10-Q

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

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2001

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,       I.R.S. Employer
          File Number         Address and Telephone Number          Identification No.

            1-11377                   CINERGY CORP.                     31-1385023
                                (A Delaware Corporation)
                                 139 East Fourth Street
                                 Cincinnati, Ohio 45202
                                     (513) 421-9500

             1-1232        THE CINCINNATI GAS & ELECTRIC COMPANY        31-0240030
                                  (An Ohio Corporation)
                                 139 East Fourth Street
                                 Cincinnati, Ohio 45202
                                     (513) 421-9500

             1-3543                 PSI ENERGY, INC.                    35-0594457
                                (An Indiana Corporation)
                                  1000 East Main Street
                                Plainfield, Indiana 46168
                                     (513) 421-9500

             2-7793      THE UNION LIGHT, HEAT AND POWER COMPANY        31-0473080
                                (A Kentucky Corporation)
                                 139 East Fourth Street
                                 Cincinnati, Ohio 45202
                                     (513) 421-9500

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 __

This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.

The Union Light, Heat and Power Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its company specific information with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.

As of October 31, 2001, shares of Common Stock outstanding for each registrant were as listed:

           Registrant                                   Description            Shares

       Cinergy Corp.                            Par value $.01 per share    159,112,108

       The Cincinnati Gas & Electric Company    Par value $8.50 per share    89,663,086

                                                Without par value, stated
       PSI Energy, Inc.                         value $.01 per share         53,913,701

       The Union Light, Heat and Power Company  Par value $15.00 per share      585,333
       

                                TABLE OF CONTENTS
- --------------------------------------------------------------------------------
 Item
Number
- ------
                          PART I FINANCIAL INFORMATION

1     Financial Statements
           Cinergy Corp.
               Consolidated Statements of Income
               Consolidated Balance Sheets
               Consolidated Statements of Changes in Common Stock Equity
               Consolidated Statements of Cash Flows

           The Cincinnati Gas & Electric Company
               Consolidated Statements of Income and Comprehensive Income
               Consolidated Balance Sheets
               Consolidated Statements of Cash Flows

           PSI Energy, Inc.
               Consolidated Statements of Income and Comprehensive Income
               Consolidated Balance Sheets
               Consolidated Statements of Cash Flows

           The Union Light, Heat and Power Company
               Statements of Income
               Balance Sheets
               Statements of Cash Flows

      Notes to Financial Statements

      Cautionary Statements Regarding Forward-Looking Information

2     Management's Discussion and Analysis of Financial Condition and Results
      of Operations
               Introduction
               Organization
               Liquidity
               Capital Resources
               2001 Quarterly Results of Operations - Historical
               2001 Year to Date Results of Operations - Historical
               Results of Operations - Future

3     Quantitative and Qualitative Disclosures About Market Risk

                            PART II OTHER INFORMATION

1     Legal Proceedings

6     Exhibits and Reports on Form 8-K

      Signatures

                                                   CINERGY CORP.
                                         CONSOLIDATED STATEMENTS OF INCOME

                                                           Quarter Ended                   Year to Date
                                                            September 30                    September 30
                                                      2001              2000          2001              2000
- ---------------------------------------------------------------------------------------------------------------
                                                          (dollars in thousands, except per share amounts)
                                                                         (unaudited)

Operating Revenues

   Electric                                        $2,515,665        $1,599,468    $ 6,773,567       $3,916,518
   Gas                                                786,345           677,917      3,836,946        1,668,272
   Other                                               21,604            22,400         61,722           67,586
                                                   ----------        ----------    -----------       ----------
         Total Operating Revenues                   3,323,614         2,299,785     10,672,235        5,652,376

- ---------------------------------------------------------------------------------------------------------------
Operating Expenses
   Fuel and purchased and exchanged power           1,864,994         1,048,189      5,066,490        2,249,519
   Gas purchased                                      761,325           634,917      3,667,603        1,490,868
   Operation and maintenance                          265,518           267,454        782,073          817,965
   Depreciation                                        97,109            86,562        277,876          255,000
   Taxes other than income taxes                       59,325            66,892        175,826          201,481
                                                   -----------       ----------     ----------       ----------
         Total Operating Expenses                   3,048,271         2,104,014      9,969,868        5,014,833

- ---------------------------------------------------------------------------------------------------------------
Operating Income                                      275,343           195,771        702,367          637,543

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

Equity in Earnings (Losses) of Unconsolidated
   Subsidiaries                                        (4,333)              165         (3,500)           6,340
Miscellaneous - Net                                     5,366            12,073         13,845           12,187
Interest                                               68,762            60,166        200,379          164,709
- ---------------------------------------------------------------------------------------------------------------

Income Before Taxes                                   207,614           147,843        512,333          491,361

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

Income Taxes                                           78,284            52,959        178,073          180,285
Preferred Dividend Requirements of Subsidiaries           859             1,070          2,575            3,708
                                                   ------------------------------------------------------------

Net Income                                         $  128,471        $   93,814    $   331,685       $  307,368
                                                   ============================================================

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

Average Common Shares Outstanding                     159,097           158,938        159,049          158,928

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

Earnings Per Common Share
   Net Income                                     $      0.81       $      0.59   $       2.08      $      1.93

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

Earnings Per Common Share - Assuming Dilution
   Net Income                                     $      0.80       $      0.58   $       2.06      $      1.92

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

Dividends Declared Per Common Share               $      0.45       $      0.45   $       1.35      $      1.35

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

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated
financial statements.

Return to TOC

                                                   CINERGY CORP.
                                            CONSOLIDATED BALANCE SHEETS

ASSETS
                                                               September 30         December 31
                                                                   2001                2000
                                                                (unaudited)
- ----------------------------------------------------------- ---------------------------------
                                                                    (dollars in thousands)

Current Assets
   Cash and cash equivalents                                   $  147,781          $   93,054
   Restricted deposits                                             10,927               4,195
   Notes receivable                                                29,426              35,945
   Accounts receivable less accumulated provision for
     doubtful accounts of $37,693 at September 30, 2001,
     and $29,951 at December 31, 2000                           1,740,986           1,623,402
   Materials, supplies, and fuel - at average cost                228,132             159,340
   Energy risk management current assets (Note 1(c))              629,006           1,413,281
   Prepayments and other                                          168,655             129,666
                                                              -----------          ----------
                  Total Current Assets                          2,954,913           3,458,883

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

Property, Plant, and Equipment - at Cost
   Utility plant in service                                     8,019,141           7,681,612
   Construction work in progress                                  374,016             323,350
                                                               ----------          ----------
         Total Utility Plant                                    8,393,157           8,004,962
   Non-regulated property, plant, and equipment                 4,474,415           3,401,203
   Accumulated depreciation                                     4,791,878           4,586,089
                                                               ----------          ----------
                  Net Property, Plant, and Equipment            8,075,694           6,820,076

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

Other Assets
   Regulatory assets                                              999,759             976,614
   Investments in unconsolidated subsidiaries                     198,092             538,322
   Energy risk management non-current assets (Note 1(c))          132,840              37,228
   Other investments                                              151,893             146,986
   Other                                                          299,427             351,619
                                                               ----------          ----------
                  Total Other Assets                            1,782,011           2,050,769

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

Total Assets                                                  $12,812,618         $12,329,728
                                                              ===========         ===========

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

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated
financial statements.

Return to TOC

                                                   CINERGY CORP.
                                            CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                   September 30  December 31
                                                                       2001         2000
                                                                   (unaudited)
- --------------------------------------------------------------------------------------------
                                                                     (dollars in thousands)

Current Liabilities
   Accounts payable                                                 $ 1,607,656  $ 1,496,494
   Accrued taxes                                                        275,092      247,006
   Accrued interest                                                      70,740       47,351
   Notes payable and other short-term obligations (Note 3)            1,210,970    1,128,657
   Long-term debt due within one year (Note 2)                           80,631       40,545
   Energy risk management current liabilities (Note 1(c))               632,383    1,456,375
   Other                                                                129,871      106,679
                                                                     ----------  -----------
                  Total Current Liabilities                           4,007,343    4,523,107

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

Non-Current Liabilities
   Long-term debt (Note 2)                                            3,682,965    2,876,367
   Deferred income taxes                                              1,224,065    1,185,968
   Unamortized investment tax credits                                   129,582      137,965
   Accrued pension and other postretirement benefit costs               431,001      404,764
   Energy risk management non-current liabilities (Note 1(c))           153,766       97,507
   Other                                                                211,024      252,255
                                                                     ----------  -----------
                  Total Non-Current Liabilities                       5,832,403    4,954,826

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

Total Liabilities                                                     9,839,746    9,477,933

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

Cumulative Preferred Stock of Subsidiaries
   Not subject to mandatory redemption                                   62,833       62,834

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

Common Stock Equity
   Common stock - $.01 par value; authorized shares - 600,000,000;
     outstanding shares - 159,099,158 at September 30, 2001 and
     158,967,661 at December 31, 2000                                     1,591        1,590
   Paid-in capital                                                    1,625,343    1,619,153
   Retained earnings                                                  1,297,648    1,179,113
   Accumulated other comprehensive income (loss)                        (14,543)     (10,895)
                                                                     ----------  ------------
                  Total Common Stock Equity                           2,910,039    2,788,961

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

Commitments and Contingencies (Note 4)

Total Liabilities and Shareholders' Equity                          $12,812,618  $12,329,728
                                                                    ===========  ===========
- --------------------------------------------------------------------------------------------

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated
financial statements.

Return to TOC

                                                   CINERGY CORP.
                                CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

                                                                                          Accumulated       Total
                                                                                            Other           Common
                                                         Common     Paid-in     Retained Comprehensive      Stock
                                                          Stock     Capital     Earnings Income/(Loss)      Equity
- ----------------------------------------------------------------------------------------------------------------------
                                                                            (dollars in thousands)
                                                                                 (unaudited)

Quarter Ended September 30, 2001

Balance at July 1, 2001                                 $ 1,591  $ 1,623,458  $ 1,240,761  $ (16,927)      $2,848,883
Comprehensive income:
   Net income                                                                     128,471                     128,471
   Other comprehensive income (loss), net of tax effect
     Foreign currency translation adjustment                                                   7,664            7,664
     Unrealized gain (loss) on investment trusts                                              (1,191)          (1,191)
     Minimum pension liability adjustment                                                         (4)              (4)
     Cash flow hedges (Note 1(b))                                                             (4,085)          (4,085)
                                                                                                           -----------
   Total comprehensive income                                                                                 130,855

Issuance of 11,105 shares of common stock - net              -          587                                       587
Treasury shares reissued                                               (190)                                     (190)
Dividends on common stock ($.45 per share)                                        (71,593)                    (71,593)
Other                                                                 1,488             9                       1,497
                                                        --------------------------------------------------------------

Ending balance at September 30, 2001                    $ 1,591  $ 1,625,343  $ 1,297,648  $ (14,543)      $2,910,039
                                                        ==============================================================

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

Quarter Ended September 30, 2000

Balance at July 1, 2000                                 $ 1,589  $ 1,612,572  $ 1,135,703  $  (5,316)      $2,744,548
Comprehensive income:
   Net income                                                                      93,814                      93,814
   Other comprehensive income (loss), net of tax effect
     Foreign currency translation adjustment                                                  (5,466)          (5,466)
     Unrealized gain (loss) on investment trusts                                                (156)            (156)
                                                                                                          ------------
   Total comprehensive income                                                                                  88,192

Issuance of 44,262 shares of common stock-net                1        1,769                                     1,770
Treasury shares reissued                                               (956)                                     (956)
Dividends on common stock ($.45 per share)                                        (71,516)                    (71,516)
Other                                                                 3,071           327                       3,398
                                                        --------------------------------------------------------------
Ending Balance at September 30, 2000                    $ 1,590  $ 1,616,456  $ 1,158,328  $ (10,938)      $2,765,436
                                                        ==============================================================

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

The accompanying notes as they relate to Cinergy Corp. are an ingral part of these consolidated financial statements.

Return to TOC

                                                   CINERGY CORP.
                                 CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
                                                    (Continued)

                                                                                                Accumulated        Total
                                                                                                   Other           Common
                                                          Common      Paid-in     Retained     Comprehensive       Stock
                                                          Stock       Capital     Earnings     Income/(Loss)       Equity
- -------------------------------------------------------------------------------------------------------------------------
                                                                              (dollars in thousands)
                                                                                    (unaudited)

Nine Months Ended September 30, 2001

Balance at January 1, 2001                                 $ 1,590   $1,619,153   $ 1,179,113   $ (10,895)    $2,788,961
Comprehensive income:
   Net income                                                                         331,685                    331,685
   Other comprehensive income (loss), net of tax effect
     Foreign currency translation adjustment                                                        4,959          4,959
     Unrealized gain (loss) on investment trusts                                                   (1,334)        (1,334)
     Cumulative effect of change in accounting
      principle (Note 1(b))                                                                        (2,500)        (2,500)
     Minimum pension liability adjustment                                                              64             64
     Cash flow hedges (Note 1(b))                                                                  (4,837)        (4,837)
                                                                                                              ----------
   Total comprehensive income                                                                                    328,037

Issuance of 131,497 shares of common stock - net                 1        4,278                                    4,279
Treasury shares purchased                                               (10,015)                                 (10,015)
Treasury shares reissued                                                  5,810                                    5,810
Dividends on common stock ($1.35 per share)                                          (214,689)                  (214,689)
Other                                                                     6,117         1,539                      7,656
                                                           ---------   ---------     ---------    ----------  ----------

Ending balance at September 30, 2001                       $ 1,591   $1,625,343   $ 1,297,648   $ (14,543)    $2,910,039
                                                           ========= ==========   ===========   ==========    ==========

- ------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2000

Balance at January 1, 2000                                 $ 1,589   $1,597,554   $ 1,064,319   $  (9,741)    $2,653,721
Comprehensive income:
   Net income                                                                         307,368                    307,368
   Other comprehensive income (loss), net of tax effect
     Foreign currency translation adjustment                                                       (1,180)        (1,180)
     Unrealized gain (loss) on investment trusts                                                      (17)           (17)
                                                                                                              ----------
   Total comprehensive income                                                                                    306,171

Issuance of 44,262 shares of common stock-net                    1       1,769                                     1,770
Treasury shares purchased                                               (1,490)                                   (1,490)
Treasury shares reissued                                                 9,409                                     9,409
Dividends on common stock ($1.35 per share)                                          (213,707)                  (213,707)
Other                                                                    9,214            348                      9,562
                                                           -------    ---------     ---------   ----------   -----------

Ending Balance at September 30, 2000                       $ 1,590   $1,616,456   $ 1,158,328   $ (10,938)    $2,765,436
                                                           =======   ==========   ===========   ==========    ==========

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

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.

Return to TOC

                                                   CINERGY CORP.
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                     Year to Date
                                                                                     September 30
                                                                                  2001           2000
- --------------------------------------------------------------------------------------------------------
                                                                                 (dollars in thousands)
                                                                                     (unaudited)

Operating Activities
   Net income                                                                     331,685     $ 307,368
   Items providing or (using) cash currently:
     Depreciation                                                                 277,876       255,000
     Unrealized (gain) loss from energy risk management activities                (79,070)       (3,070)
     Deferred income taxes and investment tax credits - net                        40,716         3,414
     Equity in earnings of unconsolidated subsidiaries                              3,500        (6,340)
     Allowance for equity funds used during construction                           (5,163)       (4,667)
     Regulatory assets - net                                                       (6,633)       (5,111)
     Changes in other current assets and current liabilities:
         Restricted deposits                                                       (4,281)         (153)
         Accounts and notes receivable, net of reserves on receivables sold      (114,127)     (692,256)
         Materials, supplies, and fuel                                            (68,785)       21,908
         Accounts payable                                                         108,518       582,243
         Accrued taxes and interest                                                51,475        45,118
     Other items - net                                                            (18,482)       (8,507)
                                                                                ----------     ---------

                  Net cash provided by (used in) operating activities             517,229       494,947
- --------------------------------------------------------------------------------------------------------

Financing Activities
   Change in short-term debt                                                       82,313       268,435
   Issuance of long-term debt                                                     870,661       126,420
   Redemption of long-term debt                                                   (42,403)      (95,570)
   Retirement of preferred stock of subsidiaries                                       (1)      (29,392)
   Issuance of common stock                                                         4,279         1,770
   Dividends on common stock                                                     (214,689)     (213,707)
                                                                                ----------     ---------

                  Net cash provided by (used in) financing activities             700,160        57,956
- ------------------------------------------------------------------------------- ---------- --- ---------

Investing Activities
   Construction expenditures (less allowance for equity funds used during
     construction)                                                               (587,428)     (332,922)
   Acquisitions and other investments                                            (575,234)     (180,414)
                                                                                ----------     ---------

                  Net cash provided by (used in) investing activities          (1,162,662)     (513,336)
- ------------------------------------------------------------------------------- ----------     ---------

Net increase (decrease) in cash and cash equivalents                               54,727        39,567

Cash and cash equivalents at beginning of period                                   93,054        81,919
                                                                                ----------     --------

Cash and cash equivalents at end of period                                     $  147,781     $ 121,486
                                                                                ==========    =========

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

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial
statements.

Return to TOC

                                       THE CINCINNATI GAS & ELECTRIC COMPANY
                             CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                                                Quarter Ended                    Year to Date
                                                                September 30                     September 30
                                                            2001             2000             2001           2000
- ----------------------------------------------------------------------------------------------------------------------
                                                                                           (dollars in thousands)
                                                                                                (unaudited)

Operating Revenues
   Electric                                              $1,267,582        $  791,655       $3,398,342      $1,976,646
   Gas                                                       53,217            48,733          457,717         286,793
                                                         -------------------------------------------------------------
         Total Operating Revenues                         1,320,799           840,388        3,856,059       2,263,439

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

Operating Expenses
   Fuel and purchased and exchanged power                   922,036           522,958        2,498,551       1,102,486
   Gas purchased                                             24,729            21,534          314,575         135,396
   Operation and maintenance                                117,067           118,096          349,462         360,653
   Depreciation                                              47,135            45,636          139,398         134,962
   Taxes other than income taxes                             43,617            51,504          135,585         155,326
                                                         -------------------------------------------------------------
         Total Operating Expenses                         1,154,584           759,728        3,437,571       1,888,823

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

Operating Income                                            166,215            80,660          418,488         374,616

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

Miscellaneous - Net                                             336               671           (1,396)           (340)
Interest                                                     25,353            24,400           79,236          73,873

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

Income Before Taxes                                         141,198            56,931          337,856         300,403

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

Income Taxes                                                 51,808            17,835          117,490         109,462
                                                         -------------------------------------------------------------

Net Income                                               $   89,390        $   39,096       $  220,366      $  190,941

Preferred Dividend Requirement                                  211               211              634             636
                                                         -------------------------------------------------------------

Net Income Applicable to Common Stock                    $   89,179        $   38,885       $  219,732      $  190,305
                                                         =============================================================

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

Net Income                                               $   89,390        $   39,096       $  220,366      $  190,941

Other Comprehensive Income (Loss), Net of Tax Effect         (4,608)                -           (7,268)              -
                                                         -------------------------------------------------------------

Comprehensive Income                                     $   84,782        $   39,096       $  213,098      $  190,941
                                                         =============================================================

- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these
consolidated financial statements.

Return to TOC

                                       THE CINCINNATI GAS & ELECTRIC COMPANY
                                            CONSOLIDATED BALANCE SHEETS

ASSETS
                                                           September 30    December 31
                                                               2001            2000
                                                            (unaudited)
- --------------------------------------------------------------------------------------
                                                                (dollars in thousands)

Current Assets
   Cash and cash equivalents                              $    21,974    $    20,637
   Restricted deposits                                          4,019            160
   Notes receivable from affiliated companies                       -         91,732
   Accounts receivable less accumulated provision for
     doubtful accounts of $24,589 at September 30, 2001,
     and $19,044 at December 31, 2000                         638,387        494,501
   Accounts receivable from affiliated companies                    4         26,743
   Materials, supplies, and fuel - at average cost            135,534         99,061
   Energy risk management current assets (Note 1(c))           23,496        697,488
   Prepayments and other                                       25,171         39,320
                                                          ---------------------------
                  Total Current Assets                        848,585      1,469,642

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

Property, Plant, and Equipment - at Cost
   Utility plant in service
     Electric                                               1,984,200      1,905,795
     Gas                                                      896,155        865,303
     Common                                                   253,471        211,424
                                                          ---------------------------
         Total Utility Plant In Service                     3,133,826      2,982,522
   Construction work in progress                               95,498        132,577
                                                          ---------------------------
         Total Utility Plant                                3,229,324      3,115,099
   Non-regulated property, plant, and equipment             3,262,158      3,181,076
   Accumulated depreciation                                 2,535,098      2,444,867
                                                          ---------------------------
                  Net Property, Plant, and Equipment        3,956,384      3,851,308

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

Other Assets
   Regulatory assets                                          555,672        502,328
   Energy risk management non-current assets (Note 1(c))       26,654          7,000
   Other                                                      121,622        156,692
                                                         ----------------------------
                  Total Other Assets                          703,948        666,020
- -------------------------------------------------------------------------------------

Total Assets                                              $ 5,508,917    $ 5,986,970
                                                         ============================

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

The  accompanying  notes as they  relate to The  Cincinnati  Gas &  Electric
Company are an integral part of these consolidated financial statements.

Return To TOC

                                       THE CINCINNATI GAS & ELECTRIC COMPANY
                                            CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER'S EQUITY
                                                                  September 30   December 31
                                                                      2001          2000
                                                                  (unaudited)
- --------------------------------------------------------------------------------------------
                                                                      (dollars in thousands)

Current Liabilities
   Accounts payable                                              $  653,318      $  543,006
   Accounts payable to affiliated companies                          38,788          23,927
   Accrued taxes                                                    170,669         152,750
   Accrued interest                                                  27,384          17,645
   Notes payable and other short-term obligations (Note 3)          196,100         264,000
   Notes payable to affiliated companies                            278,177         163,478
   Long-term debt due within one year                                 1,200           1,200
   Energy risk management current liabilities (Note 1(c))            28,369         717,902
   Other                                                             52,527          37,603
                                                                ---------------------------
                  Total Current Liabilities                       1,446,532       1,921,511

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

Non-Current Liabilities
   Long-term debt                                                 1,205,320       1,205,061
   Deferred income taxes                                            752,732         735,799
   Unamortized investment tax credits                                92,695          98,624
   Accrued pension and other postretirement benefit costs           165,438         164,901
   Energy risk management non-current liabilities (Note 1(c))        38,945          26,337
   Other                                                             93,149         118,421
                                                                ---------------------------
                  Total Non-Current Liabilities                   2,348,279       2,349,143

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

Total Liabilities                                                 3,794,811       4,270,654

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

Cumulative Preferred Stock
   Not subject to mandatory redemption                               20,486          20,486

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

Common Stock Equity
   Common stock - $8.50 par value; authorized shares -
   120,000,000; outstanding shares - 89,663,086 at
     September 30, 2001 and December 31, 2000                       762,136         762,136
   Paid-in capital                                                  565,777         565,777
   Retained earnings                                                373,969         368,911
   Accumulated other comprehensive income (loss)                     (8,262)           (994)
                                                                ---------------------------
                  Total Common Stock Equity                       1,693,620       1,695,830

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

Commitments and Contingencies (Note 4)

Total Liabilities and Shareholder's Equity                       $5,508,917      $5,986,970
                                                                ===========================
- --------------------------------------------------------------------------------------------
The  accompanying  notes as they  relate to The  Cincinnati  Gas &  Electric
Company are an integral part of these consolidated financial statements.

Return to TOC

                                THE CINCINNATI GAS & ELECTRIC COMPANY
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                       Year to Date
                                                                                       September 30
                                                                                    2001           2000
- ---------------------------------------------------------------------------------------------------------
                                                                                  (dollars in thousands)
                                                                                        (unaudited)

Operating Activities
   Net income                                                                   $  220,366     $  190,941
   Items providing or (using) cash currently:
     Depreciation                                                                  139,398        134,962
     Deferred income taxes and investment tax credits - net                         18,788          6,110
     Unrealized (gain) loss from energy risk management activities                 (22,587)        (5,473)
     Allowance for equity funds used during construction                            (1,526)        (3,560)
     Regulatory assets - net                                                       (36,150)       (15,881)
     Changes in current assets and current liabilities:
         Restricted deposits                                                        (3,859)             2
         Accounts and notes receivable, net of reserves on receivables sold        (20,992)      (184,125)
         Materials, supplies, and fuel                                             (36,473)       (15,691)
         Accounts payable                                                          125,173        243,239
         Accrued taxes and interest                                                 27,658         30,305
     Other items - net                                                              (5,458)        10,316
                                                                               --------------------------

                  Net cash provided by (used in) operating activities              404,338        391,145
- ---------------------------------------------------------------------------------------------------------
Financing Activities
   Change in short-term debt                                                        46,799        (53,180)
   Retirement of preferred stock                                                         -           (168)
   Dividends on preferred stock                                                       (634)          (630)
   Dividends on common stock                                                      (214,674)      (160,800)
                                                                               --------------------------

                  Net cash provided by (used in) financing activities             (168,509)      (214,778)
- ---------------------------------------------------------------------------------------------------------

Investing Activities
   Construction expenditures (less allowance for equity funds used during
     construction)                                                                (234,492)      (169,191)
                                                                               --------------------------

                  Net cash provided by (used in) investing activities             (234,492)      (169,191)
- ---------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                                 1,337          7,176

Cash and cash equivalents at beginning of period                                    20,637          9,554
                                                                               --------------------------

Cash and cash equivalents at end of period                                      $   21,974     $   16,730
                                                                               ==========================

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

The  accompanying  notes as they  relate to The  Cincinnati  Gas &  Electric
Company are an integral part of these consolidated financial statements.

Return to TOC

                                PSI ENERGY, INC.
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                                  Quarter Ended         Year to Date
                                                   September 30         September 30
                                                2001        2000       2001       2000
- -------------------------------------------------------------------------------------------
                                                           (dollars in thousands)
                                                                 (unaudited)

Operating Revenues

   Electric                                 $1,258,286   $  804,234  $3,358,223 $1,957,746
- -------------------------------------------------------------------------------------------

Operating Expenses
   Fuel and purchased and exchanged power      990,164      586,480   2,646,143  1,255,716
   Operation and maintenance                   105,844      104,006     301,984    339,755
   Depreciation                                 37,492       35,876     111,487    105,301
   Taxes other than income taxes                15,000       14,850      37,535     43,259
                                             ----------------------------------------------
         Total Operating Expenses            1,148,500      741,212   3,097,149  1,744,031

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

Operating Income                               109,786       63,022     261,074    213,715

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

Miscellaneous - Net                              3,837        3,421       9,397      3,904
Interest                                        21,580       18,309      60,117     58,162

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

Income Before Taxes                             92,043       48,134     210,354    159,457

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

Income Taxes                                    35,589       17,521      78,251     59,715
                                            -----------------------------------------------

Net Income                                  $   56,454   $   30,613  $  132,103 $   99,742

Preferred Dividend Requirement                     648          858       1,941      3,071
                                            -----------------------------------------------

Net Income Applicable to Common Stock       $   55,806   $   29,755  $  130,162 $   96,671
                                            ===============================================

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

Net Income                                  $   56,454   $   30,613  $  132,103 $   99,742

Other Comprehensive Income (Loss),
Net of Tax Effect                                 (965)        (784)     (1,092)      (749)
                                            -----------------------------------------------

Comprehensive Income                        $   55,489   $   29,829  $  131,011 $   98,993
                                            ===============================================
- -------------------------------------------------------------------------------------------

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.

Return to TOC

                                PSI ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS

ASSETS
                                                               September 30  December 31
                                                                   2001         2000
                                                                (unaudited)
- ---------------------------------------------------------------------------------------
                               (dollars in thousands)

Current Assets
   Cash and cash equivalents                                  $    31,035   $     1,311
   Restricted deposits                                              1,020           341
   Notes receivable                                                     -             3
   Notes receivable from affiliated companies                     278,177        12,798
   Accounts receivable less accumulated provision for doubtful
   accounts of $9,454 at September 30, 2001, and $9,317
     at December 31, 2000                                         701,111       464,930
   Accounts receivable from affiliated companies                   19,716         5,385
   Materials, supplies, and fuel - at average cost                 83,897        53,838
   Energy risk management current assets (Note 1(c))               23,496       697,488
   Prepayments and other                                           43,643        49,049
                                                               ------------------------
                  Total Current Assets                          1,182,095     1,285,143

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

Property, Plant, and Equipment - at Cost
   Utility plant in service                                     4,885,315     4,699,090
   Construction work in progress                                  278,518       190,773
                                                               ------------------------
         Total Utility Plant                                    5,163,833     4,889,863
   Accumulated depreciation                                     2,196,129     2,110,747
                                                               ------------------------
                  Net Property, Plant, and Equipment            2,967,704     2,779,116

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

Other Assets
   Regulatory assets                                              444,087       474,286
   Energy risk management non-current assets (Note 1(c))           26,654         7,000
   Other investments                                               56,724        51,343
   Other                                                           45,297        32,887
                                                               ------------------------
                  Total Other Assets                              572,762       565,516

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

Total Assets                                                  $ 4,722,561   $ 4,629,775
                                                              =========================

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

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.

Return to TOC

                                PSI ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER'S EQUITY
                                                               September 30  December 31
                                                                   2001          2000
                                                               (unaudited)
- ----------------------------------------------------------------------------------------
                                                                 (dollars in thousands)

Current Liabilities
   Accounts payable                                             $  614,752   $  392,206
   Accounts payable to affiliated companies                         14,536       32,448
   Accrued taxes                                                   101,434       80,995
   Accrued interest                                                 27,446       23,708
   Notes payable and other short-term obligations                  128,600      188,391
   Notes payable to affiliated companies                           288,571      146,381
   Long-term debt due within one year                               42,424       38,325
   Energy risk management current liabilities (Note 1(c))           28,369      717,902
   Other                                                            16,522       12,748
                                                                -----------------------
                  Total Current Liabilities                      1,262,654    1,633,104

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

Non-Current Liabilities
   Long-term debt (Note 2)                                       1,375,022    1,074,255
   Deferred income taxes                                           487,041      458,593
   Unamortized investment tax credits                               36,887       39,341
   Accrued pension and other postretirement benefit costs          152,219      143,990
   Energy risk management non-current liabilities (Note 1(c))       38,946       26,337
   Other                                                            64,680       78,112
                                                                -----------------------
                  Total Non-Current Liabilities                  2,154,795    1,820,628

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

Total Liabilities                                                3,417,449    3,453,732

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

Cumulative Preferred Stock
   Not subject to mandatory redemption                              42,347       42,348

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

Common Stock Equity
   Common stock - without par value; $.01 stated value;
   authorized shares - 60,000,000; outstanding shares
    - 53,913,701 at September 30, 2001
     and December 31, 2000                                             539          539
   Paid-in capital                                                 413,522      413,523
   Retained earnings                                               850,316      720,153
   Accumulated other comprehensive income (loss)                    (1,612)        (520)
                                                                 ----------------------
                  Total Common Stock Equity                      1,262,765    1,133,695

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

Commitments and Contingencies (Note 4)

Total Liabilities and Shareholder's Equity                      $4,722,561   $4,629,775
                                                                =======================

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

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.

Return to TOC

                                                 PSI ENERGY, INC.
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                   Year to Date
                                                                                   September 30
                                                                                  2001      2000
- ----------------------------------------------------------------------------------------------------
                                                                              (dollars in thousands)
                                                                                   (unaudited)

Operating Activities
   Net income                                                                 $ 132,103  $  99,742
   Items providing or (using) cash currently:
     Depreciation                                                               111,487    105,301
     Deferred income taxes and investment tax credits - net                      25,100        318
     Unrealized (gain) loss from energy risk management activities              (22,586)      (276)
     Allowance for equity funds used during construction                         (3,637)    (1,107)
     Regulatory assets - net                                                     29,517     10,770
     Changes in other current assets and current liabilities:
         Restricted deposits                                                       (679)      (155)
         Accounts and notes receivable, net of reserves on receivables sold    (515,916)  (228,050)
         Materials, supplies, and fuel                                          (30,059)    38,647
         Accounts payable                                                       204,634    262,243
         Accrued taxes and interest                                              24,177    (33,608)
     Other items - net                                                          (10,622)    (4,026)
                                                                               --------------------

                  Net cash provided by (used in) operating activities           (56,481)   249,799
- ---------------------------------------------------------------------------------------------------

Financing Activities
   Change in short-term debt                                                     82,399     42,333
   Issuance of long-term debt                                                   322,471     53,075
   Redemption of long-term debt                                                 (19,825)   (86,276)
   Retirement of preferred stock                                                     (1)   (29,226)
   Dividends on preferred stock                                                  (1,941)    (3,259)
   Dividends on common stock                                                          -    (54,000)
                                                                               --------------------

                  Net cash provided by (used in) financing activities           383,103    (77,353)
- ---------------------------------------------------------------------------------------------------

Investing Activities
   Construction expenditures (less allowance for equity funds used during
     construction)                                                             (289,916)  (164,034)
   Other investments                                                             (6,982)    (6,454)
                                                                               --------------------

                  Net cash provided by (used in) investing activities          (296,898)  (170,488)
- ---------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                             29,724      1,958

Cash and cash equivalents at beginning of period                                  1,311      8,842
                                                                               --------------------

Cash and cash equivalents at end of period                                    $  31,035  $  10,800
                                                                              =====================

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

The accompanying  notes as they relate to PSI Energy,  Inc. are an integral part
of these consolidated financial statements.

Return to TOC

                     THE UNION LIGHT, HEAT AND POWER COMPANY
                              STATEMENTS OF INCOME

                                                            Quarter Ended        Year to Date
                                                             September 30        September 30
                                                            2001     2000       2001       2000
- -----------------------------------------------------------------------------------------------
                                                               (dollars in thousands)
                                                                         (unaudited)

Operating Revenues
   Electric                                              $ 63,899  $ 61,540  $ 180,761 $ 165,908
   Gas                                                     10,008     9,871     82,778    54,418
                                                         ---------------------------------------
         Total Operating Revenues                          73,907    71,411    263,539   220,326

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

Operating Expenses
   Electricity purchased from parent company for resale    48,230    47,242    119,597   122,382
   Gas purchased                                            4,802     4,475     56,038    27,457
   Operation and maintenance                               10,781     9,328     28,982    28,022
   Depreciation                                             4,285     3,992     12,689    11,650
   Taxes other than income taxes                            1,126       955      3,388     3,078
                                                         ---------------------------------------
         Total Operating Expenses                          69,224    65,992    220,694   192,589

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

Operating Income                                            4,683     5,419     42,845    27,737

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

Miscellaneous - Net                                           (87)      (72)      (700)     (702)
Interest                                                    1,496     1,662      4,739     4,806

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

Income Before Taxes                                         3,100     3,685     37,406    22,229

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

Income Taxes                                                1,112     1,500     10,552     9,121
                                                         ---------------------------------------

Net Income                                               $  1,988  $  2,185  $  26,854 $  13,108
                                                         =======================================

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

The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.

Return to TOC

                     THE UNION LIGHT, HEAT AND POWER COMPANY
                                 BALANCE SHEETS

ASSETS                                                 September 30  December 31
                                                           2001          2000
                                                        (unaudited)
- --------------------------------------------------------------------------------
                                                          (dollars in thousands)

Current Assets
   Cash and cash equivalents                            $  6,309   $  6,460
   Accounts receivable less accumulated provision for
     doubtful accounts of $2,184 at September 30, 2001,
     and $1,492 at December 31, 2000                      13,717     28,518
   Accounts receivable from affiliated companies             199      2,279
   Materials, supplies, and fuel - at average cost        12,261      6,300
   Prepayments and other                                     450        274
                                                        -------------------
                  Total Current Assets                    32,936     43,831

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

Property, Plant, and Equipment - at Cost
   Utility plant in service
     Electric                                            246,279    234,482
     Gas                                                 190,180    184,878
     Common                                               49,888     44,603
                                                        -------------------
         Total Utility Plant In Service                  486,347    463,963
   Construction work in progress                          12,416     15,069
                                                        -------------------
         Total Utility Plant                             498,763    479,032
   Accumulated depreciation                              178,290    169,403
                                                        -------------------
                  Net Property, Plant, and Equipment     320,473    309,629

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

Other Assets
   Regulatory assets                                       8,530     10,177
   Other                                                   3,346      5,110
                                                        -------------------
                  Total Other Assets                      11,876     15,287

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

Total Assets                                            $365,285   $368,747
                                                        ===================

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

The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.

Return to TOC

                     THE UNION LIGHT, HEAT AND POWER COMPANY
                                 BALANCE SHEETS

LIABILITIES AND SHAREHOLDER'S EQUITY
                                                       September 30  December 31
                                                           2001          2000
                                                       (unaudited)
- --------------------------------------------------------------------------------
                                     (dollars in thousands)

Current Liabilities
   Accounts payable                                        $  3,386    $ 24,249
   Accounts payable to affiliated companies                  15,100      20,192
   Accrued taxes                                              4,212      (5,760)
   Accrued interest                                           1,243       1,215
   Notes payable to affiliated companies                     23,435      29,403
   Other                                                      4,487      11,669
                                                          ----------------------
                  Total Current Liabilities                  51,863      80,968

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

Non-Current Liabilities
   Long-term debt                                            74,613      74,589
   Deferred income taxes                                     36,926      35,822
   Unamortized investment tax credits                         3,477       3,684
   Accrued pension and other postretirement benefit costs    13,163      13,041
   Amounts due to customers - income taxes                    7,439       7,439
   Other                                                      8,591       6,016
                                                          ----------------------
                  Total Non-Current Liabilities             144,209     140,591

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

Total Liabilities                                           196,072     221,559

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

Common Stock Equity
   Common stock - $15.00 par value; authorized shares -
     1,000,000; outstanding shares - 585,333 at
     September 30, 2001 and December 31, 2000                 8,780       8,780
   Paid-in capital                                           20,305      20,305
   Retained earnings                                        140,128     118,103
                                                          ----------------------
                  Total Common Stock Equity                 169,213     147,188

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

Commitments and Contingencies (Note 4)

Total Liabilities and Shareholder's Equity                 $365,285    $368,747
                                                          ======================

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

The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.

