U.S. Treasury bonds, plus 9%
for calendar years 2000 through 2004. CILCO's average rates of return on common
equity for the two year average at December 31, 2002, were 9.0% as compared to
the average index of 16.0%. No refunds are expected to be required for the
period of April 1, 2002, through March 31, 2003. For the three years ended
December 31, 2002, no refunds were required.

With the enactment of the Illinois Law, electric generation in Illinois became
deregulated and competitive. As a result, the accounting principles applicable
to rate-regulated enterprises (Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71)) no
longer apply to the electric generation portion of CILCO's business. There were
no impairments to CILCO assets as a result of transitioning from SFAS 71. Its
ability to keep total production costs competitive in a deregulated market will
determine whether and to what extent the value of these assets may be impaired
in the future.

With electric choice beginning on October 1, 1999, for its industrial customers
and some of its commercial customers, and with all other non-residential
customers being able to choose their electric supplier on December 31, 2000,
CILCO has entered into multi-year contracts with targeted customers representing
approximately 40% of total 2002 electric kWh sales to non-residential customers.
The contract sales represented approximately 26% ($59 million) of the 2002
commercial and industrial revenue. These contracts, most of which expire in
2004, were designed to capture a significant portion of the margin that the
customers paid to CILCO in the most recent twelve months.

The ultimate market price for electricity, the cost for a utility to produce or
buy electricity, and the number of customers that may be gained or lost due to
customer choice of supplier in Illinois cannot be predicted. As a result,
management cannot predict the ultimate impact that the Illinois Law will have

43

on CILCORP's financial position or results of operations, but the effect could
be significant. However, CILCO is currently a low-cost provider of electricity,
and management will continue to position CILCO for competition by controlling
costs, maintaining good customer relations, and developing flexibility to meet
individual customer requirements. As of December 31, 2002, all electric
customers eligible for choice continue to purchase their electricity supply from
CILCO, other than those who self-generate. During the year ended December 31,
2002, CILCO supplied approximately 2.8 million megawatt hours to retail
customers outside of its service territory for 2002. CILCO supplied these new
customers primarily by purchasing electricity from other suppliers. CILCO made
the necessary firm supply and transmission arrangements to meet customer
requirements.

OUTLOOK

CILCORP Inc. and its subsidiaries believe there will be challenges to earnings
in 2003 and beyond due to industry-wide trends and company-specific issues. The
following are expected to put pressure on earnings in 2003 and beyond:

o Weak economic conditions, which impacts native load demand,

o The adverse effects of rising employee benefit costs, higher insurance
costs and increased security costs, and

o An assumed return to more normal weather patterns.

CILCO is pursuing a gas rate increase of approximately $14 million in Illinois,
which it expects to be ruled upon by the ICC by the end of 2003. The Company is
also considering additional actions, including modifications to active employee
benefits, staffing reductions, accelerating synergy opportunities related to
CILCORP's acquisition by Ameren and other initiatives.

In the ordinary course of business, the Company evaluates strategies to enhance
its financial position, results of operations and liquidity. These strategies
may include potential acquisitions, divestitures, and opportunities to reduce
costs or increase revenues, and other strategic initiatives in order to increase
shareholder value. The Company is unable to predict which, if any, of these
initiatives will be executed, as well as the impact these initiatives may have
on our future financial position, results of operations or liquidity.

ENVIRONMENTAL MATTERS

The Company is subject to various environmental regulations by federal, state,
and local authorities. From the beginning phases of siting and development, to
the ongoing operation of existing or new electric generating, transmission, and
distribution facilities, the Company's activities involve compliance with
diverse laws and regulations that address emissions and impacts to air and
water, special, protected, and cultural resources (such as wetlands, endangered
species, and archeological/historical resources), chemical and waste handling,
and noise impacts. The Company's activities require complex and often lengthy
processes to obtain approvals, permits, or licenses for new, existing, or
modified facilities. Additionally, the use and handling of various chemicals or
hazardous materials (including wastes) requires preparation of release
prevention plans and emergency response procedures. As new laws or regulations
are promulgated, the Company assesses the applicability and implements the
necessary modifications to its facilities or operations, as required. The more
significant matters are discussed below.

44

Clean Air Act

The Clean Air Act affects both existing generating facilities and new projects.
The Clean Air Act and many state laws require significant reductions in SO2 and
NOx emissions that result from burning fossil fuels. The Clean Air Act also
contains other provisions that could materially affect some of CILCO's projects.
Various provisions require permits, inspections, or installation of additional
pollution control technology or may require the purchase of emission allowances.
Certain of these provisions are described in more detail below.

The Clean Air Act creates a marketable commodity called an SO2 "allowance." All
generating facilities over 25 megawatts that emit SO2 must obtain allowances in
order to operate after 1999. Each allowance gives the owner the right to emit
one ton of SO2. All existing generating facilities have been allocated
allowances based on a facility's past production and the statutory emission
reduction goals. If additional allowances are needed for new generating
facilities, they can be purchased from facilities having excess allowances or
from SO2 allowance banks. CILCO's generating facilities comply with the SO2
allowance caps through the use of an existing SO2 scrubber, fuel blending and
SO2 allowance purchases. CILCO is also considering the possibility of utilizing
low sulfur fuels in the future.

The U.S. Environmental Protection Agency (EPA) issued a rule in October 1998
requiring 22 Eastern states and the District of Columbia to reduce emissions of
NOx in order to reduce ozone in the Eastern United States. Among other things,
the EPA's rule establishes an ozone season, which runs from May through
September, and a NOx emission budget for each state, including Illinois. The EPA
rule requires states to implement controls sufficient to meet their NOx budget
by May 31, 2004. Total capital expenditures to meet the NOx emission
requirements are estimated to be $125.5 million (including cost of removal),
$77.5 million of which was expended through 2002. These costs include the
installation of two Selective Catalytic Reduction (SCR) units and combustion
control modifications.

On December 31, 2002, the EPA published in the Federal Register revisions to the
New Source Review (NSR) programs under the Clean Air Act, including changes to
the routine maintenance, repair and replacement exclusions. Various Northeastern
states have filed a petition with the United States District Court for the
District of Columbia challenging the legality of the revisions to the NSR
programs. It is likely that various industries and environmental groups will
seek to intervene in that challenge. At this time, CILCO is unable to predict
the impact of this challenge on its future financial position, results of
operations or liquidity.

National Ambient Air Quality Standards

The EPA is currently working on rulemakings to implement the new National
Ambient Air Quality Standards for ozone and particulate matter. These new
ambient standards may require significant additional reductions in SO2 and NOx
emissions from power plants by 2008. At this time, CILCO is unable to predict
the ultimate impact of these revised air quality standards on its future
financial position, results of operations or liquidity.

45

Mercury and Regional Haze Regulations

In December 1999, the EPA issued a decision to regulate mercury emissions from
coal-fired power plants by 2008. The EPA is scheduled to propose regulations by
2004. These regulations have the potential to add significant capital and/or
operating costs to generating systems after 2006. The EPA also issued Best
Available Retrofit Technology (BART) guidelines to address visibility impairment
(so called "Regional Haze") across the United States from sources of air
pollution, including coal-fired power plants. The guidelines were to be used by
states to mandate pollution control measures for SO2 and NOx emissions. In May
2002, the District of Columbia Circuit Court remanded these rules back to the
EPA. The EPA is currently working to address the issues raised by the court
decision. These rules could also add significant pollution control costs to our
generating system between 2008 and 2012. At this time, CILCO is unable to
predict the ultimate impact of these revised air quality standards on our future
financial condition, results of operations or liquidity.

Multi-Pollutant Legislation

The United States Congress has been working on legislation to consolidate the
numerous air pollution regulations facing the utility industry. This
"multi-pollutant" legislation will be deliberated in Congress in 2003. While the
cost to comply with such legislation, if enacted, could be significant, it is
anticipated that the costs would be less than the combined impact of the new
National Ambient Air Quality Standards and the Mercury and Regional Haze
Regulations, discussed above. Pollution control costs under such legislation are
expected to be incurred in phases from 2007 through 2015. At this time, CILCO is
unable to predict the ultimate impact of the above expected regulations and this
legislation on its future financial position, results of operations or
liquidity; however, the impact could be material.

Future initiatives regarding greenhouse gas emissions and global warming
continue to be the subject of much debate. The related Kyoto Protocol was signed
by the United States but has since been rejected by the President, who instead
has asked for an 18% decrease in carbon intensity on a voluntary basis. Future
initiatives on this issue and the ultimate effects of the Kyoto Protocol and the
President's initiatives on CILCO are unknown. Coal-fired power plants are
significant sources of carbon dioxide emissions, a principal greenhouse gas.
Therefore, CILCO's compliance costs with any mandated federal greenhouse gas
reductions in the future could be material.

Clean Water Act

In April 2002, the EPA proposed rules under the Clean Water Act that require
that cooling water intake structures reflect the best technology available for
minimizing adverse environmental impacts. These rules pertain to existing
generating facilities that currently employ a cooling water intake structure
whose flow exceeds 50 million gallons per day. A final action on the proposed
rules is expected by August 2003. The proposed rule may require CILCO to install
additional intake screens or other protective measures, as well as extensive
site specific study and monitoring requirements. CILCO's compliance costs
associated with the final rules are unknown.

In October 2002, CILCO submitted a corrective action plan to the Illinois EPA
(IEPA) in accordance with permit conditions to address ground water issues
associated with the recycle pond and ash ponds at the Duck Creek facility. In
January 2003, the IEPA accepted portions of the plan but rejected other
portions as being inadequate.

46

Future actions will entail, at a minimum, the closure of two ash ponds,
replacement of a return water line, construction of a landfill and remedial
actions to treat water in the recycle pond and an ash pond. CILCO recorded an
$8.5 million liability on the balance sheet in 2002 for the remediation effort
related to the water treatment for the recycle pond and an ash pond. In
addition, CILCO estimates future capital expenditures for the landfill and
return water line could range from $15 million to $30 million by 2007. See Note
1 - Summary of Significant Accounting Policies - for further discussion of the
costs related to the closure of two ash ponds.

Remediation

CILCO owns or is otherwise responsible for four former manufactured gas plant
(MGP) sites in Illinois. The ICC permits the recovery of remediation and
litigation costs associated with certain former MGP sites located in Illinois
from Illinois electric and natural gas utility customers through environmental
adjustment rate riders. To be recoverable, such costs must be prudently and
properly incurred and are subject to annual reconciliation review by the ICC.

Remediation at two of the four sites was completed and "No Further Remediation"
letters were received in 1999 and 2000. Groundwater sampling continues at the
third site and a plan has been filed with the IEPA for additional investigation
at the site. Remediation of the site is expected to be completed in 2004. CILCO
has not determined the ultimate extent of its liability for, or the ultimate
cost of any remediation of, the fourth site, which is pending further studies.
In 2002, CILCO spent approximately $0.2 million for former gas manufacturing
plant site monitoring, legal fees and feasibility studies and has received some
recovery from insurance settlements. A $1.1 million liability is recorded on the
balance sheet, representing its minimum obligation expected for these
remediation activities. Total costs incurred through December 2002, less amounts
recovered from customers, have been deferred as a regulatory liability on the
Balance Sheet. Through December 31, 2002, CILCO has recovered approximately $8.2
million in remediation costs from its customers. Under these circumstances,
management believes that the cost of coal tar remediation will not have a
material adverse effect on CILCO's financial position or results of operations.

Asbestos Related Litigation

CILCO has been named, along with numerous other parties, in several lawsuits
which have been filed by certain plaintiffs claiming varying degrees of injury
from asbestos exposure. The cases have been filed in the Circuit Courts of
Madison, Cook and Peoria Counties in Illinois and one case has been filed in
Indiana. The number of total defendants named in each case is significant with
as many as 87 parties named in a case to as few as 10. The claims filed against
CILCO allege injury from asbestos exposure during the plaintiffs' activities at
our electric generating plants. In each lawsuit, the plaintiff seeks unspecified
damages in excess of $50,000, which typically would be shared among the named
defendants. A total of thirteen such lawsuits have been filed against CILCO, of
which eleven are pending, one has been settled and one has been dismissed.

47

IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENTS

See Note 1 - Summary of Significant Accounting Policies to the consolidated
financial statements.

CRITICAL ACCOUNTING POLICIES

ACCOUNTING MATTERS

Critical Accounting Policies

Preparation of the financial statements and related disclosures in compliance
with generally accepted accounting principles requires the application of
appropriate technical accounting rules and guidance, as well as the use of
estimates. The Company's application of these policies involves judgments
regarding many factors, which, in and of themselves, could materially impact the
financial statements and disclosures. A future change in the assumptions or
judgments applied in determining the following matters, among others, could have
a material impact on future financial results. In the table below, the Company
has outlined those accounting policies that it believes are most difficult,
subjective or complex:

Accounting Policy Uncertainties Affecting Application

Regulatory Mechanisms and Cost Recovery
o Regulatory environment, external regulatory decisions
The Company defers costs as regulatory assets in and requirements
accordance with SFAS 71 and makes investments that o Anticipated future regulatory decisions and their
it is assumed will be collected in future rates. impact
o Impact of deregulation and competition on ratemaking
process and ability to recover costs

Basis for Judgment

The Company determines that costs are recoverable based on previous rulings by
state regulatory authorities in jurisdictions where the Company operates or
other factors that lead it to believe that cost recovery is probable. CILCO has
no stranded costs as a result of deregulation of electric generation in
Illinois.

Environmental and Legal
Obligations o Extent of contamination
o Responsible party determination
The Company accrues for all known o Approved methods for cleanup and
environmental contamination where requirements imposed by regulators
remediation can be reasonably o Present and future legislation and
estimated, but some of the governmental regulations and standards
Company's operations have existed o Results of ongoing research and
for over 85 years and previous development regarding environmental
contamination may be unknown. The impacts
Company accrues for legal o Probability of settlement or outcomes of
obligations when it is believed litigation
the probability of the obligation o Estimation of environmental remediation
occurring is more likely than not, and legal obligation costs
and a range of costs can be
determined.

48

Basis for Judgment

The Company determines the proper amounts to accrue for environmental
contamination and legal obligations based on internal and third party estimates.
Environmental obligations are based on clean-up costs in the context of current
remediation standards and available technology. Legal obligations are based on
the Company's prior experience and an analysis of similar obligations with other
companies.

Unbilled Revenue

At the end of each period, the o Projecting customer energy usage
Company estimates, based on o Estimating impacts of weather and other
expected usage, the amount of usage-affecting factors for the unbilled
revenue to record for services period
that have been provided to
customers, but not billed. This
period can be up to one month.

Basis for Judgment

The Company determines the proper amount of unbilled revenue to accrue each
period based on the volume of energy delivered as valued by a model of billing
cycles and historical usage rates and growth by customer class for its service
area, as adjusted for the modeled impact of seasonal and weather variations
based on historical results.

Benefit Plan Accounting

Based on actuarial calculations, o Future rate of return on pension and
the Company accrues costs of other plan assets
providing future employee benefits o Interest rates used in valuing benefit
in accordance with SFAS 87, 106 obligations
and 112. See Note 3 - o Healthcare cost trend rates
Postemployment and Postretirement o Timing of employee retirements
Benefits to the Consolidated
Financial Statements.

Basis for Judgment

The Company utilizes a third party consultant to assist it in evaluating and
recording the proper amount for future employee benefits. The ultimate selection
of the discount rate, healthcare trend rate and expected rate of return on
pension assets is based on the review of available current, historical and
projected rates, as applicable.

49

Derivative Financial Instruments
o Market conditions in the energy industry, especially
The Company records all derivatives at their fair the effects of price volatility on contractual commodity
market value in accordance with SFAS 133. The commitments
identification and classification of a derivative o Regulatory and political environments and requirements
and the fair value of such derivative must be o Fair value estimations on longer term contracts
determined. The Company designates certain o Complexity of financial instruments and accounting rules
derivatives as hedges of future cash flows. See o Effectiveness of derivatives that have been designated
Note 9 - Accounting for Price Risk Management as hedges
Activities to the Consolidated Financial
Statements.

Basis for Judgment

The Company determines whether a transaction is a derivative versus a normal
purchase or sale based on historical practice and the Company's intention at the
time it enters a transaction. The Company utilizes actively quoted prices,
prices provided by external sources, and prices based on internal models, and
other valuation methods to determine the fair market value of derivative
financial instruments.

Goodwill

The Company follows the nonamortization approach o Method for determining fair value
for purchased goodwill and certain intangibles in o Market prices for equity securities or
accordance with SFAS 142, "Goodwill and Other assets and liabilities
Intangible Assets." The Company annually assesses o Projections of future cash flows
whether its goodwill is impaired and performs an o Interest rates used in valuing goodwill
assessment more frequently if events occur
indicating possible impairment. As of December
31, 2002, CILCORP had net goodwill of $579
million.

Basis for Judgment

The Company determines whether goodwill is impaired based on internal and third
party estimates of the value of its assets and liabilities.

50

Leveraged Leases

The Company accounts for its Investments in o Market conditions of the industry of the
Leveraged Leases in Accordance with SFAS 13, leased asset that might affect the residual
"Accounting for Leases." As required by SFAS 13, value at the end of the lease terms. This
the Company reviews its estimated residual value would include: the real estate markets where
as well as all other important assumptions each of the assets are located; the rail
affecting estimated total net income from the industry; the aerospace industry and energy
leases. SFAS 13 requires the rate of return market where the asset is located.
and total income of a lease to be recalculated o Management judgment as to whether
if there is a permanent decline in the estimated impairments are other than temporary.
residual value below the value currently used to
calculate income.

Basis for Judgment

The Company determines whether the residual value has been "permanently
impaired" based on an internal review as well as periodic third party review of
the residual value.

In addition to the above Critical Accounting Policies, CILCO has a policy to
expense as incurred all costs associated with major maintenance projects.

EFFECTS OF INFLATION AND CHANGING PRICES

Inflation may have a significant impact on the Company's future operations and
its ability to contain costs. To help protect CILCO from the effects of
inflation, substantially all gas sales rates include a Purchased Gas Adjustment
(PGA) to provide for changes in the cost of natural gas. See also Item 1.
Business of CILCO - Electric Fuel and Purchased Gas Adjustment Clauses. Over the
past five years, the annual rate of inflation, as measured by the Consumer Price
Index, has ranged from 1.6% to 3.4%.

51

FORWARD-LOOKING INFORMATION

Statements made in this annual report which are not based on historical facts
are "forward-looking" and, accordingly, involve risks and uncertainties that
could cause actual results to differ materially from those discussed. Although
such "forward-looking" statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions and
financial performance. In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we are providing this
cautionary statement to identify important factors that could cause actual
results to differ materially from those anticipated. The following factors, in
addition to those discussed elsewhere in this report and in subsequent
securities filings, could cause results to differ materially from management
expectations as suggested by such "forward-looking" statements:

o changes in laws and other governmental actions, including monetary and
fiscal policies;

o the impact on us of current regulations related to the opportunity for
customers to choose alternative energy suppliers in Illinois;

o the effects of increased competition in the future due to, among other
things, deregulation of certain aspects of our business at both the
state and federal levels;

o the effects of participation in a FERC approved Regional Transmission
Organization, including activities associated with the Midwest
Independent Transmission System Operator, Inc.;

o availability and future market prices for fuel and purchased power,
electricity and natural gas, including the use of financial and
derivative instruments and volatility of changes in market prices;

o average rates for electricity in the Midwest;

o business and economic conditions;

o the impact of the adoption of new accounting standards on the
application of appropriate technical accounting rules and guidance;

o interest rates and the availability of capital;

o actions of rating agencies and the effects of such actions;

o weather conditions;

o the effects of strategic initiatives, including acquisitions and
divestitures;

o the impact of current environmental regulations on utilities and the
expectation that more stringent requirements will be introduced over
time, which could potentially have a negative financial effect;

o future wages and employee benefit costs, including changes in returns
of benefit plan assets;

o disruptions of the capital markets or other events making CILCORP's
access to necessary capital more difficult or costly;

o competition from other generating facilities, including new facilities
that may be developed in the future;

o difficulties in integrating CILCO with Ameren's other businesses;

o changes in the coal markets, environmental laws or regulations or other
factors adversely impacting synergy assumptions in connection with the
CILCORP acquisition;

o cost and availability of transmission capacity for the energy generated
by our generating facilities or required to satisfy our energy sales;
and

o legal and administrative proceedings.