Return to TOC

                     THE UNION LIGHT, HEAT AND POWER COMPANY
                            STATEMENTS OF CASH FLOWS

                                                                               Year to Date
                                                                               September 30
                                                                               2001      2000
- -------------------------------------------------------------------------------------------------
                                                                           (dollars in thousands)
                                                                                (unaudited)

Operating Activities
   Net income                                                               $ 26,854  $ 13,108
   Items providing or (using) cash currently:
     Depreciation                                                             12,689    11,650
     Deferred income taxes and investment tax credits - net                      897    (1,289)
     Allowance for equity funds used during construction                        (123)      (32)
     Regulatory assets - net                                                   1,393       237
     Changes in current assets and current liabilities:
         Accounts and notes receivable, net of reserves on receivables sold   18,558     9,286
         Materials, supplies, and fuel                                        (5,961)       92
         Accounts payable                                                    (25,955)   (7,677)
         Accrued taxes and interest                                           10,000     2,288
     Other items - net                                                        (8,098)    7,482
                                                                           --------------------

                  Net cash provided by (used in) operating activities         30,254    35,145
- ----------------------------------------------------------------------------------------------

Financing Activities
   Change in short-term debt                                                  (5,968)   (7,493)
   Dividends on common stock                                                  (4,829)   (4,975)
                                                                           --------------------

                  Net cash provided by (used in)  financing activities       (10,797)  (12,468)
- -----------------------------------------------------------------------------------------------

Investing Activities
   Construction expenditures (less allowance for equity funds used during
     construction)                                                           (19,608)  (19,030)
                                                                           --------------------

                  Net cash provided by (used in) investing activities        (19,608)  (19,030)
- -----------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                            (151)    3,647

Cash and cash equivalents at beginning of period                               6,460     3,641
                                                                           --------------------

Cash and cash equivalents at end of period                                  $  6,309  $  7,288
                                                                           ====================

- -----------------------------------------------------------------------------------------------
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral
part of these financial statements.

Return to TOC

NOTES TO FINANCIAL STATEMENTS

In this report Cinergy (which includes Cinergy Corp. and all of our regulated and non-regulated subsidiaries) is, at times, referred to in the first person as "we," "our," or "us."

1. Summary of Significant Accounting Policies

(a)    Presentation

Our Financial Statements reflect all adjustments (which include normal, recurring adjustments) necessary, in the opinion of the registrants, for a fair presentation of the interim results. These statements should be read in conjunction with the Financial Statements and the notes thereto included in the combined 2000 Form 10-K of the registrants. Certain amounts in the 2000 Financial Statements have been reclassified to conform to the 2001 presentation.

(b)    Financial Derivatives

We use derivative financial instruments to manage:

• funding costs;
• exposure to fluctuations in interest rates; and
• exposure to foreign currency exchange rates.

We account for derivatives under Statement of Financial Accounting Standards No. 133, Accounting for Derivatives and Hedging Activities (Statement 133), which requires all derivatives that are not exempted to be accounted for at fair value. Changes in the derivative’s fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Gains and losses on derivatives that qualify as hedges can (a) offset related fair value changes on the hedged item in the income statement for fair value hedges; or (b) be recorded in other comprehensive income for cash flow hedges. To qualify for hedge accounting, financial instruments must be designated as a hedge (for example, an offset of foreign exchange or interest rate risks) at the inception of the contract and must be effective at reducing the risk associated with the hedged item. Accordingly, changes in the fair values or cash flows of instruments designated as hedges must be highly correlated with changes in the fair values or cash flows of the related hedged items.

From time to time, we may use foreign currency contracts (for example, a contract obligating one party to buy, and the other to sell, a specified quantity of a foreign currency for a fixed price at a future date) and currency swaps (for example, a contract whereby two parties exchange principal and interest cash flows denominated in different currencies) to hedge foreign currency denominated purchase and sale commitments (cash flow hedges) and certain of our net investments in foreign operations (net investment hedges) against currency exchange rate fluctuations. Reclassification of unrealized gains or losses on foreign currency cash flow hedges from other comprehensive income occurs when the underlying hedged item is recorded in income.

We also use interest rate swaps (an agreement by two parties to exchange fixed-interest rate cash flows for floating-interest rate cash flows). Through December 31, 2000, we utilized the accrual method to account for these interest rate swaps. Accordingly, gains and losses were calculated based on the current period difference between the fixed-rate and the floating-rate interest amounts, using agreed upon notional amounts. These gains and losses were recognized in our Consolidated Statements of Income as a component of Interest over the life of the agreement. Effective with our adoption of Statement 133 in the first quarter of 2001, we began accounting for interest rate swaps using mark-to-market accounting and are assessing the effectiveness of any swaps used in hedging activities. At September 30, 2001, the fair value, and ineffectiveness, of instruments that we have classified as cash flow hedges of variable rate debt instruments was not material. Reclassification of unrealized gains or losses on cash flow hedges of variable-rate debt instruments from other comprehensive income occurs as interest payments are made on the debt instrument. See Note 1(d) below for further discussion of Statement 133.

(c)    Energy Marketing and Trading

We market and trade electricity, natural gas, and other energy-related products. We designate transactions as physical or trading at the time they are originated. Physical refers to our intent and projected ability to fulfill substantially all obligations from company-owned assets. We sell generation to third parties when it is not required to meet native load requirements (end-use customers within our public utility companies’ franchise service territory). All other energy contracts (including most natural gas contracts) are classified as trading. We account for physical transactions on a settlement basis and trading transactions using the mark-to-market method of accounting, consistent with our application of EITF 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities. To the extent that physical transactions constitute derivatives under Statement 133, we typically utilize the normal purchases and sales exemption, when the criteria for the application of the normal exemption are met. To the extent trading transactions constitute derivatives under Statement 133, we typically do not attempt to identify them as a hedging instrument. Under the mark-to-market method of accounting, trading transactions are shown at fair value in our Consolidated Balance Sheets as Energy risk management assets and Energy risk management liabilities. We reflect changes in fair value resulting in unrealized gains and losses in Fuel and purchased and exchanged power and Gas purchased. We record the revenues and costs for all transactions in our Consolidated Statements of Income when the contracts are settled. We recognize revenues in Operating revenues; costs are recorded in Fuel and purchased and exchanged power and Gas purchased.

Although we intend to settle physical contracts with company-owned generation, occasionally we settle these contracts with power purchased on the open trading markets. The cost of these purchases could be in excess of the associated revenues. We recognize the gains or losses on these transactions as the power is delivered. Due to the infrequency of such settlements, both historical and projected, and the fact that physical power settlement to the customer still occurs, we continue to apply the normal purchases and sales exemption to such physical contracts that constitute derivatives. Open market purchases may occur for the following reasons:

• generating station outages;
• least-cost alternative;
• native load requirements; and
• extreme weather.

We value contracts in the trading portfolio using end-of-the-period market prices, utilizing the following factors (as applicable):

• closing exchange prices (that is, closing prices for standardized electricity and natural gas products traded on an organized exchange such as the New York Mercantile Exchange);
• broker-dealer and over-the-counter price quotations; and
• model pricing (which considers time value and historical volatility factors of electricity and natural gas).

We anticipate that some of the electricity obligations, even though considered trading contracts, will ultimately be settled using company-owned generation. The cost of this generation is usually below the market price at which the trading portfolio has been valued. We expect earnings volatility from period to period due to the risks associated with marketing and trading electricity, natural gas, and other energy-related products.

Throughout 2001, our natural gas trading volumes increased substantially. Because of this volume change and the potential volatility of gas prices, our risk exposure to these markets has increased. However, we continue to employ value-at-risk analysis and other methodologies to mitigate our risks in all trading operations, including natural gas trading.

(d)    Accounting Changes

1.     Business Combinations and Intangible Assets

On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, Business Combinations (Statement 141), and No. 142, Goodwill and Other Intangible Assets (Statement 142). Statement 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. With the adoption of Statement 142, goodwill and other intangibles with indefinite lives will no longer be subject to amortization. Goodwill will be initially assessed for impairment shortly after adoption and at least annually thereafter by applying a fair-value-based test, as opposed to the undiscounted cash flow test applied under current accounting standards. This test must be applied at the “reporting unit” level, which will be defined within Cinergy, after further review, and will be a level no broader than the current business segments discussed in Note 5. Under Statement 142, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer’s intent to do so. We began applying Statement 141 in the third quarter of 2001 and we will adopt Statement 142 in the first quarter of 2002. Until we adopt Statement 142, goodwill will continue to be amortized. We do not believe that the discontinuance of amortization of goodwill will be material to our 2002 results of operations. We are analyzing the impact of the initial impairment test, and are unable to predict, at this time, whether the implementation of these accounting standards will be material to our financial position or results of operations.

2.     Asset Retirement Obligations

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (Statement 143). Statement 143 requires fair value recognition of legal obligations to retire long-lived assets at the time such obligations are incurred. The initial recognition of this liability will be accompanied by a corresponding increase in property, plant, and equipment (PP&E). Subsequent to the initial recognition, the liability will be adjusted for revisions to the expected cash flows of the retirement obligation (with corresponding adjustments to PP&E), and for accretion of the liability due to the passage of time (recognized as an operation expense). Additional depreciation expense will be recorded prospectively for any PP&E increases. We will adopt Statement 143 in the first quarter of 2003. We are beginning to analyze the impact of this statement, but, at this time, we are unable to predict whether the implementation of this accounting standard will be material to our financial position or results of operation.

3.     Derivatives

During 1998, the FASB issued Statement 133. This standard was effective for Cinergy beginning in 2001, and requires us to record derivative instruments which are not exempt under certain provisions of Statement 133 as assets or liabilities, measured at fair value (i.e., marked-to-market). Our financial statements reflect the adoption of Statement 133 in the first quarter of 2001. Since many of our derivatives were previously required to use mark-to-market accounting, the effects of implementation were not material.

Our adoption did not reflect the potential impact of applying mark-to-market accounting to selected options and capacity contracts. We had not historically marked these instruments to market because they are intended as either hedges of peak period exposure or sales contracts served with physical generation, neither of which were considered trading activities. At adoption, we classified these contracts as normal purchases or sales based on our interpretation of Statement 133 and in the absence of definitive guidance on such contracts. In June 2001, the FASB staff issued final guidance on the application of the normal purchases and sales exemption to electricity contracts containing characteristics of options. While much of the criteria this guidance requires is consistent with the existing guidance in Statement 133, some criteria were added. We adopted the new guidance in the third quarter of 2001, and the effects of implementation for these contracts were not material.

In October 2001, the FASB staff posted revised guidance on the normal purchases and sales exemption for these contracts. This revised guidance will change the applicability of this exemption for certain of our contracts and will be adopted during the first quarter of 2002. Based on a review of existing contracts, we do not believe this revised guidance will have a material impact to our financial position or results of operations upon adoption. However, given our activity in energy trading, it could increase volatility in future results. We will continue to apply this guidance to any new electricity contracts that meet the definition of a derivative.

In October 2001, the FASB staff released final guidance on the applicability of the normal purchases and sales exemption to contracts that contain a minimum quantity (a forward component) and flexibility to take additional quantity (an option component). This guidance concludes that such contracts are not eligible for the normal purchases and sales exemption due to the existence of optionality in the contract. Cinergy has certain contracts that contain optionality, primarily fuel supply contracts, for which the accounting may be impacted by this new guidance. We will adopt this guidance in the second quarter of 2002, consistent with the transition provisions. We have begun analyzing contracts to determine the applicability of this guidance and to determine the interaction between this guidance and Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation. However, at this time, we are unable to predict whether the implementation of this accounting standard will be material to our results of operations or financial position.

2.   Long-Term Debt

In January 2001, PSI Energy, Inc. (PSI) retired $19.8 million principal amount of non-interest bearing Series 1994 Promissory Note, which had matured. The securities were not replaced by new issues of debt. In March 2001, Cinergy Global Resources, Inc., a subsidiary of Cinergy, borrowed $26 million at a fixed interest rate of 6.10%, maturing on March 31, 2003.

On June 22, 2001, PSI issued $325 million principal amount of First Mortgage Bonds Series EEE, 6.65% with a maturity date of June 15, 2006. The net proceeds of the offering were used to repay short-term indebtedness.

On September 12, 2001, Cinergy Corp. issued $500 million principal amount of 6.25% debentures with a maturity date of September 1, 2004. The net proceeds of the offering were used to repay short-term indebtedness. In October 2001, Cinergy Corp. executed three receive-fixed, pay-floating interest rate swaps with a combined notional amount of $250 million. These swaps are designated as fair value hedges of 50% of Cinergy Corp.‘s $500 million debentures issue.

3. Notes Payable and Other Short-term Obligations

On August 21, 2001, The Cincinnati Gas & Electric Company (CG&E) issued $12.1 million of Ohio Air Quality Development Authority Air Quality Development Revenue Bonds 2001, Series A with a final maturity date of August 1, 2033, and initial interest of 3.7%. The interest rate will reset annually on August 1, as negotiated, based on the Municipal Market Data Index as a benchmark. The net proceeds will be used to finance a portion of the costs of air quality and solid waste disposal facilities used at the William H. Zimmer Generating Station.

4. Commitments and Contingencies

1.     Ozone Transport Rulemaking

In June 1997, the Ozone Transport Assessment Group, which consisted of 37 states, made a wide range of recommendations to the United States (U.S.) Environmental Protection Agency (EPA) to address the impact of ozone transport on serious non-attainment areas (geographic areas defined by the EPA as non-compliant with ozone standards) in the Northeast, Midwest, and South. Ozone transport refers to wind-blown movement of ozone and ozone-causing materials across city and state boundaries. In late 1997, the EPA published a proposed call for revisions to State Implementation Plans (SIPs) for achieving emissions reductions to address air quality concerns. The EPA must approve all SIPs.

1.     Nitrogen Oxide (NO_X) SIP Call

In October 1998, the EPA finalized its ozone transport rule, also known as the NO_X SIP Call. It applied to 22 states in the eastern half of the U.S., including the three states in which our electric utilities operate, and proposed a model NO_X emission allowance-trading program. This rule recommended states reduce NO_X emissions primarily from industrial and utility sources to a certain level by May 2003. The EPA gave the affected states until September 30, 1999, to incorporate NO_X reductions and, at the discretion of the state, a NO_X trading program into their SIPs. The EPA proposed to implement a federal plan to accomplish the equivalent NO_X reductions by May 1, 2003, if states failed to revise their SIPs.

Ohio, Indiana, a number of other states, and various industry groups (some of which we are a member), filed legal challenges to the NO_X SIP Call with the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals).

Following a number of rulings and appeals, in August 2000, the Court of Appeals extended the deadline for NO_X reductions to May 31, 2004. The states and other groups sought review of the Court of Appeals ruling by the U.S. Supreme Court (Supreme Court). In March 2001, the Supreme Court decided not to grant that review.

In June 2001, the Court of Appeals remanded portions of the NO_X SIP Call to the EPA for reconsideration of how growth was factored into the state NO_X budgets. It is unclear whether this decision will result in an increase or decrease in the size of the NO_X reduction requirement. On August 3, 2001, the EPA published in the Federal Register a notice of data availability for justification of the state NO_X budgets. Comments on the justification were filed prior to the September 19, 2001 deadline by various industry groups (some of which we are members) and states.

The states of Indiana and Kentucky developed final NO_X SIP rules in response to the NO_X SIP Call, through cap and trade programs, in June and July of 2001, respectively. The EPA is expected to approve the state rules by the end of 2001. The state of Ohio is still in the process of developing its NO_X SIP rules in response to the NO_X SIP Call.

On September 25, 2000, Cinergy announced a plan for its subsidiaries, CG&E and PSI, to invest in pollution control equipment and other methods to reduce NO_X emissions. The current estimate of costs for this expected investment is approximately $800 million (in nominal dollars) from 2001-2005, and includes the following:

• install selective catalytic reduction units (SCRs) at several different generating stations; o install other pollution control technologies, including new computer software, at all generating stations;
• make combustion improvements; and
• utilize market opportunities to buy and sell NOX allowances.

SCRs are the most proven technology currently available for reducing NOX emissions produced in coal-fired generating stations.

2.    Section 126 Petitions

In February 1998, several northeast states filed petitions seeking the EPA’s assistance in reducing ozone in the Eastern U.S. under Section 126 of the Clean Air Act (CAA). The EPA believes that Section 126 petitions allow a state to claim that sources in another state are contributing to its air quality problem and request that the EPA require the upwind sources to reduce their emissions.

In December 1999, the EPA granted four Section 126 petitions relating to NO_X emissions. This ruling affected all of our Ohio and Kentucky facilities, as well as some of our Indiana facilities, and requires us to reduce our NO_X emissions to a certain level by May 2003. In May 2001, the Court of Appeals substantially upheld a challenge to the Section 126 requirements, and remanded portions of the rule to the EPA for reconsideration of how growth was factored into the emission limitations. On August 24, 2001, the Court of Appeals temporarily suspended the Section 126 compliance deadline pending the EPA’s reconsideration of growth factors. The Court of Appeals’ ruling will defer the Section 126 deadline until late summer 2003, and possibly until May 2004 based upon the timing of the EPA’s reconsideration of growth factors. The May 2004 deadline would essentially be consistent with the NO_X SIP Call compliance deadline.

3.     State Ozone Plans

On November 15, 1999, the states of Indiana and Kentucky (along with Jefferson County, Kentucky) jointly filed an amendment to their attainment demonstration on how they intend to bring the Greater Louisville Area, (including Floyd and Clark Counties in Indiana), into attainment with the one-hour ozone standard. The Greater Louisville Area has since attained the one-hour ozone standard, and on October 23, 2001, the EPA re-designated the area as being in attainment with that standard. Previous SIP amendments called for, among other things, statewide NO_X reductions from utilities in Indiana, Kentucky, and surrounding states which are less stringent than the EPA’s NOX SIP Call. Indiana and Kentucky committed to adopt utility NO_X control rules by December 2000, that would require controls be installed by May 2003. However, Indiana halted the rulemaking for NO_X controls at this level, but completed NO_X SIP Call level reduction regulations. Kentucky has completed its rulemaking, and issued a final rule that changed the compliance deadline to mirror the NO_X SIP Call of May 31, 2004. However, on November 1, 2001, the intent to withdraw the regulation was noted in the Kentucky Administrative Register.

See Note 4(d) below for a discussion of the tentative EPA Agreement, the implementation of which will affect our strategy for compliance with the final NO_X SIP Call.

(b)    New Source Review (NSR)

The CAA’s NSR provisions require that a company obtain a pre-construction permit if it plans to build a new stationary source of pollution or make a major modification to an existing facility unless the changes are exempt. In July 1998, the EPA requested comments on proposed revisions to the NSR rules that would change NSR applicability by eliminating exemptions contained in the current regulation. On June 22, 2001, the EPA issued a NSR 90-Day Review Paper and scheduled four public forums across the U.S. to gather more information on the impacts of NSR. Cinergy provided oral testimony at an EPA public forum held in Cincinnati, Ohio on July 10, 2001, and submitted written comments as well.

Since July 1999, CG&E and PSI have received requests from the EPA (Region 5), under Section 114 of the CAA, seeking documents and information regarding capital and maintenance expenditures at several of their respective generating stations. These requests were part of an industry-wide investigation assessing compliance with the NSR and the New Source Performance Standards (NSPS) of the CAA at electric generating stations.

On September 15, 1999, November 3, 1999, and February 2, 2001, the Attorneys General of New York, Connecticut, and New Jersey, respectively, issued letters notifying Cinergy and CG&E of their intent to sue under the citizens’ suit provisions of the CAA. These states allege violations of the CAA by constructing and continuing to operate a major modification of CG&E’s W.C. Beckjord Generating Station (Beckjord Station) without obtaining the required NSR pre-construction permits.

On November 3, 1999, the EPA sued a number of holding companies and electric utilities, including Cinergy, CG&E, and PSI, in various U.S. District Courts (District Court). The Cinergy, CG&E, and PSI suit alleged violations of the CAA at two of our generating stations relating to NSR and NSPS requirements. The suit sought (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord Station and at PSI’s Cayuga Generating Station (Cayuga Station), and (2) civil penalties in amounts of up to $27,500 per day for each violation.

On March 1, 2000, the EPA filed an amended complaint against Cinergy, CG&E, and PSI. The amended complaint added alleged violations of the NSR requirements of the CAA at two of our generating stations contained in a notice of violation (NOV) filed by the EPA on November 3, 1999. It also added claims for relief of alleged violations of nonattainment NSR, Indiana and Ohio SIPs, and particulate matter emission limits (as discussed below in the “Beckjord Station NOV” section.)

The amended complaint sought (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord Station, Cayuga Station, and PSI’s Wabash River Generating Station and Gallagher Generating Station, and such other measures as necessary, and (2) civil penalties in amounts of up to $27,500 per day for each violation.

On March 1, 2000, the EPA also filed an amended complaint in a separate lawsuit alleging violations of the CAA relating to NSR, Prevention of Significant Deterioration (PSD), and Ohio SIP requirements regarding various generating stations, including a generating station operated by the Columbus Southern Power Company (CSP) and jointly-owned by CSP, the Dayton Power and Light Company (DP&L), and CG&E. The EPA is seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. This suit is being defended by CSP. On April 4, 2001, the District Court in that case ruled that neither the Government nor the intervening plaintiff environmental groups could obtain civil penalties for any alleged violations that occurred more than five years prior to the filing of the complaint, but that both parties could seek injunctive relief for alleged violations that occurred more than five years before the filing of the complaint. Thus, if the plaintiffs prevail in their claims, any calculation for penalties will not start on the date of the alleged violations unless those alleged violations occurred after November 3, 1994, but CSP would be forced to install the controls required under the CAA. Neither party appealed that decision.

On June 28, 2000, the EPA issued an NOV to Cinergy, CG&E, and PSI for alleged violations of NSR, PSD, and SIP requirements at CG&E’s Miami Fort Generating Station and PSI’s Gibson Generating Station. In addition, Cinergy and CG&E have been informed by DP&L, the operator of J.M. Stuart Generating Station (Stuart Station), that on June 30, 2000, the EPA issued an NOV for alleged violations of NSR, PSD, and SIP requirements at this station. CG&E owns 39% of Stuart Station. The NOVs indicated that the EPA may (1) issue an order requiring compliance with the requirements of the SIP, or (2) bring a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation.

On August 2, 2001, the states of New York, New Jersey, and Connecticut filed an Assented to Motion to Intervene in this litigation. Their motion was granted by the District Court on August 3, 2001. The states’ proposed complaint is an exhibit to the motion to intervene. Cinergy, CG&E and PSI are in the process of evaluating the states’ complaint but, at this time, are unable to determine the effect, if any, this filing will have on the issues affecting us regarding NSR, as framed in the EPA’s Amended Complaint.

See Note 4(d) below for a discussion of the tentative EPA Agreement, which relates to matters discussed within this note.

(c)    Beckjord Station NOV

On November 30, 1999, the EPA filed an NOV against Cinergy and CG&E alleging that emissions of particulate matter at the Beckjord Station exceeded the allowable limit. The NOV indicated that the EPA may (1) issue an administrative penalty order, or (2) file a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. The allegations contained in this NOV were incorporated within the March 1, 2000 amended complaint, as discussed in Note 4(b) above. On June 22, 2000, the EPA issued an NOV and a finding of violation (FOV) alleging additional particulate emission violations at Beckjord Station and offered us an opportunity to meet and discuss the allegations and corrective measures. The NOV/FOV indicated the EPA may issue an administrative compliance order, issue an administrative penalty order, or bring a civil or criminal action.

See Note 4(d) below for a discussion of the tentative EPA Agreement, which relates to matters discussed within this note.

(d)    EPA Agreement

On December 21, 2000, Cinergy, CG&E, and PSI reached an agreement in principle with the EPA, the U.S. Department of Justice, three northeast states, and two environmental groups that could serve as the basis for a negotiated resolution of CAA claims and other related matters brought against coal-fired power plants owned and operated by Cinergy’s operating subsidiaries. The complete resolution of these issues is contingent upon establishing a final agreement with the EPA and other parties. If a final agreement is reached with these parties, it would resolve past claims of NSR violations as well as the Beckjord Station NOVs/FOV discussed above under Notes 4(b) and 4(c).

Under the terms of the tentative agreement, the EPA and the other plaintiffs have agreed to drop all challenges of past maintenance and repair activities at our coal-fired generation plants. In addition, the intent of the tentative agreement is that we would be allowed to continue on-going activities to maintain reliability and availability without subjecting the plants to future litigation regarding federal permitting requirements.

In return for resolution of past claims, future operational certainty, and protection of system wide demand growth, we have tentatively agreed to:

• shut down or repower with natural gas nine small coal-fired boilers at three power plants beginning in 2004;
• build four additional sulfur dioxide (SO2) scrubbers, the first of which must be operational by December 31, 2007;
• upgrade existing pollution control systems;
• phase in the operation of NO_X reduction technology year-round starting in 2004;
• retire 50,000 tons of SO₂ allowances between 2001 and 2005 and reduce our SO₂ cap by 35% in 2013;
• pay a civil penalty of $8.5 million to the U.S. government; and
• implement $21.5 million in environmental mitigation projects.

The estimated cost for these capital expenditures is expected to be approximately $700 million. These capital expenditures are in addition to our previously announced commitment to install NO_X controls over the next five years at an estimated cost of approximately $800 million as previously discussed in “Ozone Transport Rulemaking.”

In reaching the tentative agreement, we did not admit any wrongdoing and remain free to continue our current maintenance practices, as well as implement future projects for improved reliability. If the settlement is not completed, we intend to defend against the allegations, discussed in Notes 4(b) and 4(c) above, vigorously in court. In such an event, it is not possible to determine the likelihood that the plaintiffs would prevail on their claims or whether resolution of these matters would have a material effect on our financial condition or results of operations.

(e) Manufactured Gas Plant (MGP) Sites

1.     General

Prior to the 1950s, gas was produced at MGP sites through a process that involved the heating of coal and/or oil. The gas produced from this process was sold for residential, commercial, and industrial uses.

2.     PSI

Coal tar residues, related hydrocarbons, and various metals associated with MGP sites have been found at former MGP sites in Indiana, including at least 21 sites which PSI or its predecessors previously owned. PSI acquired four of the sites from Northern Indiana Public Service Company (NIPSCO) in 1931. At the same time, PSI sold NIPSCO the sites located in Goshen and Warsaw, Indiana. In 1945, PSI sold 19 of these sites (including the four sites it acquired from NIPSCO) to the predecessor of the Indiana Gas Company, Inc. (IGC). IGC later sold the site located in Rochester, Indiana to NIPSCO.

IGC (in 1994) and NIPSCO (in 1995) both made claims against PSI. The basis of these claims was that PSI is a Potentially Responsible Party with respect to the 21 MGP sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The claims further asserted that PSI was legally responsible for the costs of investigating and remediating the sites. In August 1997, NIPSCO filed suit against PSI in federal court claiming recovery (pursuant to CERCLA) of NIPSCO’s past and future costs of investigating and remediating MGP-related contamination at the Goshen MGP site.

In November 1998, NIPSCO, IGC, and PSI entered into a Site Participation and Cost Sharing Agreement (Agreement). This Agreement allocated CERCLA liability for past and future costs at seven MGP sites in Indiana among the three companies. As a result of the Agreement, NIPSCO’s lawsuit against PSI was dismissed. The parties have assigned lead responsibility for managing further investigation and remediation activities at each of the sites to one of the parties. Similar agreements were reached between IGC and PSI that allocate CERCLA liability at 14 MGP sites with which NIPSCO was not involved. These agreements concluded all CERCLA and similar claims between the three companies related to MGP sites. The parties continue to investigate and remediate the sites, as appropriate under the agreements and applicable laws. The Indiana Department of Environmental Management (IDEM) oversees investigation and cleanup of some of the sites.

PSI notified its insurance carriers of the claims related to MGP sites raised by IGC, NIPSCO, and IDEM. In April 1998, PSI filed suit in Hendricks County Circuit Court in the State of Indiana (Court) against its general liability insurance carriers. Subsequently, PSI sought a declaratory judgment to obligate its insurance carriers to (1) defend MGP claims against PSI, or (2) pay PSI’s costs of defense and compensate PSI for its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims related to MGP sites. Discovery closed in the case at the end of August 2001. PSI and its insurance carriers are now filing briefs on various issues for decision by the Court in hearings to be held in November 2001, which will determine the scope of the trial. The Court has scheduled the trial of this case to begin at the end of January 2002. At the present time, PSI cannot predict the outcome of this litigation.

PSI has accrued costs for the sites related to investigation, remediation, and groundwater monitoring to the extent such costs are probable and can be reasonably estimated. PSI does not believe it can provide an estimate of the reasonably possible total remediation costs for any site before a remedial investigation/feasibility study has been completed. To the extent remediation is necessary, the timing of the remediation activities impacts the cost of remediation. Therefore, PSI currently cannot determine the total costs that may be incurred in connection with the remediation of all sites, to the extent that remediation is required. According to current information, these future costs at the 21 Indiana MGP sites are not material to our financial condition or results of operations. As further investigation and remediation activities are performed at these sites, the potential liability for the 21 Indiana MGP sites could be material to our financial position or results of operations.

3.     CG&E

CG&E and its utility subsidiaries are aware of potential sites where MGP activities have occurred at some time in the past. None of these sites is known to present a risk to the environment. CG&E and its utility subsidiaries have begun preliminary site assessments to obtain information about some of these MGP sites.

(f)    Gas Customer Choice

In January 2000, Cinergy Investments, Inc. (Investments) sold Cinergy Resources, Inc. (CRI), a former subsidiary, to Licking Rural Electrification, Inc. doing business as The Energy Cooperative (Energy Cooperative). In February 2001, Cinergy, CG&E, and CRI were named as defendants in three class action lawsuits relating to Energy Cooperative’s removal from the Ohio Gas Customer Choice program and the failure to deliver gas to customers. Subsequently, these class action suits were amended and consolidated into one suit. CG&E has been dismissed as a defendant in the consolidated suit. On March 30, 2001, Cinergy, CG&E, and Investments were named as defendants in a lawsuit filed by both Energy Cooperative and CRI. This lawsuit concerns any obligations or liabilities Investments may have to Energy Cooperative following its sale of CRI. We intend to vigorously defend these lawsuits. At the present time, Cinergy cannot predict the outcome of these suits.

(g)    PSI Fuel Adjustment Charge

As discussed in the 2000 Form 10-K, PSI defers fuel costs that are recoverable in future periods subject to Indiana Utility Regulatory Commission (IURC) approval under a fuel recovery mechanism. On June 6, 2001, the IURC issued an order in a PSI fuel recovery proceeding, disallowing approximately $14 million of deferred costs. On June 26, 2001, PSI formally requested that the IURC reconsider its disallowance decision. On August 24, 2001, the IURC indicated that it will reconsider its decision. PSI believes it has strong legal and factual arguments in its favor and that it will ultimately be permitted to recover these costs. However, PSI cannot definitively predict the ultimate outcome of this matter.

PSI recently filed a petition with the IURC requesting authority to recover $16 million in under billed fuel costs incurred from March 2001 through May 2001. The IURC approved recovery subject to refund pending the findings of an investigative sub-docket. The sub-docket was opened to investigate the reasonableness of, and underlying reasons for, the under billed fuel costs. A hearing is scheduled for April 2002.

(h)   Other

In May 2001, the Kentucky Public Service Commission (KPSC) approved an offer of settlement by The Union Light, Heat and Power Company (ULH&P) which allows ULH&P to maintain its existing retail electric base rates and fuel adjustment clause at current levels through December 2003 and limits electric rate increases for three years thereafter, resolving all related matters previously pending before the KPSC. The settlement also approved the proposed wholesale power supply contract between ULH&P and CG&E, beginning January 1, 2002, and made the necessary determinations under the Public Utility Holding Company Act of 1935, as amended (PUHCA), for CG&E to transfer its generating assets and liabilities to an exempt wholesale generator. In connection with this settlement, ULH&P recognized revenues of approximately $10 million, which had been previously deferred subject to refund.

5. Financial Information by Business Segment

As discussed in the 2000 Form 10-K, in early 2001 Cinergy announced certain organizational changes which further aligned the business units to reflect Cinergy's strategic vision. The revised structure has three business units, as follows:

• Energy Merchant Business Unit (Energy Merchant);
• Regulated Businesses Business Unit (Regulated Businesses); and
• Power Technology and Infrastructure Services Business Unit (PTIS).

Energy Merchant manages wholesale generation and the buying and selling of energy commodities. Energy Merchant earns revenues from the electric generation and the operation of power plants; wholesale energy trading, marketing, and risk management; and customized energy solutions.

Regulated Businesses consists of a regulated, integrated utility, and regulated electric and gas transmission and distribution services. Regulated Businesses plans, constructs, operates, and maintains the Cinergy operating companies’ transmission and distribution systems and delivers gas and electric energy to consumers. Regulated Businesses also earns revenues from wholesale customers primarily by transmitting electric power through Cinergy’s transmission system.

PTIS primarily manages the development, marketing and sales of our non-regulated retail energy and energy-related businesses. PTIS also manages Cinergy Ventures, LLC (Ventures), Cinergy’s venture capital subsidiary. Ventures invests in emerging energy technologies with promising commercial applications that can benefit future Cinergy business development activities.

Financial results by business unit are as indicated below. Amounts for the prior year have been restated to reflect segment restructuring which includes the consolidation of the former International Business Unit into the Energy Merchant and Regulated Businesses business units. This restructuring became effective January 1, 2001.

Financial results by business unit for the quarters ended September 30, 2001 and September 30, 2000:

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

Business Units
- ------------------------------------------------------------------------------------------------------------------------------------
                                                      Cinergy Business Units
                                ------------------------------------------------------------------
                                    Energy           Regulated                                      Reconciling
                                  Merchant(5)      Businesses(5)       PTIS        Total          Eliminations(1)     Consolidated
                              ------------------------------------------------------------------------------------------------------
                                                                           (in thousands)
Quarter ended 9/30/01

Operating revenues-
   External customers          $2,549,663  (3)    $   764,140       $   9,811   $ 3,323,614      $         -            $ 3,323,614
   Intersegment revenues           50,209  (4)              -               -        50,209          (50,209)                     -
Segment profit (loss)(2)           58,354              77,277          (7,160)      128,471                -                128,471

- ------------------------------------------------------------------------------------------------------------------------------------
Quarter ended 9/30/00

Operating revenues-
   External customers          $1,334,918  (3)    $   947,894       $  16,973   $ 2,299,785      $         -            $ 2,299,785
   Intersegment revenues          287,963  (4)              -               -       287,963         (287,963)                     -
Segment profit (loss)(2)           35,753              61,933          (3,872)       93,814                -                 93,814

- ------------------------------------------------------------------------------------------------------------------------------------
(1)   The Reconciling Eliminations category eliminates the intersegment revenues of Energy Merchant.
(2)   Management utilizes segment profit (loss) to evaluate segment performance.
(3)   The increase in 2001 as compared to 2000 is primarily due to the increase in volumes and average price realized on wholesale
      commodity transactions.
(4)   In connection with deregulation in Ohio, beginning in 2001, certain revenues which were previously recorded through
      intersegment transfer pricing, are now directly recorded to the business segment.
(5)   Effective January 2001, electric customer choice legislation was implemented in Ohio. For comparative purposes, the
       estimated pro forma adjustment to reflect this effect on third quarter 2000 results would be as follows:

                                             Energy      Regulated
                                            Merchant     Businesses
                                            --------     ----------
              Operating revenues          $ (33,492)     $  33,492
              Segment profit (loss)       $ (12,518)     $  12,518

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

Financial results by business unit for the nine months ended September 30, 2001 and September 30, 2000:

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

Business Units
- ------------------------------------------------------------------------------------------------------------------------------------
                                                      Cinergy Business Units
                                                      ----------------------
                                    Energy            Regulated                                  Reconciling
                                 Merchant(5)        Businesses(5)        PTIS     Total         Eliminations(1)        Consolidated
                            --------------------------------------------------------------------------------------------------------
                                                                            (in thousands)
Nine months ended 9/30/01

Operating revenues-
   External customers          $8,469,220 (3)     $ 2,168,179         $  34,836 $10,672,235    $           -            $10,672,235
   Intersegment revenues          114,482 (4)               -                 -     114,482         (114,482)                     -
Segment profit (loss)(2)          127,959             218,923           (15,197)    331,685                -                331,685

- ------------------------------------------------------------------------------------------------------------------------------------
Nine months ended 9/30/00

Operating revenues-
   External customers          $3,043,353 (3)     $ 2,556,212         $  52,811 $ 5,652,376    $           -             $5,652,376
   Intersegment revenues          770,821 (4)               -                 -     770,821         (770,821)                     -
Segment profit (loss)(2)          125,465             188,940            (7,037)    307,368                -                307,368

- ------------------------------------------------------------------------------------------------------------------------------------
(1)   The Reconciling Eliminations category eliminates the intersegment revenues of Energy Merchant.
(2)   Management utilizes segment profit (loss) to evaluate segment performance.
(3)   The increase in 2001 as compared to 2000 is primarily due to the increase in volumes and average price realized on wholesale
      commodity transactions.
(4)   In connection with deregulation in Ohio, beginning in 2001, certain revenues which were previously recorded through
      intersegment transfer pricing, are now directly recorded to the business segment.
(5)   Effective January 2001, electric customer choice legislation was implemented in Ohio. For comparative purposes, the
      estimated pro forma adjustment to reflect this effect on the nine months ended September 30, 2000 results would be as follows:

                                            Energy        Regulated
                                           Merchant       Businesses
              Operating revenues         $ (93,693)       $   93,693
              Segment profit (loss)      $ (33,144)       $   33,144

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

Total segment assets at September 30, 2001 and December 31, 2000 are as follows:

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

Business Units
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                      Cinergy Business Units
                                                                      ----------------------
                                                              Regulated
                                            Energy Merchant   Businesses      PTIS          Total       All Other      Consolidated
                                            ----------------------------------------------------------------------------------------
                                                                                       (in thousands)
 Total segment assets at September 30, 2001    $5,417,415      $7,142,911   $202,83     $12,763,156    $49,462          $12,812,618
 Total segment assets at December 31, 2000      5,948,550       6,162,243    176,44      12,287,240     42,488           12,329,728

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

6. Earnings Per Common Share (EPS)

A reconciliation of EPS to earnings per common share assuming dilution (diluted EPS) is presented below for the quarters ended September 30, 2001 and September 30, 2000:

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

                                               Income     Shares        EPS
                                      ------------------------------------------
                                       (in thousands, except per share amounts)
Quarter ended September 30, 2001
EPS:
   Net Income                                $  128,471  159,097     $  0.81

Effect of dilutive securities:
   Common stock options                                      948
   Directors' compensation plans                             144
   Contingently issuable common stock                        491
                                             -------------------

 EPS - assuming dilution:
   Net income plus assumed conversions       $  128,471  160,680     $  0.80

- --------------------------------------------------------------------------------
Quarter ended September 30, 2000
EPS:
   Net Income                                $  93,814   158,938     $  0.59

Effect of dilutive securities:
   Common stock options                                      667
   Employee Stock Purchase and Savings Plan                   11
   Contingently issuable common stock                        426
                                             -------------------

 EPS - assuming dilution:
   Net income plus assumed conversions       $  93,814   160,042     $  0.58

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

Options to purchase shares of common stock are excluded from the calculation of diluted EPS when the exercise prices of these options are greater than the average market price of the common shares during the period. For the quarters ended September 30, 2001 and 2000, approximately 2.1 million and 1.7 million shares, respectively, were excluded from the diluted EPS calculation.