52

Given these uncertainties, undue reliance should not be placed on these
forward-looking statements. Except to the extent required by the federal
securities laws, CILCORP undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.

53

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

CILCORP Inc. and its subsidiaries (the Company) are exposed to non-trading risks
through its daily business activities. These non-trading activities may include
the market or commodity price risk related to CILCO's retail tariff activity and
the Company's non rate-regulated commodity marketing activities.

The majority of the Company's electricity sales during 2002 were to CILCO retail
customers in Illinois under tariffs regulated by the Illinois Commerce
Commission (ICC). Gas costs, prudently incurred in connection with sales to
customers under tariffs regulated by the ICC, are recovered through the
Company's Purchased Gas Adjustment (PGA). Prior to October 29, 2001, prudently
incurred costs of fuel used to generate electricity and purchased power costs
were recovered from retail customers that purchase energy through regulated
tariffs under the Fuel Adjustment Clause (FAC). Thus, through October 28, 2001,
there had been very limited commodity price risk associated with CILCO's
traditional rate-regulated sales. CILCO filed to eliminate the FAC on September
10, 2001. The ICC approved the elimination of the FAC on October 24, 2001, for
bills issued on or after October 29, 2001. While the Company is exposed to
increased commodity price risk due to the elimination of the FAC, sufficient
purchased power has been placed under contract to limit the Company's exposure
to market risk at any given time. When this supply is added to CILCO generation
capacity, a reserve margin in excess of 16% results, based on a peak load of
1,270 MW during the 2002 summer cooling season. Since CILCO supplies over 90% of
its native load with its generation capacity, generation can be adjusted on a
real-time basis to match actual load at any given time. CILCO is subject to the
risk that generation becomes unavailable due to forced outages. The Company's
historical unplanned outage rate is 5.4%. In the event that CILCO generation and
purchased supply is insufficient to meet load requirements, CILCO may have to
purchase power from the market at prevailing market rates.

The market risk inherent in the Company's non rate-regulated activities is the
potential loss arising from adverse changes in natural gas and electric
commodity prices relative to the physical and financial positions that the
Company maintains. The prices of natural gas and electricity are subject to
fluctuations resulting from changes in supply and demand. The Company is engaged
in non rate-regulated electric retail and natural gas sales throughout Illinois,
including wholesale power purchases and sales to utilize its electric generating
capability. At December 31, 2002, these non rate-regulated activities had net
open market price risk positions of approximately 235,000 MWh of electricity and
70,000 Mcf of natural gas. A market price sensitivity of 10% applied to
positions open in the next twelve months is not material to the Company. See
Note 9 for a discussion of the Company's use of financial derivatives for
hedging purposes. Due to the high correlation between the changes in the value
of the financial instrument positions held by the Company and the change in
price of the underlying commodity, the net effect on the Company's net income
resulting from the change in value of these financial instruments is not
expected to be material.

The Company is exposed to interest rate risk as a result of changes in interest
rates on borrowings under secured bank loans which have interest rates that are
indexed to short-term market interest rates, and refinancing risk in the
commercial paper markets. At December 31, 2002, the combined borrowings
outstanding under these facilities totaled $114.7 million.

As of December 31, 2002, the Company had approximately $133 million invested in
seven leveraged leases. The Company analyzes each counterparty's financial
condition prior to entering into sales, forwards, swaps, futures or option
contracts and monitor counterparty exposure associated with our leveraged
leases. The Company also establishes credit limits for these counterparties and
monitors the appropriateness of these limits on an ongoing basis through a
credit risk management program which involves daily exposure reporting to senior
management, master trading and netting agreements, and credit support management
such as letters of credit and parental guarantees.

54

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements:

55

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder of CILCORP Inc.
Peoria, Illinois

We have audited the accompanying consolidated balance sheets of CILCORP Inc. and
subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of income and comprehensive income, stockholder's equity, and cash
flows for each of the three years in the period ended December 31, 2002. Our
audits also included the financial statement schedules listed in the Index at
Item 15. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedules based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of CILCORP Inc. and subsidiaries as of
December 31, 2002 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.

As discussed in Note 19, the accompanying 2001 and 2000 consolidated financial
statements have been restated.

As discussed in Note 1, effective January 1, 2001, CILCORP Inc. and subsidiaries
changed its method of accounting for derivative instruments and hedging
activities to conform to Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities." As discussed in
Note 1, effective January 1, 2002, CILCORP Inc. and subsidiaries changed its
method of accounting for goodwill and intangible assets to conform to Statement
of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets."

DELOITTE & TOUCHE LLP
Indianapolis, IN
April 11, 2003

56

CILCORP Inc. and Subsidiaries
Consolidated Statements of Income
and Comprehensive Income

(1) See Note 19 to the Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

57

CILCORP Inc. and Subsidiaries
Consolidated Balance Sheets

(1) See Note 19 to the Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

58

CILCORP Inc. and Subsidiaries
Consolidated Balance Sheets

Liabilities and Stockholder's Equity (As of December 31)

(1) See Note 19 to the Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

59

CILCORP Inc. and Subsidiaries
Consolidated Statements of Cash Flows

60

Cash Flows from Investing
Activities:
Additions to Plant (124,400) (51,255) (55,532)
Other (6,800) (195) (4,446)
---------- ---------- ----------
Net Cash Used in Investing
Activities (131,200) (51,450) (59,978)
---------- ---------- ----------
Cash Flows from Financing
Activities:
Net (Decrease) Increase in
Short-Term Debt (53,000) (52,300) 23,400
Long-Term Debt Retired (1,400) (18,900) (30,500)
Long-Term Debt Issued 100,000 -- 8,000
Preferred Stock Redeemed -- -- (25,000)
Common Dividends Paid -- (15,000) (9,300)
Preferred Dividends Paid (2,159) (2,159) (2,977)
Additional Paid-in Capital 600 50,000 --
---------- ---------- ----------
Net Cash Provided by (Used in)
Financing Activities 44,041 (38,359) (36,377)
---------- ---------- ----------
Net Increase in Cash and
Temporary Cash Investments 13,639 6,439 523
Cash and Temp. Cash Investments
at Beginning of Period 18,182 11,743 11,220
---------- ---------- ----------
Cash and Temporary Cash
Investments at End of Period $ 31,821 $ 18,182 $ 11,743
========== ========== ==========

(1) See Note 19 to the Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

61

CILCORP Inc. and Subsidiaries
Consolidated Statements of Stockholder's Equity

(1) See Note 19 to the Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

62

CILCORP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of CILCORP Inc. (the
Holding Company), Central Illinois Light Company (CILCO), QST Enterprises Inc.
(QST) and its subsidiaries QST Energy Inc. (QST Energy) and CILCORP
Infraservices Inc. (CILCORP Infraservices), and CILCORP's other subsidiaries
(collectively, CILCORP or the Company) after elimination of significant
intercompany transactions. In the fourth quarter of 1998, the operations of QST
and its subsidiaries (excluding ESE Land Corporation and CILCORP Infraservices)
were discontinued and, therefore, are being reported as discontinued operations
in the financial statements. Prior year amounts have been reclassified on a
basis consistent with the 2002 presentation.

At December 31, 2002, CILCORP Inc., a public utility holding company, was a
wholly-owned subsidiary of The AES Corporation (AES). On April 29, 2002, AES
announced an agreement with Ameren Corporation to sell 100 percent of its
ownership interest in CILCORP. See Note 18 - Subsequent Event. CILCO, the
Holding Company's principal business subsidiary, is engaged in the generation,
transmission, distribution and sale of electric energy in an area of
approximately 3,700 square miles in central and east-central Illinois, and the
purchase, distribution, transportation and sale of natural gas in an area of
approximately 4,500 square miles in central and east-central Illinois. Other
Holding Company first-tier subsidiaries are CILCORP Investment Management Inc.
(CIM), which manages the Company's investment portfolio and CILCORP Ventures
Inc. (CVI), which pursues investment opportunities in energy-related products
and services.

RESTATEMENT

The financial statements as of and for the years ended December 31, 2001 and
2000 have been restated. See Note 19 -- Restatement for additional information.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

ACCOUNTING CHANGES AND OTHER MATTERS

In January 2001, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). The impact of that adoption
resulted in no cumulative effect charge to the income statement, and a
cumulative effect adjustment of $1.7 million, net of taxes, to Accumulated Other
Comprehensive Income (OCI), which increased common stockholders' equity. See
Note 9 - Accounting for Price Risk Management Activities for further
information.

In January 2002, the Company adopted SFAS No. 141, "Business Combinations" (SFAS
141), and SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS
141 requires business combinations to be accounted for under the purchase method
of accounting, which requires one party in the transaction to be identified as
the acquiring enterprise and for that party to allocate the purchase price to
the assets and liabilities of the acquired enterprise based

63

on fair market value. SFAS 142 requires goodwill and indefinite-lived intangible
assets recorded in the financial statements to be tested for impairment at least
annually, rather than amortized over a fixed period, with impairment losses
recorded in the income statement. Adoption of SFAS 142 resulted in annual
goodwill amortization of $15.3 million ceasing in 2002.

For the Year Ended December 31,

(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

CILCORP's assessment of goodwill at December 31, 2002, resulted in no
impairment. SFAS 141 and SFAS 142 were utilized for Ameren's acquisition of
CILCORP and AES Medina Valley Cogen (No. 4), LLC and will result in a change in
goodwill at the Holding Company based on Ameren's acquisition price and the
assignment of new fair values to assets and liabilities. See Note 18 -
Subsequent Event for further information.

The Company is adopting SFAS 143, "Accounting for Asset Retirement Obligations"
(SFAS 143), in the first quarter of 2003. SFAS 143 provides the accounting
requirements for asset retirement obligations associated with tangible,
long-lived assets. SFAS 143 requires the Company to record the estimated fair
value of legal obligations associated with the retirement of tangible long-lived
assets in the period in which the liabilities are incurred and to capitalize a
corresponding amount as part of the book value of the related long-lived asset.
In subsequent periods, the Company is required to adjust asset retirement
obligations based on changes in estimated fair value, and the corresponding
increases in asset book values are depreciated over the useful life of the
related asset. Uncertainties as to the probability, timing or cash flows
associated with an asset retirement obligation affect the estimate of fair
value.

Historically, the Company has included an estimated cost of dismantling and
removing plant from service upon retirement in the basis upon which depreciation
rates were determined. SFAS 143 requires the Company to exclude costs of
dismantling and removal upon retirement from the depreciation rates applied to
non rate-regulated plant balances unless they are legal obligations under SFAS
143. Further, the Company is required to remove accumulated provisions for
dismantling and removal costs from accumulated depreciation related to non
rate-regulated plant assets and reflect such adjustment as a gain upon adoption
of this standard, to the extent such dismantling and removal activities are not
considered obligations as defined by SFAS 143.

The Company is finalizing its evaluation of the impact of adopting SFAS 143.
Upon adoption of this standard, the Company expects to recognize asset
retirement obligations related primarily to retirement costs for ash ponds at
the Duck Creek generating facility. In addition to these obligations, the
Company has determined that certain other asset retirement obligations exist,
but the Company is unable to estimate the fair value of those obligations
because the probability, timing or cash flows associated with the obligations
are indeterminable. The Company does not believe that these obligations, when
incurred, will have a material adverse impact on its financial position, results
of operations or liquidity. At this time, the Company has not determined the
amount of net gain or loss, if any, to be recognized upon adoption of SFAS 143
for its non rate-regulated plant balances.

64

On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 retains the
guidance related to calculating and recording impairment losses, but adds
guidance on the accounting for discontinued operations, previously accounted for
under Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
144 did not have any effect on the Company's financial position, results of
operations or liquidity in 2002.

SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" (SFAS 145), was issued in April
2002. The provisions of SFAS 145 related to the rescission of FASB Statement No.
4 shall be applied in years beginning after May 15, 2002. All other provisions
of SFAS 145 are effective for financial statements issued on or after May 15,
2002. Management has determined that adoption of SFAS 145 has no effect on the
Company's financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS 146). SFAS 146 requires an entity to
recognize, and measure at fair value, a liability for a cost associated with an
exit or disposal activity in the period in which the liability is incurred and
nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)." SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. Management does not
believe this statement will have a material effect on the consolidated financial
statements.

During 2002, the Company adopted the provisions of EITF Issue No. 02-3, "Issues
Involved in Accounting for Derivative Contracts Held for Trading Purposes and
Contracts Involved in Energy Trading and Risk Management Activities" (EITF
02-3), that required revenues and costs associated with certain energy contracts
to be shown on a net basis in the income statement. Prior to adopting EITF 02-3
and the rescission of EITF Issue No. 98-10, "Accounting for Contracts Involved
in Energy Trading and Risk Management Activities" (EITF 98-10), the Company's
accounting practice was to present all settled energy purchase or sale contracts
within the Company's power risk management program on a gross basis in Electric
Revenues and in Fuel and Purchased Power. This meant that revenues were recorded
for the notional amount of the power sales contracts with a corresponding charge
to income for the costs of the energy that was generated, or for the notional
amount of a purchased power contract.

In October 2002, the EITF reached a consensus to rescind EITF 98-10. The
effective date for the full rescission of EITF 98-10 was for fiscal periods
beginning after December 15, 2002, with early adoption permitted. In addition,
the EITF reached a consensus in October 2002 that all SFAS 133 trading
derivatives (subsequent to the rescission of EITF 98-10) should be shown net in
the income statement, whether or not physically settled. This consensus applies
to all energy and non-energy related trading derivatives that meet the
definition of a derivative pursuant to SFAS 133. The Company

65

adopted and applied this guidance to 2002 and 2001, which had no impact on
previously reported revenues, costs, earnings or stockholders' equity.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" (SFAS 148). SFAS 148 amends SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), to provide
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. It
also amends the disclosure provisions to require disclosure about the effects on
reported net income of an entity's accounting policy decisions with respect to
stock-based employee compensation.

Employees of the Company previously participated in the AES Stock Option Plan
that provided for grants of stock options to eligible participants. As permitted
under SFAS 123, the Company applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees" in accounting for this plan. As the exercise price of all
stock options are equal to their fair market value at the time the options are
granted, the Company did not recognize any compensation expense related to the
plan using the intrinsic value based method. Had compensation expense been
recognized using the fair value based method under SFAS 123, the Company's
consolidated earnings would have decreased by $2.7 million, $1.4 million, and
$.3 million in 2002, 2001, and 2000, respectively. The Company does not expect
SFAS 148 to have any effect on its financial position, results of operations or
liquidity in 2003.

FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN
45), was issued in November 2002. FIN 45 requires that upon issuance of certain
guarantees, a guarantor must recognize a liability for the fair value of the
obligation assumed under the guarantee. These recognition provisions of FIN 45
are to be applied on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year-end. FIN 45 also
requires additional disclosures by a guarantor in its interim and annual
financial statements for periods ending after December 15, 2002. The Company
does not expect the recognition provisions of FIN 45 to have a material impact
on its financial position or results of operations.

66

REGULATION

CILCO is a public utility subject to regulation by the Illinois Commerce
Commission (ICC) and the Federal Energy Regulatory Commission (FERC) with
respect to accounting matters, and maintains its accounts in accordance with the
Uniform System of Accounts prescribed by these agencies.

CILCO is subject to the provisions of SFAS No. 71, "Accounting for the Effects
of Certain Types of Regulation" (SFAS 71), for certain of its rate-regulated
public utility operations. Under SFAS 71, assets and liabilities are recorded to
represent probable future increases and decreases, respectively, of revenues to
CILCO resulting from the ratemaking action of regulatory agencies.

The Electric Service Customer Choice and Rate Relief Law of 1997 (the Illinois
Law) became effective in Illinois in December 1997. Among other provisions, this
law began a nine-year transition process to a fully competitive market for
electricity in Illinois. Electric transmission and distribution activities are
expected to continue to be regulated, but a customer may choose to purchase
electricity from another supplier.

Due to the Illinois Law, CILCO's electric generation activities are no longer
subject to the provisions of SFAS 71.

Regulatory assets included on the Consolidated Balance Sheets at December 31,
2002, and 2001, were as follows:

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

Regulatory assets at December 31, 2002, were related to CILCO's rate-regulated
electric and gas distribution activities. CILCO's regulatory assets do not earn
a current rate of return. Regulatory liabilities, consisting of deferred tax
items of approximately $19.2 million and $45.4 million at December 31, 2002, and
2001, respectively, and deferred taxes for investment tax credits of
approximately $4.3 million and $5.3 million at December 31, 2002 and 2001,
respectively, were primarily related to CILCO's electric and gas transmission
and distribution operations.

67

CILCO's electric generation-related identifiable assets, no longer subject to
SFAS 71, included in the balance sheet at December 31, 2002, and 2001, were as
follows:

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

Accumulated deferred income taxes and investment tax credits associated with
electric generation property at December 31, 2002, and 2001, were approximately
$62.0 million and $62.3 million, respectively, and investment tax credits were
approximately $4.8 million and $5.5 million at December 31, 2002, and 2001,
respectively. AFUDC equity is not applied to generation plant additions, as
these expenditures are related to non rate-regulated activities.

OPERATING REVENUES, FUEL COSTS AND COST OF GAS

Electric, gas, and non rate-regulated energy and energy services revenues
include service provided but unbilled at year end. Utility revenues are billed
to customers monthly on a cycle basis. Revenues are recorded on the accrual
basis and include estimates for electricity and gas delivered. Substantially all
CILCO gas system sales rates include a Purchased Gas Adjustment clause. This
clause provides for the recovery of changes in the cost of gas on a current
basis in billings to customers. CILCO adjusts the cost of gas to recognize
overrecoveries or underrecoveries of allowable costs. The cumulative effects are
deferred on the balance sheets as a current asset or current liability (see
Regulation) and adjusted by refunds or collections through future billings to
customers. CILCO's former electric energy rates included a similar Fuel
Adjustment Clause (FAC). CILCO filed a proposal to eliminate the FAC on
September 10, 2001. Tariffs eliminating the FAC became effective October 29,
2001.

SIGNIFICANT CUSTOMER

Caterpillar Inc. (Caterpillar) is CILCO's largest industrial customer. Gas
revenues, electric revenues, and sales of other services to Caterpillar were
7.7%, 7.3% (as restated), and 6.5% of CILCO's total revenue for 2002, 2001, and
2000, respectively. Sales to Caterpillar from all continuing CILCORP
subsidiaries represented 8.8%, 9.5% (as restated), and 7.5% of CILCORP
consolidated operating revenue from continuing operations for 2002, 2001, and
2000, respectively. See Note 10 - Statements of Segments of Business of Item 8.
Financial Statements and Supplementary Data.

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CONCENTRATION OF CREDIT RISK

CILCO, as a public utility, must provide service to customers within its defined
service territory and may not discontinue service to residential customers when
certain weather conditions exist. CILCO continually reviews customers'
creditworthiness and requests deposits or refunds deposits based on that review.
At December 31, 2002, CILCO had net receivables of $38.5 million, of which
approximately $3.1 million was due from Caterpillar.

See Note 16 for a discussion of receivables related to CILCORP Investment
Management Inc.'s leveraged lease portfolio.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of Cash and Temporary Cash Investments, Other Investments,
and Notes Payable approximate fair value. The estimated fair value of CILCO's
Preferred Stock with Mandatory Redemption was $22.1 million at both December 31,
2002, and December 31, 2001, based on current market interest rates for other
companies with comparable credit ratings, capital structure, and size. The
estimated fair value of Long-Term Debt, including current maturities, was $916.7
million at December 31, 2002, and $729.4 million at December 31, 2001. The fair
market value of these instruments was based on current market interest rates for
other companies with comparable credit ratings, capital structures, and size,
but does not reflect effects of regulatory treatment accorded the instruments
related to the rate-regulated portions of CILCO's business. See Note 9 for fair
value of derivative financial instruments.

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)

The allowance, representing the cost of equity and borrowed funds used to
finance construction, is capitalized as a component of the cost of utility
plant. The amount of the allowance varies depending on the rate used and the
size and length of the construction program. The Uniform System of Accounts
defines AFUDC, a non-cash item, as the net cost for the period of construction
of borrowed funds used for construction purposes and a reasonable rate upon
other funds when so used. On the income statement, the cost of equity and
borrowed funds capitalized is reported in fixed charges. In accordance with the
FERC formula, the composite AFUDC rates used in 2002, 2001, and 2000 were 6.2%,
4.8% and 6.9%, respectively. AFUDC equity is not applied to generation plant
additions, as these expenditures are related to non rate-regulated activities.

DEPRECIATION AND MAINTENANCE

Provisions for depreciation of utility property for financial reporting purposes
are based on straight-line composite rates. The annual provisions for utility
plant depreciation, expressed as a percentage of average depreciable utility
property, were 3.5%, 3.5%, and 3.7% for electric for 2002, 2001, and 2000,
respectively, and 4.7%, 4.7%, and 4.6% for gas for 2002, 2001, and 2000,
respectively. Utility maintenance and repair costs are charged directly to
expense. Renewals of units of property are charged to the utility plant account,
and the original cost of depreciable property replaced or retired, together with
the removal cost less salvage, is charged to the accumulated provision for
depreciation.

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GOODWILL

The excess purchase price over the fair value of the assets acquired and the
liabilities assumed by AES in its 1999 acquisition of CILCORP was allocated to
goodwill at the Holding Company. Through December 2001, goodwill was being
amortized using the straight-line method over a 40-year period. On January 1,
2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets",
which requires the use of a nonamortization approach for purchased goodwill and
certain intangibles. See Note 18 - Subsequent Event.

IMPAIRMENT OF LONG-LIVED ASSETS

We evaluate long-lived assets for impairment when events or changes in
circumstances indicate that the carrying value of such assets may not be
recoverable. The determination of whether impairment has occurred is based on an
estimate of undiscounted cash flows attributable to the assets, as compared with
the carrying value of the assets. If impairment has occurred, the amount of the
impairment recognized is determined by estimating the fair value of the assets
and recording a provision for loss if the carrying value is greater than the
fair value. See Accounting Changes and Other Matters relating to SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."

INCOME TAXES

The Company follows a policy of comprehensive interperiod income tax allocation.
Investment tax credits related to utility property have been deferred and are
being amortized over the estimated useful lives of the related property. The
Company will file a consolidated federal income tax return with AES for 2002.
The Company makes income tax payments to AES based on its consolidated taxable
income, calculated in the same manner as if CILCORP was not part of the AES
consolidated group. Income taxes are allocated to the Company's subsidiaries
based on their respective taxable income or loss.

CONSOLIDATED STATEMENTS OF CASH FLOWS

The Company considers all highly liquid debt instruments purchased with a
remaining maturity of three months or less to be cash equivalents for purposes
of the Consolidated Statements of Cash Flows.

Cash paid for interest and income taxes was as follows:

RESTRICTED CASH

CILCO has restricted cash of $7.9 million and $12.9 million at December 31,
2002, and 2001, respectively, within Prepayments and Other on the Consolidated
Balance Sheets.

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COMPANY-OWNED LIFE INSURANCE POLICIES

The following amounts related to company-owned life insurance contracts, issued
by a major insurance company, are included in Other Investments:

Interest expense related to borrowings against company-owned life insurance,
included in "Other" on the Consolidated Statements of Income and Comprehensive
Income, was $5.3 million, $4.9 million, and $4.3 million for 2002, 2001, and
2000, respectively.

NOTE 2 - INCOME TAXES

Total income tax expense for 2002 resulted in an effective tax rate of 21.6% on
earnings before income taxes (47.0% in 2001 (as restated) and 47.8% in 2000 (as
restated)). The principal reasons such rates differ from the statutory federal
rate for the years ended December 31, 2002, 2001, and 2000 were as follows:

(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

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Components of income tax expense for the years ended December 31, 2002, 2001,
and 2000 were as follows:

(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

Total income tax expense presented within the Consolidated Statements of Income
and Comprehensive Income was as follows:

(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

Total deferred income taxes, net, includes deferred state income taxes of
$(575.1), $3,321, and $(1,637), for the years 2002, 2001, and 2000,
respectively.

The Company uses the liability method to account for income taxes. Under the
liability method, deferred income taxes are recognized at currently enacted
income tax rates to reflect the tax effect of temporary differences between

72

the financial reporting basis and the tax basis of assets and liabilities.
Temporary differences occur because the income tax law either requires or
permits certain items to be reported on the Company's income tax return in a
different year than they are reported in the financial statements. CILCO has
recorded a regulatory asset and liability to account for the effect of expected
future regulatory actions related to unamortized investment tax credits, income
tax liabilities initially recorded at tax rates in excess of current rates, the
equity component of Allowance for Funds Used During Construction and other items
for which deferred taxes had not previously been provided. The temporary
differences related to the consolidated deferred income tax asset and liability
at December 31, 2002, and 2001, were as follows:

- ---------------
(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

The following table reconciles the change in the accumulated deferred income tax
liability to the deferred income tax expense included in the Consolidated
Statements of Income and Comprehensive Income:

- ---------------
(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

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NOTE 3 - POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS

POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE

CILCO has recorded a liability of approximately $.8 million and $1.4 million at
December 31, 2002, and 2001, respectively, for benefits other than pensions or
health care provided to former or inactive employees. The liability for these
benefits (primarily long-term and short-term disability payments under plans
self-insured by CILCO) is actuarially determined.

PENSION BENEFITS

The majority of CILCO's full-time employees are covered by trusteed,
non-contributory defined benefit pension plans. Benefits under these qualified
plans reflect the employee's years of service, age at retirement and maximum
total compensation for any consecutive sixty-month period prior to retirement.
CILCO also has an unfunded nonqualified plan for certain employees.

Pension costs for the past three years were charged as follows:

The components of net periodic benefit costs were as follows:

During 2000, CILCO recognized $3.7 million of net pension costs associated with
additional benefits extended in connection with voluntary early retirement
programs.

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Information on the plans' funded status was as follows:

At December 31, 2002, and 2001, CILCORP recognized an additional minimum
liability on the balance sheets of $51.5 million and $9.2 million, respectively,
for plans in which the accumulated benefit obligation exceeds the fair value of
plan assets. The projected benefit obligation, accumulated benefit obligation,
and fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $353.1 million, $323.7 million, and
$241.8 million, respectively, as of December 31, 2002 (all five plans); $163.4
million, $154.9 million, and $134.1 million, respectively, as of December 31,
2001 (two plans).

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POSTRETIREMENT HEALTH CARE BENEFITS

CILCO has three non-pension postretirement benefit plans. These plans are health
care plans covering three different groups of employees and retirees. Two of
these plans are non-contributory except for participants retired under various
early retirement windows, and one of the plans was amended effective in 2002 to
provide for participant contributions.

Postretirement health care benefit costs were charged as follows:

The components of net periodic benefit costs were as follows:

During 2000, CILCO recognized $0.4 million of net postretirement health care
benefit costs associated with additional benefits extended in connection with
voluntary early retirement programs.

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Information on the plans' funded status was as follows:

For measurement purposes, an 11.5 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2003. The rate was
assumed to decrease gradually to 5.0 percent for 2011 and remain level
thereafter.

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

SAVINGS PLAN

CILCO sponsors a savings plan for eligible employees. The plan allows employees
to contribute a portion of their base pay in accordance with specified
guidelines. CILCO matches a percentage of the employee contribution up to
certain limits. CILCO's matching contribution to the savings plan totaled $1.2
million in each of the years 2002, 2001 and 2000.

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NOTE 4 - SHORT-TERM DEBT

Short-term debt at December 31, 2002, consisted of $10.0 million (interest rate
of 2.05%) of CILCO commercial paper. Short-term debt at December 31, 2001,
included $20.0 million (average interest rate of 2.3%) of Holding Company bank
borrowings and $43.0 million (average interest rate of 3.2%) of CILCO commercial
paper.

The Holding Company no longer has any committed credit facilities. CILCO had
arrangements for committed credit facilities totaling $60 million, all of which
were unused at December 31, 2002, and are used to support CILCO's commercial
paper program. These facilities were maintained by commitment fees ranging from
..09 of 1% per annum to .15 of 1% per annum in lieu of balances. Based on
outstanding commercial paper borrowings, $50 million was available under CILCO's
committed credit facilities at December 31, 2002.

CILCO's financial agreements include customary default or cross default
provisions that could impact the continued availability of credit or result in
the acceleration of repayment. An event of default will occur under a $25
million CILCO committed credit facility if CILCO fails to maintain a Moody's
rating on its senior secured debt above Baa2, and a Fitch credit rating of BBB-.
As of February 2003, CILCO's senior secured debt rating from the rating agencies
were A2 and BBB, respectively. CILCO's Fitch ratings are on positive credit
watch.

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NOTE 5 - LONG-TERM DEBT

*Interest rates in the periods during which such rates apply vary depending on
selection of certain defined rate modes. The average interest rates for the year
2002, were as follows:

Hallock 3.03%
Kickapoo 3.03%
Secured Term Loan 2.87%

CILCO's long-term debt (excluding power module bank loans, which are secured by
the property financed by such borrowings) is secured by a lien on substantially
all of its property and franchises. Unamortized borrowing expense, premium and
discount on outstanding rate-regulated utility long-term debt are being
amortized over the lives of the respective issues. CILCORP Inc.'s long-term debt
is secured by a pledge of all of the common stock of CILCO.

Scheduled maturities of long-term debt are $103.3 million in 2004, $16.0 million
in 2005, and $50.0 million in 2007. The remaining maturities of long-term debt
of $622.2 million occur in 2008 and beyond.

The 2003 and 2002 maturities of long-term borrowings have been classified as
current liabilities as of December 31, 2002 and 2001, respectively.

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CILCORP and CILCO's financial agreements include customary default provisions
that could impact the continued availability of credit or results in the
acceleration of repayment. Under the Hallock and Kickapoo Substation Power
Module agreements, CILCO must maintain a Moody's investment grade rating or an
event of default will occur. The $100 million secured term loan requires CILCO
to maintain investment grade ratings for its first mortgage bonds from at least
two of Standard & Poor's, Moody's and Fitch. As of February 2003, CILCO's senior
secured debt ratings from these rating agencies were A-, A2 and BBB,
respectively. CILCO's Fitch ratings are on positive credit watch.

Covenants in CILCO's $100 million secured term loan require it to maintain a
minimum level of common stockholder equity and limit CILCO's ability to pay
dividends or otherwise make distributions with respect to its common stock. Any
violation of these covenants will result in an event of default under this
facility. Under the minimum common equity requirement CILCO must maintain a
minimum level of common stockholder equity which increases from the date the
facility was entered based on ongoing earnings. The maintenance of this test is
determined upon each anniversary of the loan. If this test was performed as of
December 31, 2002, the minimum common equity level requirement would equal
approximately $301 million. At that date CILCO's common equity, calculated in
accordance with this provision, was $329 million. Under the restricted payments
provision CILCO may only pay dividends to the Holding Company up to $45 million
annually subject to limited carryforward if not fully utilized.

At its current ratings level, covenants in CILCORP Inc.'s indenture governing
its $475 million senior notes and bonds require CILCORP to maintain a debt to
capital ratio of no greater than 0.67 to 1.0 and an interest coverage ratio of
at least 2.2 to 1.0 in order to make any payment of dividends or intercompany
loans to affiliates other than its direct and indirect subsidiaries including
CILCO. However, in the event CILCORP's senior long-term debt rating from Fitch
is increased by one notch to BBB, CILCORP may make any such distribution or
intercompany loan without being subject to these tests. At December 31, 2002,
CILCORP's debt to capital ratio was 0.60 to 1.0 and its interest coverage ratio
was 2.72 to 1.0, calculated in accordance with related provisions in this
indenture.

At December 31, 2002, CILCORP Inc. and its subsidiaries were in compliance with
their indenture and credit agreement provisions and covenants.

The common stock of CILCO is pledged as security of the holders of CILCORP
Inc.'s $475 million of senior notes and bonds.

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NOTE 6 - PREFERRED STOCK

PREFERRED STOCK OF SUBSIDIARY

All classes of preferred stock are entitled to receive cumulative dividends and
rank equally as to dividends and assets, according to their respective terms.
All preferred shares of stock have voting rights. Those voting rights are one
vote per share on all questions submitted to shareholders. One vote of the
preferred shares is equal to one vote of the common shares. The liquidation
preference related to Series A Preferred Stock is that in an involuntary or
voluntary liquidation, the stockholder receives $100 per share plus accrued
dividends.

The total annual dividend requirement for preferred stock outstanding at
December 31, 2002, is $2.2 million.

PREFERRED STOCK WITHOUT MANDATORY REDEMPTION

The call provisions of preferred stock redeemable at CILCO's option outstanding
at December 31, 2002, were as follows:

PREFERRED STOCK WITH MANDATORY REDEMPTION

CILCO's 5.85% Class A preferred stock may be redeemed in 2003 at $100 per share.
A mandatory redemption fund must be established on July 1, 2003. The fund will
provide for the redemption of 11,000 shares for $1.1 million on July 1 of each
year through July 1, 2007. On July 1, 2008, the remaining 165,000 shares will be
retired for $16.5 million.

PREFERENCE STOCK OF SUBSIDIARY, CUMULATIVE

CILCO has authorized 2,000,000 shares of no par value, preference stock, of
which none have been issued.

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NOTE 7 - COMMITMENTS & CONTINGENCIES

CILCO's 2003 capital expenditures are estimated to be $100 million, which
includes normal and customary purchase commitments at December 31, 2002.

CILCO acts as a self-insurer for certain insurable risks resulting from employee
health and life insurance programs.

On February 21, 2002, CILCO and the International Brotherhood of Electrical
Workers Local 51 (IBEW) agreed to extend the existing contract through June 30,
2004. The contract provides for 3% wage increases in each of the two years of
the extension. The IBEW represents 335 CILCO gas and electric department people.
The National Conference of Firemen and Oilers Local 8 (NCF&O) ratified its
current contract with CILCO on February 23, 2001. This agreement expires on July
1, 2006, and provides for 4% wage increases in each of the first two years of
the contract and for 3% wage increases in each of the final three years of the
contract. The NCF&O represents 176 CILCO power plant people.

The Company is subject to various environmental regulations by federal, state,
and local authorities. From the beginning phases of siting and development, to
the ongoing operation of existing or new electric generating, transmission, and
distribution facilities, The Company's activities involve compliance with
diverse laws and regulations that address emissions and impacts to air and
water, special, protected, and cultural resources (such as wetlands, endangered
species, and archeological/historical resources), chemical and waste handling,
and noise impacts. The Company's activities require complex and often lengthy
processes to obtain approvals, permits, or licenses for new, existing, or
modified facilities. Additionally, the use and handling of various chemicals or
hazardous materials (including wastes) requires preparation of release
prevention plans and emergency response procedures. As new laws or regulations
are promulgated, the Company assesses the applicability and implements the
necessary modifications to its facilities or operations, as required. The more
significant matters are discussed below.

The Clean Air Act affects both existing generating facilities and new projects.
The Clean Air Act and many state laws require significant reductions in SO2 and
NOx emissions that result from burning fossil fuels. The Clean Air Act also
contains other provisions that could materially affect some of CILCO's projects.
Various provisions require permits, inspections, or installation of additional
pollution control technology or may require the purchase of emission allowances.
Certain of these provisions are described in more detail below.

The Clean Air Act creates a marketable commodity called an SO2 "allowance." All
generating facilities over 25 megawatts that emit SO2 must obtain allowances in
order to operate after 1999. Each allowance gives the owner the right to emit
one ton of SO2. All existing generating facilities have been allocated
allowances based on a facility's past production and the statutory emission
reduction goals. If additional allowances are needed for new generating
facilities, they can be purchased from facilities having excess allowances or
from SO2 allowance banks. CILCO's generating facilities comply with the SO2
allowance caps through the use of an existing SO2 scrubber, fuel blending and
SO2 allowance purchases. CILCO is also considering the possibility of utilizing
low sulfur fuels in the future.

The U.S. Environmental Protection Agency (EPA) issued a rule in October 1998
requiring 22 Eastern states and the District of Columbia to reduce emissions of
NOx in order to reduce ozone in the Eastern United States. Among other things,
the EPA's rule establishes an ozone season, which runs from May

82

through September, and a NOx emission budget for each state, including Illinois.
The EPA rule requires states to implement controls sufficient to meet their NOx
budget by May 31, 2004. Total capital expenditures to meet the NOx emission
requirements are estimated to be $125.5 million (including cost of removal),
$77.5 million of which was expended through 2002. These costs include the
installation of two Selective Catalytic Reduction (SCR) units and combustion
control modifications.

On December 31, 2002, the EPA published in the Federal Register revisions to the
New Source Review (NSR) programs under the Clean Air Act, including changes to
the routine maintenance, repair and replacement exclusions. Various Northeastern
states have filed a petition with the United States District Court for the
District of Columbia challenging the legality of the revisions to the NSR
programs. It is likely that various industries and environmental groups will
seek to intervene in that challenge. At this time, CILCO is unable to predict
the impact of this challenge on its future financial position, results of
operations or liquidity.

The EPA is currently working on rulemakings to implement the new National
Ambient Air Quality Standards for ozone and particulate matter. These new
ambient standards may require significant additional reductions in SO2 and NOx
emissions from power plants by 2008. At this time, CILCO is unable to predict
the ultimate impact of these revised air quality standards on its future
financial position, results of operations or liquidity.

In December 1999, the EPA issued a decision to regulate mercury emissions from
coal-fired power plants by 2008. The EPA is scheduled to propose regulations by
2004. These regulations have the potential to add significant capital and/or
operating costs to generating systems after 2006. The EPA also issued Best
Available Retrofit Technology (BART) guidelines to address visibility impairment
(so called "Regional Haze") across the United States from sources of air
pollution, including coal-fired power plants. The guidelines were to be used by
states to mandate pollution control measures for SO2 and NOx emissions. In May
2002, the District of Columbia Circuit Court remanded these rules back to the
EPA. The EPA is currently working to address the issues raised by the court
decision. These rules could also add significant pollution control costs to our
generating system between 2008 and 2012. At this time, CILCO is unable to
predict the ultimate impact of these revised air quality standards on our future
financial condition, results of operations or liquidity.

The United States Congress has been working on legislation to consolidate the
numerous air pollution regulations facing the utility industry. This
"multi-pollutant" legislation will be deliberated in Congress in 2003. While the
cost to comply with such legislation, if enacted, could be significant, it is
anticipated that the costs would be less than the combined impact of the new
National Ambient Air Quality Standards and the Mercury and Regional Haze
Regulations, discussed above. Pollution control costs under such legislation are
expected to be incurred in phases from 2007 through 2015. At this time, CILCO is
unable to predict the ultimate impact of the above expected regulations and this
legislation on its future financial position, results of operations or
liquidity; however, the impact could be material.

Future initiatives regarding greenhouse gas emissions and global warming
continue to be the subject of much debate. The related Kyoto Protocol was signed
by the United States but has since been rejected by the President, who instead
has asked for an 18% decrease in carbon intensity on a voluntary basis. Future
initiatives on this issue and the ultimate effects of the Kyoto Protocol and the
President's initiatives on CILCO are unknown. Coal-fired power plants are
significant sources of carbon dioxide emissions, a principal

83

greenhouse gas. Therefore, CILCO's compliance costs with any mandated federal
greenhouse gas reductions in the future could be material.

In April 2002, the EPA proposed rules under the Clean Water Act that require
that cooling water intake structures reflect the best technology available for
minimizing adverse environmental impacts. These rules pertain to existing
generating facilities that currently employ a cooling water intake structure
whose flow exceeds 50 million gallons per day. A final action on the proposed
rules is expected by August 2003. The proposed rule may require CILCO to install
additional intake screens or other protective measures, as well as extensive
site specific study and monitoring requirements. CILCO's compliance costs
associated with the final rules are unknown.

In October 2002, CILCO submitted a corrective action plan to the Illinois EPA
(IEPA) in accordance with permit conditions to address ground water issues
associated with the recycle pond and ash ponds at the Duck Creek facility. In
January 2003, the IEPA accepted portions of the plan but rejected other portions
as being inadequate. Future actions will entail, at a minimum, the closure of
two ash ponds, replacement of a return water line, construction of a landfill
and remedial actions to treat water in the recycle pond and an ash pond. CILCO
recorded an $8.5 million liability on the balance sheet in 2002 for the
remediation effort related to the water treatment for the recycle pond and an
ash pond. In addition, CILCO estimates future capital expenditures for the
landfill and return water line could range from $15 million to $30 million by
2007. See Note 1 - Summary of Significant Accounting Policies - for further
discussion of the costs related to the closure of two ash ponds.