A reconciliation of EPS to diluted EPS is presented below for the nine months ended September 30, 2001 and September 30, 2000:

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

                                               Income    Shares         EPS
                                      -----------------------------------------
                                       (in thousands, except per share amounts)
Nine months ended September 30, 2001
EPS:
   Net Income                                $ 331,685    159,049     $  2.08

Effect of dilutive securities:
   Common stock options                                     1,023
   Directors' compensation plans                              144
   Contingently issuable common stock                         498
                                             --------------------

 EPS - assuming dilution:
   Net income plus assumed conversions       $ 331,685    160,714     $  2.06

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

Nine months ended September 30, 2000
EPS:
   Net Income                                $ 307,368    158,928     $  1.93

Effect of dilutive securities:
   Common stock options                                       309
   Employee Stock Purchase and Savings Plan                     4
   Contingently issuable common stock                         354
                                             --------------------

 EPS - assuming dilution:
   Net income plus assumed conversions       $ 307,368    159,595     $  1.92

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

Options to purchase shares of common stock are excluded from the calculation of diluted EPS when the exercise prices of these options are greater than the average market price of the common shares during the period. For the nine months ended September 30, 2001 and 2000, approximately 2.1 million and 1.9 million shares, respectively, were excluded from the diluted EPS calculation.

7. Ohio Deregulation

As discussed in the 2000 Form 10-K, on July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to electric deregulation and customer choice for the State of Ohio. The Electric Restructuring Bill created a competitive electric retail service market effective January 1, 2001. The legislation provided for a market development period that began January 1, 2001, and ends no later than December 31, 2005.

On May 8, 2000, CG&E reached a stipulated agreement with the Public Utilities Commission of Ohio (PUCO) staff and various other interested parties with respect to its proposal to implement electric customer choice in Ohio effective January 1, 2001. On August 31, 2000, the PUCO approved CG&E’s stipulation agreement. Two parties filed applications for rehearing with the PUCO. On October 18, 2000, the PUCO denied these applications. One of the parties appealed to the Ohio Supreme Court in the fourth quarter of 2000 and CG&E subsequently intervened in that case. On April 6, 2001, CG&E filed for dismissal of this appeal. On July 25, 2001, the Ohio Supreme Court denied CG&E’s motion to dismiss. CG&E is unable to predict the outcome of this proceeding.

The August 31, 2000 order authorizes CG&E to transfer its generation assets to one or more non-regulated corporate subsidiary(ies). In addition to the regulatory approvals received from the PUCO, the IURC, and the KPSC, this transfer requires the approval of the Federal Energy Regulatory Commission (FERC). As the transfer is contingent upon CG&E receiving FERC approval and various third party consents, the timing and receipt of which are unknown, the completion date of the transfer of generation assets to non-regulated subsidiary(ies) is uncertain.

8. Power Trading

Contracts within the trading portfolio of the power marketing and trading operations are primarily with power marketers and other investor-owned utilities. The majority of these contracts are for terms of one year or less. Electric power prices can be extremely volatile, and the market can, at times, lack liquidity. Because of these issues, credit risk is generally greater than with other commodity trading, especially when dealing with new market entrants. Credit discounts are included in the determination of fair value for all open positions in the power-trading portfolio.

As stated in our 2000 Form 10-K, in 2000 the Western U.S., primarily California, began experiencing unprecedented price levels and volatility for wholesale electricity. Because of the nature of deregulation in California, California’s two largest utilities accumulated significant unpaid obligations. One of these utilities declared bankruptcy in the second quarter of 2001 and the other has been working with the state to finance its unpaid obligations. We continue to maintain a balanced Western U.S. portfolio and have no unrealized gain positions directly with these utilities. A portion of our Energy risk management assets and Energy risk management liabilities are with counterparties in the Western U.S. However, prices have dropped significantly in the second and third quarters of 2001. As a result of these price decreases and a declining level of outstanding contracts, our potential exposure in the Western U.S. has diminished.

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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

In this report we discuss various matters that may make management’s corporate vision of the future clearer for you. This report outlines management’s goals and projections for the future. These goals and projections are considered forward-looking statements and are based on management’s beliefs and assumptions.

Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ are often presented with forward-looking statements. In addition, other factors could cause actual results to differ materially from those indicated in any forward-looking statement. These include:

• Factors affecting operations, such as:
  
  
  1. unusual weather conditions;
  2. catastrophic weather-related damage;
  3. unscheduled generation outages;
  4. unusual maintenance or repairs;
  5. unanticipated changes in fossil fuel costs, gas supply costs, or availability constraints;
  6. environmental incidents; and
  7. electric transmission or gas pipeline system constraints.
  
  
• Legislative and regulatory initiatives regarding deregulation of the industry or potential national deregulation legislation.
  
  
• The timing and extent of the entry of additional competition in electric or gas markets and the effects of continued industry consolidation through the pursuit of mergers, acquisitions, and strategic alliances.
  
  
• Regulatory factors such as changes in the policies or procedures that set rates; changes in our ability to recover capital expenditures for environmental compliance, purchased power costs and investments made under traditional regulation through rates; and changes to the frequency and timing of rate increases.
  
  
• Financial or regulatory accounting principles or policies imposed by governing bodies.
  
  
• Political, legal, and economic conditions and developments in the United States (U.S.) and the foreign countries in which we have a presence. This would include inflation rates and monetary fluctuations.
  
  
• Changing market conditions and other factors related to physical energy and financial trading activities. These would include price, basis, credit, liquidity, volatility, capacity, transmission, currency exchange rates, interest rates, and warranty risks.
  
  
• The performance of projects undertaken by our non-regulated businesses and the success of efforts to invest in and develop new opportunities.
  
  
• Availability of, or cost of, capital.
  
  
• Employee workforce factors, including changes in key executives, collective bargaining agreements with union employees, and work stoppages.
  
  
• Legal and regulatory delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures.
  
  
• Costs and effects of legal and administrative proceedings, settlements, investigations, and claims. Examples can be found in Note 4 of the "Notes to Financial Statements" in "Part I. Financial Information."
  
  
• Changes in international, federal, state, or local legislative requirements, such as changes in tax laws, tax rates, and environmental laws and regulations.

Unless we otherwise have a duty to do so, the Securities and Exchange Commission’s (SEC) rules do not require forward-looking statements to be revised or updated (whether as a result of changes in actual results, changes in assumptions, or other factors affecting the statements). Our forward-looking statements reflect our best beliefs as of the time they are made and may not be updated for subsequent developments.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

In this report Cinergy (which includes Cinergy Corp. and all of our regulated and non-regulated subsidiaries) is, at times, referred to in the first person as “we,” “our,” or “us.”

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INTRODUCTION

In Management’s Discussion and Analysis (MD&A), we explain our general operating environment, as well as our liquidity, capital resources, and results of operations. Specifically, we discuss the following:

• factors affecting current and future operations;
• why revenues and expenses changed from period to period; and
• how the above items affect our overall financial condition.

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ORGANIZATION

Cinergy Corp., a Delaware corporation created in October 1994, owns all outstanding common stock of The Cincinnati Gas & Electric Company (CG&E) and PSI Energy, Inc. (PSI), both of which are public utility subsidiaries (operating companies). As a result of this ownership, we are considered a utility holding company. Because we are a holding company whose utility subsidiaries operate in multiple states, we are registered with and are subject to regulation by the SEC under the Public Utility Holding Company Act of 1935 (PUHCA), as amended. Our other principal subsidiaries are:

• Cinergy Services, Inc. (Services) - is a service company that provides our regulated and non-regulated subsidiaries with a variety of centralized administrative, management, and support services;
• Cinergy Investments, Inc. (Investments) - holds most of our domestic non-regulated, energy-related businesses and investments;
• Cinergy Global Resources, Inc. - holds our international businesses and investments and directs our renewable energy investing activities (for example, wind farms);
• Cinergy Technologies, Inc. - primarily holds our portfolio of technology related investments; and
• Cinergy Wholesale Energy, Inc. - was formed to act as a holding company for our energy merchant businesses, including production, as the generation assets eventually become unbundled from the utility subsidiaries.

CG&E, an Ohio corporation, is a combination electric and gas public utility company that provides service in the southwestern portion of Ohio and, through its subsidiaries, in nearby areas of Kentucky and Indiana. It has three wholly-owned utility subsidiaries and two wholly-owned non-utility subsidiaries. CG&E’s principal utility subsidiary, The Union Light, Heat and Power Company (ULH&P), is a Kentucky corporation that provides electric and gas service in northern Kentucky. CG&E’s other subsidiaries are insignificant to its results of operations.

PSI, an Indiana corporation, is an electric utility that provides service in north central, central, and southern Indiana.

The majority of our operating revenues are derived from the sale of electricity and the sale and/or transportation of natural gas.

In early 2001, we announced certain organizational changes which further aligned the business units to reflect Cinergy’s strategic vision. The revised structure reflects three business units, as follows:

• Energy Merchant Business Unit (Energy Merchant) – operates power plants, both domestically and abroad, and conducts all wholesale energy marketing, trading, origination and risk management services;
• Regulated Businesses Business Unit (Regulated Businesses) – operates all gas and electric transmission and distribution services, both domestically and abroad, and is responsible for all regulatory planning for the regulated utility businesses of CG&E, PSI, and ULH&P; and
• Power Technology and Infrastructure Services Business Unit (PTIS) – originates and manages a portfolio of emerging energy businesses.

See Note 5 of the "Notes to Financial Statements" in "Part I. Financial Information," for financial information by business unit.

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LIQUIDITY

In the “Liquidity” section, we discuss environmental issues as they relate to our current and future cash needs. In the “Capital Resources” section, we discuss how we intend to meet these capital requirements.

Environmental Issues

Ambient Air Standards

As discussed in the 2000 Form 10-K, in 1997 the U.S. Environmental Protection Agency (EPA) revised the National Ambient Air Quality Standards for ozone and fine particulate matter. The EPA has estimated that it will take up to five years to collect sufficient ambient air monitoring data to determine fine particulate matter non-attainment areas. A fine particulate monitoring network was put in place during 1999 and 2000. Following identification of non-attainment areas, the states will identify the sources of particulate emissions and develop emission reduction plans. These plans may be state-specific or regional. We currently cannot predict the exact amount and timing of required reductions.

On May 14, 1999, the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals) ruled that the EPA’s final rule establishing the new eight-hour ozone standard and the fine particulate matter standard constituted an invalid delegation of legislative authority. In June 1999, the EPA appealed the decision. On October 29, 1999, the full Court of Appeals rejected the EPA’s request for reconsideration. In January 2000, the EPA appealed to the U.S. Supreme Court (Supreme Court) and on February 27, 2001, the Supreme Court reversed the Court of Appeals’ ruling. However, the Supreme Court invalidated the EPA’s implementation procedure for the portion of the case dealing with the eight-hour ozone standard. The EPA currently is evaluating approaches for implementing the eight-hour ozone standard in accordance with the Supreme Court’s opinion. Meanwhile, the Court of Appeals continues to consider the validity of the eight-hour ozone standard and the fine particulate matter standard, as a number of issues that were raised by the parties were not addressed in its original opinion, invalidating those standards. The parties will file supplemental briefs on these issues, and further oral argument may be held. We currently cannot determine the outcome of this litigation or of future EPA actions in response to the litigation and the effects on future emissions reduction requirements.

See Notes 4(a), (b), (c), (d), and (e), respectively, of the “Notes to Financial Statements” in “Part I. Financial Information” for a discussion of other environmental issues.

Other Investing Activities

Foreign Utility Companies (FUCOs)/Exempt Wholesale Generators (EWGs) Investment Limitations

As discussed in the 2000 Form 10-K, our ability to invest in growth initiatives, such as EWGs and FUCOs, is limited by certain legal and regulatory requirements, including the PUHCA. In March 1998, the SEC granted us authority under PUHCA to invest in EWGs and FUCOs in an aggregate amount equal to our consolidated retained earnings, as determined from time to time. Following our request for an increase in investment authority, in May 2001, the SEC issued a supplemental order, authorizing us to invest an additional $2 billion in EWGs and FUCOs, in addition to an amount equal to our consolidated retained earnings.

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CAPITAL RESOURCES

We meet our capital requirements through a combination of internally generated funds and debt issuances. We expect to meet our future capital needs through a combination of internally and externally generated funds, including the issuance of debt and/or equity securities.

In November 2001, Cinergy Corp. chose to reinstitute the practice of issuing new Cinergy Corp. common shares to meet its obligations under the various employee stock plans and the Cinergy Corp. Direct Stock Purchase and Dividend Reinvestment Plan. This replaces the previous practice of purchasing open market shares to fulfill plan obligations.

In early May 2001, Cinergy Corp.'s certificate of incorporation was amended to authorize the issuance of preferred securities in addition to common stock, following approval by the SEC under the PUHCA and the shareholders of Cinergy Corp.

Debt

Cinergy Corp. has current authorization from the SEC under the PUHCA to increase its total capitalization at December 31, 1999 (excluding retained earnings and accumulated other comprehensive income) by an additional $5 billion, through issuance of any combination of equity and debt securities. This increased authorization is subject to certain conditions, including, among others, that common equity comprises at least 30% of Cinergy Corp.‘s consolidated capital structure and that Cinergy Corp., under certain circumstances, maintains an investment grade rating on its senior debt obligations.

Short-term Debt

In connection with the current SEC authorization, Cinergy Corp. has $1.5 billion in established lines of credit. As of September 30, 2001, $633 million was unused and available on these lines.

On March 21, 2001, Cinergy Corp. placed a $500 million, 364-day senior revolving credit facility. Also, on May 4, 2001, Cinergy Corp. placed a $400 million, three-year senior revolving credit facility which replaced Cinergy Corp.‘s $400 million, five-year revolving credit facility that expired on May 6, 2001, and a $200 million, three-year revolving credit facility that expired on July 20, 2001.

Our non-regulated subsidiaries have the ability to borrow funds from Cinergy Corp. if the need arises. Certain of our non-regulated subsidiaries also have $13 million of established lines of credit, of which $4 million remained unused and available.

Our operating companies, CG&E and PSI, have established uncommitted lines of credit of $15 million and $60 million, respectively, of which $15 million for CG&E and $14 million for PSI remained unused and available.

In May 2001, CG&E filed an application with the Public Utilities Commission of Ohio (PUCO) to increase its short-term debt authority to $600 million and on June 28, 2001, the PUCO granted this request. On April 6, 2001, Cinergy Corp. filed an application with the SEC to increase PSI’s and ULH&P’s short-term debt authority to $600 million and $65 million, respectively. On August 2, 2001, the SEC granted our request effective immediately. As of September 30, 2001, our operating companies had regulatory authority to borrow up to a total of $1.27 billion in short-term debt ($671 million for CG&E and its subsidiaries, including $65 million for ULH&P, and $600 million for PSI.)

Commercial Paper

As of September 30, 2001, the commercial paper program was limited to a maximum outstanding principal amount of $800 million for Cinergy Corp. In early 2001, Cinergy Corp. expanded the commercial paper program to this amount and reduced the established lines of credit at CG&E and PSI. The expansion of the commercial paper program at the Cinergy Corp. level will, in part, support the short-term borrowing needs of CG&E and PSI and will eliminate the need for commercial paper programs at CG&E and PSI. The Cinergy Corp. commercial paper program is supported by $950 million in revolving credit facilities. As of September 30, 2001, Cinergy Corp. had issued $99.5 million in commercial paper.

Long-term Debt

Under the PUHCA authorization mentioned above, we are able to issue and sell long-term debt at the parent holding company level. In May 2001, CG&E filed an application with the PUCO to increase its long-term debt authority to $400 million and on June 28, 2001, the PUCO granted this request. As of September 30, 2001, Cinergy Corp. had $900 million of long-term debt outstanding. As of September 30, 2001, CG&E, PSI, and ULH&P have remaining state regulatory authority for long-term debt issuances of $400 million, $21 million, and $30 million, respectively. PSI intends to file an application with the Indiana Utility Regulatory Commission (IURC) requesting an increase in long-term debt issuance authority up to $400 million. In July 2001, Cinergy Corp. filed a registration statement with the SEC requesting authority to issue up to $500 million in unsecured debt and in August 2001, the SEC approved the registration statement and deemed it effective. On September 12, 2001, Cinergy Corp. issued $500 million principal amount of debentures under the previously approved registration statement. We may, at any time, request additional long-term debt authorization, which is subject to regulatory approval.

Variable Rate Pollution Control Notes

CG&E and PSI have issued variable rate pollution control notes (tax-exempt notes obtained to finance equipment or land development for pollution control purposes). Because the holders of a majority of these notes have the right to redeem their notes on any business day, with the remainder being redeemable annually, they are reflected in Notes payable and other short-term obligations in the Consolidated Balance Sheets for Cinergy, CG&E, and PSI.

On August 21, 2001, CG&E issued $12.1 million of Ohio Air Quality Development Authority Air Quality Development Revenue Bonds 2001, Series A with a final maturity date of August 1, 2033, and initial interest of 3.7%. The interest rate will reset annually on August 1, as negotiated, based on the Municipal Market Data Index as a benchmark. The net proceeds will be used to finance a portion of the costs of air quality and solid waste disposal facilities used at the William H. Zimmer Generating Station. At September 30, 2001, CG&E and PSI had $196 million and $83 million, respectively, outstanding in pollution control notes, classified as short-term debt.

Money Pool

Cinergy Corp., Services, and our operating companies and their subsidiaries participate in a money pool arrangement to better manage cash and working capital requirements. Under this arrangement, those companies with surplus short-term funds provide short-term loans to others. This surplus cash may be from internal or external sources. The amounts outstanding under this money pool arrangement are shown as Notes receivable from affiliated companies or Notes payable to affiliated companies on the Consolidated Balance Sheets for CG&E and PSI and on the Balance Sheets for ULH&P.

Securities Ratings

As of October 31, 2001, the major credit ratings agencies rated our securities as follows:

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

                               Fitch (1)        Moody's (2)       S&P (3)

Cinergy Corp.
   Corporate Credit               BBB+             Baa2          BBB+/A-2
   Senior Unsecured Debt          BBB+             Baa2          BBB+
   Commercial Paper               F-2              P-2           A-2

CG&E
   Senior Secured Debt            A-               A3            A-
   Senior Unsecured Debt          BBB+             Baa1          BBB+
   Junior Unsecured Debt          BBB              Baa2          BBB
   Preferred Stock                BBB              Baa3          BBB
   Commercial Paper               F-2              P-2           Not Rated

PSI
   Senior Secured Debt            A-               A3            A-
   Senior Unsecured Debt          BBB+             Baa1          BBB+
   Junior Unsecured Debt          BBB              Baa2          BBB
   Preferred Stock                BBB              Baa3          BBB
   Commercial Paper               F-2              P-2           Not Rated

ULH&P                        Not
   Senior Unsecured Debt         Rated             Baa1          BBB+

(1)  During 2000,  Fitch IBCA,  Inc.  and Duff &  Phelps  Credit  Rating Co.
     merged,  and are now known as Fitch,  thereby combining  their  ratings of
     Cinergy Corp. and its affiliates.
(2)  Moody's Investors Service (Moody's)
(3)  Standard & Poor's Ratings Services (S&P)

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

As discussed in the 2000 Form 10-K, on December 12, 2000, S&P placed its ratings of Cinergy Corp. and its operating affiliates, CG&E and PSI, on CreditWatch with negative implications. On January 22, 2001, Moody’s announced it had assigned negative outlooks to the debt and preferred stock securities of Cinergy Corp. and all of its subsidiaries. These actions were primarily in response to Cinergy’s announcement regarding one of its non-regulated subsidiaries entering into a definitive agreement to acquire two natural gas-fired merchant electric generating facilities from Enron North America. Other items of concern included (1) the announcement that Cinergy Corp., CG&E, and PSI have reached an agreement in principle with the EPA; (2) the continuing uncertainty surrounding CG&E’s post-deregulation corporate and financial structure; (3) the absence of restructuring legislation and stranded investment resolution in Indiana; and (4) Cinergy’s emphasis on higher-risk non-regulated activities.

Effective July 27, 2001, Moody’s changed its assignment of ratings to different classes of securities issued by the same company, which was prompted by Moody’s research published in November 2000. The refinements are of a technical nature and are not indicative of changes in fundamental credit quality. CG&E’s and PSI’s preferred stock were affected by these changes. The new ratings are noted in the table above.

On September 4, 2001, Moody’s placed the debt ratings of Cinergy Corp. on review for possible downgrade. These actions are primarily in response to Cinergy Corp.'s increased debt associated with its growing portfolio of peaking generation.

These securities ratings may be revised or withdrawn at any time, and each rating should be evaluated independently of any other rating.

Guarantees

We are subject to an SEC order under the PUHCA, which limits the amounts Cinergy Corp. can have outstanding under guarantees at any one time to $2 billion. As of September 30, 2001, we had $631 million outstanding under the guarantees issued. This amount represents Cinergy Corp.‘s guarantees of liabilities and commitments of our consolidated subsidiaries, unconsolidated subsidiaries, and joint ventures.

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2001 QUARTERLY RESULTS OF OPERATIONS - HISTORICAL

Summary of Results

Electric and gas gross margins and net income for Cinergy, CG&E, and PSI for the quarters ended September 30, 2001 and 2000 were as follows:

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

                            Cinergy (1)     CG&E and subsidiaries        PSI
                            -----------     ---------------------        ---
                         2001       2000      2001       2000       2001      2000
                         ----       ----      ----       ----       ----      ----
                                              (in thousands)
Electric gross margin  $650,671   $551,279   $345,546  $268,697  $268,122  $217,754
Gas gross margin         25,020     43,000     28,488    27,199         -         -
Net income              128,471     93,814     89,390    39,096    56,454    30,613

(1)  The results of Cinergy also include amounts related to non-registrants.

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

Diluted earnings per share for the third quarter of 2001 was $.80 per share as compared to $.58 per share for the same period last year. Results were attributable to Energy Merchant’s origination, marketing and trading segment and increased gross margins in Regulated Businesses, primarily due to customer growth and increased customer usage.

The explanations below follow the line items on the Consolidated Statements of Income for Cinergy, CG&E, and PSI. However, only the line items that varied significantly from prior periods are discussed.

Electric Operating Revenues

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

                              Cinergy (1)                       CG&E and subsidiaries                             PSI
                              -----------                       -------------------------                          ---
                       2001       2000     % Change           2001       2000      % Change           2001       2000      % Change
                       ----       ----     --------           ----       ----      --------           ----       ----      --------
                                                                    (in millions)
Retail              $   772   $    714           8         $   422    $    402          5          $   350   $    312         12
Wholesale             1,685        788         114             831         383        117              901        478         88
Transportation            1          -           -               1           -          -                -          -          -
Other                    58         97         (40)             13           7         86                7         14        (50)
                      -------    --------                    --------    -------                     -------    -------
    Total           $ 2,516   $  1,599          57         $ 1,267    $    792         60          $ 1,258   $    804         56

(1)  The results of Cinergy also include amounts related to non-registrants.

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

Electric operating revenues for Cinergy, CG&E, and PSI increased for the quarter ended September 30, 2001, as compared to 2000, mainly due to an increase in volumes on non-firm wholesale transactions related to energy marketing and trading activity. Non-firm power is power without a guaranteed commitment for physical delivery.

Gas Operating Revenues

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

                            Cinergy (1)          CG&E and subsidiaries
                            -----------          -------------------------
                     2001      2000   % Change    2001    2000 % Change
                     ----      ----   --------    ----    -------------
                                         (in millions)
  Non-regulated     $ 733     $ 629      17       $  -    $  -     -
  Retail               45        40      13         45      40    13
  Transportation        6         8     (25)         6       8   (25)
  Other                 2         1       -          2       1     -
                     --------  -------             ------  ----
       Total        $ 786     $ 678      16       $ 53    $ 49     8

  (1)  The results of Cinergy also include amounts related to non-registrants.

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

Gas operating revenues for Cinergy increased in the third quarter of 2001 as compared to the same period last year. This increase was primarily the result of increased volumes sold by Cinergy Marketing and Trading, LLC (Marketing and Trading).

CG&E’s retail gas revenues increased primarily due to a higher price received per thousand cubic feet (mcf) sold and an increase in retail gas customers. Retail sales also increased and transportation sales decreased as a result of customers switching back to CG&E gas service.

Operating Expenses

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

                                   Cinergy (1)                     CG&E and subsidiaries                                PSI
                                   -----------                     -------------------------                           ---
                            2001       2000     % Change        2001        2000       % Change       2001        2000     % Change
                            ----       ----     --------        ----        ----       --------       ----        ----     --------
                                                                       (in millions)
Fuel                     $   210   $    181         16        $   88         $ 87          1       $   124      $   90          38
Purchased and
   exchanged power         1,654        867         91           834          436         91           866         496          75
Gas purchased                762        635         20            25           22         14             -           -           -
Operation and
   maintenance               265        267         (1)          117          118         (1)          106         104           2
Depreciation                  97         87         11            47           46          2            37          36           3
Taxes other than
   income taxes               60         67        (10)           44           51        (14)           15          15           -
                           -------    -------                  ----------   --------                 --------    --------
    Total                $ 3,048   $  2,104         45        $1,155         $760         52       $ 1,148      $  741          55

(1)  The results of Cinergy also include amounts related to non-registrants.

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

Fuel

Fuel represents the cost of coal, natural gas, and oil that is used to generate electricity. The following table details the changes to fuel expense from the quarter ended September 30, 2000 to the quarter ended September 30, 2001:

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

                                     Cinergy (1)  CG&E       PSI
                                     -----------  --------   ---
                                              (in millions)
Fuel expense - September 30, 2000       $ 181      $  87    $  90

Increase (decrease) due to changes in:
Price of fuel                               7          6        1
Deferred fuel cost                         33          8       25
MWh generation(2)                          (5)       (13)       8
Other                                      (6)         -        -
                                        ---------------------------
Fuel expense - September 30, 2001       $ 210      $  88    $ 124

(1)  The results of Cinergy also include amounts related to non-registrants.
(2)  Megawatt-hour (MWh)

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

Purchased and Exchanged Power

Purchased and exchanged power expense increased for Cinergy, CG&E, and PSI for the quarter ended September 30, 2001, as compared to the same period last year, primarily due to an increase in purchases of non-firm wholesale power, reflecting higher sales volumes and higher prices paid per MWh in the energy marketing and trading operations.

Gas Purchased

Gas purchased expense increased for Cinergy and CG&E for the quarter ended September 30, 2001, as compared to the same period last year, primarily due to an increase in gas commodity trading volumes. CG&E’s wholesale commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism.

Depreciation

Cinergy’s Depreciation expense increased for the quarter ended September 30, 2001, as compared to the same period last year. This increase was primarily attributable to the acquisition of additional depreciable plant, including investments in non-regulated peaking generation.

Taxes Other Than Income Taxes

Cinergy’s and CG&E’s Taxes other than income taxes decreased for the quarter ended September 30, 2001, as compared to the same period last year. This decrease was primarily attributable to reduced property tax expense and other tax changes associated with deregulation in Ohio.

Interest

Cinergy’s and PSI’s Interest expense increased for the quarter ended September 30, 2001, as compared to the same period last year. This increase was primarily due to debt issuances associated with the acquisition of additional peaking generation and general business purposes. Partially offsetting the affect of the increase in debt issuances was a decrease in short-term interest rates.

Income Taxes

Cinergy’s, CG&E’s, and PSI’s Income tax expense increased for the quarter ended September 30, 2001, as compared to the same period last year. This increase was primarily due to the increase in taxable income. Cinergy’s and CG&E’s increase also included the impact of state income tax changes associated with Ohio deregulation.

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2001 YEAR TO DATE RESULTS OF OPERATIONS - HISTORICAL

Summary of Results

Electric and gas gross margins and net income for Cinergy, CG&E, and PSI for the nine months ended September 30, 2001 and 2000 were as follows:

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                            Cinergy (1)        CG&E and subsidiaries             PSI
                            -----------        -------------------------         ---
                          2001         2000         2001        2000       2001        2000
                          ----         ----         ----        ----       ----        ----
                                                    (in thousands)
Electric gross margin  $1,707,077   $1,666,999    $899,791     $874,160  $712,080   $702,030
Gas gross margin         169,343      177,404      143,142      151,397         -          -
Net income               331,685      307,368      220,366      190,941   132,103     99,742

(1)  The results of Cinergy also include amounts related to non-registrants.
- ----------------------------------------------------------------------------------------------

Diluted earnings per share for the nine months ended September 30, 2001 was $2.06 per share as compared to $1.92 per share for the same period ended September 30, 2000. Increased earnings were primarily attributable to Energy Merchant’s origination, marketing and trading segment and reduced operations and maintenance expenditures. Partially offsetting these improvements were increased coal costs and greater depreciation and interest expenses associated with the financing of additional investments, principally peaking generation.

The explanations below follow the line items on the Consolidated Statements of Income for Cinergy, CG&E, and PSI. However, only the line items that varied significantly from prior periods are discussed.

Electric Operating Revenues

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

                              Cinergy (1)                      CG&E and subsidiaries                          PSI
                              -----------                      -------------------------                      ---
                       2001       2000      % Change         2001       2000      % Change          2001       2000      % Change
                       ----       ----      --------         ----       ----      --------          ----       ----      --------
                                                                   (in millions)
Retail               $2,052   $  2,015           2         $1,116   $  1,114          -         $    936   $    901           4
Wholesale             4,521      1,727         162          2,250        846        166            2,399      1,026         134
Transportation            2          -           -              2          -          -                -          -           -
Other                   199        175          14             30         17         76               23         31         (26)
                      -------    --------                   -------    -------                     -------    --------
    Total            $6,774   $  3,917          73         $3,398   $  1,977         72         $  3,358   $  1,958          72

(1)  The results of Cinergy also include amounts related to non-registrants.

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

Electric operating revenues for Cinergy, CG&E, and PSI increased for the nine months ended September 30, 2001, as compared to the same period last year, mainly due to an increase in volumes on non-firm wholesale transactions related to energy marketing and trading activity.

Gas Operating Revenues

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

                                   Cinergy (1)                          CG&E and subsidiaries
                                   -----------                          -------------------------
                           2001         2000       % Change            2001         2000      % Change
                           ----         ----       --------            ----         ----      --------
                                                         (in millions)
 Non-regulated          $ 3,380    $  1,383          144            $    -     $      -          -
 Retail                     421         241           75               421          241         75
 Transportation              29          41          (29)               29           41        (29)
 Other                        7           3          133                 8            5         60
                         ---------    ---------                      ---------    ---------
      Total             $ 3,837    $  1,668          130            $  458     $    287         60

(1)  The results of Cinergy also include amounts related to non-registrants.

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

Gas operating revenues for Cinergy increased for the nine months ended September 30, 2001, as compared to the same period last year. This increase was primarily the result of increased volumes and a higher price received per mcf sold by Marketing and Trading.

CG&E’s retail gas revenues increased primarily due to a higher price received per mcf sold and an increase in retail gas sales resulting from colder weather during the first quarter of 2001. The higher price reflects a substantial increase in the wholesale gas commodity cost during the first six months, which is passed directly to the retail customer dollar-for-dollar under the state mandated gas cost recovery mechanism. Retail sales also increased and transportation sales decreased as a result of customers switching back to CG&E gas service.

Operating Expenses

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

                                   Cinergy (1)                    CG&E and subsidiaries                         PSI
                                   -----------                    -------------------------                     ---
                            2001       2000      % Change       2001       2000      % Change       2001        2000      % Change
                            ----       ----      --------       ----       ----      --------       ----        ----      --------
                                                                       (in millions)
Fuel                      $  606     $  574          6        $  268      $  256          5       $  332      $  302          10
Purchased and
   exchanged power         4,460      1,676        166         2,231         847        163        2,314         954         143
Gas purchased              3,668      1,491        146           315         135        133            -           -           -
Operation and
   maintenance               782        818         (4)          349         361         (3)         302         340         (11)
Depreciation                 278        255          9           139         135          3          111         105           6
Taxes other than
   income taxes              176        201        (12)          136         155        (12)          38          43         (12)
                           -------    -------                  --------    -------                 --------    --------
     Total                $9,970     $5,015         99        $3,438      $1,889         82       $3,097      $1,744          78

(1)  The results of Cinergy also include amounts related to non-registrants.

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

Fuel

Fuel represents the cost of coal, natural gas, and oil that is used to generate electricity. The following table details the changes to fuel expense from the nine months ended September 30, 2000, to the nine months ended September 30, 2001:

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

                                        Cinergy (1)      CG&E         PSI
                                        -----------      --------     ---
                                                     (in millions)
Fuel expense - September 30, 2000         $  574        $  256      $  302

Increase (decrease) due to changes in:
Price of fuel                                 47            30          17
Deferred fuel cost                            22             3          19
MWh generation                               (27)          (21)         (6)
Other                                        (10)            -           -
                                          -------       -------     -------
Fuel expense - September 30, 2001         $  606        $  268      $  332

(1)  The results of Cinergy also include amounts related to non-registrants.

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

Fuel expense for Cinergy, CG&E, and PSI increased for the nine months ended September 30, 2001, as compared to the same period last year, primarily due to increases in the market price of coal in the first and second quarters of 2001. Partially offsetting this increase was a decrease in generation.

Purchased and Exchanged Power

Purchased and exchanged power expense increased for Cinergy, CG&E, and PSI for the nine months ended September 30, 2001, as compared to the same period last year, primarily due to an increase in purchases of non-firm wholesale power, reflecting higher sales volumes and higher prices paid per MWh in the energy marketing and trading operations.

Gas Purchased

Gas purchased expense increased for Cinergy and CG&E for the nine months ended September 30, 2001, as compared to the same period last year, primarily due to an increase in gas commodity trading volumes and an increase in the average cost per mcf of gas purchased. CG&E’s wholesale commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism.

Operation and Maintenance

Cinergy’s and PSI’s Operation and maintenance expense decreased for the nine months ended September 30, 2001, as compared to the same period last year, primarily due to a reduction in the amortization of demand-side management costs, resulting from the expiration of the agreement in May 2000. Also contributing to this decrease were expenses related to the Limited Early Retirement Program in 2000, as discussed in the 2000 Form 10-K.

Depreciation

Cinergy’s Depreciation expense increased for the nine months ended September 30, 2001, as compared to the same period last year. This increase was primarily attributable to the acquisition of additional depreciable plant, including investments in non-regulated peaking generation. Also contributing to the increase were increases in depreciable plant of PSI and CG&E.

Taxes Other Than Income Taxes

Cinergy’s, CG&E’s, and PSI’s Taxes other than income taxes decreased for the nine months ended September 30, 2001, as compared to the same period last year. This decrease was primarily attributable to reduced property tax expense and other tax changes associated with deregulation in Ohio.

Interest

Cinergy’s Interest expense increased for the nine months ended September 30, 2001, as compared to the same period last year. This increase was primarily due to debt issuances principally associated with the acquisition of additional peaking generation and general business purposes. Partially offsetting the affect of the increase in debt issuances was a decrease in short-term interest rates.

Income Taxes

CG&E’s and PSI’s Income tax expense increased for the nine months ended September 30, 2001, as compared to the same period last year. This increase was primarily due to the increase in taxable income.

ULH&P

The Results of Operations discussion for ULH&P is presented only for the nine months ended September 30, 2001, in accordance with General Instruction H(2)(a) of Form 10-Q.

Electric and gas margins and net income for ULH&P for the nine months ended September 30, 2001 and 2000, were as follows:

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

                                                         ULH&P
                                                         -----
                                                    2001           2000
                                                    ----           ----
                                                     (in thousands)
                      Electric gross margin      $ 61,164       $  43,526
                      Gas gross margin             26,740          26,961
                      Net income                   26,854          13,108

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

Electric operating revenues for the nine months ended September 30, 2001, as compared to the same period last year, increased primarily due to the recognition of revenues previously deferred subject to refund in connection with a retail rate filing with the Kentucky Public Service Company (KPSC). A settlement agreement, which allowed the retention of such revenues, was approved by the KPSC in May 2001. The purchase price paid per MWh remained somewhat constant with the same period last year. For further information see Note 4(h) in the “Notes to Financial Statements” in “Part I. Financial Information.”

The increase in Gas operating revenues for the nine months ended September 30, 2001, as compared to the same period last year, was mainly due to a higher price received per mcf sold. Gas purchased expense increased due to an increase in the average cost per mcf of gas purchased. The market price of natural gas has increased significantly since the same period last year, which has caused ULH&P to pay more for the gas it delivers to customers. The wholesale gas commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism that is mandated under state law.

Return to TOC

RESULTS OF OPERATIONS - FUTURE

Electric Industry

Wholesale Market Developments

Supply-side Actions

As discussed in the 2000 Form 10-K, on September 30, 1999, Cinergy Capital and Trading, Inc. (CC&T) formed a partnership (each party having a 50% ownership) with Duke Energy North America, LLC (Duke), to increase the available generating capacity for use during peak demand periods. The partnership was formed for the purpose of jointly constructing and owning three wholesale generating facilities.

On March 9, 2000, the IURC issued an order, requiring the partnership to immediately suspend all construction activities at the site located near Cadiz, (Henry County) Indiana (a peaking plant with a total capacity of 129 megawatts (MW, the basic unit of electric energy equal to one million watts) of which we own 65 MW). In making this decision, the IURC found that it needed additional information related to the project before issuing a final decision. The issues raised were air quality, water supply, noise control, landscaping, plant abandonment, and emergency services training. The IURC held a hearing on this matter on November 17, 2000, and a favorable ruling was received on April 23, 2001. The plant consists of three gas turbine engines which began generating power commercially on July 31, August 11 and October 6, 2001, respectively.

On June 4, 2001, CC&T and Duke announced they would dissolve their partnership with respect to these three wholesale generating facilities and an exchange of these generating assets would occur. On September 13, 2001, the partnership was dissolved and CC&T obtained ownership of 100% of the 640 MW wholesale generating facility located in Madison County, Ohio and 100% of the 129 MW wholesale generating facility located near Cadiz, Indiana. In exchange for the Madison County, Ohio and Cadiz, Indiana generating facilities, Duke received 100% of the Vermillion County, Indiana generating facility, which will be operated by Cinergy for five years. The dissolution of the partnership increased Cinergy’s peaking capacity by 70 MW and further diversified our generation portfolio to 60% coal-fired base load and 40% gas-fired peaking.

During the second quarter 2001, CC&T obtained permits for possible future construction of additional natural gas-fired peaking plants in Ohio and Kentucky. These permits will allow us the flexibility to increase our portfolio of gas fired peaking plants and increase our overall capacity.

As stated in the 2000 Form 10-K, Cinergy has 9,764 MW of coal-fired generation and we consume approximately 27 million tons of coal annually. Cinergy procures the majority of its coal through long-term supply contracts. The remainder is purchased in the open market, which recently has experienced significant price increases. These price increases will have a direct effect upon Cinergy’s cost to supply the electric commodity to our customers. With the implementation of electric deregulation in the State of Ohio and the associated termination of the fuel cost recovery mechanism, CG&E may not fully recover its retail related fuel costs.

Demand-side Actions

Cinergy recorded a new peak demand on July 23, 2001 of 10,993 MW. Subsequently, this peak demand was exceeded on August 8, 2001 and a new peak demand of 11,083 MW was recorded. Cinergy met customer demands for both peaks with their own supply and planned purchases from other regional electric suppliers.

Federal Energy Regulatory Commission (FERC) Notice of Proposed Rulemaking

On September 27, 2001, the FERC issued a Notice of Proposed Rulemaking, proposing to promulgate new standards of conduct regulations that would apply uniformly to natural gas pipelines and transmitting public utilities that are currently subject to FERC’s standards of conduct. The FERC is proposing to adopt one set of standards of conduct to govern the relationships between regulated transmission providers and all their energy affiliates, broadening the definition of an affiliate covered by the standards of conduct, from the more narrow definition in the existing regulations. At this time, we are unable to predict either the outcome of this proceeding or its affect on Cinergy.

Retail Market Developments

Federal Update

President Bush has indicated that legislation addressing the energy security needs of America deserves prompt consideration. He has appointed Vice President Cheney to head an interagency-task force to recommend a course of action. In May 2001, the Vice President and the National Energy Policy Development Group released the National Energy Policy (Policy). Among other things, the Policy recommends increased conservation of energy and calls for the increase of supplies of electricity, oil, and natural gas consistent with environmentally sound principles. Many of these recommendations are being considered by Congress.

The President also recognized the need to balance the energy and environmental needs of the country and supported combining the multitude of environmental regulations facing electric utilities into one legislative package. The intent is to give the industry one clear set of environmental goals, along with an appropriate amount of time to meet necessary emission reductions, while providing environmental benefits to consumers. Cinergy has championed this approach within the industry, Congress and the Bush Administration and will strive to achieve an energy and environmental balance in any final legislative package.

Ohio

As discussed in the 2000 Form 10-K, on July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to electric deregulation and customer choice for the State of Ohio. The Electric Restructuring Bill created a competitive electric retail service market effective January 1, 2001. The legislation provided for a market development period that began January 1, 2001, and ends no later than December 31, 2005.

On May 8, 2000, CG&E reached a stipulated agreement with the PUCO staff and various other interested parties with respect to its proposal to implement electric customer choice in Ohio effective January 1, 2001. On August 31, 2000, the PUCO approved CG&E’s stipulation agreement. Two parties filed applications for rehearing with the PUCO. On October 18, 2000, the PUCO denied these applications. One of the parties appealed to the Ohio Supreme Court in the fourth quarter of 2000 and CG&E subsequently intervened in that case. On April 6, 2001, CG&E filed for dismissal of this appeal. On July 25, 2001, the Ohio Supreme Court denied CG&E’s motion to dismiss. CG&E is unable to predict the outcome of this proceeding.

The August 31, 2000 order authorizes CG&E to transfer its generation assets to one or more non-regulated corporate subsidiary(ies). In addition to the regulatory approvals received from the PUCO, the IURC, and the KPSC, this transfer requires the approval of the FERC. As the transfer is contingent upon CG&E receiving FERC approval and various third party consents, the timing and receipt of which are unknown, the completion date of the transfer of generation assets to non-regulated subsidiary(ies) is uncertain.

Midwest Independent Transmission System Operator, Inc. (Midwest ISO)

As discussed in the 2000 Form 10-K, in the fall of 2000 three transmission owners (Departing Companies) announced their intent to leave the Midwest ISO and join the proposed Alliance Regional Transmission Organization (Alliance) by the end of 2001. On December 13, 2000, six additional transmission owners, including Cinergy, announced a plan for conditional withdrawal from the Midwest ISO if the Departing Companies left the organization.

On January 24, 2001, the FERC issued an order providing 30 days of confidential settlement talks between the Alliance and the Midwest ISO and its stakeholders, in an effort to resolve issues related to such withdrawals. Cinergy actively participated in the settlement process. On February 23, 2001, the settlement judge reported to the FERC that settlement talks produced a unanimous comprehensive settlement between all related parties. The settlement includes three major components:

• a commitment by the Midwest ISO and the Alliance to establish compatible/common operating practices and protocols to promote a seamless market within the Midwest;
• a commitment by the three Departing Companies to pay the Midwest ISO $60 million as their share of the Midwest ISO’s startup costs as well as other commercial considerations; and
• agreement upon a methodology to establish a single “within” rate for energy transactions that take place entirely within the Midwest ISO-Alliance Super Region, and a commitment by the Midwest ISO, Alliance, and PJM Interconnection, L.L.C. to establish a single “through and out” rate for transactions among the three regional transmission organizations.

The settlement, which was signed by Cinergy, was approved by the FERC on May 8, 2001. Under terms of the settlement, the Departing Companies will be permitted to leave the Midwest ISO, and the other transmission owner members of the Midwest ISO, including Cinergy, will remain as members of the Midwest ISO until at least December 31, 2002. Also, as part of the settlement, both organizations have committed to begin operations by the end of 2001.

On June 20, 2001, Cinergy and various other Indiana Midwest ISO transmission owners made a joint filing with the IURC seeking permission to transfer functional control of their transmission facilities to the Midwest ISO.

At a meeting of the FERC on July 10, 2001, a number of Regional Transmission Organization (RTO) related orders were approved, but in approving these orders the FERC suggested that they had an interest in limiting the number of RTO’s nationally. At the current time it is unclear if these suggestions will have any effect on the operations of the Midwest ISO.

Repeal of PUHCA

Early in 2001, S. 206, a bill to repeal the PUHCA, was introduced in the U.S. Senate (Senate). It was referred to the Senate Committee on Banking, Housing and Urban Affairs for action. Consequently, a hearing was held in the Subcommittee on Securities and Investment to identify support and opposition to this legislation. S. 206 was favorably reported out by a 19-1 vote by the full Senate Committee on Banking, Housing and Urban Affairs in April 2001. This legislation is now awaiting action by the full Senate. In addition, PUHCA repeal is part of Title VIII of S. 388, a bill introduced in the Senate that deals with a multitude of issues concerning national energy security. S. 388 is now pending before the Senate Committee on Energy and Natural Resources.

In March 2001, H.R. 1101, a bill to repeal the PUHCA, was introduced in the U.S. House of Representatives as a companion piece of legislation to S. 206. It has been referred to the House Committee on Energy and Commerce for action.

President Bush has identified the need for the repeal of the PUHCA as a priority of federal energy legislation. The Policy recommends PUHCA repeal as part of a broader restructuring of the electricity industry. We support the repeal of the PUHCA either as part of broader restructuring of the electricity industry or as separate legislation.

Significant Rate Developments

Purchased Power Tracker

As discussed in the 2000 Form 10-K, in May 1999, PSI filed a petition with the IURC seeking approval of a purchased power tracking mechanism (Tracker). This request was designed to provide for the recovery of costs related to purchases of power necessary to meet native load requirements to the extent such costs are not sought through the existing fuel adjustment clause.

In March 2001, the IURC held a hearing to review PSI’s 2000 purchases and rule on its associated request for recovery of costs. On May 16, 2001, the IURC issued an order approving the recovery of PSI’s summer 2000 purchased power costs ($18.5 million) via the Tracker (net of a mitigation credit and net of the displaced energy amount recovered through the fuel adjustment charge process).

A hearing was held before the IURC on February 15, 2001 to determine whether it was appropriate for PSI to continue the Tracker for future periods. On April 11, 2001, a favorable order was received extending the Tracker for two years, through the summer of 2002. PSI is authorized to recover 90% of its purchased power expenses through the Tracker (net of the displaced energy portion recovered through the fuel recovery process and net of the mitigation credit portions), with the remaining 10% deferred for subsequent recovery in PSI’s next general rate case (subject to a showing of prudence).

Termination of Operating Agreement

Upon consummation of the merger between CG&E and PSI Resources Inc. in 1994, an operating agreement entered into between CG&E, PSI, and Services was filed with and approved by the FERC. This agreement was established to provide for the coordinated planning and operation of the two regulated entities’ generation and transmission systems.

In October 2000, CG&E, PSI, and Services filed a notice of termination of the operating agreement with the FERC. The reason for the termination filing was that, with the introduction of deregulation in the State of Ohio, the companies no longer share the common characteristics that formed the basis for the operating agreement. On December 22, 2000, the FERC ruled that the companies have the contractual right to terminate the operating agreement. Additionally, the FERC established a termination effective date of May 22, 2001, and set a May 1, 2001, hearing date on the issue of the reasonableness of termination.

Certain parties appealed the FERC’s December 22, 2000 decision. On March 14, 2001, the IURC initiated an investigation proceeding into the termination of the operating agreement. On May 2, 2001, the parties to the FERC proceeding reached a settlement resolving termination issues and certain compensation and damage issues. This settlement, which was approved by the FERC on June 13, 2001, delayed the termination of the existing operating agreement until a new successor agreement has been allowed to become effective by the FERC. The settlement also provided that the parties would engage in negotiations concerning the terms and conditions of a successor agreement(s).

On August 9, 2001, the parties to both the IURC investigation proceeding and the previous FERC proceeding entered into two complementary settlement agreements. Both agreements addressed, among other things, the terms and conditions of a proposed new joint generation operating agreement and a proposed new joint transmission operating agreement. The IURC settlement agreement was approved by the IURC on September 11, 2001. Both the IURC and the FERC settlement agreements are conditioned upon FERC acceptance of the proposed successor agreements. Cinergy filed the successor agreements with the FERC on October 29, 2001. At this time, we cannot predict the outcome of the FERC proceedings regarding the proposed successor agreements.

PSI Fuel Adjustment Charge

As discussed in the 2000 Form 10-K, PSI defers fuel costs that are recoverable in future periods subject to IURC approval under a fuel recovery mechanism. On June 6, 2001, the IURC issued an order in a PSI fuel recovery proceeding, disallowing approximately $14 million of deferred costs. On June 26, 2001, PSI formally requested that the IURC reconsider its disallowance decision. On August 24, 2001, the IURC indicated that it will reconsider its decision. PSI believes it has strong legal and factual arguments in its favor and that it will ultimately be permitted to recover these costs. However, PSI cannot definitively predict the ultimate outcome of this matter.

PSI recently filed a petition with the IURC requesting authority to recover $16 million in under billed fuel costs incurred from March 2001 through May 2001. The IURC approved recovery of these costs subject to refund pending the findings of an investigative sub-docket. The sub-docket was opened to investigate the reasonableness of, and underlying reasons for, the under billed fuel costs. A hearing is scheduled for April 2002.

Construction Work in Process (CWIP) Ratemaking Treatment for Nitrogen Oxide (NO_X) Equipment.

During the third quarter of 2001, PSI filed an application requesting CWIP ratemaking treatment for costs related to NO_X equipment currently being installed at certain PSI generation facilities. CWIP ratemaking treatment allows for the recovery of carrying costs on the equipment during the construction period. PSI will file its case-in-chief during the fourth quarter of 2001. A hearing is scheduled for the first quarter of 2002. At this time, we cannot predict the outcome of the hearing.

Market Risk Sensitive Instruments and Positions

We market and trade electricity, natural gas, and other energy-related products. We use over-the-counter forward and option contracts for the purchase and sale of electricity and also trade exchange-traded futures contracts.

As stated in our 2000 Form 10-K, in 2000 the Western U.S., primarily California, began experiencing unprecedented price levels and volatility for wholesale electricity. Because of the nature of deregulation in California, California’s two largest utilities accumulated significant unpaid obligations. One of these utilities declared bankruptcy in the second quarter of 2001 and the other has been working with the state to finance its unpaid obligations. We continue to maintain a balanced Western U.S. portfolio and have no unrealized gain positions directly with these utilities. A portion of our Energy risk management assets and Energy risk management liabilities are with counterparties in the Western U.S. However, prices have dropped significantly in the second and third quarters of 2001. As a result of these price decreases and a declining level of outstanding contracts, our potential exposure in the Western U.S. has diminished.

Our natural gas trading volumes have increased substantially during 2001. Because of this volume change and the increasing volatility of gas prices, our risk exposure to these markets has increased. However, we continue to employ value-at-risk analysis and other methodologies to mitigate our risks in all trading operations, including natural gas trading.

From time to time, we may utilize foreign exchange forward contracts and currency swaps to hedge certain of our net investments in foreign operations.

Our net exposure to changes in interest rates primarily consists of debt instruments with floating interest rates that are benchmarked to various market indices. To manage the exposure to fluctuations in interest rates and to lower funding costs, we evaluate the use of, and have entered into, interest rate swaps.

See Notes 1(b) and (c) of the “Notes to Financial Statements” in “Part I. Financial Information” for our accounting policies for certain derivative instruments. Our market risks have not changed materially from the market risks reported in the 2000 Form 10-K.

Gas Industry

ULH&P Gas Rate Case

On May 4, 2001, ULH&P filed a retail gas rate case with the KPSC seeking to increase base rates for natural gas distribution services by approximately $7 million annually, or 8% overall. A hearing in this matter is scheduled to begin November 28, 2001. We expect that any rate change as a result of this filing will be effective in the first quarter of 2002. Simultaneously, ULH&P requested recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with a capital cost of approximately $112 million over the next ten years.

CG&E Gas Rate Case

On July 31, 2001, CG&E filed a retail gas rate case with the PUCO seeking to increase base rates for natural gas distribution services by approximately $26 million or 5% overall. We expect that any rate change as a result of this filing will be effective in the second quarter of 2002. Simultaneously, CG&E requested recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with a capital cost of approximately $716 million over the next ten years.

Gas Customer Choice

In January 2000, Investments sold Cinergy Resources, Inc. (CRI), a former subsidiary, to Licking Rural Electrification, Inc. doing business as The Energy Cooperative (Energy Cooperative). In February 2001, Cinergy, CG&E, and CRI were named as defendants in three class actions lawsuits. These lawsuits are in connection with Energy Cooperative’s removal from the Ohio Gas Customer Choice program and the failure to deliver gas to customers. Subsequently, these class action suits were amended and consolidated into one suit. CG&E has been dismissed as a defendant in the consolidated suit. On March 30, 2001, Cinergy, CG&E, and Investments were named as defendants in a lawsuit filed by both Energy Cooperative and CRI. This lawsuit concerns any obligations or liability Investments may have to Energy Cooperative following its sale of CRI. We intend to vigorously defend these lawsuits. At the present time, Cinergy cannot predict the outcome of these suits.

Gas Prices

As the result of the market price of natural gas increasing significantly in 2000, CG&E’s and ULH&P’s gas supply costs increased. These costs are passed directly through to the customer dollar-for-dollar under the gas cost recovery mechanisms that are applicable in Ohio and Kentucky. In January 2001, the KPSC ordered all gas distribution companies in Kentucky, including ULH&P, to begin filing and revising their gas cost recovery rate every month until further notice. During 2001, CG&E and ULH&P have lowered their rates in accordance with the downward trending gas prices and on July 17, 2001 the KPSC terminated the monthly filing requirement.

On May 14, 2001, ULH&P filed an application with the KPSC requesting approval of a gas procurement-hedging program designed to mitigate gas price volatility. On July 16, 2001, the KPSC approved the pilot program for the 2001-2002 heating season, subject to certain restrictions.

Accounting Changes

1. Business Combinations and Intangible Assets

On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, Business Combinations (Statement 141), and No. 142, Goodwill and Other Intangible Assets (Statement 142). Statement 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method. With the adoption of Statement 142, goodwill and other intangibles with indefinite lives will no longer be subject to amortization. Goodwill will be initially assessed for impairment shortly after adoption and at least annually thereafter by applying a fair-value-based test, as opposed to the undiscounted cash flow test applied under current accounting standards. This test must be applied at the “reporting unit” level, which will be defined within Cinergy, after further review, and will be a level no broader than the current business segments discussed in Note 5. Under Statement 142, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer’s intent to do so. We began applying Statement 141 in the third quarter of 2001 and we will adopt Statement 142 in the first quarter of 2002. Until we adopt Statement 142, goodwill will continue to be amortized. We do not believe that the discontinuance of amortization of goodwill will be material to our 2002 results of operations. We are analyzing the impact of the initial impairment test, and are unable to predict, at this time, whether the implementation of these accounting standards will be material to our financial position or results of operations.

2. Asset Retirement Obligations

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (Statement 143). Statement 143 requires fair value recognition of legal obligations to retire long-lived assets at the time such obligations are incurred. The initial recognition of this liability will be accompanied by a corresponding increase in property, plant, and equipment (PP&E). Subsequent to the initial recognition, the liability will be adjusted for revisions to the expected cash flows of the retirement obligation (with corresponding adjustments to PP&E), and for accretion of the liability due to the passage of time (recognized as an operation expense). Additional depreciation expense will be recorded prospectively for any PP&E increases. We will adopt Statement 143 in the first quarter of 2003. We are beginning to analyze the impact of this statement, but, at this time, we are unable to predict whether the implementation of this accounting standard will be material to our financial position or results of operation.

3. Derivatives

During 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivatives and Hedging Activities (Statement 133). This standard was effective for Cinergy beginning in 2001, and requires us to record derivative instruments which are not exempt under certain provisions of Statement 133 as assets or liabilities, measured at fair value (i.e., marked-to-market). Our financial statements reflect the adoption of Statement 133 in the first quarter of 2001. Since many of our derivatives were previously required to use mark-to-market accounting, the effects of implementation were not material.

Our adoption did not reflect the potential impact of applying mark-to-market accounting to selected options and capacity contracts. We had not historically marked these instruments to market because they are intended as either hedges of peak period exposure or sales contracts served with physical generation, neither of which were considered trading activities. At adoption, we classified these contracts as normal purchases or sales based on our interpretation of Statement 133 and in the absence of definitive guidance on such contracts. In June 2001, the FASB staff issued final guidance on the application of the normal purchases and sales exemption to electricity contracts containing characteristics of options. While much of the criteria this guidance requires is consistent with the existing guidance in Statement 133, some criteria were added. We adopted the new guidance in the third quarter of 2001, and the effects of implementation for these contracts were not material.

In October 2001, the FASB staff posted revised guidance on the normal purchases and sales exemption for these contracts. This revised guidance will change the applicability of this exemption for certain of our contracts and will be adopted during the first quarter of 2002. Based on a review of existing contracts, we do not believe this revised guidance will have a material impact to our financial position or results of operations upon adoption. However, given our activity in energy trading, it could increase volatility in future results. We will continue to apply this guidance to any new electricity contracts that meet the definition of a derivative.

In October 2001, the FASB staff released final guidance on the applicability of the normal purchases and sales exemption to contracts that contain a minimum quantity (a forward component) and flexibility to take additional quantity (an option component). This guidance concludes that such contracts are not eligible for the normal purchases and sales exemption due to the existence of optionality in the contract. Cinergy has certain contracts that contain optionality, primarily fuel supply contracts, for which the accounting may be impacted by this new guidance. We will adopt this guidance in the second quarter of 2002, consistent with the transition provisions. We have begun analyzing contracts to determine the applicability of this guidance and to determine the interaction between this guidance and Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation. However, at this time, we are unable to predict whether the implementation of this accounting standard will be material to our results of operations or financial position.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is provided in, and incorporated by reference from, the “Market Risk Sensitive Instruments and Positions” section in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in “Part I. Financial Information” and Notes 1(b) and (c) and Note 8 of the “Notes to Financial Statements” in “Part I. Financial Information.”

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

NEW SOURCE REVIEW AND NOTICES OF VIOLATION

See Notes 4(b), (c), and (d) of the “Notes to Financial Statements” in “Part I. Financial Information” for a discussion of the lawsuit and notices of violation filed by the United States Environmental Protection Agency (EPA) against Cinergy, CG&E, and PSI.

MANUFACTURED GAS PLANT SITES

See Notes 4(e) of the “Notes to Financial Statements” in “Part I. Financial Information” for a discussion of manufactured gas plant sites as they relate to our operating companies.

M METALS SUPERFUND SITE

On July 6, 2000, the EPA identified PSI and Indianapolis Power and Light Company (IPL) as Potentially Responsible Parties for the release of hazardous substances at the M Metals Superfund Site (Site) located in Indianapolis, Indiana. The EPA advised that it had taken response actions relating to the Site and had incurred costs of approximately $500,000. The EPA has demanded reimbursement of these costs incurred related to the Site and has encouraged PSI and IPL to work out an allocation between themselves for the payment of the costs. On April 19, 2001, PSI reached an agreement in principle with the EPA. On September 25, 2001, PSI and the EPA signed an Agreement for Recovery of Past Response Costs (The Agreement), which call for PSI to compensate the EPA $100,000 for costs incurred by the EPA in cleaning up the M Metals site. The Agreement is subject to the EPA’s 30-day comment period, which will expire on November 28, 2001. Assuming no adverse comments, PSI will tender payment to the EPA shortly thereafter, and the matter will be considered closed at that time.

GAS CUSTOMER CHOICE

See Note 4(f) of the "Notes to Financial Statements" in "Part I. Financial Information" for discussion of customer choice litigation.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) The documents listed below are being filed or have previously been filed on behalf of Cinergy Corp., CG&E, PSI, and ULH&P and are incorporated herein by reference from the documents indicated and made a part hereof. Exhibits not identified as previously filed are filed herewith:

- ---------------------------------------------------------------------------------------
  Exhibit                                                              Previously Filed
 Designation      Registrant             Nature of Exhibit              as Exhibit to:
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Instruments defining
the rights of holders,
including Indentures
- ---------------------------------------------------------------------------------------
                               Indenture between Cinergy Corp. and Fifth
                               Third Bank, as Trustee, dated September 12,
       4a       Cinergy Corp.  2001.
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
                               First Supplemental Indenture between Cinergy
                               Corp. and Fifth Third Bank, as Trustee,
       4b       Cinergy Corp.  dated September 12, 2001.
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
                               Loan agreement between Ohio Air Quality
                               Development Authority and CG&E dated
       4c       CG&E           August 1, 2001.
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------

        (b) No reports on Form 8-K were filed during the quarter.

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SIGNATURES

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although Cinergy Corp., The Cincinnati Gas & Electric Company (CG&E), PSI Energy, Inc. (PSI), and The Union Light, Heat and Power Company (ULH&P) believe that the disclosures are adequate to make the information presented not misleading. In the opinion of Cinergy Corp., CG&E, PSI, and ULH&P, these statements reflect all adjustments (which include normal, recurring adjustments) necessary to reflect the results of operations for the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their behalf by the undersigned thereunto duly authorized.

                                          CINERGY CORP.
                            The Cincinnati Gas & Electric Company
                                        PSI Energy, Inc.
                             The Union Light, Heat and Power Company
                                           Registrants






Date:  November 13, 2001       /s/       Bernard F. Roberts
                               -------------------------------------
                                       Bernard F. Roberts
                                     Duly Authorized Officer
                                               and
                                    Chief Accounting Officer
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EX-4

                                  CINERGY CORP.

                                       AND

                            FIFTH THIRD BANK, Trustee




                                    Indenture





                         Dated as of September 12, 2001


TRUST INDENTURE
 ACT SECTION                                                   INDENTURE SECTION

Section 310(a)(1)609
         (a)(2)..............................................................609
         (a)(3)...................................................Not Applicable
         (a)(4)...................................................Not Applicable
         (b).................................................................608
         ....................................................................610
Section 311(a)...............................................................613
         (b).................................................................613
Section 312(a)...............................................................701
         ....................................................................702
         (b).................................................................702
         (c).................................................................702
Section 313(a)...............................................................703
         (b).................................................................703
         (c).................................................................703
         (d).................................................................703
Section 314(a)...............................................................704
         (a)(4)..............................................................101
         ...................................................................1004
         (b)......................................................Not Applicable
         (c)(1)..............................................................102
         (c)(2)..............................................................102
         (c)(3)...................................................Not Applicable
         (d)......................................................Not Applicable
         (e).................................................................102
Section 315(a)...............................................................601
         (b).................................................................602
         (c).................................................................601
         (d).................................................................601
         (e).................................................................514
         Section 316(a)......................................................101
         (a)(1)(A)...........................................................502
         ....................................................................512
         (a)(1)(B)...........................................................513
         (a)(2)...................................................Not Applicable
         (b).................................................................508
         (c).................................................................104
Section 317(a)(1)............................................................503
         (a)(2)..............................................................504
         (b)................................................................1003
Section 318(a)...............................................................107
Note: This  reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
                                TABLE OF CONTENTS


                                                                                                               Page

RECITALS OF THE COMPANY........................................................5

ARTICLE ONE - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION..........6
SECTION 101.  DEFINITIONS......................................................6
SECTION 102.  COMPLIANCE CERTIFICATES AND OPINIONS............................11
SECTION 103.  FORM OF DOCUMENTS DELIVERED TO TRUSTEE..........................12
SECTION 105.  NOTICES, ETC., TO TRUSTEE AND COMPANY...........................14
SECTION 106.  NOTICE TO HOLDERS; WAIVER.......................................15
SECTION 107.  CONFLICT WITH TRUST INDENTURE ACT...............................15
SECTION 108.  EFFECT OF HEADINGS AND TABLE OF CONTENTS........................15
SECTION 109.  SUCCESSORS AND ASSIGNS..........................................15
SECTION 110.  SEPARABILITY CLAUSE.............................................16
SECTION 111.  BENEFITS OF INDENTURE...........................................16
SECTION 112.  GOVERNING LAW...................................................16
SECTION 113.  LEGAL HOLIDAYS..................................................16
SECTION 114.  CERTAIN MATTERS RELATING TO CURRENCIES..........................16
SECTION 115.  IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS.17
SECTION 116.  COUNTERPARTS....................................................17
SECTION 117.  ASSIGNMENT TO AFFILIATE.........................................17

ARTICLE TWO - SECURITY FORMS..................................................17
SECTION 201.  FORMS GENERALLY.................................................17
SECTION 202.  FORM OF FACE OF SECURITY........................................18
SECTION 203.  FORM OF REVERSE OF SECURITY.....................................19
SECTION 204.  FORM OF LEGEND FOR GLOBAL SECURITIES............................23
SECTION 205.  FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.................23

ARTICLE THREE - THE SECURITIES................................................24
SECTION 301.  AMOUNT UNLIMITED; ISSUABLE IN SERIES............................24
SECTION 302.  DENOMINATIONS...................................................26
SECTION 303.  EXECUTION, AUTHENTICATION, DELIVERY AND DATING..................27
SECTION 304.  TEMPORARY SECURITIES............................................28
SECTION 305.  REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.............28
SECTION 306.  MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES................30
SECTION 307.  PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED..................31
SECTION 308.  PERSONS DEEMED OWNERS...........................................32
SECTION 309.  CANCELLATION....................................................32
SECTION 310.  COMPUTATION OF INTEREST.........................................33
SECTION 311.  CUSIP NUMBERS...................................................33

ARTICLE FOUR - SATISFACTION AND DISCHARGE.....................................33
SECTION 401.  SATISFACTION AND DISCHARGE OF INDENTURE.........................33
SECTION 402.  APPLICATION OF TRUST MONEY......................................34

ARTICLE FIVE - REMEDIES.......................................................34
SECTION 501.  EVENTS OF DEFAULT...............................................34
SECTION 502.  ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT..............35
SECTION 503.  COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.36
SECTION 504.  TRUSTEE MAY FILE PROOFS OF CLAIM................................37
SECTION 505.  TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.....37
SECTION 506.  APPLICATION OF MONEY COLLECTED..................................37
SECTION 507.  LIMITATION ON SUITS.............................................38
SECTION 508.  UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
              PREMIUM AND INTEREST............................................39
SECTION 509.  RESTORATION OF RIGHTS AND REMEDIES..............................39
SECTION 510.  RIGHTS AND REMEDIES CUMULATIVE..................................39
SECTION 511.  DELAY OR OMISSION NOT WAIVER....................................39
SECTION 512.  CONTROL BY HOLDERS..............................................39
SECTION 513.  WAIVER OF PAST DEFAULTS.........................................40
SECTION 514.  UNDERTAKING FOR COSTS...........................................40
SECTION 515.  WAIVER OF USURY, STAY OR EXTENSION LAWS.........................41

ARTICLE SIX - THE TRUSTEE.....................................................41
SECTION 601.  CERTAIN DUTIES AND RESPONSIBILITIES.............................41
SECTION 602.  NOTICE OF DEFAULTS..............................................41
SECTION 603.  CERTAIN RIGHTS OF TRUSTEE.......................................41
SECTION 604.  NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES..........42
SECTION 605.  MAY HOLD SECURITIES.............................................42
SECTION 606.  MONEY HELD IN TRUST.............................................43
SECTION 607.  COMPENSATION AND REIMBURSEMENT..................................43
SECTION 608.  CONFLICTING INTERESTS...........................................44
SECTION 609.  CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.........................44
SECTION 610.  RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR...............44
SECTION 611.  ACCEPTANCE OF APPOINTMENT BY SUCCESSOR..........................45
SECTION 612.  MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.....46
SECTION 613.  PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY...............47
SECTION 614.  APPOINTMENT OF AUTHENTICATING AGENT.............................47
SECTION 615.  INDEMNIFICATION.................................................49

ARTICLE SEVEN - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.............49
SECTION 701.  COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.......49
SECTION 703.  REPORTS BY TRUSTEE..............................................50
SECTION 704.  REPORTS BY COMPANY..............................................50

ARTICLE EIGHT - CONSOLIDATION, MERGER AND SALE................................50
SECTION 801.  CONSOLIDATIONS AND MERGERS PERMITTED............................50
SECTION 802.  RIGHTS AND DUTIES OF SUCCESSOR COMPANY..........................51
SECTION 803.  OPINION OF COUNSEL..............................................51

ARTICLE NINE - SUPPLEMENTAL INDENTURES........................................52
SECTION 901.  SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS..............52
SECTION 902.  SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.................53
SECTION 903.  EXECUTION OF SUPPLEMENTAL INDENTURES............................54
SECTION 904.  EFFECT OF SUPPLEMENTAL INDENTURES...............................54
SECTION 905.  CONFORMITY WITH TRUST INDENTURE ACT.............................54
SECTION 906.  REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES..............55

ARTICLE TEN - COVENANTS.......................................................55
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST......................55
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.................................55
SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST...............55
SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT.............................57
SECTION 1005. MAINTENANCE OF PROPERTIES.......................................57
SECTION 1006. PAYMENT OF TAXES AND OTHER CLAIMS...............................57
SECTION 1007. WAIVER OF CERTAIN COVENANTS.....................................58
SECTION 1008. CALCULATION OF ORIGINAL ISSUE DISCOUNT..........................58

ARTICLE ELEVEN - REDEMPTION OF SECURITIES.....................................58
SECTION 1101. APPLICABILITY OF ARTICLE........................................58
SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE...........................58
SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED...............58
SECTION 1104. NOTICE OF  THE REDEMPTION.......................................59
SECTION 1105. DEPOSIT OF REDEMPTION PRICE.....................................60
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE...........................60
SECTION 1107. SECURITIES REDEEMED IN PART.....................................60

ARTICLE TWELVE - SINKING FUNDS................................................61
SECTION 1201. APPLICABILITY OF ARTICLE........................................61
SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES...........61
SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND.......................62

ARTICLE THIRTEEN - DEFEASANCE AND COVENANT DEFEASANCE.........................62
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
              DEFEASANCE......................................................62
SECTION 1302. DEFEASANCE AND DISCHARGE........................................63
SECTION 1303. COVENANT DEFEASANCE.............................................63
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.................63
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE
              HELD IN TRUST; MISCELLANEOUS PROVISIONS.........................65
SECTION 1306. REINSTATEMENT...................................................66

ARTICLE FOURTEEN - JUNIOR SUBORDINATED SECURITIES.............................66
SECTION 1401. CERTAIN SECURITIES SUBORDINATE TO SENIOR DEBT...................66
SECTION 1402. PAYMENT OVER OF PROCEEDS UPON DEFAULT...........................67
SECTION 1403. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC..................67
SECTION 1404. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR DEBT.................68
SECTION 1405. TRUSTEE TO EFFECTUATE SUBORDINATION.............................69
SECTION 1406. NOTICE TO TRUSTEE...............................................70
SECTION 1407. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR DEBT;
              PRESERVATION OF TRUSTEE'S RIGHTS................................70
SECTION 1408. NO WAIVER OF SUBORDINATION PROVISIONS...........................71

     INDENTURE,  dated as of  September  12,  2001,  between  Cinergy  Corp.,  a
corporation  duly organized and existing under the laws of the State of Delaware
(herein called the  "Company"),  having its principal  office at 139 East Fourth
Street,  Cincinnati,   Ohio  45202,  and  Fifth  Third  Bank,  an  Ohio  banking
corporation, as Trustee (herein called the "Trustee").

                             Recitals of the Company

     The  Company  has  duly  authorized  the  execution  and  delivery  of this
Indenture  to  provide  for the  issuance  from  time  to time of its  unsecured
debentures,  notes  or  other  evidences  of  indebtedness  (herein  called  the
"Securities"),  unlimited  as to principal  amount,  to be issued in one or more
series as in this Indenture provided.

     All  things  necessary  to make this  Indenture  a valid  agreement  of the
Company, in accordance with its terms, have been done.

     Now, Therefore, This Indenture Witnesseth:

     For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually agreed,  subject to Article Fourteen,  if
applicable,  for the equal  and  proportionate  benefit  of the  Holders  of the
Securities of each series thereof, as follows:

                                   ARTICLE ONE

                        Definitions and Other Provisions
                             of General Application

Section 101. Definitions.

     For all purposes of this Indenture,  except as otherwise expressly provided
or unless the context otherwise requires:

     (1) the terms defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular;

     (2) all other  terms used herein  which are defined in the Trust  Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;

     (3) all  accounting  terms not otherwise  defined  herein have the meanings
assigned to them in accordance with generally accepted accounting  principles in
the United States;

     (4) unless the context otherwise requires, any reference to an "Article" or
a  "Section"  refers to an  Article  or a  Section,  as the case may be, of this
Indenture; and

     (5) the words "herein," "hereof" and "hereunder" and other words of similar
import  refer to this  Indenture as a whole and not to any  particular  Article,
Section or other subdivision.

     "Act," when used with respect to any Holder,  has the meaning  specified in
Section 104.

     "Affiliate"  of any  specified  Person means any other  Person  directly or
indirectly  controlling  or  controlled  by or under  direct or indirect  common
control  with  such  specified  Person.  For the  purposes  of this  definition,
"control"  when used with respect to any  specified  Person,  means the power to
direct the  management  and  policies of such  Person,  directly or  indirectly,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling" and "controlled"  have meanings  correlative to the
foregoing.

     "Authenticating  Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities of one
or more series.