CILCO owns or is otherwise responsible for four former manufactured gas plant
(MGP) sites in Illinois. The ICC permits the recovery of remediation and
litigation costs associated with certain former MGP sites located in Illinois
from Illinois electric and natural gas utility customers through environmental
adjustment rate riders. To be recoverable, such costs must be prudently and
properly incurred and are subject to annual reconciliation review by the ICC.

Remediation at two of the four sites was completed and "No Further Remediation"
letters were received in 1999 and 2000. Groundwater sampling continues at the
third site and a plan has been filed with the IEPA for additional investigation
at the site. Remediation of the site is expected to be completed in 2004. CILCO
has not determined the ultimate extent of its liability for, or the ultimate
cost of any remediation of, the fourth site, which is pending further studies.
In 2002, CILCO spent approximately $0.2 million for former gas manufacturing
plant site monitoring, legal fees and feasibility studies and has received some
recovery from insurance settlements. A $1.1 million liability is recorded on the
balance sheet, representing its minimum obligation expected for these
remediation activities. Total costs incurred through December 2002, less amounts
recovered from customers, have been deferred as a regulatory liability on the
Balance Sheet. Through December 31, 2002, CILCO has recovered approximately $8.2
million in remediation costs from its customers. Under these circumstances,
management believes that the cost of coal tar remediation will not have a
material adverse effect on CILCO's financial position or results of operations.

CILCO has been named, along with numerous other parties, in several lawsuits
which have been filed by certain plaintiffs claiming varying degrees of injury
from asbestos exposure. The cases have been filed in the Circuit Courts of
Madison, Cook and Peoria Counties in Illinois and one case has been filed in
Indiana. The number of total defendants named in each case is significant with
as many as 87 parties named in a case to as few as 10. The

84

claims filed against CILCO allege injury from asbestos exposure during the
plaintiffs' activities at our electric generating plants. In each lawsuit, the
plaintiff seeks unspecified damages in excess of $50,000, which typically would
be shared among the named defendants. A total of thirteen such lawsuits have
been filed against CILCO, of which eleven are pending, one has been settled and
one has been dismissed.

On May 11, 2001, CILCO and Enron Power Marketing, Inc. (EPMI), a subsidiary of
Enron Corp. (Enron), entered into a new Master Agreement for electric purchases
and sales, which covered energy transactions scheduled for deliveries during the
period of 2001-2003. On November 28, 200l, EPMI demanded that CILCO post $28
million in collateral based on mark to market exposure of open transactions. On
November 30, 2001, CILCO notified EPMI that events of default had occurred under
the Master Agreement and pursuant to the termination provisions of the Master
Agreement declared the Master Agreement terminated effective December 20, 2001.
Due to contractual provisions and EPMI's and Enron's actions, management does
not believe that it is probable that CILCO will be required to pay any amount to
Enron or its affiliates and has therefore recorded no liability for undelivered
electric purchases. Enron and EPMI filed Chapter 11 bankruptcy petitions on
December 2, 2001, in the U. S. Bankruptcy Court for the Southern District of New
York. Thereafter, CILCO purchased replacement power to serve its retail
customers which had previously been partially supported by the EPMI
transactions. While the ultimate outcome is unpredictable, management does not
believe that EPMI's defaults under the Master Agreement, its filing for
bankruptcy protection, CILCO's termination of the Master Agreement, or CILCO's
purchase of replacement electricity will have a material adverse effect on
CILCO's financial position or results of operations.

On May 4, 2001, CILCO and Enron subsidiary Enron North America Corp. (ENA)
entered into a natural gas transaction for daily deliveries not to exceed 10,000
MMBtu per day during calendar year 2002. CILCO received no natural gas
deliveries pursuant to this transaction in 2002. On October 24, 2001, CILCO and
ENA entered into a short-term natural gas transaction giving CILCO the right to
call upon ENA for the delivery of 10,000 MMBtu per day during the period from
November 1, 2001, through March 31, 2002. Since late November 2001, ENA has been
unable to deliver natural gas when called upon by CILCO. ENA's failure to
deliver natural gas is an event of default under the Master Firm Sales Agreement
governing the October transaction. On December 2, 2001, ENA filed a Chapter 11
bankruptcy petition in the U. S. Bankruptcy Court for the Southern District of
New York. To the extent that it has been necessary, CILCO has purchased
replacement natural gas. Because these transactions are part of a larger and
more diversified natural gas supply portfolio and are subject to the Purchased
Gas Adjustment clause, management does not believe ENA's failure to supply
natural gas or its subsequent bankruptcy filing will have a material adverse
effect on CILCO's financial position or results of operations.

On December 10, 2002, EPMI filed a complaint against AES, Constellation New
Energy, Inc., f/k/a AES New Energy Inc. and CILCO in the United States
Bankruptcy Court for the Southern District of New York. With respect to CILCO,
EPMI alleges that it is owed $31.2 million under the Master Agreement. CILCO
disputes that any amount is owed EPMI based on the clear language of the Master
Agreement, Section 553 of the Bankruptcy Code and EPMI's misconduct prior to
entering the Master Agreement and continuing through the date of its bankruptcy
filing. AES has agreed to undertake CILCO's defense in this proceeding and
intends to vigorously contest these claims. Due to CILCO's contractual and other
defenses to EPMI's claims, as well as certain provisions related to the sale of
CILCO to Ameren Corporation, management does not believe the results of this
litigation will have a material adverse effect on CILCO's financial position or
results of operations.

85

NOTE 8 - LEASES

The Company leases certain equipment, buildings and other facilities under
operating leases. As of December 31, 2002, rental expense totaled $4.9 million
(2001 - $4.3 million; 2000 - $4.8 million). Minimum future rental payments under
non-cancellable operating leases having remaining terms in excess of one year as
of December 31, 2002, are $12.0 million in total. Payments due during the years
ending December 31, 2003, through December 31, 2007, are $3.1 million, $2.4
million, $1.8 million, $1.3 million and $1.1 million, respectively.

NOTE 9 - ACCOUNTING FOR PRICE RISK MANAGEMENT ACTIVITIES

The Company utilizes commodity futures contracts, options and swaps in the
normal course of its natural gas and electric business activities to reduce
market or price risk. Since January 1, 2001, all derivative transactions have
been accounted for under Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Transactions and Hedging Activities" (SFAS 133), as
interpreted and amended. SFAS 133 requires that an entity recognize all
derivatives (including derivatives embedded in other contracts), as defined, as
either assets or liabilities on the balance sheet and measure those instruments
at fair value unless they are determined to be normal purchases and normal sales
as outlined in SFAS 133 and subsequent DIG (Derivative Implementation Group)
conclusions. Several of the Company's contracts have been determined to be
normal purchases and normal sales (power purchase contracts for example). For
all derivatives not determined to be normal purchases and normal sales, changes
in the derivative's fair value are to be recognized currently in earnings,
unless specific hedge accounting criteria are met. Substantially all of the
Company's derivatives qualify as cash flow hedges or have been determined to be
normal purchases and normal sales. Under SFAS 133, the effective portion of the
gain or loss on a derivative instrument designated and qualifying as a cash flow
hedge is reported as a component of Other Comprehensive Income (OCI) until the
hedged transaction affects earnings, at which time the amount accumulated in OCI
is reclassified into earnings. In addition, under SFAS 133, any ineffective
portion of the gain or loss is recognized in earnings immediately. All of the
Company's cash flow hedges are highly effective, and therefore, because any
ineffectiveness is immaterial, all gains and losses have been recorded in OCI
until the hedged transaction affects earnings. If a cash flow hedge is
terminated because it is probable that the hedged transaction will not occur,
the related balance in OCI as of such date is immediately recognized in
earnings. If a cash flow hedge is terminated early for other reasons, the
related balance in OCI as of the termination date is recognized in earnings
concurrently with the related hedged transaction.

The Company recorded the effects of implementation of SFAS 133 in OCI as a
change in accounting principle. The amount recorded as OCI reflects the
mark-to-market value of fixed price derivative financial instruments
representing hedges of natural gas commitments through December 2001. These
derivatives were related to non rate-regulated activities and were accounted for
as fully-effective cash-flow hedges as determined through correlation analyses
performed throughout the year. The balance in OCI, as of January 1, 2001,
related to the implementation of SFAS 133, was an after-tax credit of $1.7
million.

Gains/losses on derivatives that hedge non rate-regulated activities are
reflected in operating results when the hedged commitments are recognized. The
net loss reflected in operating results from derivative financial instruments
for non rate-regulated activities for the year ended December 31, 2002, was $5.4
million for natural gas (included in Gas Purchased for Resale). There were no
outstanding derivative financial

86

instruments for electricity during the year ended December 31, 2002. The
previously recorded gain/loss associated with these settled derivative financial
instruments was removed from OCI when hedged transactions affected earnings. All
open derivative positions hedging anticipated transactions are then
marked-to-market with the change in fair value being recorded in OCI. The net
effect of these adjustments was to record an after-tax credit in OCI in the
amount of $3.5 million for the year ended December 31, 2002. The after-tax
balance in OCI associated with these open derivative positions and unrealized
gains/losses on settled positions related to hedged anticipated transactions at
December 31, 2002, was a credit of $1.3 million. The corresponding asset is
reflected on the balance sheet in prepayments and other. The portion of OCI for
open positions reflects hedges of natural gas sales of 1,960,000 MMBtu for
commitments through March 2004. Approximately $0.8 million of OCI related to
derivative financial instruments as of December 31, 2002, is expected to be
recognized as an increase to operating earnings over the next twelve months
based on market prices as of December 31, 2002. The actual amount recognized in
earnings will be based on the market conditions at the time the derivatives are
settled.

During 2002, the Company utilized derivatives in its rate-regulated gas business
to manage the volatility of cash flows relative to customers charged the
Purchased Gas Adjustment (PGA). The derivatives utilized included collars (a
combination of a put option and a call option) and financial futures contracts.
Mark-to-market gains and losses on PGA-related positions are recorded as
regulatory assets or liabilities in accordance with Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71). For the year ended December 31, 2001, losses of $4.1
million were recorded in regulatory assets. The corresponding liability is
reflected on the balance sheet in Other Current Liabilities. For the year ended
December 31, 2002, gains of $0.8 million were recorded in regulatory
liabilities. The corresponding asset is reflected on the balance sheet in
prepayments and other. This reflects hedges of natural gas sales of 400,000
MMBtu for commitments through March 2003. As these derivatives settle, the
realized gain/loss is credited/charged to the PGA customers resulting in no
income affect.

In December 2001, the Financial Accounting Standards Board (FASB) revised its
earlier conclusion, Derivatives Implementation Group (DIG) Issue C-15, related
to contracts involving the purchase or sale of electricity. Contracts for the
purchase or sale of electricity, including capacity contracts with call options,
may qualify for the normal purchases and normal sales exemption and are not
required to be accounted for as derivatives under SFAS 133. In order for
contracts to qualify for this exemption, they must meet certain criteria, which
include the requirement for physical delivery of the electricity to be purchased
or sold under the contract only in the normal course of business. Additionally,
contracts that have a price based on an underlying that is not clearly and
closely related to the electricity being sold or purchased or that are
denominated in a currency that is foreign to the buyer or seller are not
considered normal purchases and normal sales and are required to be accounted
for as derivatives under SFAS 133. This revised conclusion was effective
beginning April 1, 2002. The Company has determined that its physical contracts
qualify for the normal purchases and sales exemption as redefined in DIG Issue
C-15 and are not to be accounted for as derivatives under SFAS 133.

87

NOTE 10 - STATEMENTS OF SEGMENTS OF BUSINESS

The Company has five reportable segments: CILCO Electric, CILCO Gas, CILCO
Other, CILCORP Other and Discontinued Operations. The CILCO Electric segment
contains the rate-regulated portions of the utility's electric business. The
CILCO Gas segment contains the rate-regulated portions of the utility's gas
business. The CILCO Other segment contains the non rate-regulated portions of
the utility's business. The CILCORP Other segment includes the activities of
CILCORP Inc. (the Holding Company), its leasing and investing subsidiaries,
CILCORP Investment Management Inc. and CILCORP Ventures Inc., and QST
Enterprises Inc. subsidiaries ESE Land Corporation and CILCORP Infraservices
Inc. The Discontinued Operations segment includes activities related to certain
discontinued subsidiaries of QST Enterprises Inc. The Company's reportable
segments are strategic business units managed separately primarily due to the
rate-regulated or non rate-regulated nature of the businesses, or due to the
type of business activity involved.

88

CILCORP Inc. and Subsidiaries
Statements of Segments of Business

For the Year Ended December 31, 2002

89

CILCORP Inc. and Subsidiaries
Statements of Segments of Business

For the Year Ended December 31, 2001 (as restated)(1)

CILCO CILCO CILCO CILCORP Discont.
Electric Gas Other Other Operatns. Total
(In thousands)

Revenues $ 371,435 $ 271,434 $ 96,062 $ 49,820 $ -- $ 788,751
Interest income -- -- 758 485 -- 1,243
------------ ------------ ------------ ------------ ------------ ------------
Total 371,435 271,434 96,820 50,305 -- 789,994
------------ ------------ ------------ ------------ ------------ ------------
Operating
expenses 301,268 232,840 89,187 (40,203) -- 583,092
Depreciation and
amortization 47,604 21,529 -- 16,880 86,013
------------ ------------ ------------ ------------ ------------ ------------
Total 348,872 254,369 89,187 (23,323) -- 669,105
------------ ------------ ------------ ------------ ------------ ------------
Interest expense 16,777 6,721 -- 46,286 -- 69,784
Preferred stock
dividends -- -- 2,159 -- -- 2,159
Fixed charges and
other expenses (18) -- 1,354 -- -- 1,336
------------ ------------ ------------ ------------ ------------ ------------
Total 16,759 6,721 3,513 46,286 -- 73,279
------------ ------------ ------------ ------------ ------------ ------------
Income from
continuing
oper. before
income taxes 5,804 10,344 4,120 27,342 -- 47,610
Income taxes 2,523 4,331 935 14,393 -- 22,182
------------ ------------ ------------ ------------ ------------ ------------
Net income from
continuing
operations 3,281 6,013 3,185 12,949 -- 25,428
Effect of
discontinued
operations -- -- -- -- (1,665) (1,665)
------------ ------------ ------------ ------------ ------------ ------------
Segment net
income (loss) $ 3,281 $ 6,013 $ 3,185 $ 12,949 $ (1,665) $ 23,763
============ ============ ============ ============ ============ ============
Capital
expenditures $ 36,465 $ 14,790 $ -- $ -- $ -- $ 51,255
Revenue from
major customer
Caterpillar
Inc $ 43,894 $ 1,724 $ 8,463 $ 21,096 $ -- $ 75,177

Segment assets
as of Dec. 31 $ 733,476 $ 295,947 $ 5,056 $ 1,223,976 $ 1,435 $ 2,259,890
Consolidation
adjustments (2,110) (781) -- (441,356) (1,162) (445,409)
------------ ------------ ------------ ------------ ------------ ------------
Total assets $ 731,366 $ 295,166 $ 5,056 $ 782,620 $ 273 $ 1,814,481
============ ============ ============ ============ ============ ============

(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

90

CILCORP Inc. and Subsidiaries
Statements of Segments of Business

For the Year Ended December 31, 2000 (as restated)(1)

CILCO CILCO CILCO CILCORP Discont.
Electric Gas Other Other Operatns. Total
(In thousands)

Revenues $ 398,836 $ 237,654 $ 47,807 $ 38,527 $ -- $ 722,824
Interest income -- -- 547 143 -- 690
------------ ------------ ------------ ------------ ------------ ------------
Total 398,836 237,654 48,354 38,670 -- 723,514
------------ ------------ ------------ ------------ ------------ ------------
Operating
expenses 269,742 194,718 52,624 22,438 -- 539,522
Depreciation and
amortization 48,404 21,001 -- 17,405 -- 86,810
------------ ------------ ------------ ------------ ------------ ------------
Total 318,146 215,719 52,624 39,843 -- 626,332
------------ ------------ ------------ ------------ ------------ ------------
Interest expense 16,895 6,768 -- 48,089 -- 71,752
Preferred stock
dividends -- -- 2,977 -- -- 2,977
Fixed charges and
other expenses (533) -- 1,221 -- -- 688
------------ ------------ ------------ ------------ ------------ ------------
Total 16,362 6,768 4,198 48,089 -- 75,417
------------ ------------ ------------ ------------ ------------ ------------
Income (loss)
from continuing
oper. before
income taxes 64,328 15,167 (8,468) (49,262) -- 21,765
Income taxes 23,448 6,430 (3,651) (15,847) -- 10,380
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss)
from continuing
operations 40,880 8,737 (4,817) (33,415) -- 11,385
Effect of
discontinued
operations -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Segment net
income (loss) $ 40,880 $ 8,737 $ (4,817) $ (33,415) $ -- $ 11,385
============ ============ ============ ============ ============ ============
Capital
expenditures $ 41,366 $ 14,166 $ -- $ -- $ -- $ 55,532
Revenue from
major customer
Caterpillar
Inc $ 42,961 $ 1,448 $ 292 $ 9,243 $ -- $ 53,944

Segment assets
as of Dec. 31 $ 763,808 $ 331,290 $ 5,447 $ 1,274,214 $ 19,296 $ 2,394,055
Consolidation
adjustments (726) (282) -- (438,586) (5,955) (445,549)
------------ ------------ ------------ ------------ ------------ ------------
Total assets $ 763,082 $ 331,008 $ 5,447 $ 835,628 $ 13,341 $ 1,948,506
============ ============ ============ ============ ============ ============

- ---------------
(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

91

NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following quarterly operating results are unaudited, but, in the opinion of
management, include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the Company's operating results for the
periods indicated. The results of operations for each of the fiscal quarters are
not necessarily comparable to, or indicative of, the results of an entire year
due to the seasonal nature of the Company's business and other factors.

- ---------------
(1) See Note 19 to the Consolidated Financial Statements for CILCORP Inc. and
subsidiaries.

NOTE 12 - RETAINED EARNINGS

The Bond Indenture for the Holding Company's 8.7% (due 2009) and 9.375% (due
2029) senior notes provides that the Holding Company may pay dividends or make
other distributions on its capital stock only if it has an assigned rating on
its long-term senior secured debt of at least BB+ from Standard & Poor's, at
least Baa2 from Moody's and at least BBB from Fitch Ratings. If the assigned
ratings are lower, CILCORP must satisfy a leverage ratio test of .67 to 1 and an
earnings before interest, taxes, depreciation and amortization interest coverage
ratio test of 2.2 to 1. The Holding Company's long-term senior secured debt
meets the above ratings requirements as of December 31, 2002.

92

NOTE 13 - OTHER COMPREHENSIVE INCOME

Rollforward of Accumulated Other Comprehensive Income -
CILCORP Inc. and subsidiaries

NOTE 14 - RELATED PARTY TRANSACTIONS

Under a non-derivative, executory tolling agreement and gas sales and transport
agreements, CILCORP sells and transports gas to, and purchases steam, chilled
water and electricity from, AmerenEnergy Medina Valley Cogen (No. 4), LLC, f/k/a
AES Medina Valley. During 2002, CILCORP purchased $25.9 million and sold $14.0
million under these agreements. As of December 31, 2002, and 2001, respectively,
CILCORP had recorded Accounts Payable of $2.5 million and $2.9 million and
Receivables of $1.5 million and $1.9 million, related to these transactions. Of
the current receivable, $1.4 million was recorded in Accrued Unbilled Revenue on
the CILCORP Balance Sheet.

Additionally, CILCORP had Accounts Payable of $0.6 million related to a deposit
received from AmerenEnergy Medina Valley Cogen (No. 4), LLC for future work to
be performed by a Holding Company subsidiary.

In addition, CILCORP has received and provided management, technical, advisory,
operating, and administrative services from its former parent AES and its
subsidiaries. Pursuant to SEC rules under PUHCA, these transactions were on an
"at cost" basis. At December 31, 2002, and 2001, Accounts Payable to such
entities were $0.0 million and $4.3 million, respectively. Amounts due from such
entities at December 31, 2002, and 2001, totaled $0.5 million and $1.7 million,
respectively. Of the current receivable, $0.4 million was included in Accounts
Receivable and $0.1 million was included in Other Assets on the CILCORP Balance
Sheet.

CILCO also has a power purchase agreement with AmerenCIPS for 100 MW of capacity
and firm energy for the months of June through September 2003.