     "Board of  Directors"  means the board of directors of the Company,  or any
duly authorized committee of that board, or any Person duly authorized to act on
behalf of that board.

     "Board Resolution" means a copy of a resolution or resolutions certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

     "Business Day," when used with respect to any Place of Payment,  means each
Monday,  Tuesday,  Wednesday,  Thursday  and Friday  which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by law
or executive order to close.

     "Commission"  means the  Securities and Exchange  Commission,  from time to
time  constituted,  created under the Exchange Act, or, if at any time after the
execution of this  instrument such Commission is not existing and performing the
duties  now  assigned  to it  under  the  Trust  Indenture  Act,  then  the body
performing such duties at such time.

     "Company" means the Person named as the "Company" in the first paragraph of
this instrument  until a successor Person shall have become such pursuant to the
applicable  provisions of this  Indenture,  and thereafter  "Company" shall mean
such successor Person.

     "Company Request" or "Company Order" mean, respectively,  a written request
or order  signed in the name of the  Company  either by (i) its  Chairman of the
Board,  its  Vice  Chairman,  its  President,  any of its Vice  Presidents,  its
Treasurer, or any of its Assistant Treasurers,  and delivered to the Trustee, or
(ii) any two Persons  designated  in a Board  Resolution,  or in a Company Order
previously  delivered  to the  Trustee  signed  by any  of  the  foregoing,  and
delivered to the Trustee.

     "Corporate  Trust Office" means the office of the Trustee for Securities of
any series at which at any particular time its corporate trust business shall be
principally  administered,  which  office  at the  date  of  execution  of  this
Indenture is located at 38 Fountain Square Plaza, Cincinnati, Ohio.

     "Corporation" means a corporation,  association, limited liability company,
joint-stock company or business trust.

     "Covenant Defeasance" has the meaning specified in Section 1303.

     "Defaulted Interest" has the meaning specified in Section 307.

     "Defeasance" has the meaning specified in Section 1302.

     "Depositary"  means,  with respect to Securities of any series  issuable in
whole or in part in the form of one or more Global Securities, a clearing agency
registered  under the Exchange Act that is designated  to act as Depositary  for
such Securities as contemplated by Section 301.

     "Event of Default" has the meaning specified in Section 501.

     "Exchange Act" means the Securities Exchange Act of 1934.

     "Expiration Date" has the meaning specified in Section 104.

     "Global  Security"  means  a  Security  that  evidences  all or part of the
Securities  of any series and bears the legend set forth in Section 204 (or such
legend as may be specified as contemplated by Section 301 for such Securities).

     "Holder"  means a Person in whose  name a  Security  is  registered  in the
Security Register.

     "Indenture" means this instrument as originally executed and as it may from
time to time be supplemented  or amended by one or more indentures  supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all  purposes  of this  instrument  and any  such  supplemental  indenture,  the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this  instrument and any such  supplemental  indenture,  respectively.  The term
"Indenture"  shall also  include the terms of  particular  series of  Securities
established as contemplated by Section 301.

     "Interest,"  when used with respect to an Original Issue Discount  Security
which by its terms bears interest only after  Maturity,  means interest  payable
after Maturity.

     "Interest Payment Date," when used with respect to any Security,  means the
Stated Maturity of an installment of interest on such Security.

     "Investment Company Act" means the Investment Company Act of 1940.

     "Junior  Subordinated  Securities"  shall  have the  meaning  specified  in
Section 1401.

     "Maturity," when used with respect to any Security, means the date on which
the principal of such Security or an  installment  of principal  becomes due and
payable as  therein or herein  provided,  whether at the Stated  Maturity  or by
declaration of acceleration, call for redemption or otherwise.

     "Notice of Default" means a written notice of the kind specified in Section
501(4).

     "Officer's  Certificate"  means a certificate signed in the same manner and
by  Persons  as  provided  for in a  Company  Request  or a Company  Order,  and
delivered to the Trustee.

     "Opinion of  Counsel"  means a written  opinion of  counsel,  who may be an
employee of or counsel for the Company.

     "Original Issue Discount Security" means any Security which provides for an
amount  less than the  principal  amount  thereof to be due and  payable  upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.

     "Outstanding," when used with respect to Securities,  means, as of the date
of determination,  all Securities theretofore  authenticated and delivered under
this Indenture, except:

     (1)  Securities  theretofore  cancelled  by the Trustee or delivered to the
Trustee for cancellation;

     (2)  Securities  for whose  payment or  redemption  money in the  necessary
amount has been  theretofore  deposited  with the  Trustee  or any Paying  Agent
(other than the  Company) in trust or set aside and  segregated  in trust by the
Company  (if the Company  shall act as its own Paying  Agent) for the Holders of
such Securities; provided that, if such Securities are to be redeemed, notice of
such  redemption  has been duly given  pursuant to this  Indenture  or provision
therefor satisfactory to the Trustee has been made;

     (3) Securities as to which Defeasance has been effected pursuant to Section
1302; and

     (4) Securities  which have been paid pursuant to Section 306 or in exchange
for or in lieu of which other Securities have been  authenticated  and delivered
pursuant to this  Indenture,  other than any such Securities in respect of which
there shall have been  presented to the Trustee  proof  satisfactory  to it that
such Securities are held by a bona fide purchaser in whose hands such Securities
are valid  obligations of the Company;  provided,  however,  that in determining
whether  the  Holders  of the  requisite  principal  amount  of the  Outstanding
Securities  have  given,  made or  taken  any  request,  demand,  authorization,
direction, notice, consent, waiver or other action hereunder as of any date, (A)
the  principal  amount of an Original  Issue  Discount  Security  which shall be
deemed to be  Outstanding  shall be the amount of the  principal  thereof  which
would be due and  payable  as of such date  upon  acceleration  of the  Maturity
thereof to such date  pursuant  to  Section  502,  (B) if, as of such date,  the
principal   amount  payable  at  the  Stated  Maturity  of  a  Security  is  not
determinable,  the principal amount of such Security which shall be deemed to be
Outstanding  shall be the amount as specified or determined as  contemplated  by
Section 301, (C) the principal  amount of a Security  denominated in one or more
foreign  currencies  or currency  units which shall be deemed to be  Outstanding
shall be the U.S.  dollar  equivalent,  determined as of such date in the manner
provided  as  contemplated  by  Section  301,  of the  principal  amount of such
Security (or, in the case of a Security described in Clause (A) or (B) above, of
the amount  determined as provided in such Clause),  and (D) Securities owned by
the Company or any other  obligor upon the  Securities  or any  Affiliate of the
Company  or of such  other  obligor  shall be  disregarded  and deemed not to be
Outstanding,  except that, in determining whether the Trustee shall be protected
in relying upon any such  request,  demand,  authorization,  direction,  notice,
consent,  waiver or other action,  only  Securities  which the Trustee  actually
knows to be so owned  shall be so  disregarded.  Securities  so owned which have
been  pledged  in good  faith may be  regarded  as  Outstanding  if the  pledgee
establishes  to the  satisfaction  of the Trustee the pledgee's  right so to act
with respect to such  Securities  and that the pledgee is not the Company or any
other  obligor upon the  Securities  or any  Affiliate of the Company or of such
other obligor.

     "Paying Agent" means, if not the Company, then any Person authorized by the
Company to pay the principal of or any premium or interest on any  Securities on
behalf of the Company.

     "Person" means any  individual,  corporation,  partnership,  joint venture,
association,   joint-stock  company,  trust,   unincorporated   organization  or
government or any agency or political subdivision thereof.

     "Place of Payment," when used with respect to the Securities of any series,
means the place or places where the principal of and any premium and interest on
the  Securities  of that  series are payable as  specified  as  contemplated  by
Section 301.

     "Predecessor  Security" of any  particular  Security  means every  previous
Security  evidencing all or a portion of the same debt as that evidenced by such
particular  Security;  and,  for the purposes of this  definition,  any Security
authenticated  and  delivered  under Section 306 in exchange for or in lieu of a
mutilated,  destroyed,  lost or stolen  Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.

     "Redemption  Date," when used with  respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.

     "Redemption  Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.

     "Regular Record Date" for the interest payable on any Interest Payment Date
on the  Securities  of any series means the date  specified  for that purpose as
contemplated by Section 301.

     "Responsible  Officer,"  when used with respect to the  Trustee,  means any
vice  president,  any assistant  vice-president,  any trust officer or assistant
trust  officer  of  the  Trustee  assigned  to  the  Trustee's  corporate  trust
department and customarily  performing  functions  similar to those performed by
any of  the  above  designated  officers  and  also  means,  with  respect  to a
particular  corporate  trust  matter,  any other  officer to whom such matter is
referred  because  of his  knowledge  of and  familiarity  with  the  particular
subject.

     "Securities"  has the meaning stated in the first recital of this Indenture
and more  particularly  means any Securities  authenticated  and delivered under
this Indenture.

     "Securities Act" means the Securities Act of 1933.

     "Security  Register" and "Security  Registrar" have the respective meanings
specified in Section 305.

     "Senior  Debt" of the Company  means the  principal  of,  premium,  if any,
interest on and any other payment due pursuant to any of the following,  whether
outstanding at the date of execution of this  Indenture or thereafter  incurred,
created or assumed:  (a) all  indebtedness  of the Company  evidenced  by notes,
debentures,  bonds or other securities sold by the Company for money,  excluding
Junior  Subordinated  Securities,  but including all first mortgage bonds of the
Company  outstanding  from time to time; (b) all  indebtedness of Persons of the
kinds  described in the  preceding  clause (a) assumed by or  guaranteed  in any
manner by the Company, including through an agreement to purchase, contingent or
otherwise; and (c) all renewals, extensions or refundings of indebtedness of the
kinds described in any of the preceding clauses (a) and (b); unless, in the case
of any particular indebtedness,  renewal, extension or refunding, the instrument
creating or  evidencing  the same or the  assumption  or  guarantee  of the same
expressly  provides that such indebtedness,  renewal,  extension or refunding is
not  superior  in  right  of  payment  to or  is  pari  passu  with  the  Junior
Subordinated Securities.

     "Special  Record Date" for the payment of any  Defaulted  Interest  means a
date fixed by the Trustee pursuant to Section 307.

     "Stated   Maturity,"  when  used  with  respect  to  any  Security  or  any
installment of principal thereof or interest  thereon,  means the date specified
in such  Security as the fixed date on which the  principal of such  Security or
such installment of principal or interest is due and payable.

     "Subsidiary"  means a corporation  more than 50% of the outstanding  voting
stock of which is owned,  directly  or  indirectly,  by the Company or by one or
more other  Subsidiaries,  or by the Company and one or more other Subsidiaries.
For the purposes of this definition, "voting stock" means stock which ordinarily
has voting power for the election of directors,  whether at all times or only so
long as no  senior  class  of stock  has such  voting  power  by  reason  of any
contingency.

     "Trust  Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed, except as provided in Section
905.

     "Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture,  and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder, and if at any time there is
more than one such Person,  "Trustee" as used with respect to the  Securities of
any series shall mean the Trustee with respect to Securities of that series.

     "U.S. Government Obligation" has the meaning specified in Section 1304.

     "Vice  President,"  when used with  respect to the Company or the  Trustee,
means any vice  president,  whether or not  designated  by a number or a word or
words added before or after the title "vice president."

     Section 102. Compliance Certificates and Opinions.

     Upon any  application  or request by the  Company  to the  Trustee  for any
series of Securities  to take any action under any provision of this  Indenture,
the Company shall furnish to the Trustee such  certificates  and opinions as may
be required  under the Trust  Indenture  Act. Each such  certificate  or opinion
shall be given in the  form of an  Officer's  Certificate,  if to be given by an
officer of the Company, or an Opinion of Counsel, if to be given by counsel, and
shall  comply with the  requirements  of the Trust  Indenture  Act and any other
requirements set forth in this Indenture.

     Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include,

     (1) a statement that each  individual  signing such  certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;

     (2) a statement that, in the opinion of each such  individual,  he has made
such  examination or  investigation  as is necessary to enable him to express an
informed  opinion as to  whether  or not such  covenant  or  condition  has been
complied with; and

     (3) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.

     Section 103. Form of Documents Delivered to Trustee.

     In any case where  several  matters  are  required to be  certified  by, or
covered by an opinion of, any specified  Person,  it is not  necessary  that all
such  matters  be  certified  by, or covered by the  opinion  of,  only one such
Person,  or that they be so certified or covered by only one  document,  but one
such Person may certify or give an opinion  with respect to some matters and one
or more other such Persons as to other matters,  and any such Person may certify
or give an opinion as to such matters in one or several documents.

     Any  certificate  or opinion of an  officer  of the  Company  may be based,
insofar as it relates to legal  matters,  upon a  certificate  or opinion of, or
representations  by, counsel,  unless such officer knows that the certificate or
opinion  or  representations   with  respect  to  the  matters  upon  which  his
certificate or opinion is based are erroneous.  Any such  certificate or Opinion
of Counsel  may be based,  insofar as it  relates  to  factual  matters,  upon a
certificate or opinion of, or representations  by, an officer or officers of the
Company stating that the information  with respect to such factual matters is in
the possession of the Company, unless such counsel knows that the certificate or
opinion or representations with respect to such matters are erroneous.

     Where  any  Person  is  required  to  make,  give  or  execute  two or more
applications,  requests, consents,  certificates,  statements, opinions or other
instruments  under this Indenture,  they may, but need not, be consolidated  and
form one instrument.

     Section 104. Acts of Holders; Record Dates.

     Any request, demand,  authorization,  direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given,  made or taken
by Holders  may be  embodied  in and  evidenced  by one or more  instruments  of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing.Except as herein otherwise expressly provided,  such action
shall become  effective when such instrument or instruments are delivered to the
Trustee  and,  where it is  hereby  expressly  required,  to the  Company.  Such
instrument  or  instruments  (and the  action  embodied  therein  and  evidenced
thereby) are herein  sometimes  referred to as the "Act" of the Holders  signing
such instrument or instruments.  Proof of execution of any such instrument or of
a writing  appointing any such agent shall be sufficient for any purpose of this
Indenture  and (subject to Section 601)  conclusive  in favor of the Trustee and
the Company, if made in the manner provided in this Section.

     The fact and date of the execution by any Person of any such  instrument or
writing may be proved by the  affidavit  of a witness of such  execution or by a
certificate  of a notary  public  or  other  officer  authorized  by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a  signer  acting  in a  capacity  other  than  his  individual  capacity,  such
certificate  or  affidavit  shall  also  constitute   sufficient  proof  of  his
authority. The fact and date of the execution of any such instrument or writing,
or the  authority of the Person  executing  the same,  may also be proved in any
other manner which the Trustee deems sufficient.

     The ownership of Securities shall be proved by the Security Register.

     Any request, demand,  authorization,  direction, notice, consent, waiver or
other Act of the Holder of any Security  shall bind every  future  Holder of the
same Security and the Holder of every Security  issued upon the  registration of
transfer  thereof  or in  exchange  therefor  or in lieu  thereof  in respect of
anything  done,  omitted or suffered to be done by the Trustee or the Company in
reliance  thereon,  whether  or not  notation  of such  action is made upon such
Security.

     The Company may set any day as a record date for the purpose of determining
the Holders of Outstanding  Securities of any series  entitled to give,  make or
take any request, demand,  authorization,  direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given,  made or taken
by Holders of Securities of such series, provided that the Company may not set a
record  date for,  and the  provisions  of this  paragraph  shall not apply with
respect  to,  the  giving or  making  of any  notice,  declaration,  request  or
direction referred to in the next paragraph.  If any record date is set pursuant
to this paragraph,  the Holders of Outstanding Securities of the relevant series
on such  record  date,  and no  other  Holders,  shall be  entitled  to take the
relevant  action,  whether or not such Holders  remain Holders after such record
date;  provided that no such action shall be effective hereunder unless taken on
or prior to the applicable Expiration Date by Holders of the requisite principal
amount of Outstanding  Securities of such series on such record date. Nothing in
this  paragraph  shall be  construed  to prevent the Company  from setting a new
record  date for any  action  for which a record  date has  previously  been set
pursuant  to this  paragraph  (whereupon  the record date  previously  set shall
automatically  and with no action by any Person be cancelled  and of no effect),
and nothing in this  paragraph  shall be  construed  to render  ineffective  any
action  taken by  Holders  of the  requisite  principal  amount  of  Outstanding
Securities  of the  relevant  series on the date such action is taken.  Promptly
after any record date is set pursuant to this paragraph, the Company, at its own
expense,  shall cause notice of such record date, the proposed action by Holders
and the applicable  Expiration Date to be given to the Trustee in writing and to
each  Holder of  Securities  of the  relevant  series in the manner set forth in
Section 106.

     The Trustee may set any day as a record date for the purpose of determining
the  Holders of  Outstanding  Securities  of any series  entitled to join in the
giving  or  making  of (i) any  Notice  of  Default,  (ii)  any  declaration  of
acceleration  referred  to in  Section  502,  (iii)  any  request  to  institute
proceedings  referred to in Section 507(2) or (iv) any direction  referred to in
Section 512, in each case with  respect to  Securities  of such  series.  If any
record  date is set  pursuant  to this  paragraph,  the  Holders of  Outstanding
Securities of such series on such record date,  and no other  Holders,  shall be
entitled to join in such notice, declaration,  request or direction,  whether or
not such Holders  remain  Holders after such record date;  provided that no such
action shall be effective  hereunder  unless taken on or prior to the applicable
Expiration  Date by Holders of the  requisite  principal  amount of  Outstanding
Securities of such series on such record date.  Nothing in this paragraph  shall
be  construed  to prevent  the  Trustee  from  setting a new record date for any
action  for  which a  record  date has  previously  been  set  pursuant  to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be  cancelled  and of no  effect),  and  nothing in this
paragraph  shall be construed to render  ineffective any action taken by Holders
of the  requisite  principal  amount of  Outstanding  Securities of the relevant
series on the date such action is taken.  Promptly  after any record date is set
pursuant to this paragraph,  the Trustee, at the Company's expense,  shall cause
notice of such record date,  the proposed  action by Holders and the  applicable
Expiration  Date to be given to the  Company  in writing  and to each  Holder of
Securities of the relevant series in the manner set forth in Section 106.

     With  respect to any record date set  pursuant to this  Section,  the party
hereto which sets such record date,  may  designate  any day as the  "Expiration
Date" and from time to time may change  the  Expiration  Date to any  earlier or
later day;  provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing,  and
to each Holder of Securities  of the relevant  series in the manner set forth in
Section 106, on or prior to the existing  Expiration Date. If an Expiration Date
is not designated  with respect to any record date set pursuant to this Section,
the party  hereto  which set such record date shall be deemed to have  initially
designated  the 180th day after such  record  date as the  Expiration  Date with
respect thereto,  subject to its right to change the Expiration Date as provided
in this paragraph.  Notwithstanding  the foregoing,  no Expiration Date shall be
later than the 180th day after the applicable record date.

     Without  limiting the foregoing,  a Holder  entitled  hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal  amount of such Security or by one or more duly
appointed  agents  each of which may do so  pursuant  to such  appointment  with
regard to all or any part of such principal amount.

     Section 105. Notices, Etc., to Trustee and Company.

     Any request, demand,  authorization,  direction, notice, consent, waiver or
Act of Holders or other  document  provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,

     (1) the Trustee by any Holder or by the  Company  shall be  sufficient  for
every purpose hereunder if made, given, furnished or filed in writing to or with
the  Trustee  at  its  Corporate  Trust  Office,   Attention:   Corporate  Trust
Administration, or

     (2) the Company by the  Trustee or by any Holder  shall be  sufficient  for
every purpose  hereunder  (unless  otherwise  herein  expressly  provided) if in
writing and mailed,  first-class postage prepaid, to the Company addressed to it
at the address of its principal  office specified in the first paragraph of this
instrument  or at any other  address  previously  furnished  in  writing  to the
Trustee by the Company.

     Section 106. Notice to Holders; Waiver.

     Where this  Indenture  provides  for  notice to Holders of any event,  such
notice shall be sufficiently given (unless otherwise herein expressly  provided)
if in writing and mailed,  to each Holder affected by such event, at his address
as it appears in the Security Register, not later than the latest date (if any),
and not earlier than the earliest  date (if any),  prescribed  for the giving of
such notice.  In any case where notice to Holders is given by mail,  neither the
failure to mail such  notice,  nor any  defect in any  notice so mailed,  to any
particular  Holder shall affect the  sufficiency  of such notice with respect to
other Holders.  Any notice when mailed to a Holder in the aforesaid manner shall
be  conclusively  deemed to have been  received  by such  Holder  whether or not
actually  received by such Holder.  Where this Indenture  provides for notice in
any  manner,  such  notice may be waived in writing  by the Person  entitled  to
receive such notice,  either before or after the event, and such waiver shall be
the equivalent of such notice.  Waivers of notice by Holders shall be filed with
the Trustee,  but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.

     In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall  constitute
a sufficient notification for every purpose hereunder.

     Section 107. Conflict with Trust Indenture Act.

     If any provision hereof limits,  qualifies or conflicts with a provision of
the Trust  Indenture  Act,  which is required under such Act to be a part of and
govern this Indenture,  the latter provision shall control.  If any provision of
this  Indenture  modifies or excludes any provision of the Trust  Indenture Act,
which may be so modified or excluded,  the latter  provision  shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.

     Section 108. Effect of Headings and Table of Contents.

     The Article and Section  headings  herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.

     Section 109. Successors and Assigns.

     All  covenants and  agreements in this  Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.

     Section 110. Separability Clause.

     In case any  provision  in this  Indenture  or in the  Securities  shall be
invalid, illegal or unenforceable,  the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

     Section 111. Benefits of Indenture.

     Nothing in this Indenture or in the Securities,  express or implied,  shall
give to any Person, other than the parties hereto,  their successors  hereunder,
the  Holders,  and the holders of any Senior  Debt,  any benefit or any legal or
equitable right, remedy or claim under this Indenture.

     Section 112. Governing Law.

     This  Indenture  and the  Securities  shall be governed by and construed in
accordance with the law of the State of New York, without regard to conflicts of
laws principles thereof.

     Section 113. Legal Holidays.

     In any case where any  Interest  Payment  Date,  Redemption  Date or Stated
Maturity of any  Security  shall not be a Business  Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the Securities
(other than a provision  of any  Security  which  specifically  states that such
provision shall apply in lieu of this Section)) payment of interest or principal
(and  premium,  if any) need not be made at such  Place of Payment on such date,
but may be made on the next  succeeding  Business  Day at such  Place of Payment
with the same  force  and  effect  as if made on the  Interest  Payment  Date or
Redemption  Date, or at the Stated  Maturity,  and no interest shall accrue with
respect to such  payment  for the period  from and after such  Interest  Payment
Date,  Redemption  Date or  Stated  Maturity,  as the case may be,  to such next
succeeding Business Day.

     Section 114. Certain Matters Relating to Currencies.

     Whenever  any  action or Act is to be taken  hereunder  by the  Holders  of
Securities  denominated  in different  currencies  or currency  units,  then for
purposes of determining the principal amount of Securities held by such Holders,
the  aggregate  principal  amount  of the  Securities  denominated  in a foreign
currency  or  currency  unit shall be deemed to be that  amount of Dollars  that
could be obtained for such principal amount on the basis of a spot exchange rate
specified  to the  Trustee  for such  series  in an  Officer's  Certificate  for
exchanging such foreign currency or currency unit into Dollars as of the date of
the taking of such action or Act by the Holders of the  requisite  percentage in
principal amount of the Securities.

     The Trustee shall segregate moneys,  funds and accounts held by the Trustee
in one currency or currency unit from any moneys,  funds or accounts held in any
other  currencies or currency units,  notwithstanding  any provision herein that
would otherwise permit the Trustee to commingle such amounts.

     Section  115.  Immunity  of  Incorporators,   Stockholders,   Officers  and
          Directors.

     No recourse  shall be had for the payment of the principal of (and premium,
if any), or the interest,  if any, on any  Securities of any series,  or for any
claim based  thereon,  or upon any  obligation,  covenant or  agreement  of this
Indenture, against any incorporator,  stockholder, officer or director, as such,
past, present or future, of the Company or of any successor corporation,  either
directly or indirectly through the Company or any successor corporation, whether
by virtue of any  constitution,  statute or rule of law or by the enforcement of
any assessment of penalty or otherwise; it being expressly agreed and understood
that this Indenture and all the  Securities of each series are solely  corporate
obligations,  and that no personal  liability  whatever  shall  attach to, or is
incurred by, any incorporator,  stockholder,  officer or director, past, present
or future,  of the Company or of any successor  corporation,  either directly or
indirectly  through the  Company or any  successor  corporation,  because of the
incurring of the indebtedness  hereby authorized or under or by reason of any of
the obligations,  covenants or agreements  contained in this Indenture or in any
of the  Securities of any series,  or to be implied  herefrom or therefrom;  and
that all such personal  liability is hereby  expressly  released and waived as a
condition  of,  and as part of the  consideration  for,  the  execution  of this
Indenture and the issuance of the Securities of each series.

     Section 116. Counterparts.

     This Indenture may be executed in any number of counterparts, each of which
shall be an original;  but such counterparts  shall together  constitute but one
and the same instrument.

     Section 117. Assignment to Affiliate.

     The  Company  will  have the  right at all  times to  assign  by  indenture
supplemental  hereto any of its rights or  obligations  under the Indenture to a
direct,  indirect,  or wholly owned Affiliate of the Company;  provided that, in
the event of any such  assignment,  the Company will remain  liable for all such
obligations.

                                   ARTICLE TWO

                                 Security Forms

     Section 201. Forms Generally.

     The Securities of each series shall be in substantially  the form set forth
in this Article, or in such other form as shall be established by or pursuant to
a Board  Resolution or in one or more indentures  supplemental  hereto,  in each
case  with  such  appropriate  insertions,  omissions,  substitutions  and other
variations  as are required or permitted  by this  Indenture,  and may have such
letters,   numbers  or  other  marks  of  identification  and  such  legends  or
endorsements  placed  thereon as may be required to comply with the rules of any
securities exchange or Depositary therefor or as may, consistently  herewith, be
determined  by the officers  executing  such  Securities,  as evidenced by their
execution  thereof.  If the form of Securities of any series is  established  by
action taken pursuant to a Board Resolution,  a copy of an appropriate record of
such action shall be certified by the Secretary or an Assistant Secretary of the
Company and  delivered to the Trustee at or prior to the delivery of the Company
Order  contemplated by Section 303 for the  authentication  and delivery of such
Securities.

     The definitive  Securities  shall be printed,  lithographed  or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers  executing such  Securities,  as evidenced by their execution of
such Securities.

     Section 202. Form of Face of Security.

[Insert any legend  required by the Internal  Revenue  Code and the  regulations
thereunder.]


                                  CINERGY CORP.


                      .....................................

No. .........                                                  $ ........
                                                               CUSIP NO. _______

     Cinergy Corp., a corporation  duly organized and existing under the laws of
the state of Delaware  (herein  called the  "Company",  which term  includes any
successor  Person  under  the  Indenture  hereinafter  referred  to),  for value
received,          hereby          promises          to          pay          to
 ..............................................,   or  registered  assigns,   the
principal    sum   of    ......................................    Dollars    on
 ........................................................  [if the Security is to
bear  interest  prior to Maturity,  insert:  , and to pay interest  thereon from
 .............  or from the most recent  Interest  Payment Date to which interest
has been paid or duly  provided for,  ...................  on  ............  and
 ............ in each year, commencing ........., at the rate of ....% per annum,
until the principal  hereof is paid or made available for payment.  The interest
so payable,  and punctually  paid or duly provided for, on any Interest  Payment
Date will,  as provided in such  Indenture,  be paid to the Person in whose name
this Security (or one or more Predecessor Securities) is registered at the close
of  business on the Regular  Record Date for such  interest,  which shall be the
 .......  or .......  (whether or not a Business  Day),  as the case may be, next
preceding such Interest  Payment Date. Any such interest not so punctually  paid
or duly  provided for will  forthwith  cease to be payable to the Holder on such
Regular  Record  Date and may  either be paid to the  Person in whose  name this
Security (or one or more  Predecessor  Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted  Interest to
be fixed by the Trustee,  notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special  Record  Date,  or be
paid  at any  time  in  any  other  lawful  manner  not  inconsistent  with  the
requirements  of any securities  exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange,  all as
more fully provided in said Indenture]. [If the Security is not to bear interest
prior to  Maturity,  insert:  The  principal  of this  Security  shall  not bear
interest  except  in  the  case  of a  default  in  payment  of  principal  upon
acceleration, upon redemption or at Stated Maturity and in such case the overdue
principal  and any overdue  premium shall bear interest at the rate of ....% per
annum  (to the  extent  that the  payment  of such  interest  shall  be  legally
enforceable),  from the dates such  amounts  are due until they are paid or made
available  for payment.  Interest on any overdue  principal or premium  shall be
payable on demand.  Any such  interest on overdue  principal or premium which is
not paid on demand shall bear  interest at the rate of ......% per annum (to the
extent  that  the  payment  of  such  interest  on  interest  shall  be  legally
enforceable),  from the date of such demand until the amount so demanded is paid
or made available for payment. Interest on any overdue interest shall be payable
on demand.]

     Payment  of the  principal  of (and  premium,  if any) and [if  applicable,
insert: any such] interest on this Security will be made at the office or agency
of the Company  maintained  for that  purpose in  ............,  in such coin or
currency  of the  United  States of  America  as at the time of payment is legal
tender  for  payment  of  public  and  private  debts [if  applicable,  insert:;
provided,  however, that at the option of the Company payment of interest may be
made by check  mailed to the  address  of the  Person  entitled  thereto as such
address shall appear in the Security Register].

     Any payment on this  Security due on any day which is not a Business Day in
the City of New York need not be made on such  day,  but may be made on the next
succeeding  Business  Day with the same  force and  effect as if made on the due
date and no interest shall accrue for the period from and after such date.

     Reference  is hereby made to the further  provisions  of this  Security set
forth on the  reverse  hereof,  [if  subordinated,  insert:  including,  without
limitation, provisions subordinating the payment of the principal hereof and any
premium and interest hereon to the payment in full of all Senior Debt as defined
in the Indenture] which such further  provisions shall for all purposes have the
same effect as if set forth at this place.

     Unless the  certificate of  authentication  hereon has been executed by the
Trustee  referred to on the reverse  hereof by manual  signature,  this Security
shall  not be  entitled  to any  benefit  under  the  Indenture  or be  valid or
obligatory for any purpose.

     IN WITNESS  WHEREOF,  the  Company has caused  this  instrument  to be duly
executed.


                                  CINERGY CORP.



                                  By: _______________________________

     Section 203. Form of Reverse of Security.

     This  Security  is one of a duly  authorized  issue  of  securities  of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture,  dated as of , [2001] (herein called the "Indenture",
which term shall have the meaning  assigned to it in such  instrument),  between
the Company and Fifth Third Bank, as Trustee (herein called the "Trustee", which
term  includes any  successor  trustee  under the  Indenture),  and reference is
hereby  made  to  the  Indenture  for a  statement  of  the  respective  rights,
limitations  of rights,  duties and  immunities  thereunder of the Company,  the
Trustee  and the  Holders  of the  Securities  and of the terms  upon  which the
Securities are, and are to be, authenticated and delivered. This Security is one
of the series designated on the face hereof [if applicable, insert: , limited in
aggregate principal amount to $...........].

     [If  applicable,  insert:  The  Securities  of this  series are  subject to
redemption upon not less than 30 days' notice by mail, [if  applicable,  insert:
(1) on ...........  in any year commencing with the year ......  and ending with
the year  ......  through  operation  of the  sinking  fund for this series at a
Redemption Price equal to 100% of the principal amount, and (2)] at any time [if
applicable, insert: on or after .........., 20..], as a whole or in part, at the
election of the  Company,  at the  following  Redemption  Prices  (expressed  as
percentages of the principal amount): If redeemed [if applicable,  insert: on or
before  ...............,  ...%,  and if  redeemed]  during the  12-month  period
beginning ............. of the years indicated,

          Redemption                                    Redemption

      Year          Price                           Year          Price


and  thereafter at a Redemption  Price equal to .....% of the principal  amount,
together in the case of any such  redemption [if  applicable,  insert:  (whether
through  operation of the sinking fund or otherwise)]  with accrued  interest to
the Redemption  Date, but interest  installments  whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant  Record Dates  referred to on the face  hereof,  all as provided in the
Indenture.]

     [If  applicable,  insert:  The  Securities  of this  series are  subject to
redemption  upon not less than 30 days' notice by mail, (1) on  ............  in
any year  commencing  with the year ....  and ending with the year ....  through
operation  of the  sinking  fund for this  series at the  Redemption  Prices for
redemption  through  operation of the sinking fund  (expressed as percentages of
the  principal  amount)  set forth in the table  below,  and (2) at any time [if
applicable,  insert:  on or after  ............],  as a whole or in part, at the
election of the Company, at the Redemption Prices for redemption  otherwise than
through operation of the sinking fund (expressed as percentages of the principal
amount) set forth in the table below:  If redeemed  during the  12-month  period
beginning ............ of the years indicated,

                                                       Redemption Price For
                       Redemption Price For            Redemption Otherwise
                        Redemption Through                 Than Through
                         Operation of the                Operation of the
 Year                       Sinking Fund                    Sinking Fund



and  thereafter at a Redemption  Price equal to .....% of the principal  amount,
together in the case of any such redemption  (whether  through  operation of the
sinking fund or otherwise)  with accrued  interest to the  Redemption  Date, but
interest  installments  whose Stated  Maturity is on or prior to such Redemption
Date  will  be  payable  to the  Holders  of  such  Securities,  or one or  more
Predecessor  Securities,  of  record at the close of  business  on the  relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.]

     [If applicable, insert: Notwithstanding the foregoing, the Company may not,
prior to .............,  redeem any Securities of this series as contemplated by
[if applicable,  insert: Clause (2) of] the preceding paragraph as a part of, or
in  anticipation  of, any refunding  operation by the  application,  directly or
indirectly,   of  moneys  borrowed  having  an  interest  cost  to  the  Company
(calculated in accordance with generally  accepted  financial  practice) of less
than .....% per annum.]

     [If applicable,  insert:  The sinking fund for this series provides for the
redemption on  ............  in each year  beginning  with the year .......  and
ending with the year ...... of [if applicable, insert: not less than $..........
("mandatory  sinking fund") and not more than]  $.........  aggregate  principal
amount of  Securities  of this  series.  Securities  of this series  acquired or
redeemed  by  the  Company  otherwise  than  through  [if  applicable,   insert:
mandatory]  sinking  fund  payments  may  be  credited  against  subsequent  [if
applicable,  insert:  mandatory]  sinking fund payments otherwise required to be
made [if applicable, insert: , in the inverse order in which they become due].]

     [If the Security is subject to redemption of any kind, insert:

     In the event of redemption of this Security in part only, a new Security or
Securities of this series and of like tenor for the  unredeemed  portion  hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.]

     [If subordinated,  insert: The indebtedness  evidenced by the Securities of
this  series  is, to the extent and in the  manner  provided  in the  Indenture,
expressly  subordinate  and subject in right of payment to the prior  payment in
full of all Senior Debt of the Company  (as  defined in the  Indenture)  whether
outstanding  at the  date of the  Indenture  or  thereafter  incurred,  and this
Security is issued  subject to the  provisions of the Indenture  with respect to
such  subordination.  Each holder and owner of this  Security,  by accepting the
same, agrees to and shall be bound by such provisions and authorizes the Trustee
in his  behalf  to take  such  action  as may be  necessary  or  appropriate  to
effectuate  the   subordination   so  provided  and  appoints  the  Trustee  his
attorney-in-fact for such purpose.]

     [If applicable, insert: The Indenture contains provisions for defeasance at
any time of [the entire indebtedness of this Security] [or] [certain restrictive
covenants and Events of Default with respect to this  Security] [, in each case]
upon compliance with certain conditions set forth in the Indenture.]

     [If the Security is not an Original Issue Discount Security,  insert: If an
Event of Default  with respect to  Securities  of this series shall occur and be
continuing,  the principal of the  Securities of this series may be declared due
and payable in the manner and with the effect provided in the Indenture.]

     [If the Security is an Original  Issue  Discount  Security,  insert:  If an
Event of Default  with respect to  Securities  of this series shall occur and be
continuing,  an amount of  principal  of the  Securities  of this  series may be
declared  due and  payable in the manner  and with the  effect  provided  in the
Indenture.  Such amount shall be equal to insert:  formula for  determining  the
amount.  Upon payment (i) of the amount of principal so declared due and payable
and (ii) of interest on any overdue  principal,  premium and  interest  (in each
case  to the  extent  that  the  payment  of  such  interest  shall  be  legally
enforceable),  all of the Company's obligations in respect of the payment of the
principal of and premium and interest,  if any, on the Securities of this series
shall terminate.]

     The Indenture  permits,  with certain  exceptions as therein provided,  the
amendment  thereof and the  modification  of the rights and  obligations  of the
Company  and the rights of the  Holders of the  Securities  of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal  amount of the  Securities  at
the time Outstanding of each series to be affected.  The Indenture also contains
provisions  permitting  the  Holders of a majority  in  principal  amount of the
Securities of each series at the time  Outstanding,  on behalf of the Holders of
all Securities of such series,  to waive  compliance by the Company with certain
provisions of the  Indenture  and certain past defaults  under the Indenture and
their  consequences.  Any such consent or waiver by the Holder of this  Security
shall be conclusive  and binding upon such Holder and upon all future Holders of
this  Security  and of any  Security  issued upon the  registration  of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.

     As provided in and subject to the provisions of the  Indenture,  the Holder
of this  Security  shall not have the right to  institute  any  proceeding  with
respect to the Indenture or for the  appointment of a receiver or trustee or for
any other remedy thereunder,  unless such Holder shall have previously given the
Trustee  written  notice of a  continuing  Event of Default  with respect to the
Securities of this series,  the Holders of not less than 35% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the  Trustee  to  institute  proceedings  in respect of such Event of
Default as Trustee and offered the Trustee indemnity reasonably  satisfactory to
the  Trustee,  and the  Trustee  shall not have  received  from the Holders of a
majority  in  principal  amount  of  Securities  of  this  series  at  the  time
Outstanding a direction inconsistent with such request, and shall have failed to
institute any such proceeding, for 60 days after receipt of such notice, request
and offer of indemnity.  The foregoing shall not apply to any suit instituted by
the Holder of this  Security  for the  enforcement  of any payment of  principal
hereof or any premium or interest  hereon on or after the  respective  due dates
expressed herein.

     No reference  herein to the  Indenture and no provision of this Security or
of the Indenture  shall alter or impair the obligation of the Company,  which is
absolute and unconditional, to pay the principal of and any premium and interest
on this  Security  at the times,  place and rate,  and in the coin or  currency,
herein prescribed.

     As provided in the Indenture and subject to certain limitations therein set
forth,  the transfer of this Security is registrable  in the Security  Register,
upon  surrender of this Security for  registration  of transfer at the office or
agency of the  Company in any place where the  principal  of and any premium and
interest on this  Security are payable,  duly endorsed by, or  accompanied  by a
written  instrument  of  transfer  in form  satisfactory  to the Company and the
Security  Registrar  duly  executed by, the Holder  hereof or his attorney  duly
authorized in writing,  and thereupon one or more new  Securities of this series
and of like  tenor,  of  authorized  denominations  and for the  same  aggregate
principal amount, will be issued to the designated transferee or transferees.

     The Securities of this series are issuable only in registered  form without
coupons in  denominations  of $.......  and any integral  multiple  thereof.  As
provided in the Indenture and subject to certain  limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of  Securities  of this  series  and of like  tenor  of a  different  authorized
denomination, as requested by the Holder surrendering the same.

     No service  charge shall be made for any such  registration  of transfer or
exchange,  but the Company may require  payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

     Prior to due presentment of this Security for registration of transfer, the
Company,  the  Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this  Security is  registered  as the owner  hereof for all
purposes,  whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

     All terms used in this Security  which are defined in the  Indenture  shall
have the meanings assigned to them in the Indenture.

     Section 204. Form of Legend for Global Securities.

     Unless  otherwise   specified  as  contemplated  by  Section  301  for  the
Securities evidenced thereby,  every Global Security authenticated and delivered
hereunder shall bear a legend in substantially the following form (or such other
form as a securities exchange or Depositary may request or require):

     This  Security is a Global  Security  within the  meaning of the  Indenture
hereinafter  referred  to and is  registered  in the name of a  Depositary  or a
nominee  thereof.  This  Security may not be exchanged in whole or in part for a
Security registered, and no transfer of this Security in whole or in part may be
registered,  in the name of any Person other than such  Depositary  or a nominee
thereof, except in the limited circumstances described in the Indenture.

     Section 205. Form of Trustee's Certificate of Authentication.

     The Trustee's  certificates of authentication shall be in substantially the
following form:

     This is one of the Securities of the series designated  therein referred to
in the within-mentioned Indenture.


                                FIFTH THIRD BANK,
                                   as Trustee



                                 By: ___________________________________
                                      Authorized Signatory


                                  ARTICLE THREE

                                 The Securities


     Section 301. Amount Unlimited; Issuable in Series.

     The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.

     The  Securities  may be  issued  in one or  more  series.  There  shall  be
established in or pursuant to a Board  Resolution  and,  subject to Section 303,
set forth, or determined in the manner provided, in an Officer's Certificate, or
established in one or more indentures supplemental hereto, prior to the issuance
of Securities of any series,

     (1) the title of the Securities of the series (which shall  distinguish the
Securities of the series from Securities of any other series);

     (2) any limit upon the aggregate  principal amount of the Securities of the
series which may be authenticated and delivered under this Indenture (except for
Securities  authenticated  and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other  Securities of the series pursuant to Section
304,  305,  306, 906 or 1107 and except for any  Securities  which,  pursuant to
Section  303,  are  deemed  never  to  have  been  authenticated  and  delivered
hereunder);

     (3) the Person to whom any  interest on a Security  of the series  shall be
payable,  if other than the Person in whose name that  Security  (or one or more
Predecessor  Securities)  is  registered at the close of business on the Regular
Record Date for such interest;

     (4) the date or  dates on which  the  principal  of any  Securities  of the
series is payable;

     (5) the rate or rates at which any  Securities  of the  series  shall  bear
interest,  if any, the date or dates from which any such interest  shall accrue,
the Interest  Payment  Dates on which any such  interest  shall be payable,  the
manner of  determination  of such Interest  Payment Dates and the Regular Record
Date for any such interest payable on any Interest Payment Date;

     (6) the right,  if any,  to extend the  interest  payment  periods  and the
duration of such extension;

     (7) the place or places where the principal of and any premium and interest
on any Securities of the series shall be payable;

     (8) the period or periods  within  which,  the price or prices at which and
the  terms and  conditions  upon  which  any  Securities  of the  series  may be
redeemed,  in whole or in part,  at the option of the Company and, if other than
by a Board Resolution, the manner in which any election by the Company to redeem
the Securities shall be evidenced;

     (9) the  obligation,  if any,  of the  Company  to redeem or  purchase  any
Securities of the series pursuant to any sinking fund or analogous provisions or
at the option of the Holder thereof and the period or periods within which,  the
price or prices at which and the terms and conditions  upon which any Securities
of the series shall be redeemed or purchased,  in whole or in part,  pursuant to
such obligation;

     (10) the  denominations  in which any  Securities  of the  series  shall be
issuable;

     (11) if the  amount of  principal  of or any  premium  or  interest  on any
Securities  of the  series  may be  determined  with  reference  to an  index or
pursuant to a formula, the manner in which such amounts shall be determined;

     (12) if other  than the  currency  of the  United  States of  America,  the
currency,  currencies or currency units in which the principal of or any premium
or interest on any  Securities  of the series shall be payable and the manner of
determining  the  equivalent  thereof in the  currency  of the United  States of
America  for  any  purpose,   including  for  purposes  of  the   definition  of
"Outstanding" in Section 101;

     (13) if the  principal of or any premium or interest on any  Securities  of
the  series is to be  payable,  at the  election  of the  Company  or the Holder
thereof, in one or more currencies or currency units other than that or those in
which such  Securities  are stated to be payable,  the  currency,  currencies or
currency  units in which the  principal  of or any  premium or  interest on such
Securities  as to which such  election  is made shall be  payable,  the  periods
within which and the terms and conditions upon which such election is to be made
and the  amount  so  payable  (or the  manner  in  which  such  amount  shall be
determined);

     (14) if other than the entire principal amount thereof,  the portion of the
principal  amount of any  Securities  of the series  which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 502;

     (15)  if the  principal  amount  payable  at  the  Stated  Maturity  of any
Securities  of the series will not be  determinable  as of any one or more dates
prior to the  Stated  Maturity,  the  amount  which  shall be  deemed  to be the
principal  amount  of such  Securities  as of any  such  date  for  any  purpose
thereunder or hereunder,  including the principal  amount thereof which shall be
due and payable upon any Maturity other than the Stated  Maturity or which shall
be deemed to be Outstanding as of any date prior to the Stated  Maturity (or, in
any such case, the manner in which such amount deemed to be the principal amount
shall be determined);

     (16) if  applicable,  that the  Securities  of the series,  in whole or any
specified part, shall be defeasible  pursuant to Section 1302 or Section 1303 or
both such Sections;

     (17) if applicable,  that any Securities of the series shall be issuable in
whole or in part in the form of one or more Global Securities and, in such case,
the respective  Depositaries for such Global Securities,  the form of any legend
or legends which shall be borne by any such Global Security in addition to or in
lieu of that set forth in Section 204 and any circumstances in addition to or in
lieu of those set forth in clause (2) of the last  paragraph  of Section  305 in
which  any  such  Global  Security  may be  exchanged  in  whole  or in part for
Securities  registered,  and any transfer of such Global Security in whole or in
part  may be  registered,  in the  name or  names  of  Persons  other  than  the
Depositary for such Global Security or a nominee thereof;

     (18) any  addition to or change in the Events of Default  which  applies to
any  Securities  of the series and any change in the right of the Trustee or the
requisite Holders of such Securities to declare the principal amount thereof due
and payable pursuant to Section 502;

     (19) any  addition to or change in the  covenants  set forth in Article Ten
which applies to Securities of the series;

     (20) the  applicability  of,  or any  addition  to or  change  in,  Article
Fourteen with respect to the Securities of a series; and

     (21) any other terms of the series  (which terms shall not be  inconsistent
with the provisions of this Indenture).

     All Securities of any one series shall be substantially identical except as
to date and  principal  amount and except as may  otherwise  be  provided  in or
pursuant to the Board Resolution  referred to above and (subject to Section 303)
set forth, or determined in the manner  provided,  in the Officer's  Certificate
referred to above or in any such indenture supplemental hereto.

     If any of the terms of the series are  established by action taken pursuant
to a Board Resolution,  a copy of an appropriate  record of such action shall be
certified  by  the  Secretary  or an  Assistant  Secretary  of the  Company  and
delivered  to  the  Trustee  at or  prior  to  the  delivery  of  the  Officer's
Certificate setting forth the terms of the series.

     Section 302. Denominations.

     The  Securities of each series shall be issuable  only in  registered  form
without  coupons  and  only in such  denominations  as  shall  be  specified  as
contemplated  by Section 301. In the absence of any such specified  denomination
with respect to the  Securities  of any series,  the  Securities  of such series
shall be issuable in denominations of $1,000 and any integral multiple thereof.

     Section 303. Execution, Authentication, Delivery and Dating.

     The  Securities  shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman, its President, any of its Vice Presidents,  its
Treasurer,  or any of its  Assistant  Treasurers.  The signature of any of these
officers on the Securities may be manual or facsimile.

     Securities  bearing the manual or facsimile  signatures of individuals  who
were at any time the proper  officers  of the  Company  shall bind the  Company,
notwithstanding  that such  individuals  or any of them have ceased to hold such
offices prior to the  authentication  and delivery of such Securities or did not
hold such offices at the date of such Securities.

     At any time and from time to time after the  execution and delivery of this
Indenture,  the  Company may deliver  Securities  of any series  executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication  and delivery of such  Securities,  and the Trustee in accordance
with the Company Order shall  authenticate and deliver such  Securities.  If the
form or terms of the  Securities  of the  series  have  been  established  by or
pursuant  to a Board  Resolution  as  permitted  by  Sections  201 and  301,  in
authenticating  such Securities,  and accepting the additional  responsibilities
under this  Indenture  in relation  to such  Securities,  the  Trustee  shall be
entitled to receive,  and (subject to Section  601) shall be fully  protected in
relying upon, an Opinion of Counsel stating,

     (1) if the form of such  Securities has been  established by or pursuant to
Board  Resolution  as  permitted  by  Section  201,  that  such  form  has  been
established in conformity with the provisions of this Indenture;

     (2) if the terms of such Securities have been established by or pursuant to
Board  Resolution  as  permitted  by  Section  301,  that such  terms  have been
established in conformity with the provisions of this Indenture; and

     (3) that such Securities,  when  authenticated and delivered by the Trustee
and issued by the Company in the manner and subject to any conditions  specified
in  such  Opinion  of  Counsel,   will  constitute  valid  and  legally  binding
obligations of the Company  enforceable in accordance with their terms,  subject
to bankruptcy, insolvency, fraudulent transfer,  reorganization,  moratorium and
similar laws of general applicability relating to or affecting creditors' rights
to general equity principles and to such other matters as such counsel shall set
forth therein.

     If such form or terms have been so  established,  the Trustee  shall not be
required  to  authenticate  such  Securities  if the  issue  of such  Securities
pursuant to this  Indenture  will  affect the  Trustee's  own rights,  duties or
immunities  under the  Securities  and this  Indenture  or otherwise in a manner
which is not reasonably acceptable to the Trustee.

     Notwithstanding  the  provisions  of  Section  301  and  of  the  preceding
paragraph,  if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officer's  Certificate  otherwise
required  pursuant to Section  301 or the  Company  Order and Opinion of Counsel
otherwise  required  pursuant  to such  preceding  paragraph  at or prior to the
authentication  of  each  Security  of  such  series  if  such  documents  (with
appropriate  variations  to reflect such future  issuance)  are  delivered at or
prior to the authentication upon original issuance of the first Security of such
series to be issued.

     Each Security shall be dated the date of its authentication.

     No Security  shall be entitled to any benefit  under this  Indenture  or be
valid or  obligatory  for any purpose  unless there  appears on such  Security a
certificate  of  authentication  substantially  in the form  provided for herein
executed  by the  Trustee by manual  signature,  and such  certificate  upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has  been  duly  authenticated  and  delivered  hereunder.  Notwithstanding  the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the  Company,  and the Company  shall  deliver such
Security to the Trustee for  cancellation  as provided in Section  309,  for all
purposes of this  Indenture  such  Security  shall be deemed  never to have been
authenticated  and  delivered  hereunder  and  shall  never be  entitled  to the
benefits of this Indenture.

     Section 304. Temporary Securities.

     Pending the preparation of definitive Securities of any series, the Company
may execute,  and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed,  typewritten, mimeographed
or otherwise  produced,  in any authorized  denomination,  substantially  of the
tenor of the  definitive  Securities  in lieu of which  they are issued and with
such appropriate  insertions,  omissions,  substitutions and other variations as
the officers  executing such  Securities  may  determine,  as evidenced by their
execution of such Securities.

     If temporary  Securities  of any series are issued,  the Company will cause
definitive  Securities of that series to be prepared without unreasonable delay.
After the  preparation  of definitive  Securities of such series,  the temporary
Securities of such series shall be  exchangeable  for  definitive  Securities of
such series upon  surrender of the  temporary  Securities  of such series at the
office or agency of the Company in a Place of Payment for that  series,  without
charge  to the  Holder.  Upon  surrender  for  cancellation  of any  one or more
temporary  Securities  of any series,  the Company shall execute and the Trustee
shall  authenticate  and deliver in  exchange  therefor  one or more  definitive
Securities of the same series, of any authorized denominations and of like tenor
and aggregate principal amount. Until so exchanged,  the temporary Securities of
any series  shall in all  respects be entitled to the same  benefits  under this
Indenture as definitive Securities of such series and tenor.

     Section 305. Registration, Registration of Transfer and Exchange.

     The Company  shall cause to be kept at the  Corporate  Trust  Office of the
Trustee a register  (the  register  maintained  in such  office and in any other
office or agency of the  Company in a Place of Payment  being  herein  sometimes
collectively  referred to as the "Security  Register") in which, subject to such
reasonable  regulations as it may  prescribe,  the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed  "Security  Registrar" for the purpose of  registering  Securities and
transfers of Securities as herein provided.

     Upon surrender for  registration of transfer of any Security of a series at
the office or agency of the Company in a Place of Payment for that  series,  the
Company shall execute,  and the Trustee shall  authenticate and deliver,  in the
name of the designated transferee or transferees,  one or more new Securities of
the same series, of any authorized denominations and of like tenor and aggregate
principal amount.

     At the option of the Holder,  Securities of any series may be exchanged for
other Securities of the same series, of any authorized denominations and of like
tenor and aggregate  principal  amount,  upon  surrender of the Securities to be
exchanged at such office or agency.  Whenever any  Securities are so surrendered
for exchange,  the Company shall execute, and the Trustee shall authenticate and
deliver,  the  Securities  which the Holder  making the  exchange is entitled to
receive.

     All  Securities  issued  upon any  registration  of transfer or exchange of
Securities  shall be the valid  obligations of the Company,  evidencing the same
debt, and entitled to the same benefits under this Indenture,  as the Securities
surrendered upon such registration of transfer or exchange.

     Every Security presented or surrendered for registration of transfer or for
exchange  shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written  instrument of transfer in form  satisfactory  to
the Company and the Security  Registrar duly executed,  by the Holder thereof or
his attorney duly authorized in writing.

     No  service  charge  shall  be made for any  registration  of  transfer  or
exchange of Securities,  but the Company may require payment of a sum sufficient
to cover any tax or other governmental  charge that may be imposed in connection
with any  registration  of  transfer  or  exchange  of  Securities,  other  than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.

     If the Securities of any series (or of any series and specified  tenor) are
to be redeemed in part, the Company shall not be required (A) to issue, register
the transfer of or exchange any Securities of that series (or of that series and
specified tenor, as the case may be) during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of  redemption of any
such  Securities  selected for  redemption  under Section 1103 and ending at the
close of business on the day of such mailing, or (B) to register the transfer of
or exchange any Security so selected for redemption in whole or in part,  except
the unredeemed portion of any Security being redeemed in part.

     The  provisions  of clauses (1), (2), (3) and (4) below shall apply only to
Global Securities:

     (1) Each  Global  Security  authenticated  under  this  Indenture  shall be
registered in the name of the Depositary  designated for such Global Security or
a nominee  thereof  and  delivered  to such  Depositary  or  nominee  thereof or
custodian  therefor,  and each such Global  Security  shall  constitute a single
Security for all purposes of this Indenture.

     (2)  Notwithstanding  any  other  provision  in this  Indenture,  no Global
Security may be exchanged in whole or in part for Securities registered,  and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the  Depositary  for such Global  Security or a nominee
thereof  unless (A) such  Depositary  (i) has  notified  the Company  that it is
unwilling or unable to continue as Depositary  for such Global  Security or (ii)
has ceased to be a clearing agency  registered under the Exchange Act, (B) there
shall have  occurred and be  continuing an Event of Default with respect to such
Global  Security,  (C) the Company in its sole  discretion  determines  that the
Global  Securities (in whole but not in part) should be exchanged for definitive
Securities  and  delivers a written  notice to such effect to the Trustee or (D)
there shall exist such  circumstances,  if any, in addition to or in lieu of the
foregoing as have been  specified  for this purpose as  contemplated  by Section
301.

     (3)  Subject to clause (2) above,  any  exchange of a Global  Security  for
other  Securities may be made in whole or in part, and all Securities  issued in
exchange for a Global  Security or any portion  thereof  shall be  registered in
such names as the Depositary for such Global Security shall direct.

     (4)  Every  Security  authenticated  and  delivered  upon  registration  of
transfer of, or in exchange for or in lieu of, a Global  Security or any portion
thereof,  whether  pursuant to this  Section,  Section 304,  306, 906 or 1107 or
otherwise,  shall be authenticated and delivered in the form of, and shall be, a
Global  Security,  unless such  Security is  registered  in the name of a Person
other than the Depositary for such Global Security or a nominee thereof.

     Section 306. Mutilated, Destroyed, Lost and Stolen Securities.

     If any mutilated Security is surrendered to the Trustee,  the Company shall
execute and the Trustee shall  authenticate  and deliver in exchange  therefor a
new  Security  of the same  series  and of like tenor and  principal  amount and
bearing a number not contemporaneously outstanding.

     If there shall be  delivered to the Company and the Trustee (i) evidence to
their  satisfaction of the  destruction,  loss or theft of any Security and (ii)
such  security or  indemnity as may be required by them to save each of them and
any agent of either of them  harmless,  then,  in the  absence  of notice to the
Company or the  Trustee  that such  Security  has been  acquired  by a bona fide
purchaser,  the Company  shall  execute  and upon its request the Trustee  shall
authenticate  and  deliver,  in  lieu of any  such  destroyed,  lost  or  stolen
Security,  a new  Security  of the same  series and of like tenor and  principal
amount and bearing a number not contemporaneously outstanding.

     In case any such mutilated,  destroyed,  lost or stolen Security has become
or is about to become  due and  payable,  the  Company  in its  discretion  may,
instead of issuing a new Security, pay such Security.

     Upon the issuance of any new Security  under this Section,  the Company may
require the payment of a sum  sufficient to cover any tax or other  governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.

     Every new Security of any series issued pursuant to this Section in lieu of
any destroyed,  lost or stolen Security shall constitute an original  additional
contractual  obligation of the Company,  whether or not the  destroyed,  lost or
stolen  Security  shall be at any  time  enforceable  by  anyone,  and  shall be
entitled to all the benefits of this Indenture equally and proportionately  with
any and all other Securities of that series duly issued hereunder.

     The  provisions of this Section are  exclusive  and shall  preclude (to the
extent lawful) all other rights and remedies with respect to the  replacement or
payment of mutilated, destroyed, lost or stolen Securities.

     Section 307. Payment of Interest; Interest Rights Preserved.

     Except as otherwise provided as contemplated by Section 301 with respect to
any series of  Securities,  interest on any  Security  which is payable,  and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to  the  Person  in  whose  name  that  Security  (or  one or  more  Predecessor
Securities)  is registered  at the close of business on the Regular  Record Date
for such interest.

     Any  interest on any  Security of any series  which is payable,  but is not
punctually  paid or duly  provided  for, on any  Interest  Payment  Date (herein
called  "Defaulted  Interest") shall forthwith cease to be payable to the Holder
on the relevant  Regular  Record Date by virtue of having been such Holder,  and
such  Defaulted  Interest  may be paid by the  Company,  at its election in each
case, as provided in clause (1) or (2) below:

     (1) The Company may elect to make payment of any Defaulted  Interest to the
Persons  in whose  names the  Securities  of such  series  (or their  respective
Predecessor  Securities)  are  registered  at the close of business on a Special
Record Date for the payment of such Defaulted Interest,  which shall be fixed in
the  following  manner.  The Company  shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security of such series
and the date of the  proposed  payment,  and at the same time the Company  shall
deposit  with the  Trustee  an amount  of money  equal to the  aggregate  amount
proposed  to be paid in  respect  of  such  Defaulted  Interest  or  shall  make
arrangements  satisfactory  to the Trustee for such deposit prior to the date of
the  proposed  payment,  such money when  deposited  to be held in trust for the
benefit of the  Persons  entitled to such  Defaulted  Interest as in this Clause
provided.  Thereupon the Trustee shall fix a Special Record Date for the payment
of such  Defaulted  Interest  which  shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than 10 days
after the  receipt by the  Trustee of the notice of the  proposed  payment.  The
Trustee shall  promptly  notify the Company of such Special  Record Date and, in
the name and at the expense of the  Company,  shall cause notice of the proposed
payment of such  Defaulted  Interest and the Special  Record Date therefor to be
given to each  Holder of  Securities  of such  series in the manner set forth in
Section 106, not less than 10 days prior to such Special Record Date.  Notice of
the proposed  payment of such  Defaulted  Interest  and the Special  Record Date
therefor  having been so mailed,  such  Defaulted  Interest shall be paid to the
Persons  in whose  names the  Securities  of such  series  (or their  respective
Predecessor  Securities) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following clause (2).

     (2)  The  Company  may  make  payment  of  any  Defaulted  Interest  on the
Securities  of any series in any other lawful manner not  inconsistent  with the
requirements of any securities  exchange on which such Securities may be listed,
and upon such notice as may be required by such  exchange,  if,  after notice is
given by the Company to the  Trustee of the  proposed  payment  pursuant to this
clause, such manner of payment shall be deemed practicable by the Trustee.

     Subject  to  the  foregoing  provisions  of  this  Section,  each  Security
delivered  under this Indenture upon  registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest  accrued
and unpaid, and to accrue, which were carried by such other Security.

     Section 308. Persons Deemed Owners.

     Prior to due presentment of a Security for  registration  of transfer,  the
Company,  the  Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such  Security is  registered as the owner of such Security
for the  purpose  of  receiving  payment of  principal  of and any  premium  and
(subject  to  Section  307) any  interest  on such  Security  and for all  other
purposes  whatsoever,  whether or not such Security be overdue,  and neither the
Company,  the  Trustee  nor any agent of the  Company  or the  Trustee  shall be
affected by notice to the contrary.

     None of the Company,  the Trustee, any Paying Agent (if not the Company) or
the Security Registrar shall have any responsibility or liability for any aspect
of the records  relating to or payments made on account of beneficial  ownership
interests of a Global Security or for maintaining,  supervising or reviewing any
records relating to such beneficial ownership interests.

     Section 309. Cancellation.

     All  Securities  surrendered  for  payment,  redemption,   registration  of
transfer or exchange or for credit  against any sinking fund payment  shall,  if
surrendered  to any Person other than the  Trustee,  be delivered to the Trustee
and shall be promptly  cancelled  by it. The Company may at any time  deliver to
the  Trustee  for  cancellation  any  Securities  previously  authenticated  and
delivered   hereunder  which  the  Company  may  have  acquired  in  any  manner
whatsoever,  and may deliver to the Trustee (or to any other Person for delivery
to  the  Trustee)  for  cancellation  any  Securities  previously  authenticated
hereunder  which the  Company  has not issued and sold,  and all  Securities  so
delivered  shall be promptly  cancelled by the Trustee.  No Securities  shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture.  All cancelled
Securities  held by the  Trustee  shall be  disposed of as directed by a Company
Order; provided, however, that the Trustee shall not be required to destroy such
cancelled Securities.

     Section 310. Computation of Interest.

     Except as otherwise specified as contemplated by Section 301 for Securities
of any series,  interest on the  Securities  of each series shall be computed on
the basis of a 360-day year of twelve 30-day months.

     Section 311. CUSIP Numbers.

     The Company in issuing  the  Securities  may use  "CUSIP"  numbers (if then
generally in use), and, if so, the Trustee may use "CUSIP" numbers in notices of
redemption as a convenience to Holders;  provided that any such notice may state
that no  representation  is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other  identification  numbers printed on the
Securities,  and any such  redemption  shall not be affected by any defect in or
omission of such numbers.

                                  ARTICLE FOUR

                           Satisfaction and Discharge

     Section 401. Satisfaction and Discharge of Indenture.

     This  Indenture  shall upon Company  Request cease to be of further  effect
(except as to any surviving  rights of  registration  of transfer or exchange of
Securities  herein expressly  provided for), and the Trustee,  at the expense of
the Company,  shall execute proper  instruments  acknowledging  satisfaction and
discharge of this Indenture, when:

     (1) either  (A) all  Securities  theretofore  authenticated  and  delivered
(other than (i) Securities  which have been destroyed,  lost or stolen and which
have been  replaced or paid as provided in Section 306 and (ii)  Securities  for
whose payment money has  theretofore  been  deposited in trust or segregated and
held in trust by the Company and thereafter  repaid to the Company or discharged
from such trust, as provided in Section 1003) have been delivered to the Trustee
for  cancellation;  or (B) all such Securities not theretofore  delivered to the
Trustee for  cancellation  (i) have become due and payable,  or (ii) will become
due and payable at their  Stated  Maturity  within one year,  or (iii) are to be
called for redemption  within one year under  arrangements  satisfactory  to the
Trustee for the giving of notice of redemption  by the Trustee in the name,  and
at the expense,  of the Company,  and the Company,  in the case of (i),  (ii) or
(iii) above,  has deposited or caused to be deposited  with the Trustee as trust
funds  in  trust  for the  purpose,  money in an  amount  sufficient  to pay and
discharge the entire  indebtedness on such Securities not theretofore  delivered
to the Trustee for  cancellation,  for principal and any premium and interest to
the date of such  deposit (in the case of  Securities  which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be;

     (2) the  Company  has paid or  caused  to be paid all  other  sums  payable
hereunder by the Company; and

     (3) the Company has delivered to the Trustee an Officer's  Certificate  and
an Opinion  of  Counsel,  each  stating  that all  conditions  precedent  herein
provided for relating to the  satisfaction  and discharge of this Indenture have
been complied with.

     Notwithstanding  the  satisfaction  and  discharge of this  Indenture,  the
obligations of the Company to the Trustee under Section 607, the  obligations of
the Company to any  Authenticating  Agent under  Section 614 and, if money shall
have been deposited with the Trustee  pursuant to subclause (B) of Clause (1) of
this  Section,  the  obligations  of the Trustee  under Section 402 and the last
paragraph of Section 1003 shall survive.

     Section 402. Application of Trust Money.

     Subject to the  provisions  of the last  paragraph  of Section  1003 and to
Article Fourteen,  if applicable,  all money deposited with the Trustee pursuant
to Section 401 shall be held in trust and applied by it, in accordance  with the
provisions of the Securities and this Indenture, to the payment, either directly
or through any Paying  Agent  (including  the  Company  acting as its own Paying
Agent) as the Trustee may determine,  to the Persons  entitled  thereto,  of the
principal  and any premium and  interest  for whose  payment such money has been
deposited with the Trustee.

                                  ARTICLE FIVE

                                    Remedies

     Section 501. Events of Default.

     "Event of Default"  wherever  used herein with respect to Securities of any
series,  unless otherwise specified in the Security or the Board Resolution with
respect to that  series of  Securities,  means any one of the  following  events
(whatever the reason for such Event of Default and whether it shall be voluntary
or  involuntary  or be effected by operation of law or pursuant to any judgment,
decree  or  order  of  any  court  or  any  order,  rule  or  regulation  of any
administrative or governmental body):

     (1) default in the payment of any interest upon any Security of that series
when it becomes due and payable, and continuance of such default for a period of
30 days; or

     (2)  default  in the  payment  of the  principal  of or any  premium on any
Security of that series at its Maturity; or

     (3) default in the deposit of any sinking fund payment,  when and as due by
the terms of a Security of that series; or

     (4) default in the performance,  or breach,  of any covenant or warranty of
the  Company in this  Indenture  (other than a covenant or warranty a default in
whose  performance  or whose breach is  elsewhere  in this Section  specifically
dealt with or which has expressly been included in this Indenture solely for the
benefit of a series of Securities  other than that series),  and  continuance of
such  default or breach for a period of 90 days after there has been  given,  by
registered  or certified  mail,  to the Company by the Trustee or to the Company
and the  Trustee  by the  Holders  of at least  35% in  principal  amount of the
Outstanding  Securities of that series a written notice  specifying such default
or breach and  requiring  it to be remedied  and  stating  that such notice is a
"Notice of Default" hereunder; or

     (5) the  entry by a court  having  jurisdiction  in the  premises  of (A) a
decree or order for relief in respect of the Company in an  involuntary  case or
proceeding  under  any  applicable  Federal  or  state  bankruptcy,  insolvency,
reorganization  or other  similar  law or (B) a decree  or order  adjudging  the
Company a bankrupt or  insolvent,  or  approving  as  properly  filed a petition
seeking reorganization,  arrangement, adjustment or composition of or in respect
of the  Company  under any  applicable  Federal or state law,  or  appointing  a
custodian,  receiver,  liquidator,  assignee,  trustee,  sequestrator  or  other
similar official of the Company or of any substantial  part of its property,  or
ordering the winding up or  liquidation of its affairs,  and the  continuance of
any such decree or order for relief or any such other  decree or order  unstayed
and in effect for a period of 90 consecutive days; or

     (6) the commencement by the Company of a voluntary case or proceeding under
any applicable Federal or state bankruptcy, insolvency,  reorganization or other
similar law or of any other case or proceeding  to be  adjudicated a bankrupt or
insolvent,  or the consent by it to the entry of a decree or order for relief in
respect of the Company in an involuntary case or proceeding under any applicable
Federal or state bankruptcy, insolvency,  reorganization or other similar law or
to the  commencement of any bankruptcy or insolvency case or proceeding  against
it,  or  the  filing  by  it  of  a  petition  or  answer  or  consent   seeking
reorganization  or relief  under any  applicable  Federal or state  law,  or the
consent by it to the filing of such petition or to the appointment of, or taking
possession  of the  Company or of any  substantial  part of its  property  by, a
custodian,  receiver,  liquidator,  assignee,  trustee,  sequestrator  or  other
similar  official or the making by the Company of an assignment  for the benefit
of  creditors,  or the  admission  by it in writing of its  inability to pay its
debts  generally  as they become due, or the taking of  corporate  action by the
Company in furtherance of any such action; or

     (7) any other  Event of Default  established  pursuant  to Section 301 with
respect to Securities of that series.

     Section 502. Acceleration of Maturity; Rescission and Annulment.

     If an Event of Default (other than an Event of Default specified in Section
501(5)  or  501(6))  with  respect  to  Securities  of any  series  at the  time
Outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 35% in principal  amount of the Outstanding  Securities
of that series may declare the  principal  amount of all the  Securities of that
series  (or,  if any  Securities  of that  series are  Original  Issue  Discount
Securities,  such portion of the principal  amount of such  Securities as may be
specified by the terms thereof) to be due and payable  immediately,  by a notice
in writing to the Company (and to the Trustee if given by Holders), and upon any
such  declaration  such  principal  amount (or  specified  amount)  shall become
immediately due and payable.  If an Event of Default specified in Section 501(5)
or 501(6)  with  respect to  Securities  of any  series at the time  Outstanding
occurs,  the principal  amount of all the  Securities of that series (or, if any
Securities of that series are Original Issue Discount  Securities,  such portion
of the  principal  amount of such  Securities  as may be  specified by the terms
thereof) shall automatically, and without any declaration or other action on the
part of the Trustee or any Holder, become immediately due and payable.

     At any time  after  such a  declaration  of  acceleration  with  respect to
Securities  of any  series  has been made and  before a  judgment  or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article  provided,  the  Holders  of a  majority  in  principal  amount  of  the
Outstanding  Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if,

     (1) the Company has paid or deposited  with the Trustee a sum sufficient to
pay (A) all overdue interest on all Securities of that series, (B) the principal
of (and premium, if any, on) any Securities of that series which have become due
otherwise than by such  declaration of acceleration  and any interest thereon at
the rate or rates prescribed  therefor in such Securities,  (C) all sums paid or
advanced by the Trustee  hereunder and the  reasonable  compensation,  expenses,
disbursements and advances of the Trustee, its agents and counsel; and

     (2) all Events of Default with respect to Securities of that series,  other
than the  non-payment  of the  principal of Securities of that series which have
become due solely by such declaration of acceleration, have been cured or waived
as provided in Section 513.

     No such rescission shall affect any subsequent  default or impair any right
consequent thereon.

     Section 503.  Collection  of  Indebtedness  and  Suits for  Enforcement  by
          Trustee.

     The Company covenants that if:

     (1) default is made in the payment of any  interest  on any  Security  when
such interest becomes due and payable and such default continues for a period of
30 days, or

     (2) default is made in the payment of the principal of (or premium, if any,
on) any Security at the Maturity  thereof,  the Company will, upon demand of the
Trustee, pay to it, for the benefit of the Holders of such Securities, the whole
amount then due and payable on such Securities for principal and any premium and
interest and such further  amount as shall be  sufficient to cover the costs and
expenses  of  collection,  including  the  reasonable  compensation,   expenses,
disbursements and advances of the Trustee, its agents and counsel.

     If an Event of Default with respect to  Securities of any series occurs and
is continuing,  the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the  Holders of  Securities  of such series by such
appropriate  judicial  proceedings  as the Trustee shall deem most  effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement  in this  Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.

     Section 504. Trustee May File Proofs of Claim.

     In case of any  judicial  proceeding  relative to the Company (or any other
obligor upon the Securities),  its property or its creditors,  the Trustee shall
be entitled and empowered,  by intervention in such proceeding or otherwise,  to
take any and all actions  authorized  under the Trust  Indenture Act in order to
have claims of the Holders and the Trustee  allowed in any such  proceeding.  In
particular, the Trustee shall be authorized to collect and receive any moneys or
other  property  payable or deliverable on any such claims and to distribute the
same; and any custodian,  receiver, assignee, trustee, liquidator,  sequestrator
or other similar official in any such judicial  proceeding is hereby  authorized
by each Holder to make such  payments to the Trustee  and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation,  expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.

     No provision of this Indenture  shall be deemed to authorize the Trustee to
authorize  or  consent to or accept or adopt on behalf of any Holder any plan of
reorganization,  arrangement, adjustment or composition affecting the Securities
or the  rights of any  Holder  thereof or to  authorize  the  Trustee to vote in
respect of the claim of any Holder in any such  proceeding;  provided,  however,
that the  Trustee  may,  on behalf of the  Holders,  vote for the  election of a
trustee in  bankruptcy  or similar  official and be a member of a creditors'  or
other similar committee.

     Section 505. Trustee May Enforce Claims Without Possession of Securities.

     All rights of action and claims under this  Indenture or the Securities may
be prosecuted  and enforced by the Trustee  without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such  proceeding  instituted  by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the  reasonable  compensation,  expenses,  disbursements  and
advances of the Trustee,  its agents and counsel,  be for the ratable benefit of
the  Holders  of the  Securities  in respect  of which  such  judgment  has been
recovered.

     Section 506. Application of Money Collected.

     Any money  collected by the Trustee  pursuant to this  Article,  subject to
Article Fourteen, if applicable, shall be applied in the following order, at the
date or dates fixed by the  Trustee  and,  in case of the  distribution  of such
money on account of principal or any premium or interest,  upon  presentation of
the  Securities  and the notation  thereon of the payment if only partially paid
and upon surrender thereof if fully paid:

     First: To the payment of all amounts due the Trustee under Section 607; and

     Second:  To the payment of the amounts then due and unpaid for principal of
and any premium and  interest on the  Securities  in respect of which or for the
benefit of which such money has been collected,  ratably,  without preference or
priority  of any  kind,  according  to the  amounts  due  and  payable  on  such
Securities for principal and any premium and interest, respectively; and

     Third: The balance, if any, to the Company.

     Section 507. Limitation on Suits.