Subject to the receipt of regulatory approval, which is being pursued, CILCO
will participate in Ameren's utility money pool arrangement. Under this
arrangement, CILCO will have access to up to $695 million of additional
committed liquidity, subject to reduction based on use by other utility money
pool participants, but increased to the extent other pool participants have
surplus cash balances, which may be used to fund pool needs. CILCORP
participates in Ameren's non-utility money pool arrangement, which provides it
access to up to $600 million of committed liquidity, subject to reduction based
on use by other pool participants, which may also be supplemented by available
cash balances among pool participants.

93

NOTE 15 - STOCK OPTION PLAN

Employees of the Company previously participated in the AES Stock Option Plan
that provided for grants of stock options to eligible participants. Under the
terms of the plan, the Company issued options to purchase shares of AES common
stock at a price equal to 100% of the market price at the date the option is
granted. The options become eligible for exercise under various schedules. The
following table summarizes stock option activity during 2002, 2001 and 2000:

The following table summarizes additional information about stock options
outstanding at December 31, 2002:

The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees", and has adopted SFAS No. 123, "Accounting for Stock-based
Compensation" (SFAS 123) for disclosure purposes. No compensation expense has
been recognized in connection with the options, as all options have an exercise
price equal to the market price of AES's common stock on the date of grant. For
SFAS 123 disclosure purposes, the following assumptions were used in the
Black-Scholes valuation method for shares issued in 2001 and 2000:

94

Had compensation expense been recognized using the fair value based method under
SFAS 123, the Company's consolidated earnings would have decreased by $2.7
million, $1.4 million and $.3 million in 2002, 2001 and 2000, respectively.

NOTE 16 - LEVERAGED LEASE INVESTMENTS

The Company, through subsidiaries of CILCORP Investment Management Inc. (CIM),
is a lessor in seven leveraged lease arrangements under which electric
production facilities, warehouses, office buildings, passenger railway equipment
and an aircraft are leased to third parties. The economic lives and lease terms
vary with the leases. CIM's share of total equipment and facilities cost was
approximately $310 million at both December 31, 2002, and December 31, 2001.

The cost of the equipment and facilities owned by CIM is partially financed by
non-recourse debt provided by lenders who have been granted, as their sole
remedy in the event of a lessee default, an assignment of rents due under the
leases and a security interest in the leased property. Such debt amounted to
$207 million at December 31, 2002, and $212 million at December 31, 2001.

CIM's net investment in leveraged leases at December 31, 2002, and 2001,was as
follows:

In the fourth quarter of 2002, CIM decreased the estimated residual value of one
of its leveraged leases by approximately $6.5 million to reflect current
conditions in the secondary market for the asset.

NOTE 17 - QST ENTERPRISES DISCONTINUED OPERATIONS

QST Enterprises Inc. (QST) and its subsidiaries (excluding ESE Land Corporation
and CILCORP Infraservices Inc.) ceased operations during the fourth quarter of
1998, except for fulfillment of contractual commitments for 1999, and
accordingly, recorded loss provisions for the discontinued energy operations in
1998. The results of QST and its subsidiaries are reported in 2002 and prior
periods as discontinued operations. See also Note 18 - Subsequent Event.

95

Beginning in 1999, QST Energy was involved in litigation against two of its
California commercial customers. On July 19, 2001, QST Energy and the two
customers signed a settlement agreement and mutual release which resolved all of
the pending lawsuits. A cash settlement of $6 million was paid to QST Energy and
applied against the accounts receivable balance at QST Energy, which was $13
million at the time of settlement. The Holding Company had accrued $4.5 million
as a preacquisition contingency related to this litigation. The remaining
receivable of $7.0 million at QST Energy was written off during the third
quarter of 2001, resulting in the loss recorded as QST Enterprises Discontinued
Operations during 2001. This loss was partially offset by the reversal of the
$4.5 million preacquisition contingency accrual recorded at the Holding Company.

NOTE 18 - SUBSEQUENT EVENT

On January 31, 2003, after receipt of the necessary regulatory agency approvals
and clearance from the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act, Ameren Corporation (Ameren) completed its
acquisition of all of the outstanding common stock of CILCORP Inc. (the Holding
Company) from AES. With the acquisition, CILCO became an Ameren subsidiary, but
remains a separate utility company, operating as AmerenCILCO. The Company's
financial statements will be included in the Ameren consolidated financial
statements effective with the January 2003 acquisition date. When Ameren
accounts for the acquisition in 2003, it intends to push down acquisition
related purchase accounting entries to the Holding Company, but not to the
financial statements of CILCO.

The total purchase price was approximately $1.34 billion and included the
assumption of CILCORP debt and preferred stock. The purchase price is subject to
certain adjustments for working capital and other changes pending the
finalization of CILCORP's closing balance sheet.

NOTE 19 - RESTATEMENT

As previously reported in the current report on Form 8-K filed on January 31,
2003 by CILCORP Inc. and Central Illinois Light Company, Ameren Corporation
issued a press release announcing the closing of the acquisition of all of the
issued and outstanding common stock of CILCORP from The AES Corporation,
pursuant to an agreement dated as of April 28, 2002. As of such acquisition,
CILCORP became a wholly-owned subsidiary of Ameren.

Subsequent to the issuance of the Company's 2001 consolidated financial
statements and based on new management's review and determination, the
consolidated financial statements have been restated from amounts previously
reported for CILCORP Inc. and its subsidiaries for the years ended December 31,
2001 and 2000.

DISCONTINUED OPERATION ADJUSTMENT

QST Enterprises and QST Energy ceased operations during the fourth quarter of
1998, except for fulfillment of contractual commitments for 1999 and beyond.
Accordingly, the results of QST Enterprises are reported as discontinued
operations in the accompanying consolidated statements of income. An initial
loss provision was recorded for the discontinued energy operations in 1998.

Beginning in 1999, QST Energy was involved in litigation against two of its
California commercial customers. On July 19, 2001, QST Energy and the two
customers signed a settlement agreement and mutual release which resolved all
of the pending lawsuits. A cash settlement of $6 million was paid to QST Energy
and applied against the accounts receivable balance at QST Energy, which was
$13 million at the time of settlement. CILCORP had reserved $4.5 million as a
preacquisition contingency related to this litigation. The remaining receivable
of $7.0 million at QST Energy was written off during the third quarter of 2001,
resulting in the loss recorded as QST Discontinued Operations during 2001,
and partially offset by the $4.5 million preacquisition contingency recorded at
CILCORP. The reversal of this $4.5 million preacquisition contingency was
originally recorded in results from continuing operations. This restatement
records the $4.5 million in discontinued operations. This adjustment reduces
CILCORP's Net Income from Continuing Operations and Loss from Discontinued
Operations by $2.7 million, net of income taxes for the year ended December 31,
2001.

OTHER RESTATEMENT ITEMS

Other restatement items primarily relate to (i) reclassification of $20,376 of
refunds to customers as a result of a settlement with the Illinois Commerce
Commission regarding the fuel adjustment charge, (ii) accrual of certain
employee benefit costs that had been incurred, but not reported as of the end of
the year of $1,240, (iii) write off of certain costs that were determined not to
qualify for capitalization of $1,307, (iv) adjustments in accruals and (v)
reclassification of certain items on the Consolidated Balance Sheets.

The impact of the restatements is summarized in the following tables:

96

CILCORP Inc. and Subsidiaries
Consolidated Statements of Operations
and Comprehensive Income
(In thousands)

For the Year Ended December 31, 2001

97

CILCORP Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)

Assets (as of December 31, 2001)

(1) Amounts as previously reported have been revised to reflect the
reclassification of certain amounts to conform to the 2002 presentation.

98

CILCORP Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)

Liabilities and Stockholder's Equity (as of December 31, 2001)

99

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder of Central Illinois Light Company
Peoria, Illinois

We have audited the accompanying consolidated balance sheets of Central Illinois
Light Company and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of income and comprehensive income, stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 2002. Our audits also included the financial statement schedules listed in
the Index at Item 15. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedules based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Central Illinois Light Company and
subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

As discussed in Note 17, the accompanying 2001 and 2000 consolidated financial
statements have been restated.

As discussed in Note 1, effective January 1, 2001, Central Illinois Light
Company and subsidiaries changed its method of accounting for derivative
instruments and hedging activities to conform to Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities."

DELOITTE & TOUCHE LLP
Indianapolis, IN
April 11, 2003

100

Central Illinois Light Company
Consolidated Statements of Income
and Comprehensive Income

(1) See Note 17 to the Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

101

Central Illinois Light Company
Consolidated Balance Sheets
Assets

(1) See Note 17 to the Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

102

Central Illinois Light Company
Consolidated Balance Sheets
Capitalization and Liabilities

(1) See Note 17 to the Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

103

Central Illinois Light Company
Consolidated Statements of Cash Flows

104

Cash Flows from Financing Activities:
Common Dividends Paid (40,500) (45,000) (26,000)
Preferred Dividends Paid (2,159) (2,159) (2,977)
Long-Term Debt Retired (1,400) (1,400) (30,500)
Long-Term Debt Issued 100,000 -- 8,000
Preferred Stock Retired -- -- (25,000)
Payments on Capital Lease Obligation (645) (645) (645)
(Decrease) Increase in Short-Term
Borrowing (33,000) (24,300) 20,400
Additional Paid-in Capital -- 25,000 --
---------- ---------- ----------
Net Cash Provided by (Used in)
Financing Activities 22,296 (48,504) (56,722)
---------- ---------- ----------
Net Increase in Cash and
Temporary Cash Investments 9,802 3,677 229
Cash and Temporary Cash Investments at
Beginning of Period 12,454 8,777 8,548
---------- ---------- ----------
Cash and Temporary Cash Investments at
End of Period $ 22,256 $ 12,454 $ 8,777
========== ========== ==========

Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (Net of Cost of Borrowed
Funds Capitalized) $ 27,766 $ 26,913 $ 28,874

Income Taxes $ 36,233 $ 27,072 $ 45,498

(1) See Note 17 to the Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

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Central Illinois Light Company
Consolidated Statements of Stockholder's Equity

(1) See Note 17 to the Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

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CENTRAL ILLINOIS LIGHT COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of Central Illinois Light Company (CILCO)
include the accounts of CILCO and its subsidiaries, CILCO Exploration and
Development Company, CILCO Energy Corporation and Central Illinois Generation,
Inc. Prior year amounts have been reclassified on a basis consistent with the
2002 presentation.

BASIS OF ACCOUNTING

CILCO is a wholly owned subsidiary of CILCORP Inc. The assets and liabilities
are recorded at CILCO's original costs and do not reflect the application of
purchase accounting for the acquisition of CILCORP Inc. by the AES Corporation
in 1999.

RESTATEMENT

The financial statements as of and for the years ended December 31, 2001 and
2000 have been restated. See Note 17 -- Restatement for additional information.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

ACCOUNTING CHANGES AND OTHER MATTERS

In January 2001, CILCO adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). The impact of that adoption
resulted in no cumulative effect charge to the income statement, and a
cumulative effect adjustment of $1.7 million, net of taxes, to Accumulated Other
Comprehensive Income (OCI), which increased common stockholders' equity. See
Note 9 - Accounting for Price Risk Management Activities for further
information.

In January 2002, CILCO adopted SFAS No. 141, "Business Combinations" (SFAS 141),
and SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141
requires business combinations to be accounted for under the purchase method of
accounting, which requires one party in the transaction to be identified as the
acquiring enterprise and for that party to allocate the purchase price to the
assets and liabilities of the acquired enterprise based on fair market value.
SFAS 142 requires goodwill and indefinite-lived intangible assets recorded in
the financial statements to be tested for impairment at least annually, rather
than amortized over a fixed period, with impairment losses recorded in the
income statement.

CILCO is adopting SFAS 143, "Accounting for Asset Retirement Obligations" (SFAS
143), in the first quarter of 2003. SFAS 143 provides the accounting
requirements for asset retirement obligations associated with tangible,
long-lived assets. SFAS 143 requires CILCO to record the estimated fair value of
legal obligations associated with the retirement of tangible long-lived assets
in the period in which the liabilities are incurred and to capitalize a
corresponding amount as part of the book value of the related long-lived asset.
In subsequent periods, CILCO is required to adjust asset retirement obligations
based on changes in estimated fair value, and the corresponding increases in
asset book values are depreciated over the useful life of the related asset.
Uncertainties as to the probability, timing or cash flows associated with an
asset retirement obligation affect the estimate of fair value.

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Historically, CILCO has included an estimated cost of dismantling and removing
plant from service upon retirement in the basis upon which depreciation rates
were determined. SFAS 143 requires CILCO to exclude costs of dismantling and
removal upon retirement from the depreciation rates applied to non
rate-regulated plant balances unless they are legal obligations under SFAS 143.
Further, CILCO is required to remove accumulated provisions for dismantling and
removal costs from accumulated depreciation related to non rate-regulated plant
assets and reflect such adjustment as a gain upon adoption of this standard, to
the extent such dismantling and removal activities are not considered
obligations as defined by SFAS 143.

CILCO is finalizing its evaluation of the impact of adopting SFAS 143. Upon
adoption of this standard, CILCO expects to recognize asset retirement
obligations related primarily to retirement costs for ash ponds at the Duck
Creek generating facility.

In addition to these obligations, CILCO has determined that certain other asset
retirement obligations exist, but CILCO is unable to estimate the fair value of
those obligations because the probability, timing or cash flows associated with
the obligations are indeterminable. CILCO does not believe that these
obligations, when incurred, will have a material adverse impact on its financial
position, results of operations or liquidity. At this time, CILCO has not
determined the amount of net gain or loss, if any, to be recognized upon
adoption of SFAS 143 for its non rate-regulated plan balances.

On January 1, 2002, CILCO adopted SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS 144 retains the guidance related
to calculating and recording impairment losses but adds guidance on the
accounting for discontinued operations, previously accounted for under
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- - Reporting the Effects of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." SFAS 144 did not have any
effect on CILCO's financial position, results of operations or liquidity in
2002.

SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" (SFAS 145), was issued in April
2002. The provisions of SFAS 145 related to the rescission of FASB Statement No.
4 shall be applied in years beginning after May 15, 2002. All other provisions
of SFAS 145 are effective for financial statements issued on or after May 15,
2002. Management has determined that adoption of SFAS 145 has no effect on
CILCO's financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS 146). SFAS 146 requires an entity to
recognize, and measure at fair value, a liability for a cost associated with an
exit or disposal activity in the period in which the liability is incurred and
nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)." SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. Management does not
believe this statement will have a material effect on the consolidated financial
statements.

During 2002, CILCO adopted the provisions of EITF Issue No. 02-3, "Issues
Involved in Accounting for Derivative Contracts Held for Trading Purposes and
Contracts Involved in Energy Trading and Risk Management Activities" (EITF
02-3),

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that required revenues and costs associated with certain energy contracts to be
shown on a net basis in the income statement. Prior to adopting EITF 02-3 and
the rescission of EITF Issue No. 98-10, "Accounting for Contracts Involved in
Energy Trading and Risk Management Activities" (EITF 98-10), CILCO's accounting
practice was to present all settled energy purchase or sale contracts within
CILCO's power risk management program on a gross basis in Electric Revenues and
in Fuel and Purchased Power. This meant that revenues were recorded for the
notional amount of the power sales contracts with a corresponding charge to
income for the costs of the energy that was generated, or for the notional
amount of a purchased power contract.

In October 2002, the EITF reached a consensus to rescind EITF 98-10. The
effective date for the full rescission of EITF 98-10 was for fiscal periods
beginning after December 15, 2002, with early adoption permitted. In addition,
the EITF reached a consensus in October 2002 that all SFAS 133 trading
derivatives (subsequent to the rescission of EITF 98-10) should be shown net in
the income statement, whether or not physically settled. This consensus applies
to all energy and non-energy related trading derivatives that meet the
definition of a derivative pursuant to SFAS 133. CILCO adopted and applied this
guidance to 2002 and 2001, which had no impact on previously reported revenues,
costs, earnings or stockholder's equity.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" (SFAS 148). SFAS 148 amends SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), to provide
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. It
also amends the disclosure provisions to require disclosure about the effects on
reported net income of an entity's accounting policy decisions with respect to
stock-based employee compensation.

Employees of CILCO previously participated in the AES Stock Option Plan that
provided for grants of stock options to eligible participants. As permitted
under SFAS No. 123, CILCO applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees" in accounting for this plan. As the exercise price of all
stock options are equal to their fair market value at the time the options are
granted, CILCO did not recognize any compensation expense related to the plan
using the intrinsic value based method. Had compensation expense been recognized
using the fair value based method under SFAS 123, CILCO's consolidated earnings
would have decreased by $2.7 million, $1.4 million, and $.3 million in 2002,
2001, and 2000, respectively. CILCO does not expect SFAS 148 to have any effect
on its financial position, results of operations or liquidity in 2003.

FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN
45), was issued in November 2002. FIN 45 requires that upon issuance of certain
guarantees, a guarantor must recognize a liability for the fair value of the
obligation assumed under the guarantee. These recognition provisions of FIN 45
are to be applied on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year-end. FIN 45 also
requires additional disclosures by a guarantor in its interim and annual
financial statements for periods ending after December 15, 2002. CILCO does not
expect the recognition provisions of FIN 45 to have a material impact on its
financial position or results of operations.

REGULATION

CILCO is a public utility subject to regulation by the Illinois Commerce
Commission (ICC) and the Federal Energy Regulatory Commission (FERC) with

109

respect to accounting matters, and maintains its accounts in accordance with the
Uniform System of Accounts prescribed by these agencies.

CILCO is subject to the provisions of SFAS No. 71, "Accounting for the Effects
of Certain Types of Regulation" (SFAS 71), for certain of its rate-regulated
public utility operations. Under SFAS 71, assets and liabilities are recorded to
represent probable future increases and decreases, respectively, of revenues to
CILCO resulting from the ratemaking action of regulatory agencies.

The Electric Service Customer Choice and Rate Relief Law of 1997 (the Illinois
Law) became effective in Illinois in December 1997. Among other provisions, this
law began a nine-year transition process to a fully competitive market for
electricity in Illinois. Electric transmission and distribution activities are
expected to continue to be regulated, but a customer may choose to purchase
electricity from another supplier.

Due to the Illinois Law, CILCO's electric generation activities are no longer
subject to the provisions of SFAS 71.

Regulatory assets included on the Consolidated Balance Sheets at December 31,
2002, and 2001, were as follows:

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

Regulatory assets at December 31, 2002, were related to CILCO's rate-regulated
electric and gas distribution activities. CILCO's regulatory assets do not earn
a current rate of return. Regulatory liabilities, consisting of deferred tax
items of approximately $19.2 million and $45.4 million at December 31, 2002, and
2001, respectively, and deferred taxes for investment tax credits of
approximately $4.3 million and $5.3 million at December 31, 2002, and 2001,
respectively, were primarily related to CILCO's electric and gas transmission
and distribution operations.

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CILCO's electric generation-related identifiable assets, no longer subject to
SFAS 71, included in the balance sheet at December 31, 2002, and 2001, were as
follows:

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

Accumulated deferred income taxes associated with electric generation property
at December 31, 2002, and 2001, were approximately $62.0 million and $62.3
million, respectively, and investment tax credits were approximately $4.8
million and $5.5 million at December 31, 2002, and 2001, respectively. AFUDC
equity is not applied to generation plant additions, as these expenditures are
related to non rate-regulated activities.

UTILITY OPERATING REVENUES, FUEL COSTS AND COST OF GAS

Electric and gas revenues include service provided but unbilled at year-end.
Utility revenues are billed to customers monthly on a cycle basis. Revenues are
recorded on the accrual basis and include estimates for electricity and gas
delivered. Substantially all CILCO gas system sales rates include a Purchased
Gas Adjustment clause. This clause provides for the recovery of changes in the
cost of gas on a current basis in billings to customers. CILCO adjusts the cost
of gas to recognize overrecoveries or underrecoveries of allowable costs. The
cumulative effects are deferred on the balance sheets as a current asset or
current liability (see Regulation) and adjusted by refunds or collections
through future billings to customers. CILCO's former electric energy rates
included a similar Fuel Adjustment Clause (FAC). CILCO filed a proposal to
eliminate the FAC on September 10, 2001. Tariffs eliminating the FAC became
effective October 29, 2001.

SIGNIFICANT CUSTOMER

Caterpillar Inc. (Caterpillar) is CILCO's largest industrial customer. Gas
revenues, electric revenues, and sales of other services to Caterpillar were
7.7%, 7.3%, and 6.5% of CILCO's total revenue for 2002, 2001, and 2000,
respectively. See Note 10 - Statements of Segments of Business of Item 8.
Financial Statements and Supplementary Data.

111

CONCENTRATION OF CREDIT RISK

CILCO, as a public utility, must provide service to customers within its defined
service territory and may not discontinue service to residential customers when
certain weather conditions exist. CILCO continually reviews customers'
creditworthiness and requests deposits or refunds deposits based on that review.
At December 31, 2002, CILCO had net receivables of $38.5 million, of which
approximately $3.1 million was due from Caterpillar.

TRANSACTIONS WITH AFFILIATES

CILCO, a subsidiary of CILCORP, incurs certain corporate expenses such as legal
and accounting fees on behalf of CILCORP Inc. and its other subsidiaries. Also,
beginning in 1997, CILCO sold natural gas to its affiliate CESI, in conjunction
with CESI's gas marketing program. These expenses are billed monthly to CILCORP
Inc. and its other subsidiaries based on specific identification of costs. A
return on CILCO assets used by CILCORP Inc. and its other subsidiaries is also
calculated and billed monthly. Total billings to CILCORP Inc. and its other
subsidiaries amounted to $10.5 million, $11.4 million, and $12.0 million in
2002, 2001, and 2000, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of Cash and Temporary Cash Investments, Other Investments,
and Notes Payable approximate fair value. The estimated fair value of CILCO's
Preferred Stock with Mandatory Redemption was $22.1 million at both December 31,
2002, and at December 31, 2001, based on current market interest rates for other
companies with comparable credit ratings, capital structure, and size. The
estimated fair value of CILCO's Long-Term Debt, including current maturities,
was $364.6 million at December 31, 2002, and $248.3 million at December 31,
2001. The fair market value of these instruments was based on current market
interest rates for other companies with comparable credit ratings, capital
structures, and size, but does not reflect effects of regulatory treatment
accorded the instruments related to the rate-regulated portions of CILCO's
business. See Note 9 for fair value of derivative financial instruments.

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)

The allowance, representing the cost of equity and borrowed funds used to
finance construction, is capitalized as a component of the cost of utility
plant. The amount of the allowance varies depending on the rate used and the
size and length of the construction program. The Uniform System of Accounts
defines AFUDC, a non-cash item, as the net cost for the period of construction
of borrowed funds used for construction purposes and a reasonable rate upon
other funds when so used. On the income statement, the cost of borrowed funds
capitalized is reported as a reduction of total interest expense and the cost of
equity funds capitalized is reported as other income. In accordance with the
FERC formula, the composite AFUDC rates used in 2002, 2001, and 2000 were 6.2%,
4.8%, and 6.9%, respectively. AFUDC equity is not applied to generation plant
additions, as these expenditures are related to non rate-regulated activities.

112

DEPRECIATION AND MAINTENANCE

Provisions for depreciation of utility property for financial reporting purposes
are based on straight-line composite rates. The annual provisions for utility
plant depreciation, expressed as a percentage of average depreciable utility
property, were 3.5%, 3.5% and 3.7% for electric for 2002, 2001, and 2000,
respectively, and 4.7%, 4.7%, and 4.6% for gas for 2002, 2001, and 2000,
respectively. Utility maintenance and repair costs are charged directly to
expense. Renewals of units of property are charged to the utility plant account,
and the original cost of depreciable property replaced or retired, together with
the removal cost less salvage, is charged to the accumulated provision for
depreciation.

IMPAIRMENT OF LONG-LIVED ASSETS

We evaluate long-lived assets for impairment when events or changes in
circumstances indicate that the carrying value of such assets may not be
recoverable. The determination of whether impairment has occurred is based on an
estimate of undiscounted cash flows attributable to the assets, as compared with
the carrying value of the assets. If impairment has occurred, the amount of the
impairment recognized is determined by estimating the fair value of the assets
and recording a provision for loss if the carrying value is greater than the
fair value. See Accounting Changes and Other Matters relating to SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."

INCOME TAXES

CILCO follows a policy of comprehensive interperiod income tax allocation.
Investment tax credits related to utility property have been deferred and are
being amortized over the estimated useful lives of the related property. CILCO
parent, CILCORP Inc. and its subsidiaries will file a consolidated federal
income tax return with AES for 2002. Income taxes are allocated to the
individual companies based on their respective taxable income or loss.

CONSOLIDATED STATEMENTS OF CASH FLOWS

CILCO considers all highly liquid debt instruments purchased with a remaining
maturity of three months or less to be cash equivalents for purposes of the
Consolidated Statements of Cash Flows.

RESTRICTED CASH

CILCO has restricted cash of $7.9 million and $12.9 million at December 31,
2002, and 2001, respectively, within Current Assets - Other on the Consolidated
Balance Sheets.

113

COMPANY-OWNED LIFE INSURANCE POLICIES

The following amounts related to company-owned life insurance contracts, issued
by a major insurance company, are recorded on the Consolidated Balance Sheets:

Interest expense related to borrowings against company-owned life insurance,
included in Company-owned Life Insurance, Net on the Consolidated Statements of
Income and Comprehensive Income, was $5.3 million, $4.9 million, and $4.3
million for 2002, 2001, and 2000, respectively.

NOTE 2 - INCOME TAXES

Total income tax expense for 2002 resulted in an effective tax rate of 35.6% on
earnings before income taxes (38.4% in 2001 and 36.9% in 2000). The principal
reasons such rates differ from the statutory federal rate for the years ended
December 31, 2002, 2001, and 2000 were as follows:

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

114

Components of income tax expense for the years ended December 31, 2002, 2001,
and 2000 were as follows:

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

Total operating deferred income taxes, net, includes deferred state income taxes
of $(300.9), $(2,432.7), and $(863.8) for 2002, 2001, and 2000, respectively.
Other, net, includes deferred state income taxes of $100.0, $(118.0), and
$(99.0) for 2002, 2001, and 2000, respectively.

115

CILCO uses the liability method to account for income taxes. Under the liability
method, deferred income taxes are recognized at currently enacted income tax
rates to reflect the tax effect of temporary differences between the financial
reporting basis and the tax basis of assets and liabilities. Temporary
differences occur because the income tax law either requires or permits certain
items to be reported on CILCO's income tax return in a different year than they
are reported in the financial statements. CILCO has recorded a regulatory asset
and liability to account for the effect of expected future regulatory actions
related to unamortized investment tax credits, income tax liabilities initially
recorded at tax rates in excess of current rates, the equity component of AFUDC
and other items for which deferred taxes had not previously been provided. The
temporary differences related to the consolidated deferred income tax asset and
liability at December 31, 2002, and 2001, were as follows:

The following table reconciles the change in the accumulated deferred income tax
liability to the deferred income tax expense included in the Consolidated
Statements of Income and Comprehensive Income for the period:

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

116

NOTE 3 - POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS

POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE

CILCO has recorded a liability of approximately $.8 million and $1.4 million at
December 31, 2002, and 2001, respectively, for benefits other than pensions or
health care provided to former or inactive employees. The liability for these
benefits (primarily long-term and short-term disability payments under plans
self-insured by CILCO) is actuarially determined.

PENSION BENEFITS

Substantially all of CILCO's full-time employees are covered by trusteed,
non-contributory defined benefit pension plans. Benefits under these qualified
plans reflect the employee's years of service, age at retirement and maximum
total compensation for any consecutive sixty-month period prior to retirement.
CILCO also has an unfunded nonqualified plan for certain employees.

Pension costs for the past three years were charged as follows:

The components of net periodic benefit costs were as follows:

During 2000, CILCO recognized $3.7 million of net pension costs associated with
additional benefits extended in connection with voluntary early retirement
programs.

117

Information on the plans' funded status was as follows:

At December 31, 2002, and 2001, CILCO recognized an additional minimum liability
on the balance sheets of $28.9 million and $0.1 million, respectively, for plans
in which the accumulated benefit obligation exceeds the fair value of plan
assets. The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $353.1 million, $323.7 million, and
$241.8 million, respectively, as of December 31, 2002 (all five plans), and
$163.4 million, $154.9 million, and $134.1 million, respectively, as of December
31, 2001 (two plans).

118

POSTRETIREMENT HEALTH CARE BENEFITS

CILCO has three non-pension postretirement benefit plans. These plans are health
care plans covering three different groups of employees and retirees. Two of
these plans are non-contributory except for participants retired under various
early retirement windows, and one of the plans was amended effective in 2002 to
provide for participant contributions.

Postretirement health care benefit costs were charged as follows:

The components of net periodic benefit costs were as follows:

During 2000, CILCO recognized $0.4 million of net postretirement health care
benefit costs associated with additional benefits extended in connection with
voluntary early retirement programs.

119

Information on the plans' funded status was as follows:

SAVINGS PLAN

CILCO sponsors a savings plan for eligible employees. The plan allows employees
to contribute a portion of their base pay in accordance with specified
guidelines. CILCO matches a percentage of the employee

120

contribution up to certain limits. CILCO's matching contribution to the savings
plan totaled $1.2 million in each of the years 2002, 2001 and 2000.

NOTE 4 - SHORT-TERM DEBT

CILCO had arrangements for committed credit facilities totaling $60 million, all
of which were unused at December 31, 2002, and are used to support CILCO's
commercial paper program. These facilities were maintained by commitment fees
ranging from .09 of 1% per annum to .15 of 1% per annum in lieu of balances.
Short-term borrowings consisted of commercial paper totaling $10.0 million
(interest rate of 2.05%) and $43.0 million (average interest rate of 3.2%) at
December 31, 2002, and 2001, respectively. Based on outstanding commercial paper
borrowings, $50 million was available under CILCO's committed credit facilities
at December 31, 2002.

CILCO's financial agreements include customary default or cross default
provisions that could impact the continued availability of credit or result in
the acceleration of repayment. An event of default will occur under a $25
million CILCO committed credit facility if CILCO fails to maintain a Moody's
rating on its senior secured debt above Baa2, and a Fitch credit rating of BBB-.
As of February 2003, CILCO's senior secured debt rating from the rating agencies
were A2 and BBB, respectively. CILCO's Fitch ratings are on positive credit
watch.

NOTE 5 - LONG-TERM DEBT

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*Interest rates in the periods during which such rates apply vary depending on
selection of certain defined rate modes. The average interest rates for the year
2002, were as follows:

Hallock 3.03%
Kickapoo 3.03%
Secured Term Loan 2.87%

PREFERRED STOCK WITH MANDATORY REDEMPTION

CILCO's 5.85% Class A preferred stock may be redeemed in 2003 at $100 per share.
A mandatory redemption fund must be established on July 1, 2003. The fund will
provide for the redemption of 11,000 shares for $1.1 million on July 1 of each
year through July 1, 2007. On July 1, 2008, the remaining 165,000 shares will be
retired for $16.5 million.

PREFERENCE STOCK, CUMULATIVE

CILCO has 2,000,000 authorized shares, of no par value preference stock, of
which none have been issued.

123

NOTE 7 - COMMITMENTS & CONTINGENCIES

CILCO's 2003 capital expenditures are estimated to be $100 million, which
includes normal and customary purchase commitments at December 31, 2002.

CILCO acts as a self-insurer for certain insurable risks resulting from employee
health and life insurance programs.

On February 21, 2002, CILCO and the International Brotherhood of Electrical
Workers Local 51 (IBEW) agreed to extend the existing contract through June 30,
2004. The contract provides for 3% wage increases in each of the two years of
the extension. The IBEW represents 335 CILCO gas and electric department people.
The National Conference of Firemen and Oilers Local 8 (NCF&O) ratified its
current contract with CILCO on February 23, 2001. This agreement expires on July
1, 2006, and provides for 4% wage increases in each of the first two years of
the contract and for 3% wage increases in each of the final three years of the
contract. The NCF&O represents 176 CILCO power plant people.

CILCO is subject to various environmental regulations by federal, state, and
local authorities. From the beginning phases of siting and development, to the
ongoing operation of existing or new electric generating, transmission, and
distribution facilities, CILCO's activities involve compliance with diverse laws
and regulations that address emissions and impacts to air and water, special,
protected, and cultural resources (such as wetlands, endangered species, and
archeological/historical resources), chemical and waste handling, and noise
impacts. CILCO's activities require complex and often lengthy processes to
obtain approvals, permits, or licenses for new, existing, or modified
facilities. Additionally, the use and handling of various chemicals or hazardous
materials (including wastes) requires preparation of release prevention plans
and emergency response procedures. As new laws or regulations are promulgated,
CILCO assesses the applicability and implements the necessary modifications to
its facilities or operations, as required. The more significant matters are
discussed below.

The Clean Air Act affects both existing generating facilities and new projects.
The Clean Air Act and many state laws require significant reductions in SO2 and
NOx emissions that result from burning fossil fuels. The Clean Air Act also
contains other provisions that could materially affect some of CILCO's projects.
Various provisions require permits, inspections, or installation of additional
pollution control technology or may require the purchase of emission allowances.
Certain of these provisions are described in more detail below.

The Clean Air Act creates a marketable commodity called an SO2 "allowance." All
generating facilities over 25 megawatts that emit SO2 must obtain allowances in
order to operate after 1999. Each allowance gives the owner the right to emit
one ton of SO2. All existing generating facilities have been allocated
allowances based on a facility's past production and the statutory emission
reduction goals. If additional allowances are needed for new generating
facilities, they can be purchased from facilities having excess allowances or
from SO2 allowance banks. CILCO's generating facilities comply with the SO2
allowance caps through the use of an existing SO2 scrubber, fuel blending and
SO2 allowance purchases. CILCO is also considering the possibility of utilizing
low sulfur fuels in the future.

The U.S. Environmental Protection Agency (EPA) issued a rule in October 1998
requiring 22 Eastern states and the District of Columbia to reduce emissions of
NOx in order to reduce ozone in the Eastern United States. Among other things,
the EPA's rule establishes an ozone season, which runs from May

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through September, and a NOx emission budget for each state, including Illinois.
The EPA rule requires states to implement controls sufficient to meet their NOx
budget by May 31, 2004. Total capital expenditures to meet the NOx emission
requirements are estimated to be $125.5 million (including cost of removal),
$77.5 million of which was expended through 2002. These costs include the
installation of two Selective Catalytic Reduction (SCR) units and combustion
control modifications.

On December 31, 2002, the EPA published in the Federal Register revisions to the
New Source Review (NSR) programs under the Clean Air Act, including changes to
the routine maintenance, repair and replacement exclusions. Various Northeastern
states have filed a petition with the United States District Court for the
District of Columbia challenging the legality of the revisions to the NSR
programs. It is likely that various industries and environmental groups will
seek to intervene in that challenge. At this time, CILCO is unable to predict
the impact of this challenge on its future financial position, results of
operations or liquidity.

The EPA is currently working on rulemakings to implement the new National
Ambient Air Quality Standards for ozone and particulate matter. These new
ambient standards may require significant additional reductions in SO2 and NOx
emissions from power plants by 2008. At this time, CILCO is unable to predict
the ultimate impact of these revised air quality standards on its future
financial position, results of operations or liquidity.

In December 1999, the EPA issued a decision to regulate mercury emissions from
coal-fired power plants by 2008. The EPA is scheduled to propose regulations by
2004. These regulations have the potential to add significant capital and/or
operating costs to generating systems after 2006. The EPA also issued Best
Available Retrofit Technology (BART) guidelines to address visibility impairment
(so called "Regional Haze") across the United States from sources of air
pollution, including coal-fired power plants. The guidelines were to be used by
states to mandate pollution control measures for SO2 and NOx emissions. In May
2002, the District of Columbia Circuit Court remanded these rules back to the
EPA. The EPA is currently working to address the issues raised by the court
decision. These rules could also add significant pollution control costs to our
generating system between 2008 and 2012. At this time, CILCO is unable to
predict the ultimate impact of these revised air quality standards on our future
financial condition, results of operations or liquidity.

The United States Congress has been working on legislation to consolidate the
numerous air pollution regulations facing the utility industry. This
"multi-pollutant" legislation will be deliberated in Congress in 2003. While the
cost to comply with such legislation, if enacted, could be significant, it is
anticipated that the costs would be less than the combined impact of the new
National Ambient Air Quality Standards and the Mercury and Regional Haze
Regulations, discussed above. Pollution control costs under such legislation are
expected to be incurred in phases from 2007 through 2015. At this time, CILCO is
unable to predict the ultimate impact of the above expected regulations and this
legislation on its future financial position, results of operations or
liquidity; however, the impact could be material.

Future initiatives regarding greenhouse gas emissions and global warming
continue to be the subject of much debate. The related Kyoto Protocol was signed
by the United States but has since been rejected by the President, who instead
has asked for an 18% decrease in carbon intensity on a voluntary basis. Future
initiatives on this issue and the ultimate effects of the Kyoto Protocol and the
President's initiatives on CILCO are unknown. Coal-fired power plants are
significant sources of carbon dioxide emissions, a principal

125

greenhouse gas. Therefore, CILCO's compliance costs with any mandated federal
greenhouse gas reductions in the future could be material.

In April 2002, the EPA proposed rules under the Clean Water Act that require
that cooling water intake structures reflect the best technology available for
minimizing adverse environmental impacts. These rules pertain to existing
generating facilities that currently employ a cooling water intake structure
whose flow exceeds 50 million gallons per day. A final action on the proposed
rules is expected by August 2003. The proposed rule may require CILCO to install
additional intake screens or other protective measures, as well as extensive
site specific study and monitoring requirements. CILCO's compliance costs
associated with the final rules are unknown.

In October 2002, CILCO submitted a corrective action plan to the Illinois EPA
(IEPA) in accordance with permit conditions to address ground water issues
associated with the recycle pond and ash ponds at the Duck Creek facility. In
January 2003, the IEPA accepted portions of the plan but rejected other portions
as being inadequate. Future actions will entail, at a minimum, the closure of
two ash ponds, replacement of a return water line, construction of a landfill
and remedial actions to treat water in the recycle pond and an ash pond. CILCO
recorded an $8.5 million liability on the balance sheet in 2002 for the
remediation effort related to the water treatment for the recycle pond and an
ash pond. In addition, CILCO estimates future capital expenditures for the
landfill and return water line could range from $15 million to $30 million by
2007. See Note 1 - Summary of Significant Accounting Policies - for further
discussion of the costs related to the closure of two ash ponds.

CILCO owns or is otherwise responsible for four former manufactured gas plant
(MGP) sites in Illinois. The ICC permits the recovery of remediation and
litigation costs associated with certain former MGP sites located in Illinois
from Illinois electric and natural gas utility customers through environmental
adjustment rate riders. To be recoverable, such costs must be prudently and
properly incurred and are subject to annual reconciliation review by the ICC.

Remediation at two of the four sites was completed and "No Further Remediation"
letters were received in 1999 and 2000. Groundwater sampling continues at the
third site and a plan has been filed with the IEPA for additional investigation
at the site. Remediation of the site is expected to be completed in 2004. CILCO
has not determined the ultimate extent of its liability for, or the ultimate
cost of any remediation of, the fourth site, which is pending further studies.
In 2002, CILCO spent approximately $0.2 million for former gas manufacturing
plant site monitoring, legal fees and feasibility studies and has received some
recovery from insurance settlements. A $1.1 million liability is recorded on the
balance sheet, representing its minimum obligation expected for these
remediation activities. Total costs incurred through December 2002, less amounts
recovered from customers, have been deferred as a regulatory liability on the
Balance Sheet. Through December 31, 2002, CILCO has recovered approximately $8.2
million in remediation costs from its customers. Under these circumstances,
management believes that the cost of coal tar remediation will not have a
material adverse effect on CILCO's financial position or results of operations.

CILCO has been named, along with numerous other parties, in several lawsuits
which have been filed by certain plaintiffs claiming varying degrees of injury
from asbestos exposure. The cases have been filed in the Circuit Courts of
Madison, Cook and Peoria Counties in Illinois and one case has been filed in
Indiana. The number of total defendants named in each case is

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significant with as many as 87 parties named in a case to as few as 10. The
claims filed against CILCO allege injury from asbestos exposure during the
plaintiffs' activities at our electric generating plants. In each lawsuit, the
plaintiff seeks unspecified damages in excess of $50,000, which typically would
be shared among the named defendants. A total of thirteen such lawsuits have
been filed against CILCO, of which eleven are pending, one has been settled and
one has been dismissed.