     No Holder of any  Security of any series  shall have any right to institute
any proceeding,  judicial or otherwise,  with respect to this Indenture,  or for
the  appointment  of a receiver or trustee,  or for any other remedy  hereunder,
unless:

     (1) an Event of Default  shall have  occurred  and be  continuing  and such
Holder has  previously  given written  notice to the Trustee of athe  continuing
Event of Default with respect to the Securities of that series;

     (2) the Holders of not less than 35% in principal amount of the Outstanding
Securities  of that  series  shall have made  written  request to the Trustee to
institute  proceedings  in  respect  of such Event of Default in its own name as
Trustee hereunder;

     (3) such Holder or Holders have offered to the Trustee indemnity reasonably
satisfactory  to the Trustee  against the costs,  expenses and liabilities to be
incurred in compliance with such request;

     (4) the Trustee for 60 days after its receipt of such  notice,  request and
offer of indemnity has failed to institute any such proceeding; and

     (5) no direction  inconsistent  with such written request has been given to
the Trustee  during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Securities of that series;

     it being  understood and intended that no one or more of such Holders shall
have any right in any  manner  whatever  by virtue  of, or by  availing  of, any
provision of this  Indenture to affect,  disturb or prejudice  the rights of any
other of such Holders,  or to obtain or to seek to obtain priority or preference
over any other of such  Holders or to enforce  any right  under this  Indenture,
except in the manner  herein  provided and for the equal and ratable  benefit of
all of such Holders.

     Section 508.  Unconditional Right of Holders to Receive Principal,  Premium
          and Interest.

     Notwithstanding  any other provision in this  Indenture,  the Holder of any
Security shall have the right, which is absolute and  unconditional,  to receive
payment of the  principal  of and any  premium)  and  (subject  to Section  307)
interest on such Security on the respective Stated Maturities  expressed in such
Security  (or,  in the  case  of  redemption,  on the  Redemption  Date)  and to
institute suit for the  enforcement  of any such payment,  and such rights shall
not be impaired without the consent of such Holder.

     Section 509. Restoration of Rights and Remedies.

     If the Trustee or any Holder has  instituted  any proceeding to enforce any
right or remedy under this Indenture and such  proceeding has been  discontinued
or abandoned for any reason, or has been determined  adversely to the Trustee or
to such Holder,  then and in every such case,  subject to any  determination  in
such  proceeding,  the  Company,  the Trustee and the Holders  shall be restored
severally and  respectively to their former  positions  hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall  continue as though
no such proceeding had been instituted.

     Section 510. Rights and Remedies Cumulative.

     Except as otherwise  provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein  conferred  upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy,  and every
right and remedy shall,  to the extent  permitted by law, be  cumulative  and in
addition to every other right and remedy  given  hereunder  or now or  hereafter
existing at law or in equity or  otherwise.  The  assertion or employment of any
right or remedy  hereunder,  or  otherwise,  shall not  prevent  the  concurrent
assertion or employment of any other appropriate right or remedy.

     Section 511. Delay or Omission Not Waiver.

     No delay or omission of the Trustee or of any Holder of any  Securities  to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or  constitute  a waiver of any such Event of Default or an
acquiescence therein.  Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised  from time to time,  and as often
as may be deemed  expedient,  by the Trustee or by the Holders,  as the case may
be.

     Section 512. Control by Holders.

     The Holders of a majority in principal amount of the Outstanding Securities
of any  series  shall  have the right to direct  the time,  method  and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power  conferred on the Trustee,  with respect to the Securities of
such series, provided that:

     (1) such  direction  shall not be in conflict  with any rule of law or with
this Indenture, and

     (2) the  Trustee  may take any other  action  deemed  proper by the Trustee
which is not inconsistent with such direction.

     Section 513. Waiver of Past Defaults.

     The  Holders  of not  less  than a  majority  in  principal  amount  of the
Outstanding  Securities  of any series  may on behalf of the  Holders of all the
Securities of such series waive any past default  hereunder with respect to such
series and its consequences, except:

     (1) a default  in the  payment  of the  principal  of (or any  premium)  or
interest on any Security of such series, or

     (2) a default in respect of a covenant  or  provision  hereof  which  under
Article Nine cannot be modified or amended  without the consent of the Holder of
each Outstanding Security of such series affected.

     Upon any such waiver,  such default shall cease to exist,  and any Event of
Default arising  therefrom shall be deemed to have been cured, for every purpose
of this  Indenture;  but no such waiver shall extend to any  subsequent or other
default or impair any right consequent thereon.

     Section 514. Undertaking for Costs.

     In any  suit  for  the  enforcement  of any  right  or  remedy  under  this
Indenture,  or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an  undertaking to pay the costs of such suit, and may assess costs against
any such party  litigant,  in the manner and to the extent provided in the Trust
Indenture Act; provided that this Section shall not apply to any suit instituted
by the Trustee or to any suit  instituted  by any  Holder,  or group of Holders,
holding  in the  aggregate  more than 10% in  principal  amount  of  Outstanding
Securities  (of any  series),  or to any suit  instituted  by a  Holder  for the
enforcement of the payment of the principal of or any premium or interest on any
Security on or after the Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date).

     Section 515. Waiver of Usury, Stay or Extension Laws.

     The Company  covenants  (to the extent that it may  lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or  advantage  of, any usury,  stay or  extension  law wherever
enacted,  now or at any time hereafter in force,  which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and  covenants  that it will not hinder,  delay or impede the  execution  of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

                                   ARTICLE SIX

                                   The Trustee

     Section 601. Certain Duties and Responsibilities.

     The duties and  responsibilities of the Trustee shall be as provided by the
Trust  Indenture  Act.  Notwithstanding  the  foregoing,  no  provision  of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers,  if it shall have  reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not  reasonably  assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting  the  liability of or affording  protection to the Trustee shall be
subject to the provisions of this Section.

     Section 602. Notice of Defaults.

     If a default occurs hereunder with respect to Securities of any series, the
Trustee  shall give the  Holders of  Securities  of such  series  notice of such
default as and to the extent  provided by the Trust  Indenture Act,  unless such
default shall have been cured or waived; provided,  however, that in the case of
any  default of the  character  specified  in  Section  501(4)  with  respect to
Securities  of such  series,  no such notice to Holders  shall be given until at
least 30 days after the occurrence thereof. For the purpose of this Section, the
term  "default"  means any event  which is, or after  notice or lapse of time or
both would  become,  an Event of Default  with  respect  to  Securities  of such
series.

     Section 603. Certain Rights of Trustee.

     Subject to the provisions of Section 601:

     (1) the Trustee  may rely and shall be  protected  in acting or  refraining
from acting upon any resolution,  certificate,  statement,  instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;

     (2) any request or  direction  of the  Company  mentioned  herein  shall be
sufficiently evidenced by a Company Request or Company Order, and any resolution
of the Board of Directors shall be sufficiently evidenced by a Board Resolution;

     (3) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established  prior to taking,  suffering
or omitting any action  hereunder,  the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
an Officer's Certificate;

     (4) the Trustee may consult with counsel of its selection and the advice of
such counsel or any Opinion of Counsel shall be full and complete  authorization
and  protection  in  respect  of any  action  taken,  suffered  or omitted by it
hereunder in good faith and in reliance thereon;

     (5) the Trustee  shall be under no obligation to exercise any of the rights
or powers  vested in it by this  Indenture at the request or direction of any of
the Holders  pursuant to this Indenture,  unless such Holders shall have offered
to the Trustee  security or  indemnity  reasonably  satisfactory  to the Trustee
against the costs,  expenses  and  liabilities  which might be incurred by it in
compliance with such request or direction;

     (6) the Trustee shall not be bound to make any investigation into the facts
or  matters  stated  in  any  resolution,  certificate,  statement,  instrument,
opinion,  report, notice, request,  direction,  consent, order, bond, debenture,
note,  other  evidence  of  indebtedness  or other  paper or  document,  but the
Trustee, in its discretion,  may make such further inquiry or investigation into
such facts or matters as it may see fit.

     (7) the  Trustee  may  execute  any of the  trusts or powers  hereunder  or
perform  any  duties  hereunder  either  directly  or by or  through  agents  or
attorneys  and the  Trustee  shall  not be  responsible  for any  misconduct  or
negligence  on the part of any agent or attorney  appointed  with due care by it
hereunder.

     Section 604. Not Responsible for Recitals or Issuance of Securities.

     The recitals  contained herein and in the Securities,  except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating  Agent assumes any responsibility
for their  correctness.  The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the  Securities.  Neither the Trustee nor
any Authenticating  Agent shall be accountable for the use or application by the
Company of Securities or the proceeds thereof.

     Section 605. May Hold Securities.

     The Trustee,  any  Authenticating  Agent,  any Paying  Agent,  any Security
Registrar  or any other agent of the  Company,  in its  individual  or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may  otherwise  deal with the Company with the same rights it would
have if it were  not  Trustee,  Authenticating  Agent,  Paying  Agent,  Security
Registrar or such other agent.

     Section 606. Money Held in Trust.

     Money held by the Trustee in trust  hereunder  need not be segregated  from
other funds except to the extent  required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Company.

     Section 607. Compensation and Reimbursement.

     The Company agrees:

     (1) to pay to the Trustee from time to time such  compensation  as shall be
agreed to in writing  between  the  Company  and the  Trustee  for all  services
rendered  by it  hereunder  (which  compensation  shall  not be  limited  by any
provision  of law in  regard to the  compensation  of a  trustee  of an  express
trust);

     (2) except as otherwise expressly provided herein, to reimburse the Trustee
upon  its  request  for all  reasonable  expenses,  disbursements  and  advances
incurred  or made by the  Trustee  in  accordance  with  any  provision  of this
Indenture   (including  the  reasonable   compensation   and  the  expenses  and
disbursements of its agents and counsel), except any such expense,  disbursement
or advance as may be attributable to its negligence or bad faith; and

     (3) to  indemnify  the Trustee for,  and to hold it harmless  against,  any
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection  with the  acceptance or  administration  of the
trust or trusts hereunder,  including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder.

     The Trustee  shall have a lien prior to the  Securities  as to all property
and  funds  held by it  hereunder  for any  amount  owing it or any  predecessor
Trustee pursuant to this Section 607, except with respect to funds held in trust
for the benefit of the Holders of a particular series of Securities.

     When the Trustee incurs expenses or renders  services in connection with an
Event of Default  specified in Section  501(5) or Section  501(6),  the expenses
(including  the  reasonable  charges  and  expenses  of  its  counsel)  and  the
compensation   for  the  services  are  intended  to   constitute   expenses  of
administration  under any applicable Federal or State bankruptcy,  insolvency or
other similar law.

     The  provisions  of this  Section  shall  survive the  termination  of this
Indenture.

     Section 608. Conflicting Interests.

     If the  Trustee  has or shall  acquire a  conflicting  interest  within the
meaning of the Trust  Indenture  Act, the Trustee  shall either  eliminate  such
interest or resign,  to the extent and in the manner provided by, and subject to
the provisions  of, the Trust  Indenture Act and this  Indenture.  To the extent
permitted  by such Act,  the Trustee  shall not be deemed to have a  conflicting
interest  by virtue of being a trustee  under  this  Indenture  with  respect to
Securities of more than one series.

     Section 609. Corporate Trustee Required; Eligibility.

     There  shall at all  times be one (and  only one)  Trustee  hereunder  with
respect to the  Securities  of each series,  which may be Trustee  hereunder for
Securities of one or more other  series.  Each Trustee shall be a Person that is
eligible  pursuant to the Trust  Indenture Act to act as such and has a combined
capital  and  surplus  of at least  $50,000,000.  If any such  Person  publishes
reports of condition at least annually,  pursuant to law or to the  requirements
of its supervising or examining authority, then for the purposes of this Section
and to the extent permitted by the Trust Indenture Act, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent  report of condition so  published.  If at any time
the  Trustee  with  respect to the  Securities  of any series  shall cease to be
eligible in accordance  with the  provisions  of this  Section,  it shall resign
immediately  in the  manner and with the effect  hereinafter  specified  in this
Article.

     Section 610. Resignation and Removal; Appointment of Successor.

     No  resignation or removal of the Trustee and no appointment of a successor
Trustee  pursuant to this Article shall become effective until the acceptance of
appointment  by  the  successor   Trustee  in  accordance  with  the  applicable
requirements of Section 611.

     The Trustee may resign at any time with respect to the Securities of one or
more series by giving written  notice thereof to the Company.  If the instrument
of acceptance by a successor Trustee required by Section 611 shall not have been
delivered  to the  Trustee  within 30 days  after the  giving of such  notice of
resignation,   the  resigning  Trustee  may  petition  any  court  of  competent
jurisdiction  for the  appointment  of a successor  Trustee  with respect to the
Securities of such series.

     The Trustee may be removed at any time with  respect to the  Securities  of
any  series by Act of the  Holders  of a  majority  in  principal  amount of the
Outstanding  Securities  of such  series,  delivered  to the  Trustee and to the
Company.

     If at any time:

     (1) the Trustee shall fail to comply with Section 608 after written request
therefor  by the  Company or by any Holder who has been a bona fide  Holder of a
Security for at least six months, or

     (2) the Trustee shall cease to be eligible under Section 609 and shall fail
to resign after written  request  therefor by the Company or by any such Holder,
or

     (3) the Trustee  shall  become  incapable  of acting or shall be adjudged a
bankrupt or insolvent  or a receiver of the Trustee or of its property  shall be
appointed or any public  officer  shall take charge or control of the Trustee or
of its property or affairs for the purpose of  rehabilitation,  conservation  or
liquidation,  then, in any such case, (A) the Company by a Board  Resolution may
remove the Trustee  with  respect to all  Securities,  or (B) subject to Section
514,  any Holder who has been a bona fide Holder of a Security  for at least six
months may, on behalf of himself and all others similarly situated, petition any
court of competent  jurisdiction  for the removal of the Trustee with respect to
all Securities and the appointment of a successor Trustee or Trustees.

     If the Trustee shall resign,  be removed or become incapable of acting,  or
if a vacancy shall occur in the office of Trustee for any cause, with respect to
the Securities of one or more series, the Company, by a Board Resolution,  shall
promptly appoint a successor  Trustee or Trustees with respect to the Securities
of that or those series (it being understood that any such successor Trustee may
be appointed with respect to the Securities of one or more or all of such series
and  that at any  time  there  shall be only one  Trustee  with  respect  to the
Securities  of any  particular  series)  and shall  comply  with the  applicable
requirements of Section 611. If, within one year after such resignation, removal
or  incapability,  or the occurrence of such vacancy,  a successor  Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal  amount of the Outstanding  Securities of such series
delivered  to the Company and the retiring  Trustee,  the  successor  Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable  requirements of Section 611,  become the successor  Trustee
with respect to the  Securities of such series and to that extent  supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the  Securities  of any series shall have been so appointed by the Company or
the Holders and accepted  appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent  jurisdiction for the appointment of a successor  Trustee
with respect to the Securities of such series.

     The Company shall give notice of each  resignation  and each removal of the
Trustee with respect to the  Securities of any series and each  appointment of a
successor Trustee with respect to the Securities of any series to all Holders of
Securities  of such series in the manner  provided in Section  106.  Each notice
shall include the name of the successor  Trustee with respect to the  Securities
of such series and the address of its Corporate Trust Office.

     Section 611. Acceptance of Appointment by Successor.

     In case of the appointment hereunder of a successor Trustee with respect to
all  Securities,  every such  successor  Trustee  so  appointed  shall  execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting  such  appointment,  and thereupon the  resignation  or removal of the
retiring Trustee shall become effective and such successor Trustee,  without any
further  act,  deed or  conveyance,  shall  become  vested  with all the rights,
powers,  trusts and duties of the retiring  Trustee;  but, on the request of the
Company or the successor  Trustee,  such retiring Trustee shall, upon payment of
its charges,  execute and deliver an instrument  transferring  to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign,  transfer and deliver to such  successor  Trustee all property and money
held by such retiring Trustee hereunder.

     In case of the appointment hereunder of a successor Trustee with respect to
the  Securities of one or more (but not all) series,  the Company,  the retiring
Trustee and each successor Trustee with respect to the Securities of one or more
series shall execute and deliver an indenture  supplemental  hereto wherein each
successor Trustee shall accept such appointment and which (1) shall contain such
provisions as shall be necessary or desirable to transfer and confirm to, and to
vest in, each successor Trustee all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series to which
the appointment of such successor  Trustee relates,  (2) if the retiring Trustee
is not retiring with respect to all Securities, shall contain such provisions as
shall be deemed  necessary or desirable to confirm that all the rights,  powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series as to which the retiring  Trustee is not retiring shall continue
to be vested in the retiring Trustee,  and (3) shall add to or change any of the
provisions of this  Indenture as shall be necessary to provide for or facilitate
the  administration  of the trusts hereunder by more than one Trustee,  it being
understood  that  nothing  herein  or  in  such  supplemental   indenture  shall
constitute  such  Trustees  co-trustees  of the same  trust  and that  each such
Trustee shall be trustee of a trust or trusts hereunder  separate and apart from
any trust or trusts hereunder  administered by any other such Trustee;  and upon
the execution and delivery of such  supplemental  indenture the  resignation  or
removal of the retiring  Trustee shall become  effective to the extent  provided
therein  and each such  successor  Trustee,  without any  further  act,  deed or
conveyance,  shall become vested with all the rights,  powers, trusts and duties
of the retiring  Trustee with respect to the  Securities of that or those series
to which the appointment of such successor  Trustee relates;  but, on request of
the Company or any successor  Trustee,  such retiring Trustee shall duly assign,
transfer  and deliver to such  successor  Trustee all property and money held by
such retiring Trustee  hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.

     Upon request of any such successor  Trustee,  the Company shall execute any
and all  instruments  for more fully and certainly  vesting in and confirming to
such  successor  Trustee all such rights,  powers and trusts  referred to in the
first or second preceding paragraph, as the case may be.

     No successor  Trustee  shall accept its  appointment  unless at the time of
such  acceptance  such  successor  Trustee shall be qualified and eligible under
this Article.

     Section 612. Merger, Conversion, Consolidation or Succession to Business.

     Any  corporation  into which the Trustee may be merged or converted or with
which it may be  consolidated,  or any  corporation  resulting  from any merger,
conversion  or  consolidation  to which  the  Trustee  shall be a party,  or any
corporation  succeeding to all or substantially all the corporate trust business
of the Trustee,  shall be the successor of the Trustee hereunder,  provided such
corporation  shall be  otherwise  qualified  and  eligible  under this  Article,
without the  execution  or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not  delivered,  by the Trustee  then in office,  any  successor  by merger,
conversion  or  consolidation  to such  authenticating  Trustee  may adopt  such
authentication  and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.

     Section 613. Preferential Collection of Claims Against Company.

     If and when the  Trustee  shall be or become a creditor  of the Company (or
any other  obligor  upon the  Securities),  the Trustee  shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).  For purposes of Section 311(b) (4) and
(6) of the Trust Indenture Act, the following terms shall mean:

     (a) "cash  transaction"  means any  transaction  in which full  payment for
goods or securities  sold is made within seven days after  delivery of the goods
or  securities  in  currency  or in checks or other  orders  drawn upon banks or
bankers and payable upon demand; and

     (b) "self-liquidating paper" means any draft, bill of exchange,  acceptance
or obligation  which is made,  drawn,  negotiated or incurred by the Company for
the purpose of financing  the  purchase,  processing,  manufacturing,  shipment,
storage or sale of goods, wares or merchandise and which is secured by documents
evidencing  title  to,  possession  of,  or a lien  upon,  the  goods,  wares or
merchandise or the  receivables or proceeds  arising from the sale of the goods,
wares or merchandise previously constituting the security, provided the security
is received  by the Trustee  simultaneously  with the  creation of the  creditor
relationship with the Company arising from the making,  drawing,  negotiating or
incurring of the draft, bill of exchange, acceptance or obligation.

     Section 614. Appointment of Authenticating Agent.

     From time to time,  the  Trustee  may  appoint  one or more  Authenticating
Agents with respect to one or more series of  Securities,  which may include the
Company  or  anyAffiliate  of the  Company,  with  power to act on behalf of the
Trustee to authenticate Securities of such series issued upon original issue and
upon  exchange,  registration  of  transfer  or  partial  redemption  thereof or
pursuant to Section 306, and  Securities so  authenticated  shall be entitled to
the  benefits  of this  Indenture  and  shall be valid  and  obligatory  for all
purposes as if authenticated  by the Trustee  hereunder.  Wherever  reference is
made in this Indenture to the  authentication  and delivery of Securities by the
Trustee or the Trustee's certificate of authentication,  such reference shall be
deemed to include  authentication  and  delivery  on behalf of the Trustee by an
Authenticating  Agent and a certificate of authentication  executed on behalf of
the  Trustee by an  Authenticating  Agent.  Each  Authenticating  Agent shall be
acceptable to the Company and shall at all times be a corporation  organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent,  having a combined  capital and surplus of not less than  $50,000,000 and
subject to supervision or  examination  by Federal or State  authority.  If such
Authenticating Agent publishes reports of condition at least annually,  pursuant
to law or to the requirements of said supervising or examining  authority,  then
for the  purposes  of this  Section,  the  combined  capital and surplus of such
Authenticating  Agent shall be deemed to be its combined  capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating  Agent  shall  cease  to  be  eligible  in  accordance  with  the
provisions of this Section,  such Authenticating  Agent shall resign immediately
in the manner and with the effect specified in this Section.

     Any  corporation  into  which an  Authenticating  Agent  may be  merged  or
converted or with which it may be  consolidated,  or any  corporation  resulting
from any merger,  conversion or consolidation to which such Authenticating Agent
shall be a party,  or any  corporation  succeeding  to the  corporate  agency or
corporate  trust business of an  Authenticating  Agent,  shall continue to be an
Authenticating  Agent,  provided such  corporation  shall be otherwise  eligible
under this Section,  without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.

     An  Authenticating  Agent may resign at any time by giving  written  notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an  Authenticating  Agent by giving written notice thereof to such
Authenticating  Agent  and to the  Company.  Upon  receiving  such a  notice  of
resignation  or  upon  such  a  termination,   or  in  case  at  any  time  such
Authenticating  Agent  shall  cease  to  be  eligible  in  accordance  with  the
provisions of this Section,  the Trustee may appoint a successor  Authenticating
Agent which shall be  acceptable to the Company.  Any  successor  Authenticating
Agent upon acceptance of its appointment  hereunder shall become vested with all
the rights, powers and duties of its predecessor hereunder,  with like effect as
if originally  named as an  Authenticating  Agent.  No successor  Authenticating
Agent shall be appointed unless eligible under the provisions of this Section.

     The  Company  agrees  to pay to  each  Authenticating  Agent  from  time to
time-reasonable compensation for its services under this Section.

     If an  appointment  with respect to one or more series is made  pursuant to
this  Section,  the  Securities  of such series may have  endorsed  thereon,  in
addition  to  the  Trustee's  certificate  of  authentication,   an  alternative
certificate of authentication in the following form:

     This is one of the Securities of the series designated  therein referred to
in the within-mentioned Indenture.


                                FIFTH THIRD BANK,
                                   as Trustee



                                By:  ___________________________________________
                                        As Authenticating Agent




                                By:  ___________________________________________
                                        Authorized Officer

     Section 615. Indemnification.

     The  Company  agrees to  indemnify  the Trustee  for,  and hold it harmless
against,  any loss,  liability or expense  incurred by it,  arising out of or in
connection with the acceptance or administration of this Indenture or the trusts
hereunder  or the  performance  of its  duties  hereunder  or under any  related
document,  including  the  reasonable  costs and  expenses of  defending  itself
against or investigating  any claim or liability with respect to the Securities,
except to the extent that any such loss, liability or expense was due to its own
negligence  or bad  faith.  The  Company  need not pay for any  settlement  made
without its consent.  The  obligations  of the Company to the Trustee under this
Section  shall  survive the  satisfaction  and  discharge of this  Indenture and
payment in full and/or retirement of the Securities.

                                  ARTICLE SEVEN

                Holders' Lists and Reports by Trustee and Company

     Section 701. Company to Furnish Trustee Names and Addresses of Holders.

     The Company will furnish or cause to be furnished to the Trustee:

     (1) on each Regular  Record  Date, a list,  in such form as the Trustee may
reasonably  require,  of the names and addresses of the Holders of Securities of
each series as of such Regular  Record Date,  and (2) at such other times as the
Trustee may request in writing,  within 30 days after the receipt by the Company
of any such  request,  a list of similar  form and content as of a date not more
than 15 days prior to the time such list is furnished;  provided,  however, that
if and so long as the Trustee shall be the Security Registrar, no such list need
be furnished.

     Section 702. Preservation of Information; Communications to Holders.

     The  Trustee  shall  preserve,  in as  current  a  form  as  is  reasonably
practicable,  the names and  addresses  of Holders  contained in the most recent
list as provided in Section 701 and the names and addresses of Holders  received
by the Trustee in its  capacity as Security  Registrar.  The Trustee may destroy
any list  furnished  to it as provided in Section 701 upon receipt of a new list
so furnished.

     The rights of Holders to  communicate  with other  Holders  with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights  and  privileges  of the  Trustee,  shall  be as  provided  by the  Trust
Indenture Act.

     Every Holder of Securities,  by receiving and holding the same, agrees with
the  Company and the  Trustee  that  neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information  as to names and  addresses  of Holders  made  pursuant to the Trust
Indenture Act.

     Section 703. Reports by Trustee.

     The Trustee shall  transmit to Holders such reports  concerning the Trustee
and its actions  under this  Indenture as may be required  pursuant to the Trust
Indenture  Act at the times and in the  manner  provided  pursuant  thereto.  If
required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within
sixty days after each May 15  following  the date of this  Indenture  deliver to
Holders  a brief  report,  dated  as of such  May 15,  which  complies  with the
provisions of such Section 313(a).

     A copy of each  such  report  shall,  at the time of such  transmission  to
Holders,  be filed by the  Trustee  with  each  stock  exchange  upon  which any
Securities are listed, with the Commission and with the Company.

     Section 704. Reports by Company.

     The Company shall file with the Trustee and the Commission, and transmit to
Holders,  such  information,  documents and other  reports,  and such  summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner provided pursuant to such Act; provided that any such information,
documents  or reports  required  to be filed  with the  Commission  pursuant  to
Section 13 or 15(d) of the Exchange  Act shall be filed with the Trustee  within
15 days after the same is so required to be filed with the Commission.

                                  ARTICLE EIGHT

                         Consolidation, Merger and Sale

     Section 801. Consolidations and Mergers Permitted.

     Nothing  contained  in this  Indenture  or in any of the  Securities  shall
prevent  any  consolidation  or  merger  of the  Company  with or into any other
corporation or  corporations  (whether or not affiliated  with the Company),  or
successive  consolidations  or mergers in which the Company or its  successor or
successors shall be a party or parties,  or shall prevent any sale,  conveyance,
transfer or other disposition of the property of the Company or its successor or
successors  as an  entirety,  or  substantially  as an  entirety,  to any  other
corporation  (whether or not  affiliated  with the Company or its  successor  or
successors)  authorized to acquire and operate the same; provided,  however, the
Company hereby covenants and agrees that, upon any such  consolidation,  merger,
sale, conveyance, transfer or other disposition, the due and punctual payment of
the principal of (premium,  if any) and interest on all of the Securities of all
series in  accordance  with the terms of each series,  according to their tenor,
and the due and punctual  performance  and  observance  of all the covenants and
conditions of this  Indenture  with respect to each series or  established  with
respect  to such  series  to be kept  or  performed  by the  Company,  shall  be
expressly  assumed,  by  supplemental  indenture  (which  shall  conform  to the
provisions of the Trust Indenture Act as then in effect) satisfactory in form to
the Trustee  executed and  delivered to the Trustee by the entity formed by such
consolidation,  or into  which the  Company  shall have been  merged,  or by the
entity which shall have acquired such property.

     Section 802. Rights and Duties of Successor Company.

     In case of any such consolidation,  merger, sale,  conveyance,  transfer or
other  disposition  and upon the  assumption  by the successor  corporation,  by
supplemental  indenture,  executed and delivered to the Trustee and satisfactory
in form to the Trustee,  of the due and punctual  payment of the  principal  of,
premium, if any, and interest on all of the Securities of all series outstanding
and the due and punctual  performance  of all of the covenants and conditions of
this Indenture or  established  with respect to each series of the Securities to
be  performed  by the  Company  with  respect  to each  series,  such  successor
corporation  shall succeed to and be substituted for the Company,  with the same
effect  as if it had been  named  herein as the  party of the  first  part,  and
thereupon the predecessor  corporation  shall be relieved of all obligations and
covenants  under this Indenture and the Securities.  Such successor  corporation
thereupon may cause to be signed, and may issue either in its own name or in the
name of the Company or any other predecessor  obligor on the Securities,  any or
all of the Securities  issuable  hereunder which theretofore shall not have been
signed by the Company and delivered to the Trustee;  and, upon the order of such
successor  company,  instead  of the  Company,  and  subject  to all the  terms,
conditions  and  limitations  in this  Indenture  prescribed,  the Trustee shall
authenticate  and shall deliver any Securities  which previously shall have been
signed and delivered by the officers of the  predecessor  Company to the Trustee
for  authentication,   and  any  Securities  which  such  successor  corporation
thereafter  shall  cause to be signed  and  delivered  to the  Trustee  for that
purpose.

     All the Securities so issued shall in all respects have the same legal rank
and benefit under this  Indenture as the  Securities  theretofore  or thereafter
issued in  accordance  with the terms of this  Indenture  as though  all of such
Securities had been issued at the date of the execution hereof.

     Nothing  contained  in this  Indenture  or in any of the  Securities  shall
prevent  the  Company  from  merging  into  itself or  acquiring  by purchase or
otherwise all or any part of the property of any other  corporation  (whether or
not affiliated with the Company).

     Section 803. Opinion of Counsel.

     The Trustee may receive an Opinion of Counsel as  conclusive  evidence that
any such consolidation, merger, sale, conveyance, transfer or other disposition,
and any such assumption, comply with the provisions of this Article.

                                  ARTICLE NINE

                             Supplemental Indentures

     Section 901. Supplemental Indentures Without Consent of Holders.

     Without the consent of any Holders, the Company, when authorized by a Board
Resolution,  and the Trustee,  at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:

     (1) to  evidence  the  succession  of another  Person to the Company to the
assumption by any such  successor of the covenants of the Company  herein and in
the Securities pursuant to Article Eight or Section 117; or

     (2) to add to the  covenants  of the Company for the benefit of the Holders
of all or any  series of  Securities  (and if such  covenants  are to be for the
benefit of less than all series of  Securities,  stating that such covenants are
expressly  being included solely for the benefit of such series) or to surrender
any right or power herein conferred upon the Company; provided, however, that in
respect of any such additional covenant, such supplemental indenture may provide
for a particular  period of grace after default  (which period may be shorter or
longer than that  allowed in the case of other  defaults)  or may provide for an
immediate  enforcement upon such default or may limit the remedies  available to
the  Trustee  upon such  default  or may limit  the  right of the  Holders  of a
majority in aggregate principal amount of the Securities of such series to waive
such default; or

     (3) to add any additional  Events of Default for the benefit of the Holders
of all or any series of Securities (and if such additional Events of Default are
to be for the benefit of less than all series of  Securities,  stating that such
additional Events of Default are expressly being included solely for the benefit
of such series); or

     (4) to add to or change any of the  provisions  of this  Indenture  to such
extent as shall be necessary to permit or facilitate  the issuance of Securities
in bearer form,  registrable  or not  registrable  as to principal,  and with or
without interest coupons,  or to permit or facilitate the issuance of Securities
in uncertificated form; or

     (5) to add to, change or eliminate any of the  provisions of this Indenture
in respect of one or more series of Securities, provided that any such addition,
change or elimination  (A) shall neither (i) apply to any Security of any series
created  prior to the execution of such  supplemental  indenture and entitled to
the  benefit of such  provision  nor (ii) modify the rights of the Holder of any
such Security with respect to such provision or (B) shall become  effective only
when there is no such Security Outstanding; or

     (6) to secure the Securities; or

     (7) to establish the form or terms of Securities of any series as permitted
by Sections 201 and 301; or

     (8) to evidence and provide for the acceptance of appointment  hereunder by
a successor  Trustee with respect to the Securities of one or more series and to
add to or change any of the  provisions of this  Indenture as shall be necessary
to provide for or facilitate the  administration  of the trusts hereunder by one
or more successor Trustees, pursuant to the requirements of Section 611; or

     (9) to cure any ambiguity,  to correct or supplement  any provision  herein
which may be defective or inconsistent  with any other provision  herein,  or to
make any other  provisions  with respect to matters or questions  arising  under
this Indenture,  provided that such action pursuant to this Clause (9) shall not
adversely affect the interests of the Holders of Securities of any series in any
material respect.

     The Trustee is hereby  authorized to join with the Company in the execution
of  any  such  supplemental  indenture,  and to  make  any  further  appropriate
agreements and stipulations which may be therein contained.

     Any supplemental indenture authorized by the provisions of this Section may
be executed by the Company and the Trustee without the consent of the holders of
any of  the  Securities  at the  time  outstanding,  notwithstanding  any of the
provisions of Section 902.

     Section 902. Supplemental Indentures With Consent of Holders.

     With the consent of the  Holders of not less than a majority  in  principal
amount  of  the   Outstanding   Securities  of  each  series  affected  by  such
supplemental  indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture  or  indentures  supplemental  hereto for the purpose of
adding any  provisions  to or changing in any manner or  eliminating  any of the
provisions  of this  Indenture  or of  modifying in any manner the rights of the
Holders of Securities of such series under this  Indenture;  provided,  however,
that no such supplemental  indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,

     (1) change the Stated  Maturity of the principal of, or any  installment of
principal  of or  interest  on, any  Security,  or reduce the  principal  amount
thereof  or the  rate of  interest  thereon  or any  premium  payable  upon  the
redemption  thereof,  or reduce the amount of the principal of an Original Issue
Discount  Security or any other  Security  which would be due and payable upon a
declaration of acceleration of the Maturity  thereof pursuant to Section 502, or
change  any Place of  Payment  where,  or the coin or  currency  in  which,  any
Security or any premium or interest thereon is payable, affect the applicability
of Article  Fourteen to any Security,  or impair the right to institute suit for
the enforcement of any such payment on or after the Stated Maturity thereof (or,
in the case of redemption, on or after the Redemption Date), or

     (2) reduce the percentage in principal amount of the Outstanding Securities
of  any  series,  the  consent  of  whose  Holders  is  required  for  any  such
supplemental  indenture,  or the consent of whose  Holders is  required  for any
waiver (of  compliance  with  certain  provisions  of this  Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or

     (3) modify any of the  provisions of this  Section,  Section 513 or Section
1007,  except to increase any such  percentage  or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Outstanding  Security  affected thereby;  provided,  however,
that this  clause  shall not be deemed to require the consent of any Holder with
respect to changes in the references to "the Trustee" and concomitant changes in
this Section and Section 1007,  or the deletion of this  proviso,  in accordance
with the requirements of Sections 611 and 901(8).

     A supplemental  indenture which changes or eliminates any covenant or other
provision of this  Indenture  which has expressly  been included  solely for the
benefit of one or more  particular  series of Securities,  or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other  provision,  shall be  deemed  not to  affect  the  rights  under  this
Indenture of the Holders of  Securities  of any other  series;  provided that no
such  supplemental  indenture shall modify any provision of this Indenture so as
to adversely  affect the rights of any holder of outstanding  Senior Debt to the
benefits of Article Fourteen.

     It shall not be  necessary  for any Act of Holders  under  this  Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.

     Section 903. Execution of Supplemental Indentures.

     In  executing,   or  accepting  the  additional   trusts  created  by,  any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture,  the Trustee shall be entitled to receive,
and  (subject  to Section  601) shall be fully  protected  in relying  upon,  an
Opinion of Counsel stating that the execution of such supplemental  indenture is
authorized  or  permitted by this  Indenture.  The Trustee may, but shall not be
obligated  to,  enter into any such  supplemental  indenture  which  affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.

     Section 904. Effect of Supplemental Indentures.

     Upon the execution of any supplemental  indenture under this Article,  this
Indenture  shall be  modified in  accordance  therewith,  and such  supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities  theretofore or thereafter  authenticated and delivered  hereunder
shall be bound thereby.

     Section 905. Conformity with Trust Indenture Act.

     Every  supplemental  indenture  executed  pursuant  to this  Article  shall
conform to the requirements of the Trust Indenture Act as then in effect.

     Section 906. Reference in Securities to Supplemental Indentures.

     Securities of any series authenticated and delivered after the execution of
any supplemental  indenture  pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental  indenture. If the Company shall so determine,
new  Securities  of any series so modified as to conform,  in the opinion of the
Trustee and the Company, to any such supplemental  indenture may be prepared and
executed  by the  Company  and  authenticated  and  delivered  by the Trustee in
exchange for Outstanding Securities of such series.

                                   ARTICLE TEN

                                    Covenants

     Section 1001. Payment of Principal, Premium and Interest.

     The  Company  covenants  and  agrees  for the  benefit  of each  series  of
Securities that it will duly and punctually pay the principal of and any premium
and interest on the  Securities of that series in  accordance  with the terms of
the Securities and this Indenture.

     Section 1002. Maintenance of Office or Agency.

     The  Company  will  maintain  in each  Place of  Payment  for any series of
Securities an office or agency where  Securities of that series may be presented
or surrendered for payment,  where  Securities of that series may be surrendered
for  registration  of transfer or exchange  and where  notices and demands to or
upon the Company in respect of the  Securities of that series and this Indenture
may be served. The Company will give prompt written notice to the Trustee of the
location,  and any change in the location,  of such office or agency.  If at any
time the Company  shall fail to maintain any such  required  office or agency or
shall fail to furnish the Trustee with the address thereof,  such presentations,
surrenders,  notices and demands  may be made or served at the  Corporate  Trust
Office of the Trustee,  and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.

     The Company may also from time to time  designate one or more other offices
or  agencies  where the  Securities  of one or more series may be  presented  or
surrendered  for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in each Place of Payment for  Securities  of any series for such  purposes.  The
Company will give prompt written  notice to the Trustee of any such  designation
or  rescission  and of any change in the  location  of any such other  office or
agency.

     Section 1003. Money for Securities Payments to Be Held in Trust.