On May 11, 2001, CILCO and Enron Power Marketing, Inc. (EPMI), a subsidiary of
Enron Corp. (Enron), entered into a new Master Agreement for electric purchases
and sales, which covered energy transactions scheduled for deliveries during the
period of 2001-2003. On November 28, 2001, EPMI demanded that CILCO post $28
million in collateral based on mark to market exposure of open transactions. On
November 30, 2001, CILCO notified EPMI that events of default had occurred under
the Master Agreement and pursuant to the termination provisions of the Master
Agreement declared the Master Agreement terminated effective December 20, 2001.
Due to contractual provisions and EPMI's and Enron's actions, management does
not believe that it is probable that CILCO will be required to pay any amount to
Enron or its affiliates and has therefore recorded no liability for undelivered
electric purchases. Enron and EPMI filed Chapter 11 bankruptcy petitions on
December 2, 2001, in the U. S. Bankruptcy Court for the Southern District of New
York. Thereafter, CILCO purchased replacement power to serve its retail
customers which had previously been partially supported by the EPMI
transactions. While the ultimate outcome is unpredictable, management does not
believe that EPMI's defaults under the Master Agreement, its filing for
bankruptcy protection, CILCO's termination of the Master Agreement, or CILCO's
purchase of replacement electricity will have a material adverse effect on
CILCO's financial position or results of operations.

On May 4, 2001, CILCO and Enron subsidiary Enron North America Corp. (ENA)
entered into a natural gas transaction for daily deliveries not to exceed 10,000
MMBtu per day during calendar year 2002. CILCO received no natural gas
deliveries pursuant to this transaction in 2002. On October 24, 2001, CILCO and
ENA entered into a short-term natural gas transaction giving CILCO the right to
call upon ENA for the delivery of 10,000 MMBtu per day during the period from
November 1, 2001, through March 31, 2002. Since late November 2001, ENA has been
unable to deliver natural gas when called upon by CILCO. ENA's failure to
deliver natural gas is an event of default under the Master Firm Sales Agreement
governing the October transaction. On December 2, 2001, ENA filed a Chapter 11
bankruptcy petition in the U. S. Bankruptcy Court for the Southern District of
New York. To the extent that it has been necessary, CILCO has purchased
replacement natural gas. Because these transactions are part of a larger and
more diversified natural gas supply portfolio and are subject to the Purchased
Gas Adjustment clause, management does not believe ENA's failure to supply
natural gas or its subsequent bankruptcy filing will have a material adverse
effect on CILCO's financial position or results of operations.

On December 10, 2002, EPMI filed a complaint against AES, Constellation New
Energy, Inc., f/k/a AES New Energy Inc. and CILCO in the United States
Bankruptcy Court for the Southern District of New York. With respect to CILCO,
EPMI alleges that it is owed $31.2 million under the Master Agreement. CILCO
disputes that any amount is owed EPMI based on the clear language of the Master
Agreement, Section 553 of the Bankruptcy Code and EPMI's misconduct prior to
entering the Master Agreement and continuing through the date of its bankruptcy
filing. AES has agreed to undertake CILCO's defense in this proceeding and
intends to vigorously contest these claims. Due to CILCO's contractual and other
defenses to EPMI's claims, as well as certain provisions related to the sale of
CILCO to Ameren Corporation, management does not

127

believe the results of this litigation will have a material adverse effect on
CILCO's financial position or results of operations.

NOTE 8 - LEASES

CILCO leases certain equipment, buildings and other facilities under operating
leases. As of December 31, 2002, rental expense totaled $4.9 million (2001 -
$3.9 million; 2000 - $4.4 million). Minimum future rental payments under
non-cancellable operating leases having remaining terms in excess of one year as
of December 31, 2002, are $12.0 million in total. Payments due during the years
ending December 31, 2003, through December 31, 2007, are $3.1 million, $2.4
million, $1.8 million, $1.3 million and $1.1 million, respectively.

NOTE 9 - ACCOUNTING FOR PRICE RISK MANAGEMENT ACTIVITIES

CILCO utilizes commodity futures contracts, options and swaps in the normal
course of its natural gas and electric business activities to reduce market or
price risk. From January 1, 2001, all derivative transactions were accounted for
under Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Transactions and Hedging Activities" (SFAS 133), as interpreted and
amended. SFAS 133 requires that an entity recognize all derivatives (including
derivatives embedded in other contracts), as defined, as either assets or
liabilities on the balance sheet and measure those instruments at fair value
unless they are determined to be normal purchases and normal sales as outlined
in SFAS 133 and subsequent DIG (Derivative Implementation Group) conclusions.
Several of CILCO's contracts have been determined to be normal purchases and
normal sales (power purchase contracts for example). For all derivatives not
determined to be normal purchases and normal sales, changes in the derivative's
fair value are to be recognized currently in earnings, unless specific hedge
accounting criteria are met. Substantially all of CILCO's derivatives qualify as
cash flow hedges or have been determined to be normal purchases and normal
sales. Under SFAS 133, the effective portion of the gain or loss on a derivative
instrument designated and qualifying as a cash flow hedge is reported as a
component of Other Comprehensive Income (OCI) until the hedged transaction
affects earnings, at which time the amount accumulated in OCI is reclassified
into earnings. Any ineffective portion of the gain or loss is recognized in
earnings immediately. All of CILCO's cash flow hedges are highly effective, and
therefore, because any ineffectiveness is immaterial, all gains and losses have
been recorded in OCI until the hedged transaction affects earnings. If a cash
flow hedge is terminated because it is probable that the hedged transaction will
not occur, the related balance in OCI as of such date is immediately recognized
in earnings. If a cash flow hedge is terminated early for other reasons, the
related balance in OCI as of the termination date is recognized in earnings
concurrently with the related hedged transaction.

CILCO recorded the effects of implementation of SFAS 133 in OCI as a change in
accounting principle. The amount recorded as OCI reflects the mark-to-market
value of fixed price derivative financial instruments representing hedges of
natural gas commitments through December 2001. These derivatives were related to
non rate-regulated activities and were accounted for as fully-effective
cash-flow hedges as determined through correlation analyses performed throughout
the year. The balance in OCI, as of January 1, 2001, related to the
implementation of SFAS 133, was an after-tax credit of $1.7 million.

CILCO enters into financial hedge transactions on behalf of a non rate-regulated
affiliate as well as its own non rate-regulated customers. OCI on the books of
CILCO represents the mark-to-market gain/loss on all positions. At the time
these transactions are settled, the related gain/loss is removed

128

from OCI and the actual gain/loss on positions entered into on behalf of the non
rate-regulated affiliate, plus related transaction costs, are credited to or
recovered from the non rate-regulated affiliate and recognized in the non
rate-regulated affiliate's operating results. Gains/losses on derivatives that
hedge the non rate-regulated activities of CILCO are reflected in CILCO's
operating results when the hedge commitments are recognized. The net loss
reflected in operating results from derivative financial instruments for the non
rate-regulated activities of CILCO for the year ended December 31, 2002, was
$0.3 million for natural gas (included in Gas Purchased for Resale). There were
no outstanding derivative financial instruments for electricity during the year
ended December 31, 2002. The previously recorded gain/loss associated with these
settled derivative financial instruments was removed from OCI when hedged
transactions affected earnings. All open derivative positions hedging
anticipated transactions are then marked-to-market with the change in fair value
being recorded in OCI. The net effect of these adjustments was to record an
after-tax credit in OCI in the amount of $3.5 million for the year ended
December 31, 2002, for all open positions including those on the behalf of a non
rate-regulated affiliate. The after-tax balance in OCI associated with these
open derivative positions and unrealized gains/losses on settled positions
related to hedged anticipated transactions at December 31, 2002, was a credit of
$1.3 million. The corresponding asset is reflected on the balance sheet in
prepayments and other. The portion of OCI for open positions reflects hedges of
natural gas sales of 1,960,000 MMBtu or 2.0 Bcf for commitments through March
2004. Approximately $0.1 million of OCI related to derivative financial
instruments as of December 31, 2002, for the benefit of CILCO, is expected to be
recognized as an increase to earnings over the next twelve months based on
market prices as of December 31, 2002. The actual amount recognized in earnings
will be based on the market conditions at the time the derivatives are settled.

During 2002, CILCO utilized derivatives in its rate-regulated gas business to
manage the volatility of cash flows relative to customers charged the Purchased
Gas Adjustment (PGA). The derivatives utilized included collars (a combination
of a put option and a call option) and financial futures contracts.
Mark-to-market gains and losses on PGA-related positions are recorded as
regulatory assets or liabilities in accordance with Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71). For the year ended December 31, 2001, losses of $4.1
million were recorded in regulatory assets. The corresponding liability is
reflected on the balance sheet in Other Current Liabilities. For the year ended
December 31, 2002, gains of $0.8 million were recorded in regulatory
liabilities. The corresponding asset is reflected on the balance sheet in
prepayments and other. This reflects hedges of natural gas sales of 400,000
MMBtu for commitments through March 2003. As these derivatives settle, the
realized gain/loss is credited/charged to the PGA customers resulting in no
income affect.

In December 2001, the Financial Accounting Standards Board (FASB) revised its
earlier conclusion, Derivatives Implementation Group (DIG) Issue C-15, related
to contracts involving the purchase or sale of electricity. Contracts for the
purchase or sale of electricity, including capacity contracts with call options,
may qualify for the normal purchases and normal sales exemption and are not
required to be accounted for as derivatives under SFAS 133. In order for
contracts to qualify for this exemption, they must meet certain criteria, which
include the requirement for physical delivery of the electricity to be purchased
or sold under the contract only in the normal course of business. Additionally,
contracts that have a price based on an underlying that is not clearly and
closely related to the electricity being sold or purchased or that are
denominated in a currency that is foreign to the buyer or seller are not
considered normal purchases and normal sales and are required to be accounted
for as derivatives under SFAS 133. This revised conclusion is effective

129

beginning April 1, 2002. CILCO has determined that its physical contracts
qualify for the normal purchases and sales exemption as redefined in DIG Issue
C-15 and are not to be accounted for as derivatives under SFAS 133.

NOTE 10 - STATEMENTS OF SEGMENTS OF BUSINESS

CILCO has three reportable segments: CILCO Electric, CILCO Gas, and CILCO Other.
The CILCO Electric segment contains the rate-regulated portions of the utility's
electric business. The CILCO Gas segment contains the rate-regulated portions of
the utility's gas business. The CILCO Other segment contains the non
rate-regulated portions of the utility's business. CILCO's reportable segments
are strategic business units managed separately primarily due to the
rate-regulated or non rate-regulated nature of the business.

130

Central Illinois Light Company
Statements of Segments of Business

For the year ended December 31, 2002

131

Central Illinois Light Company
Statements of Segments of Business

For the year ended December 31, 2001 (as restated)(1)

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

132

Central Illinois Light Company
Statements of Segments of Business

For the year ended December 31, 2000 (as restated)(1)

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

133

NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following quarterly operating results are unaudited, but, in the opinion of
management, include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of CILCO's operating results for the periods
indicated. The results of operations for each of the fiscal quarters are not
necessarily comparable to, or indicative of, the results of an entire year due
to the seasonal nature of CILCO's business and other factors.

(1) See Note 17 to the Consolidated Financial Statements for Central Illinois
Light Company.

NOTE 12 - RETAINED EARNINGS

CILCO's Articles of Incorporation provide that no dividends shall be paid on the
common stock if, at the time of declaration, the balance of retained earnings
does not equal at least two times the annual dividend requirement on all
outstanding shares of preferred stock. The amount of retained earnings so
required at December 31, 2002, was $4.3 million.

NOTE 13 - OTHER COMPREHENSIVE INCOME

Rollforward of Accumulated Other Comprehensive Income -
Central Illinois Light Company

134

NOTE 14 - RELATED PARTY TRANSACTIONS

Under a non-derivative, executory tolling agreement and gas transportation
agreement, CILCO purchases steam, chilled water and electricity from, and
transports gas to, AmerenEnergy Medina Valley Cogen (No. 4), LLC, f/k/a AES
Medina Valley. During 2002, CILCO purchased $25.9 million and sold $.6 million
under these agreements. As of December 31, 2002, and 2001, respectively, CILCO
had recorded Accounts Payable of $2.5 million and $2.9 million and Receivables
of $0.06 million and $0.05 million related to these agreements.

In addition, CILCO has received and provided management, technical, advisory,
operating, and administrative services from its former parent AES and its
subsidiaries. Pursuant to SEC rules under PUHCA, these transactions were on an
"at cost" basis. At December 31, 2002, and 2001, Accounts Payable to such
entities were $0.0 million and $3.6 million, respectively. Amounts due from such
entities at December 31, 2002, and 2001, totaled $0.1 million and $1.7 million,
respectively, and were included in Other Deferred Debits on the CILCO Balance
Sheet.

CILCO also has a power purchase agreement with AmerenCIPS for 100 MW of capacity
and firm energy for the months of June through September 2003.

Subject to the receipt of regulatory approval, which is being pursued, CILCO
will participate in Ameren's utility money pool arrangement. Under this
arrangement, CILCO will have access to up to $695 million of additional
committed liquidity, subject to reduction based on use by other utility money
pool participants, but increased to the extent other pool participants have
surplus cash balances, which may be used to fund pool needs.

NOTE 15 - STOCK OPTION PLAN

Employees of CILCO previously participated in the AES Stock Option Plan that
provided for grants of stock options to eligible participants. Under the terms
of the plan, CILCO issued options to purchase shares of AES common stock at a
price equal to 100% of the market price at the date the option is granted. The
options become eligible for exercise under various schedules. The following
table summarizes stock option activity during 2002, 2001 and 2000:

135

The following table summarizes additional information about stock options
outstanding at December 31, 2002:

CILCO accounts for its stock-based compensation plans under Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees", and has adopted SFAS No. 123, "Accounting for Stock-based
Compensation" (SFAS 123) for disclosure purposes. No compensation expense has
been recognized in connection with the options, as all options have an exercise
price equal to the market price of AES's common stock on the date of grant. For
SFAS 123 disclosure purposes, the following assumptions were used in the
Black-Scholes valuation method for shares issued in 2001 and 2000:

Had compensation expense been recognized using the fair value based method under
SFAS 123, CILCO's consolidated earnings would have decreased by $2.7 million,
$1.4 million and $.3 million in 2002, 2001 and 2000, respectively.

Note 16 - SUBSEQUENT EVENT

On January 31, 2003, after receipt of the necessary regulatory agency approvals
and clearance from the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act, Ameren Corporation (Ameren) completed its
acquisition of all of the outstanding common stock of CILCO's parent, CILCORP
Inc. (the Holding Company) from AES. With the acquisition, CILCO became an
Ameren subsidiary, but remains a separate utility company, operating as
AmerenCILCO. The Company's financial statements will be included in the Ameren
consolidated financial statements effective with the January 2003 acquisition
date.

The total purchase price was approximately $1.34 billion and included the
assumption of CILCORP debt and preferred stock. The purchase price is subject to
certain adjustments for working capital and other changes pending the
finalization of CILCORP's closing balance sheet.

136

NOTE 17 - RESTATEMENT

As previously reported in the current report on Form 8-K filed on January 31,
2003 by CILCORP Inc. and Central Illinois Light Company, Ameren Corporation
issued a press release announcing the closing of the acquisition of all of the
issued and outstanding common stock of CILCORP from The AES Corporation,
pursuant to an agreement dated as of April 28, 2002. As of such acquisition,
CILCORP became a wholly-owned subsidiary of Ameren.

Subsequent to the issuance of the Company's 2001 consolidated financial
statements and based on new management's review and determination, the
consolidated financial statements have been restated from amounts previously
reported for CILCORP Inc. and its subsidiaries for the years ended December 31,
2001 and 2000.

OTHER RESTATEMENT ITEMS

Other restatement items primarily relate to (i) reclassification of $20,376 of
refunds to customers as a result of a settlement with the Illinois Commerce
Commission regarding the fuel adjustment charge, (ii) accrual of certain
employee benefit costs that had been incurred, but not reported as of the end
of the year of $1,240, (iii) write off of certain costs that were determined
not to qualify for capitalization of $1,307, (iv) adjustments in accruals and
(v) reclassification of certain items on the Consolidated Balance Sheets.
Additionally, the consolidated Statements of Stockholder's Equity reflect a
decrease in the Company's retained earnings of $1,537 as of January 1, 2000.

The impact of the restatements is summarized in the following tables:

137

Central Illinois Light Company
Consolidated Statements of Income
and Comprehensive Income
(In thousands)

For the Year Ended December 31, 2001

138

Central Illinois Light Company
Consolidated Balance Sheets
(In thousands)

Assets (as of December 31, 2001)

(1) Amounts as previously reported have been revised to reflect the
reclassification of certain amounts to conform to the 2002 presentation.

139

Central Illinois Light Company
Consolidated Balance Sheets
(In thousands)

Capitalization and Liabilities (as of December 31, 2001)

140

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

CILCORP and CILCO

The following text was filed via Form 8-K on March 20, 2003, regarding a change
in registrant's certifying accountant for CILCORP Inc. and for Central Illinois
Light Company:

On March 14, 2003, the Auditing Committees of CILCORP Inc. and Central Illinois
Light Company (the "Registrants") dismissed Deloitte & Touche LLP ("Deloitte &
Touche") as the Registrants' independent public accountants subject to
completion of its services related to the audits of the fiscal year 2002 and
engaged PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") to serve as the
Registrants' independent public accountants for the fiscal year 2003. The
Registrants' Auditing Committees made this replacement because
PricewaterhouseCoopers is serving as the independent public accountants for the
Registrants' parent company, Ameren Corporation, for the fiscal year 2003.

Deloitte & Touche's reports on the Registrants' consolidated financial
statements for the fiscal years ended December 31, 2001 and 2000 did not contain
an adverse opinion or a disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles.

During the Registrants' two fiscal years ended December 31, 2001 and 2000 and
the subsequent interim period through March 14, 2003, there were no
disagreements with Deloitte & Touche on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to Deloitte & Touche's satisfaction, would have caused it to
make reference to the subject matter in connection with its reports on the
Registrants' consolidated financial statements for such years, and there were no
reportable events, as listed in Item 304(a) (1) (v) of Regulation S-K.

The Registrants have provided Deloitte & Touche with a copy of the foregoing
disclosures. Attached as Exhibit 16.1 is a copy of Deloitte & Touche's letter,
dated March 20, 2003, stating its agreement with such statements.

During the Registrants' two fiscal years ended December 31, 2002 and 2001 and
the subsequent interim period through March 14, 2003, the Registrants did not
consult PricewaterhouseCoopers regarding the application of accounting
principles to a specified transaction, either contemplated or proposed, or the
type of audit opinion that might be rendered on the Registrants' consolidated
financial statements, or any other matter or reportable event that would be
required to be reported in this Current Report on Form 8-K.

141

PART III

Item 10. Directors and Executive Officers of the Registrants

CILCORP

CILCORP Directors

Simultaneously with Ameren's acquisition of CILCORP on January 31, 2003, all the
directors of CILCORP resigned and the following new directors were appointed to
serve as directors until the 2003 annual meeting of shareholders.

PAUL A. AGATHEN

Mr. Agathen is a Senior Vice President of CILCORP, Union Electric, CIPS, AEG,
Ameren Services and CILCO. He was employed by Union Electric in 1975 as an
attorney. He was named General Attorney of Union Electric in 1982 and Vice
President, Environmental and Safety in 1994. He was elected to his present
position at Ameren Services in 1997, at Union Electric, CIPS and AEG in 2001 and
at CILCORP and CILCO in 2003. Mr. Agathen became a Director of CILCORP in 2003.
He is also a Director of: CIPS (since 1997); Union Electric (since 1998); AEG
(since 2000); and CILCO (since 2003). Mr. Agathen is 55 years old.

WARNER L. BAXTER

Mr. Baxter is a Senior Vice President of CILCORP, Ameren, Union Electric, CIPS,
AEG, Ameren Services, and CILCO. From 1983 to 1995, Mr. Baxter was employed by
Price Waterhouse (now PricewaterhouseCoopers LLP). Mr. Baxter joined Union
Electric in 1995 as Assistant Controller. He was promoted to Controller of Union
Electric in 1996 and was elected Vice President and Controller of Union
Electric, Ameren and Ameren Services in 1998. He was elected Vice President and
Controller of the Company in 1999 and of AEG in 2000. Mr. Baxter was elected to
his present position at Ameren, Union Electric, CIPS, Ameren Services and AEG in
2001 and at CILCORP and CILCO in 2003. He became a Director of CILCORP in 2003.
He is also a Director of: Union Electric (since 1999); CIPS (since 1999); AEG
(since 2001); and CILCO (since 2003). Mr. Baxter is 41 years old.

RICHARD A. LIDDY

Mr. Liddy is Retired Chairman of GenAmerica Financial Corporation, which
provides life, health, pension, annuity and related insurance products and
services. Mr. Liddy joined GenAmerica as President and Chief Operating Officer
in 1988 and became Chairman of GenAmerica Financial Corporation in 1995. Mr.
Liddy is a member of the Auditing Committee of CILCORP's Board of Directors and
Human Resources Committees of Ameren Corporation's Board. He was elected
Director of CILCORP in 2003. He is also a Director of: Ameren (since 1997);
CILCO (since 2003); Brown Shoe Company, Inc.; Ralcorp Holdings Inc.; and
Energizer Holdings, Inc. Mr. Liddy is 67 years old.

RICHARD A. LUMPKIN

Mr. Lumpkin is Chairman, Consolidated Communications, Inc. He assumed his
present position as Chairman of Consolidated Communications, Inc. on January 1,
2003 upon the acquisition of the former Illinois Consolidated Telephone Company
from McLeod USA, Inc. Previously, Mr. Lumpkin had served as President of
Illinois Consolidated Telephone Company since 1977 and also Chairman and Chief
Executive Officer since 1990. As a result of a September 1997 merger, he also
had served as Vice Chairman of McLeodUSA Incorporated until April 2002. In

142

order to complete a recapitalization, McLeodUSA Incorporated filed, in January
2002, a prenegotiated plan of reorganization through a Chapter 11 bankruptcy
petition filed in the United States Bankruptcy Court for the District of
Delaware. In April 2002, McLeodUSA Incorporated's plan of reorganization became
effective and it emerged from Chapter 11 protection. Mr. Lumpkin is a member of
CILCORP's Auditing Committee. He became a Director of CILCORP in 2003. He is
also a Director of: First Mid-Illinois Bancshares, Inc.; First Mid-Illinois Bank
& Trust; and CILCO (since 2003). Mr. Lumpkin is 68 years old.

PAUL L. MILLER, JR.

Mr. Miller is President and Chief Executive Officer of P. L. Miller &
Associates, a management consultant firm which specializes in strategic and
financial planning for privately held companies and distressed businesses and in
international business development. He is also a principal in a financial
advisory firm for small to middle market companies. Mr. Miller has served as
president of an international subsidiary of an investment banking firm, and for
over 20 years was president of consumer product manufacturing and distribution
firms. He is a member of CILCORP's Auditing Committee. He became a Director of
CILCORP in 2003. He is also a Director of: Ameren (since 1997) and CILCO (since
2003). Mr. Miller is 60 years old.

CHARLES W. MUELLER

Mr. Mueller is Chairman and Chief Executive Officer of Ameren, Union Electric,
and Ameren Services and Chairman of CILCORP and CILCO. Mr. Mueller began his
career with Union Electric in 1961 as an engineer. He was named Treasurer in
1978, Vice President-Finance in 1983, Senior Vice President-Administrative
Services in 1988, President in 1993 and Chief Executive Officer in 1994. Mr.
Mueller was elected Chairman, President and Chief Executive Officer of Ameren in
1997. He relinquished his position as President of Ameren, Union Electric and
Ameren Services in 2001. He was elected Chairman of CILCORP and CILCO in 2003.
Mr. Mueller became a Director of CILCORP in 2003. Mr. Mueller is Chairman of the
Federal Reserve Bank of St. Louis. He is also a Director of: Ameren (since
1997); Union Electric (since 1993); CIPS (since 1999); CILCO (since 2003); and
Angelica Corporation. Mr. Mueller is 64 years old.

GARY L. RAINWATER

Mr. Rainwater is President and Chief Executive Officer of CIPS, President and
Chief Operating Officer of Ameren, Union Electric, and Ameren Services and
President of CILCORP and CILCO. Mr. Rainwater was elected Executive Vice
President of CIPS in January 1997 and was named to his present position at CIPS
in December 1997. Before joining CIPS he worked for Union Electric for 17 years,
beginning his career in 1979 as an engineer. He was named General
Manager-Corporate Planning in 1988 and Vice President in 1993. Mr. Rainwater was
elected President of AER in 1999 and of AEG in 2000. He was elected President
and Chief Operating Officer of Ameren, Union Electric and Ameren Services in
2001 at which time he relinquished his position as President of AER and AEG. He
was elected President of CILCORP and CILCO in 2003. Mr. Rainwater became a
Director of CILCORP in 2003. He is also a Director of: Union Electric (since
1998); CIPS (since 1997); and CILCO (since 2003). Mr. Rainwater is 56 years old.

143

HARVEY SALIGMAN

Mr. Saligman is a Partner of Cynwyd Investments, a family real estate
partnership. Mr. Saligman also served in various executive capacities in the
consumer products industry for more than 35 years. He is a member of CILCORP's
Auditing Committee. Mr. Saligman became a Director of CILCORP in 2003. He is
also a Director of: Ameren (since 1997) and CILCO (since 2003). Mr. Saligman is
64 years old.

THOMAS R. VOSS

Mr. Voss is a Senior Vice President of CILCORP, Union Electric, CIPS, AEG,
Ameren Services and CILCO. Mr. Voss began his career with Union Electric in 1969
as an engineer. After four years of military service, he returned to Union
Electric and from 1975 to 1988, held various positions including district
manager and distribution operating manager. Mr. Voss was elected Vice President
of CIPS in 1998. Mr. Voss was elected to his present position at Union Electric,
CIPS and Ameren Services in 1999, at AEG in 2001 and at CILCORP and CILCO in
2003. He became a Director of CILCORP in 2003. He is also a Director of: Union
Electric (since 2001); CIPS (since 2001); and CILCO (since 2003). Mr. Voss is 55
years old.

DAVID A. WHITELEY

Mr. Whiteley is a Senior Vice President of CILCORP, Union Electric, AEG, Ameren
Services and CILCO. Mr. Whiteley began his career with Union Electric in 1978 as
an engineer and in 1993 was named manager of transmission planning and later
manager of electrical engineering and transmission planning. In 2000, Mr.
Whiteley was elected Vice President of Ameren Services responsible for
engineering and construction and later energy delivery technical services. He
was elected to his present position at CIPS, Union Electric, AEG and Ameren
Services in 2001, and at CILCORP and CILCO in 2003. He became a director of
CILCORP in 2003. Mr. Whiteley is 46 years old.

JAMES W. WOGSLAND

Mr. Wogsland was elected Executive Vice President and director of Caterpillar in
1987. He served as Vice Chairman and director from 1990 until his retirement in
1995. Mr. Wogsland is a member of CILCORP's Auditing Committee. He was elected
director of CILCORP in 2003. He is also a director of: Ameren (since 1997) and
CILCO (since 2003). Mr. Wogsland is 70 years old.

CILCORP Officers

The information required by Item 10 relating to CILCORP executive officers is
set forth in Part I of this Form 10-K.

CILCO

The information required by Item 10 relating to directors is set forth in
CILCO's definitive proxy statement for its 2003 Annual Meeting of Shareholders,
to be filed soon with the SEC pursuant to Regulation 14A. Such information is
incorporated herein by reference to the material appearing under the caption
"Election of Directors" of such proxy statement.

144

Information required by Item 10 relating to executive officers of CILCO is set
forth under a separate caption in Part I hereof.

Item 11. Executive Compensation

CILCORP

This item is omitted in reliance on General Instruction (I)(2) of Form 10-K.

CILCO

CILCO will soon file with the SEC a definitive proxy statement pursuant to
Regulation 14A. The information required by Item 11 is incorporated herein by
reference to the material appearing under the caption "Executive Compensation"
of such proxy statement.

145

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

CILCORP

This item is omitted in reliance on General Instruction (I)(2) of Form 10-K.

CILCO

CILCO will soon file with the SEC a definitive proxy statement pursuant to
Regulation 14A. The information required by Item 12 is incorporated herein by
reference to the material appearing under the caption "Security Ownership" of
such proxy statement.

CILCO does not have any equity compensation plans under which its equity
securities are authorized for issuance.

Item 13. Certain Relationships and Related Transactions

CILCORP

This item is omitted in reliance on General Instruction (I)(2) of Form 10-K.

CILCO

CILCO will soon file with the SEC a definitive proxy statement pursuant to
Regulation 14A. The information required by Item 13 is incorporated herein by
reference to the material appearing under the caption "Item (1): Election of
Directors" of such proxy statement.

Item 14. Controls and Procedures

Within 90 days prior to the date of this report, CILCORP and CILCO carried out
an evaluation, under the supervision and with participation of their management,
including their Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of CILCORP's and CILCO's disclosure
controls and procedures pursuant to Rule 13a-14 under the Securities Exchange
Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that CILCORP's and CILCO's disclosure
controls and procedures are effective in timely alerting them to material
information relating to CILCORP and CILCO, which is required to be included in
their periodic SEC filings.

There have been no significant changes in CILCORP's and CILCO's internal
controls or in other factors which could significantly affect internal controls
subsequent to the date the evaluation was carried out.

146

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

CILCORP

147

(a) 3. Exhibits

*(3) Articles of Incorporation as amended effective November 15, 1999.
[Designated in Form 10-K for the year ended December 31, 1999, File No.
1-8946, as Exhibit 3.]

*(3)a By-laws as amended and restated effective October 18, 1999 [Designated
in Form 10-K for the year ended December 31, 1999, File No. 1-8946, as
Exhibit (3)a].

*(4) Indenture, dated as of October 18, 1999, between Midwest Energy, Inc.
and The Bank of New York, as Trustee; First Supplemental Indenture,
dated as of October 18, 1999, between CILCORP Inc. and The Bank of New
York. [Designated in registration statement Form S-4 filed by CILCORP
on November 4, 1999, as exhibits 4.1 and 4.2.]

**(4)a Instruments defining the rights of security holders.

+*(10) CILCO Executive Deferral Plan. As amended effective August 15, 1999.
[Designated in Form 10-K for the year ended December 31, 1999, File No.
1-8946, as Exhibit 10.]

+*(10)a CILCO Executive Deferral Plan II. As amended effective April 1, 1999.
[Designated in Form 10-K for the year ended December 31, 1999, File No.
1-8946, as Exhibit (10)a.]

+*(10)b CILCO Benefit Replacement Plan (as amended effective August 15, 1999).
[Designated in Form 10-K for the year ended December 31, 1999, File No.
1-8946, as Exhibit (10)b.]

+*(10)c Retention Agreement between Central Illinois Light Company and Scott A.
Cisel dated October 16, 2001. [Designated in Form 10-K for the year
ended December 31, 2001, File No. 1-8946, as Exhibit (10)c.]

+(10)d Incentive Compensation Agreements dated January 21, 2003, between CILCO
and Robert J. Sprowls, Scott A. Cisel, James L. Luckey, III, and Thomas
S. Romanowski.

+*(10)e CILCO Involuntary Severance Pay Plan effective July 16, 2001.
[Designated in Form 10-K for the year ended December 31, 2001, File No.
1-8946, as Exhibit (10)e.]

+*(10)f CILCO Restructured Executive Deferral Plan (approved August 15, 1999).
[Designated in Form 10-K for the year ended December 31, 1999, File No.
1-8946, as Exhibit (10)e.]

(12.1) Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends

(24.1) Power of Attorney

(99.1) Certificate of Chief Executive Officer required by Section 906 of the
Sarbanes-Oxley Act of 2002.

(99.3) Certificate of Chief Financial Officer required by Section 906 of the
Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

None.

148

* These exhibits have been previously filed with the Securities and
Exchange Commission (SEC) as exhibits to registration statements or
other filings of CILCORP or CILCO with the SEC and are incorporated
herein as exhibits by reference. The file number and exhibit number of
each such exhibit (where applicable) are stated in the description of
such exhibit.

** Pursuant to Paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, the
Company has not filed as an exhibit to this Form 10-K any instrument
with respect to long-term debt as the total amount of securities
authorized thereunder does not exceed 10 percent of the total assets of
CILCORP Inc. and its subsidiaries on a consolidated basis, but hereby
agrees to furnish to the SEC on request any such instruments.

+ Management compensatory plan or arrangement.

149

CILCO

Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.

(a) 3. Exhibits

*(3) Articles of Incorporation. As amended April 28, 1998. [Designated
in Form 10-K for the year ended December 31, 1998, File No.
1-8946, as Exhibit (3).]

(3)a Bylaws. As amended effective March 14, 2003.

*(4) Indenture of Mortgage and Deed of Trust between Illinois Power
Company and Bankers Trust Company, as Trustee, dated as of April
1, 1933, Supplemental Indenture between the same parties dated as
of June 30, 1933, Supplemental Indenture between the Company and
Bankers Trust Company, as Trustee, dated as of July 1, 1933 and
Supplemental Indenture between the same parties dated as of
January 1, 1935, securing First Mortgage Bonds, and indentures
supplemental to the foregoing through November 1, 1994.
[Designated in Registration No. 2-1937 as Exhibit B-1, in
Registration No. 2-2093 as Exhibit B-1(a), in Form 8-K for April
1940, File No. 1-2732-2, as Exhibit A, in Form 8-K for December
1949, File No. 1-2732-2, as Exhibit A, in Form

150

8-K for December 1951, File No. 1-2732, as Exhibit A, in Form 8-K
for July 1957, File No. 1-2732, as Exhibit A, in Form 8-K for
July 1958, File No. 1-2732, as Exhibit A, in Form 8-K for March
1960, File No. 1-2732, as Exhibit A, in Form 8-K for September
1961, File No. 1-2732, as Exhibit B, in Form 8-K for March 1963,
File No. 1-2732, as Exhibit A, in Form 8-K for February 1966,
File No. 1-2732, as Exhibit A, in Form 8-K for March 1967, File
No. 1-2732, as Exhibit A, in Form 8-K for August 1970, File No.
1-2732, as Exhibit A, in Form 8-K for September 1971, File No.
1-2732, as Exhibit A, in Form 8-K for September 1972, File No.
1-2732, as Exhibit A, in Form 8-K for April 1974, File No.
1-2732, as Exhibit 2(b), in Form 8-K for June 1974, File No.
1-2732, as Exhibit A, in Form 8-K for March 1975, File No.
1-2732, as Exhibit A, in Form 8-K for May 1976, File No. 1-2732,
as Exhibit A, in Form 10-Q for the quarter ended June 30, 1978,
File No. 1-2732, as Exhibit 2, in Form 10-K for the year ended
December 31, 1982, File No. 1-2732, as Exhibit (4)(b), in Form
8-K dated January 30, 1992, File No. 1-2732, as Exhibit (4) in
Form 8-K dated January 29, 1993, File No. 1-2732, as Exhibit (4)
and in Form 8-K dated December 2, 1994, File No. 1-2732, as
Exhibit (4).]

+*(10) CILCO Executive Deferral Plan. As amended effective August 15,
1999. [Designated in Form 10-K for the year ended December 31,
1999, File No. 1-8946, as Exhibit 10.]

+*(10)a CILCO Executive Deferral Plan II. As amended effective April 1,
1999. [Designated in Form 10-K for the year ended December 31,
1999, File No. 1-8946, as Exhibit (10)a.]

+*(10)b Benefit Replacement Plan (as amended effective April 1, 1999).
[Designated in Form 10-K for the year ended December 31, 1999,
File No. 1-8946, as Exhibit (10)b.]

+*(10)c Retention Agreement between Central Illinois Light Company and
Scott A. Cisel dated October 16, 2001. [Designated in Form 10-K
for the year ended December 31, 2001, File No. 1-8946, Exhibit
(10)c.]

+(10)d Incentive Compensation Agreements dated January 21, 2003 between
CILCO and Robert J. Sprowls, Scott A. Cisel, James L. Luckey,
III, and Thomas S. Romanowski.

+*(10)e CILCO Involuntary Severance Pay Plan effective July 16, 2001.
[Designated in Form 10-K for the year ended December 31, 2001,
File No. 1-8946, as Exhibit (10)e.]

+*`(10)f CILCO Restructured Executive Deferral Plan (approved August 15,
1999). [Designated in Form 10-K for the year ended December 31,
1999, File No. 1-8946, as Exhibit (10)e.]

(12.2) Computation of Ratio of Earnings to Fixed Charges

(24.2) Power of Attorney

(99.2) Certificate of Chief Executive Officer required by Section 906 of
the Sarbanes-Oxley Act of 2002.

(99.4) Certificate of Chief Financial Officer required by Section 906 of
the Sarbanes-Oxley Act of 2002.

151

(b) 3. Reports on Form 8-K

None.

* These exhibits have been previously filed with the Securities and Exchange
Commission (SEC) as exhibits to registration statements or to other
filings of CILCO with the SEC and are incorporated herein as exhibits by
reference. The file number and exhibit number of each such exhibit (where
applicable) are stated in the description of such exhibit.

+ Management compensatory plan or arrangement.

152

SCHEDULE II
CILCORP INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 2002, 2001 and 2000
(In thousands)

153

SCHEDULE II
CENTRAL ILLINOIS LIGHT COMPANY
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2002, 2001, and 2000
(In thousands)

154

SCHEDULE XIII

CILCORP INC. AND SUBSIDIARIES
Investment in Leveraged Leases

Year Ended December 31, 2002
(In thousands)

(1) This value is the original cost of the leveraged lease net of original
nonrecourse debt.

(2) The amount carried on the balance sheet includes current rents
receivable and estimated residual value, net of unearned and deferred
income and nonrecourse debt. The investment in leveraged leases balance
does not include deferred taxes of $(106,604). In the fourth quarter of
2002, CIM decreased the estimated residual value of one of its
leveraged leases by approximately $6.5 million to reflect current
conditions in the secondary market for the asset.

155

SIGNATURES

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

CILCORP INC.

April 15, 2003 By /s/ Gary L. Rainwater
---------------------
Gary L. Rainwater
President

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

156

CERTIFICATIONS

I, Gary L. Rainwater, certify that:

1. I have reviewed this annual report on Form 10-K of CILCORP Inc.;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this annual report (the "Evaluation
Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: April 15, 2003
/s/ Gary L. Rainwater
---------------------
Gary L. Rainwater
Chief Executive Officer

157

CERTIFICATIONS (CONTINUED)

I, Warner L. Baxter, certify that:

1. I have reviewed this annual report on Form 10-K of CILCORP Inc.;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: April 15, 2003
/s/ Warner L. Baxter
--------------------
Warner L. Baxter
Chief Financial Officer

158

SIGNATURES

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

CENTRAL ILLINOIS LIGHT COMPANY

April 15, 2003 By /s/ Gary L. Rainwater
---------------------
Gary L. Rainwater
President

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

159

CERTIFICATIONS

I, Gary L. Rainwater, certify that:

1. I have reviewed this annual report on Form 10-K of Central Illinois
Light Company;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this annual report (the "Evaluation
Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: April 15, 2003
/s/ Gary L. Rainwater
---------------------
Gary L. Rainwater
Chief Executive Officer

160

CERTIFICATIONS (CONTINUED)

I, Warner L. Baxter, certify that:

1. I have reviewed this annual report on Form 10-K of Central Illinois
Light Company;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: April 15, 2003
/s/ Warner L. Baxter
--------------------
Warner L. Baxter
Chief Financial Officer

161

EXHIBIT INDEX

CILCORP

* These exhibits have been previously filed with the Securities and
Exchange Commission (SEC) as exhibits to registration statements or
other filings of CILCORP or CILCO with the SEC and are incorporated
herein as exhibits by reference. The file number and exhibit number of
each such exhibit (where applicable) are stated in the description of
such exhibit.

** Pursuant to Paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, the
Company has not filed as an exhibit to this Form 10-K any instrument
with respect to long-term debt as the total amount of securities
authorized thereunder does not exceed 10 percent of the total assets of
CILCORP Inc. and its subsidiaries on a consolidated basis, but hereby
agrees to furnish to the SEC on request any such instruments.

+ Management compensatory plan or arrangement.

CILCO

* These exhibits have been previously filed with the Securities and
Exchange Commission (SEC) as exhibits to registration statements or
to other filings of CILCO with the SEC and are incorporated
herein as exhibits by reference. The file number and exhibit number of
each such exhibit (where applicable) are stated in the description of
such exhibit.

+ Management compensatory plan or arrangement.