     If the Company  shall at any time act as its own Paying  Agent with respect
to any  series  of  Securities,  it  will,  on or  before  each  due date of the
principal of or any premium or interest on any of the Securities of that series,
segregate  and hold in trust for the benefit of the Persons  entitled  thereto a
sum sufficient to pay the principal and any premium and interest so becoming due
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided  and will  promptly  notify the  Trustee of its action or failure so to
act.

     Whenever the Company shall have one or more Paying Agents for any series of
Securities,  it will,  on or  before  each due date of the  principal  of or any
premium or interest on any  Securities  of that  series,  deposit  with a Paying
Agent a sum  sufficient  to pay such amount,  such sum to be held as provided by
the Trust  Indenture  Act,  and (unless  such Paying  Agent is the  Trustee) the
Company will promptly notify the Trustee of its action or failure so to act.

     The Company will cause each Paying Agent for any series of Securities other
than the Trustee to execute and  deliver to the Trustee an  instrument  in which
such Paying Agent shall agree with the  Trustee,  subject to the  provisions  of
this Section,  that such Paying Agent will (1) comply with the provisions of the
Trust  Indenture  Act  applicable  to it as a Paying  Agent and (2)  during  the
continuance  of any  default  by the  Company  (or any  other  obligor  upon the
Securities  of that  series)  in the  making of any  payment  in  respect of the
Securities of that series,  upon the written  request of the Trustee,  forthwith
pay to the Trustee  all sums held in trust by such  Paying  Agent for payment in
respect of the Securities of that series.

     The Company may at any time, for the purpose of obtaining the  satisfaction
and  discharge of this  Indenture or for any other  purpose,  pay, or by Company
Order  direct any Paying  Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying  Agent,  such sums to be held by the Trustee upon the
same  trusts as those  upon  which  such sums were held by the  Company  or such
Paying Agent;  and,  upon such payment by any Paying Agent to the Trustee,  such
Paying Agent shall be released from all further  liability  with respect to such
money.

     Any money  deposited with the Trustee or any Paying Agent,  or then held by
the  Company,  in trust for the  payment of the  principal  of or any premium or
interest on any  Security of any series and  remaining  unclaimed  for 18 months
after such  principal,  premium or interest has become due and payable  shall be
paid to the Company on Company  Request,  or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor,  look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money,  and all  liability of the Company as trustee  thereof,  shall  thereupon
cease;  provided,  however,  that the Trustee or such Paying Agent, before being
required to make any such repayment,  may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published  on each  Business  Day and of general  circulation  in the Borough of
Manhattan,  The City of New York,  New York,  notice  that  such  money  remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such  publication,  any unclaimed balance of such money
then remaining will be repaid to the Company.

     Section 1004. Statement by Officers as to Default.

     The Company will  deliver to the Trustee,  within 120 days after the end of
each fiscal year of the  Company  ending  after the date  hereof,  an  Officer's
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions  and conditions of this  Indenture  (without  regard to any period of
grace or requirement of notice provided  hereunder) and, if the Company shall be
in default,  specifying  all such defaults and the nature and status  thereof of
which they may have knowledge.

     Section 1005. Maintenance of Properties.

     The Company will cause all properties  used or useful in the conduct of its
business or the business of any  Subsidiary  to be  maintained  and kept in good
condition,  repair and working order and supplied  with all necessary  equipment
and  will  cause  to be made  all  necessary  repairs,  renewals,  replacements,
betterments and improvements  thereof, all as in the judgment of the Company may
be necessary  so that the business  carried on in  connection  therewith  may be
properly and  advantageously  conducted at all times;  provided,  however,  that
nothing in this  Section  shall  prevent  the  Company  from  discontinuing  the
operation or maintenance of any of such properties if such discontinuance is, in
the  judgment of the  Company,  desirable  in the conduct of its business or the
business of any Subsidiary.

     Section 1006. Payment of Taxes and Other Claims.

     The Company will pay or discharge or cause to be paid or discharged, before
the same shall become  delinquent,  (1) all taxes,  assessments and governmental
charges levied or imposed upon the Company or any Subsidiary or upon the income,
profits or property of the Company or any Subsidiary,  and (2) all lawful claims
for labor,  materials and supplies which, if unpaid,  might by law become a lien
upon the property of the Company or any Subsidiary;  provided, however, that the
Company  shall  not be  required  to pay or  discharge  or  cause  to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.

     Section 1007. Waiver of Certain Covenants.

     Except as otherwise specified as contemplated by Section 301 for Securities
of such series,  the Company may, with respect to the  Securities of any series,
omit in any particular instance to comply with any term,  provision or condition
set forth in any covenant provided pursuant to Section 301(18), 901(2) or 901(7)
for the  benefit  of the  Holders  of such  series if  before  the time for such
compliance  the  Holders  of at least a  majority  in  principal  amount  of the
Outstanding  Securities  of such series shall,  by Act of such  Holders,  either
waive such compliance in such instance or generally  waive  compliance with such
term, provision or condition,  but no such waiver shall extend to or affect such
term,  provision or condition  except to the extent so  expressly  waived,  and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term,  provision or condition shall
remain in full force and effect.

     Section 1008. Calculation of Original Issue Discount.

     The  Company  shall  file  with  the  Trustee  promptly  at the end of each
calendar year a written notice  specifying the amount of original issue discount
(including daily rates and accrual periods) accrued on Outstanding Securities as
of the end of such year.

                                 ARTICLE ELEVEN

                            Redemption of Securities

     Section 1101. Applicability of Article.

     Securities of any series which are redeemable  before their Stated Maturity
shall be  redeemable  in  accordance  with their terms and (except as  otherwise
specified as contemplated by Section 301 for such Securities) in accordance with
this Article.

     Section 1102. Election to Redeem; Notice to Trustee.

     The election of the Company to redeem any Securities  shall be evidenced by
a Board Resolution or in another manner specified as contemplated by Section 301
for such  Securities.  In case of any  redemption at the election of the Company
the Company shall,  at least 45 days prior to the  Redemption  Date fixed by the
Company (unless a shorter notice shall be  satisfactory to the Trustee),  notify
the Trustee of such Redemption Date and of the principal amount of Securities of
such series to be redeemed. In the case of any redemption of Securities prior to
the expiration of any  restriction on such  redemption  provided in the terms of
such  Securities or elsewhere in this  Indenture,  the Company shall furnish the
Trustee  with  an  Officer's   Certificate   evidencing   compliance  with  such
restriction.

     Section 1103. Selection by Trustee of Securities to Be Redeemed.

     If less than all the  Securities  of any series are to be redeemed  (unless
all the Securities of such series and of a specified tenor are to be redeemed or
unless  such  redemption  affects  only  a  single  Security),   the  particular
Securities  to be redeemed  shall be selected not more than 60 days prior to the
Redemption Date by the Trustee,  from the Outstanding  Securities of such series
not previously  called for redemption,  by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of a
portion of the  principal  amount of any Security of such series,  provided that
the  unredeemed  portion of the principal  amount of any Security shall be in an
authorized  denomination  (which  shall not be less than the minimum  authorized
denomination) for such Security.  If less than all the Securities of such series
are to be redeemed (unless such redemption affects only a single Security),  the
particular  Securities  to be redeemed  shall be selected  not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding  Securities of
such  series  not  previously  called  for  redemption  in  accordance  with the
preceding sentence.

     The Trustee shall promptly  notify the Company in writing of the Securities
selected for redemption as aforesaid and, in case of any Securities selected for
partial redemption as aforesaid, the principal amount thereof to be redeemed.

     The provisions of the two preceding paragraphs shall not apply with respect
to any redemption affecting only a single Security,  whether such Security is to
be redeemed in whole or in part. In the case of any such redemption in part, the
unredeemed  portion  of the  principal  amount  of the  Security  shall be in an
authorized  denomination  (which  shall not be less than the minimum  authorized
denomination) for such Security.

     For all purposes of this Indenture,  unless the context otherwise requires,
all  provisions  relating to the redemption of Securities  shall relate,  in the
case of any  Securities  redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.

     Section 1104. Notice of the Redemption.

     Notice of redemption  shall be given by mail not less than 30 nor more than
60 days  prior to the  Redemption  Date,  to each  Holder  of  Securities  to be
redeemed, at his address appearing in the Security Register.

     All notices of redemption  shall identify the Securities to be redeemed and
shall state:

     (1) the Redemption Date,

     (2) the Redemption Price,

     (3) if less than all the Outstanding Securities of any series consisting of
more than a single Security are to be redeemed,  the identification (and, in the
case of partial redemption of any such Securities, the principal amounts) of the
particular  Securities  to be  redeemed  and,  if less than all the  Outstanding
Securities of any series consisting of a single Security are to be redeemed, the
principal amount of the particular Security to be redeemed,

     (4) that on the Redemption  Date the  Redemption  Price will become due and
payable upon each such Security to be redeemed and, if applicable, that interest
thereon will cease to accrue on and after said date,

     (5) the place or places where each such Security is to be  surrendered  for
payment of the Redemption Price, and

     (6) that the redemption is for a sinking fund, if such is the case.

     Notice of  redemption  of  Securities to be redeemed at the election of the
Company  shall be given by the  Company  or, at the  Company's  request,  by the
Trustee in the name and at the expense of the Company and shall be irrevocable.

     The notice if mailed in the manner herein  provided  shall be  conclusively
presumed to have been given,  whether or not the Holder receives such notice. In
any case, failure to give such notice by mail or any defect in the notice to the
Holder of any Security designated for redemption as a whole or in part shall not
affect the validity of the proceedings for the redemption of any other Security.

     Section 1105. Deposit of Redemption Price.

     On or before any  Redemption  Date,  the  Company  shall  deposit  with the
Trustee or with a Paying  Agent (or,  if the Company is acting as its own Paying
Agent,  segregate  and hold in trust as provided  in Section  1003) an amount of
money  sufficient to pay the Redemption  Price of, and (except if the Redemption
Date shall be an Interest  Payment Date) accrued interest on, all the Securities
which are to be redeemed on that date.

     Section 1106. Securities Payable on Redemption Date.

     Notice of redemption  having been given as aforesaid,  the Securities so to
be  redeemed  shall,  on the  Redemption  Date,  become  due and  payable at the
Redemption  Price  therein  specified,  and from and after such date (unless the
Company  shall  default  in the  payment  of the  Redemption  Price and  accrued
interest) such  Securities  shall cease to bear interest.  Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption  Price,  together with accrued interest
to the Redemption Date; provided,  however,  that, unless otherwise specified as
contemplated  by Section 301,  installments of interest whose Stated Maturity is
on or prior to the  Redemption  Date  will be  payable  to the  Holders  of such
Securities,  or one or more  Predecessor  Securities,  registered as such at the
close of business on the relevant  Record Dates according to their terms and the
provisions of Section 307.

     Section 1107. Securities Redeemed in Part.

     Any Security which is to be redeemed only in part shall be surrendered at a
Place of Payment therefor (with, if the Company or the Trustee so requires,  due
endorsement by, or a written  instrument of transfer in form satisfactory to the
Company and the Trustee  duly  executed  by, the Holder  thereof or his attorney
duly  authorized  in writing),  and the Company shall  execute,  and the Trustee
shall  authenticate  and deliver to the Holder of such Security  without service
charge,  a new Security or Securities  of the same series and of like tenor,  of
any authorized  denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the  unredeemed  portion of the principal of
the Security so  surrendered;  provided,  however,  that a  Depositary  need not
surrender a Global  Security for a partial  redemption  and may be authorized to
make a notation on such Global Security of such partial redemption.  In the case
of a partial redemption of a Global Security,  the Depositary,  and in turn, the
participants  in the  Depositary,  shall have the  responsibility  to select any
Securities to be redeemed by random lot.

                                 ARTICLE TWELVE

                                  Sinking Funds

     Section 1201. Applicability of Article.

     The  provisions of this Article shall be applicable to any sinking fund for
the  retirement of  Securities  of any series  except as otherwise  specified as
contemplated by Section 301 for such Securities.

     The minimum amount of any sinking fund payment provided for by the terms of
any Securities is herein referred to as a "mandatory sinking fund payment",  and
any payment in excess of such minimum  amount  provided for by the terms of such
Securities  is herein  referred to as an  "optional  sinking  fund  payment." If
provided for by the terms of any Securities, the cash amount of any sinking fund
payment may be subject to  reduction as provided in Section  1202.  Each sinking
fund payment shall be applied to the redemption of Securities as provided for by
the terms of such Securities.

     Section 1202. Satisfaction of Sinking Fund Payments with Securities.

     The Company (1) may deliver Outstanding  Securities of a series (other than
any previously  called for redemption) and (2) may apply as a credit  Securities
of a series  which have been  redeemed  either at the  election  of the  Company
pursuant to the terms of such Securities or through the application of permitted
optional sinking fund payments pursuant to the terms of such Securities, in each
case in satisfaction of all or any part of any sinking fund payment with respect
to any  Securities  of such series  required to be made pursuant to the terms of
such  Securities  as and to the  extent  provided  for  by  the  terms  of  such
Securities;  provided  that  the  Securities  to be so  credited  have  not been
previously so credited.  The  Securities to be so credited shall be received and
credited for such purpose by the Trustee at the Redemption  Price,  as specified
in the  Securities so to be redeemed,  for redemption  through  operation of the
sinking  fund and the  amount of such  sinking  fund  payment  shall be  reduced
accordingly.

     Section 1203. Redemption of Securities for Sinking Fund.

     Not less  than 45 days  prior to each  sinking  fund  payment  date for any
Securities,  the Company will  deliver to the Trustee an  Officer's  Certificate
specifying  the  amount  of the  next  ensuing  sinking  fund  payment  for such
Securities  pursuant to the terms of such Securities,  the portion  thereof,  if
any,  which is to be  satisfied by payment of cash and the portion  thereof,  if
any, which is to be satisfied by delivering and crediting Securities pursuant to
Section  1202 and will also  deliver  to the  Trustee  any  Securities  to be so
delivered.  Not less than 30 days prior to each such sinking fund payment  date,
the Trustee  shall select the  Securities  to be redeemed upon such sinking fund
payment  date in the manner  specified  in Section  1103 and cause notice of the
redemption  thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 1104. Such notice having been duly given,  the
redemption  of such  Securities  shall be made upon the terms and in the  manner
stated in Sections 1106 and 1107.

                                ARTICLE THIRTEEN

                       Defeasance and Covenant Defeasance

     Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance.

     The Company may elect,  at its option at any time,  to have Section 1302 or
Section 1303 applied to any Securities or any series of Securities,  as the case
may be, designated  pursuant to Section 301 as being defeasible pursuant to such
Section 1302 or 1303, in accordance  with any applicable  requirements  provided
pursuant to Section 301 and upon  compliance with the conditions set forth below
in this Article.  Any such election shall be evidenced by a Board  Resolution or
in another manner specified as contemplated by Section 301 for such Securities.

     Section 1302. Defeasance and Discharge.

     Upon the  Company's  exercise  of its option (if any) to have this  Section
applied to any Securities or any series of  Securities,  as the case may be, the
Company  shall be deemed  to have  been  discharged  from its  obligations  with
respect to such Securities as provided in this Section on and after the date the
conditions  set  forth  in  Section  1304  are  satisfied   (hereinafter  called
"Defeasance"). For this purpose, such Defeasance means that the Company shall be
deemed to have paid and discharged the entire  indebtedness  represented by such
Securities and to have satisfied all its other obligations under such Securities
and this Indenture insofar as such Securities are concerned (and the Trustee, at
the expense of the Company,  shall execute proper instruments  acknowledging the
same),  subject to the following which shall survive until otherwise  terminated
or  discharged  hereunder:  (1) the  rights of  Holders  of such  Securities  to
receive,  solely from the trust fund described in Section 1304 and as more fully
set forth in such  Section,  payments  in  respect of the  principal  of and any
premium and interest on such Securities when payments are due, (2) the Company's
obligations  with respect to such Securities  under Sections 304, 305, 306, 1002
and 1003, (3) the rights,  powers,  trusts, duties and immunities of the Trustee
hereunder and (4) this Article.  Subject to  compliance  with this Article,  the
Company may  exercise  its option (if any) to have this  Section  applied to any
Securities  notwithstanding  the prior  exercise  of its option (if any) to have
Section 1303 applied to such Securities.

     Section 1303. Covenant Defeasance.

     Upon the  Company's  exercise  of its option (if any) to have this  Section
applied to any Securities or any series of  Securities,  as the case may be, (1)
the  Company  shall be  released  from its  obligations  under  Section  801(3),
Sections 1005 through 1006,  inclusive,  and any covenants  provided pursuant to
Section  301(19),  901(2) or  901(7)  for the  benefit  of the  Holders  of such
Securities  and (2) the  occurrence  of any event  specified in Sections  501(4)
(with respect to any of Section 801(3),  Sections 1005 through 1006,  inclusive,
and any such covenants provided pursuant to Section 301(19),  901(2) or 901(7)),
and  501(7)  shall be deemed  not to be or result in an Event of Default in each
case with  respect to such  Securities  as provided in this Section on and after
the date the  conditions  set forth in Section 1304 are  satisfied  (hereinafter
called "Covenant Defeasance").  For this purpose, such Covenant Defeasance means
that, with respect to such  Securities,  the Company may omit to comply with and
shall have no liability  in respect of any term,  condition  or  limitation  set
forth in any such  specified  Section (to the extent so specified in the case of
Section 501(4)) or Article Fourteen, whether directly or indirectly by reason of
any  reference  elsewhere  herein to any such Section or Article or by reason of
any reference in any such Section or Article to any other provision herein or in
any other  document,  but the remainder of this  Indenture  and such  Securities
shall be unaffected thereby.

     Section 1304. Conditions to Defeasance or Covenant Defeasance.

     The following shall be the conditions to the application of Section 1302 or
Section 1303 to any Securities or any series of Securities, as the case may be:

     (1) The Company shall  irrevocably have deposited or caused to be deposited
with  the  Trustee  (or  another  trustee  which   satisfies  the   requirements
contemplated  by Section  609 and agrees to comply with the  provisions  of this
Article  applicable to it) as trust funds in trust for the purpose of making the
following payments,  specifically  pledged as security for, and dedicated solely
to, the benefit of the Holders of such  Securities,  (A) money in an amount,  or
(B) U.S. Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any  payment,  money in an amount,  or
(C) a combination thereof, in each case sufficient,  in the opinion of a firm of
independent  public  accountants  expressed in a written  certification  thereof
delivered to the Trustee,  to pay and  discharge,  and which shall be applied by
the Trustee (or any such other  qualifying  trustee) to pay and  discharge,  the
principal of and any premium and interest on such  Securities on the  respective
Stated  Maturities,  in  accordance  with the terms of this  Indenture  and such
Securities.  As used herein, "U.S. Government Obligation" means (x) any security
which is (i) a direct obligation of the United States of America for the payment
of which the full faith and credit of the United States of America is pledged or
(ii) an  obligation  of a Person  controlled  or  supervised by and acting as an
agency or  instrumentality  of the United States of America the payment of which
is  unconditionally  guaranteed  as a full  faith and credit  obligation  by the
United States of America,  which, in either case (i) or (ii), is not callable or
redeemable at the option of the issuer thereof,  and (y) any depositary  receipt
issued by a bank (as  defined  in  Section  3(a)(2)  of the  Securities  Act) as
custodian with respect to any U.S.  Government  Obligation which is specified in
Clause  (x) above and held by such bank for the  account  of the  holder of such
depositary  receipt,  or with respect to any specific payment of principal of or
interest  on any U.S.  Government  Obligation  which is so  specified  and held,
provided  that (except as required by law) such  custodian is not  authorized to
make any  deduction  from the amount  payable  to the holder of such  depositary
receipt  from any  amount  received  by the  custodian  in  respect  of the U.S.
Government Obligation or the specific payment of principal or interest evidenced
by such depositary receipt.

     (2) In  the  event  of an  election  to  have  Section  1302  apply  to any
Securities  or any series of  Securities,  as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (A) the Company
has received from, or there has been published by, the Internal  Revenue Service
a ruling or (B) since  the date of this  instrument,  there has been a change in
the  applicable  Federal income tax law, in either case (A) or (B) to the effect
that,  and based thereon such opinion  shall  confirm that,  the Holders of such
Securities  will not recognize gain or loss for Federal income tax purposes as a
result of the deposit,  Defeasance  and discharge to be effected with respect to
such Securities and will be subject to Federal income tax on the same amount, in
the  same  manner  and at the same  times as would be the case if such  deposit,
Defeasance and discharge were not to occur.

     (3) In  the  event  of an  election  to  have  Section  1303  apply  to any
Securities  or any series of  Securities,  as the case may be, the Company shall
have  delivered  to the  Trustee an  Opinion  of Counsel to the effect  that the
Holders of such  Securities  will not recognize  gain or loss for Federal income
tax purposes as a result of the deposit and Covenant  Defeasance  to be effected
with respect to such Securities and will be subject to Federal income tax on the
same  amount,  in the same  manner and at the same times as would be the case if
such deposit and Covenant Defeasance were not to occur.

     (4)  The  Company  shall  have   delivered  to  the  Trustee  an  Officer's
Certificate to the effect that neither such Securities nor any other  Securities
of the same series, if then listed on any securities exchange,  will be delisted
as a result of such deposit.

     (5) No event  which  is,  or after  notice  or lapse of time or both  would
become,  an Event of  Default  with  respect  to such  Securities  or any  other
Securities shall have occurred and be continuing at the time of such deposit or,
with regard to any such event  specified in Sections 501(5) and (6), at any time
on or prior to the 90th day after the date of such deposit (it being  understood
that this condition shall not be deemed satisfied until after such 90th day).

     (6) Such Defeasance or Covenant  Defeasance  shall not cause the Trustee to
have a  conflicting  interest  within  the  meaning of the Trust  Indenture  Act
(assuming all Securities are in default within the meaning of such Act).

     (7) Such Defeasance or Covenant  Defeasance shall not result in a breach or
violation of, or constitute a default under,  any other  agreement or instrument
to which the Company is a party or by which it is bound.

     (8) Such  Defeasance or Covenant  Defeasance  shall not result in the trust
arising from such deposit  constituting an investment company within the meaning
of the Investment  Company Act unless such trust shall be registered  under such
Act or exempt from registration thereunder.

     (9) At the time of such  deposit,  (A) no  default  in the  payment  of any
principal  of or premium or interest on any Senior Debt shall have  occurred and
be  continuing,  (B) no event of default  with  respect to any Senior Debt shall
have  resulted in such  Senior  Debt  becoming,  and  continuing  to be, due and
payable  prior  to the date on which it  would  otherwise  have  become  due and
payable (unless payment of such Senior Debt has been made or duly provided for),
and (C) no other  event of default  with  respect to any Senior  Debt shall have
occurred and be  continuing  permitting  (after notice or lapse of time or both)
the  holders of such  Senior  Debt (or a trustee on behalf of such  holders)  to
declare  such Senior  Debt due and  payable  prior to the date on which it would
otherwise have become due and payable.

     (10)  The  Company  shall  have  delivered  to  the  Trustee  an  Officer's
Certificate  and an  Opinion  of  Counsel,  each  stating  that  all  conditions
precedent  with  respect to such  Defeasance  or Covenant  Defeasance  have been
complied with.

     Section 1305. Deposited Money and U.S. Government Obligations to Be Held in
          Trust; Miscellaneous Provisions.

     Subject to the  provisions of the last paragraph of Section 1003, all money
and U.S. Government  Obligations (including the proceeds thereof) deposited with
the Trustee or other qualifying trustee (solely for purposes of this Section and
Section  1306,   the  Trustee  and  any  such  other  trustee  are  referred  to
collectively  as the  "Trustee")  pursuant  to  Section  1304 in  respect of any
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such  Securities and this  Indenture,  to the payment,  either
directly or through any such Paying Agent  (including  the Company acting as its
own  Paying  Agent)  as the  Trustee  may  determine,  to the  Holders  of  such
Securities,  of all sums due and to become due  thereon in respect of  principal
and any premium and interest,  but money so held in trust need not be segregated
from other funds except to the extent required by law.

     Money and U.S. Government Obligations so held in trust shall not be subject
to the provisions of Article Fourteen.

     The Company  shall pay and  indemnify  the Trustee  against any tax, fee or
other  charge  imposed on or assessed  against the U.S.  Government  Obligations
deposited  pursuant to Section 1304 or the  principal  and interest  received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of Outstanding Securities.

     Anything in this Article to the contrary notwithstanding, the Trustee shall
deliver or pay to the Company from time to time upon  Company  Request any money
or U.S.  Government  Obligations  held by it as  provided  in Section  1304 with
respect to any Securities which, in the opinion of a firm of independent  public
accountants  expressed  in a  written  certification  thereof  delivered  to the
Trustee,  are in excess of the amount thereof which would then be required to be
deposited to effect the Defeasance or Covenant  Defeasance,  as the case may be,
with respect to such Securities.

     Section 1306. Reinstatement.

     If the  Trustee  or the  Paying  Agent  is  unable  to apply  any  money in
accordance  with this Article with  respect to any  Securities  by reason of any
order or judgment of any court or governmental authority enjoining,  restraining
or otherwise  prohibiting  such  application,  then the  obligations  under this
Indenture  and such  Securities  from which the Company has been  discharged  or
released  pursuant to Section  1302 or 1303 shall be revived and  reinstated  as
though no deposit had  occurred  pursuant to this  Article  with respect to such
Securities, until such time as the Trustee or Paying Agent is permitted to apply
all money held in trust pursuant to Section 1305 with respect to such Securities
in accordance with this Article;  provided,  however,  that if the Company makes
any payment of  principal  of or any  premium or  interest on any such  Security
following such reinstatement of its obligations, the Company shall be subrogated
to the rights (if any) of the Holders of such Securities to receive such payment
from the money so held in trust.

                                ARTICLE FOURTEEN

                         Junior Subordinated Securities

     Section 1401. Certain Securities Subordinate to Senior Debt.

     As provided  pursuant to Section 301 or in a  supplemental  indenture,  the
Company may issue one or more series of Securities  subject to the provisions of
this  Article  Fourteen,  and each  Holder of a  Security  of a series so issued
("Junior Subordinated Securities"), whether upon original issue or upon transfer
or assignment thereof, accepts and agrees to be bound by such provisions.

     The payment of the  principal  of,  premium,  if any,  and  interest on all
Junior  Subordinated  Securities  issued  with  respect  to which  this  Article
Fourteen  applies shall, to the extent and in the manner  hereinafter set forth,
be  subordinate  and subject in right of payment to the prior payment in full of
all Senior Debt, whether outstanding at the date of this Indenture or thereafter
incurred.

     No provision of this Article  Fourteen  shall prevent the occurrence of any
default or Event of Default hereunder.

     Section 1402. Payment Over of Proceeds Upon Default.

     In the event and during the  continuation  of any default in the payment of
principal,  premium,  interest  or any  other  payment  due on any  Senior  Debt
continuing  beyond  the period of grace,  if any,  specified  in the  instrument
evidencing such Senior Debt, unless and until such default shall have been cured
or waived or shall have  ceased to exist,  or in the event that the  maturity of
any Senior Debt has been accelerated because of a default, then no payment shall
be made by the Company with respect to the principal  (including  redemption and
sinking  fund  payments)  of, or  premium,  if any,  or  interest  on the Junior
Subordinated Securities.

     In the event that,  notwithstanding  the  foregoing,  any payment  shall be
received  by the Trustee or any holder when such  payment is  prohibited  by the
preceding  paragraph of this Section  1402,  such payment shall be held in trust
for the  benefit  of, and shall be paid over or  delivered  to,  the  holders of
Senior Debt or their respective  representatives,  or to the trustee or trustees
under any  indenture  pursuant  to which any of such  Senior  Debt may have been
issued,  as their respective  interests may appear,  but only to the extent that
the holders of the Senior Debt (or their  representative or representatives or a
trustee)  notify the Trustee  within 90 days of such payment of the amounts then
due and owing on the Senior Debt and only the amounts  specified  in such notice
to the Trustee shall be paid to the holders of Senior Debt.

     Section 1403. Payment Over of Proceeds Upon Dissolution, Etc.

     Upon any payment by the Company,  or  distribution of assets of the Company
of any kind or character,  whether in cash, property or securities, to creditors
upon any  dissolution  or winding-up or  liquidation  or  reorganization  of the
Company,  whether  voluntary  or  involuntary  or  in  bankruptcy,   insolvency,
receivership  or other  proceedings,  all  amounts due or to become due upon all
Senior  Debt shall first be paid in full,  or payment  thereof  provided  for in
money in accordance with its terms, before any payment is made on account of the
principal  (and  premium,  if  any)  or  interest  on  the  Junior  Subordinated
Securities;  and upon any such  dissolution  or  winding-up  or  liquidation  or
reorganization  any payment by the  Company,  or  distribution  of assets of the
Company of any kind or character,  whether in cash,  property or securities,  to
which the Holders of the Junior Subordinated  Securities or the Trustee would be
entitled,  except for the provisions of this Article Fourteen,  shall be paid by
the Company or by any  receiver,  trustee in  bankruptcy,  liquidating  trustee,
agent or other person making such payment or distribution,  or by the Holders of
the Junior  Subordinated  Securities or by the Trustee  under this  Indenture if
received by them or it, directly to the holders of Senior Debt (pro rata to such
holders  on the basis of the  respective  amounts  of  Senior  Debt held by such
holders,   as   calculated   by  the   Company)  or  their   representative   or
representatives,  or to the trustee or trustees under any indenture  pursuant to
which any instruments  evidencing any Senior Debt may have been issued, as their
respective  interests may appear, to the extent necessary to pay all Senior Debt
in full,  in money or  money's  worth,  after  giving  effect to any  concurrent
payment or distribution to or for the holders of Senior Debt, before any payment
or distribution is made to the holders of Junior  Subordinated  Securities or to
the Trustee.

     In  the  event  that,   notwithstanding  the  foregoing,   any  payment  or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities,  prohibited by the  foregoing,  shall be received by the
Trustee or the holders of the Junior  Subordinated  Securities before all Senior
Debt is paid in  full,  or  provision  is made  for  such  payment  in  money in
accordance with its terms,  such payment or distribution  shall be held in trust
for the benefit of and shall be paid over or  delivered to the holders of Senior
Debt or their  representative or representatives,  or to the trustee or trustees
under any indenture pursuant to which any instruments evidencing any Senior Debt
may have been issued, as their respective interests may appear, as calculated by
the Company,  for application to the payment of all Senior Debt remaining unpaid
to the extent  necessary  to pay all Senior Debt in full in money in  accordance
with its terms, after giving effect to any concurrent payment or distribution to
or for the holders of such Senior Debt.

     For  purposes  of this  Article  Fourteen,  the words,  "cash,  property or
securities"  shall not be deemed to  include  shares of stock of the  Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization  or readjustment,  the payment of which
is subordinated  at least to the extent  provided in this Article  Fourteen with
respect to the Junior Subordinated  Securities to the payment of all Senior Debt
which  may at the time be  outstanding;  provided  that (i) the  Senior  Debt is
assumed by the new corporation,  if any, resulting from any such  reorganization
or readjustment,  and (ii) the rights of the holders of the Senior Debt are not,
without  the  consent  of  such  holders,  altered  by  such  reorganization  or
readjustment.  The  consolidation  of the  Company  with,  or the  merger of the
Company into,  another  corporation  or the  liquidation  or  dissolution of the
Company following the conveyance or transfer of its property as an entirety,  or
substantially  as an  entirety,  to  another  corporation  upon  the  terms  and
conditions  provided  for  in  Article  Eight  hereof  shall  not  be  deemed  a
dissolution,  winding-up, liquidation or reorganization for the proposes of this
Section 1403 if such other corporation  shall, as a part of such  consolidation,
merger,  conveyance or transfer,  comply with the  conditions  stated in Article
Eight  hereof.  Nothing in Section  1402 or in this  Section 1403 shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 607.

     Section 1404. Subrogation to Rights of Holders of Senior Debt.

     Subject  to the  payment  in full of all  Senior  Debt,  the  rights of the
holders of the Junior Subordinated  Securities shall be subrogated to the rights
of the holders of Senior  Debt to receive  payments  or  distributions  of cash,
property or  securities of the Company  applicable to the Senior Debt;  and, for
the purposes of such subrogation,  no payment or distributions to the holders of
the Senior Debt of any cash,  property or securities to which the holders of the
Junior  Subordinated  Securities or the Trustee would be entitled except for the
provisions  of this  Article  Fourteen,  and no  payment  over  pursuant  to the
provisions  of this  Article  Fourteen,  to or for the benefit of the holders of
Senior Debt by holders of the Junior  Subordinated  Securities  or the  Trustee,
shall, as between the Company,  its creditors other than holders of Senior Debt,
and the Holders of the Junior Subordinated Securities, be deemed to be a payment
by the Company to or on account of the Senior Debt.  It is  understood  that the
provisions of this Article Fourteen are and are intended solely for the purposes
of  defining  the  relative  rights of the  holders of the  Junior  Subordinated
Securities,  on the one hand,  and the  holders of the Senior  Debt on the other
hand.

     Nothing  contained in this Article  Fourteen or elsewhere in this Indenture
or in the Junior  Subordinated  Securities  is intended to or shall  impair,  as
between the Company,  its creditors  other than the holders of Senior Debt,  and
the  holders  of the  Junior  Subordinated  Securities,  the  obligation  of the
Company,  which is  absolute  and  unconditional,  to pay to the  holders of the
Junior  Subordinated  Securities  the  principal  of (and  premium,  if any) and
interest on the Junior Subordinated Securities as and when the same shall become
due and  payable in  accordance  with their  terms,  or is  intended to or shall
affect the relative rights of the holders of the Junior Subordinated  Securities
and  creditors  of the Company  other than the holders of the Senior  Debt,  nor
shall anything herein or therein prevent the Trustee or the holder of any Junior
Subordinated  Security  from  exercising  all  remedies  otherwise  permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this  Article  Fourteen  of the holders of Senior Debt in respect of cash,
property or  securities  of the Company  received  upon the exercise of any such
remedy.

     Upon any payment or  distribution  of assets of the Company  referred to in
this Article Fourteen, the Trustee, subject to the provision of Article Six, and
the Holders of the Junior Subordinated Securities shall be entitled to rely upon
any order or decree made by any court of  competent  jurisdiction  in which such
dissolution,   winding-up,   liquidation  or   reorganization,   liquidation  or
reorganization  proceedings  are  pending,  or a  certificate  of the  receiver,
trustee in bankruptcy,  liquidation  trustee,  agent or other person making such
payment or  distribution,  delivered  to the  Trustee  or to the  Holders of the
Junior  Subordinated  Securities,  for the purposes of ascertaining  the persons
entitled to participate in such distribution, the holders of the Senior Debt and
other  indebtedness of the Company,  the amount hereof or payable  thereon,  the
amount or amounts  paid or  distributed  thereon and all other  facts  pertinent
thereto or to this Article Fourteen.

     Section 1405. Trustee to Effectuate Subordination.

     Each Holder of a Junior  Subordinated  Security by his  acceptance  thereof
authorizes  and  directs the Trustee in his behalf to take such action as may be
necessary  or  appropriate  to  effectuate  the  subordination  provided in this
Article Fourteen and appoints the Trustee his  attorney-in-fact  for any and all
such purposes.

     Section 1406. Notice to Trustee.

     The Company shall give prompt  written  notice to a Responsible  Officer of
the Trustee of any fact known to the Company which would  prohibit the making of
any payment of monies to or by the Trustee in respect of the Junior Subordinated
Securities pursuant to the provisions of this Article Fourteen.  Notwithstanding
the  provisions  of  this  Article  Fourteen  or any  other  provision  of  this
Indenture,  the Trustee shall not be charged with  knowledge of the existence of
any facts which would  prohibit the making of any payment of monies to or by the
Trustee  in  respect  of the  Junior  Subordinated  Securities  pursuant  to the
provisions of this Article Fourteen,  unless and until a Responsible  Officer of
the Trustee shall have received  written notice thereof at the Principal  Office
of the  Trustee  from the  Company or a holder or holders of Senior Debt or from
any trustee  therefor;  and before the receipt of any such written  notice,  the
Trustee,  subject to the  provisions  of Article  Six,  shall be entitled in all
respects  to assume that no such facts  exist;  provided,  however,  that if the
Trustee shall not have received the notice  provided for in this Section 1406 at
least two  Business  Days prior to the date upon  which by the terms  hereof any
money may become payable for any purpose  (including,  without  limitation,  the
payment of the  principal  of (or  premium,  if any) or  interest  on any Junior
Subordinated  Security),   then,  anything  herein  contained  to  the  contrary
notwithstanding, the Trustee shall have full power and authority to receive such
money and to apply the same to the  purposes for which they were  received,  and
shall not be affected by any notice to the contrary  which may be received by it
within two Business Days prior to such date.

     The Trustee, subject to the provisions of Article Six, shall be entitled to
rely on the delivery to it of a written notice by a person representing  himself
to be a holder  of  Senior  Debt (or a trustee  on  behalf  of such  holder)  to
establish  that such  notice  has been  given by a holder  of  Senior  Debt or a
trustee on behalf of any such holder or  holders.  In the event that the Trustee
determines  in good faith that further  evidence is required with respect to the
right of any person as a holder of Senior Debt to  participate in any payment or
distribution  pursuant to this  Article  Fourteen,  the Trustee may request such
person to furnish  evidence to the reasonable  satisfaction of the Trustee as to
the amount of Senior Debt held by such  Person,  the extent to which such person
is entitled to participate in such payment or  distribution  and any other facts
pertinent to the rights of such person under this Article Fourteen,  and if such
evidence  is not  furnished  the  Trustee  may defer any  payment to such person
pending  judicial  determination  as to the right of such person to receive such
payment.

     Section 1407.  Rights of Trustee as Holder of Senior Debt;  Preservation of
          Trustee's Rights.

     The Trustee in its individual  capacity shall be entitled to all the rights
set forth in this  Article  Fourteen  in respect of any Senior  Debt at any time
held by it, to the same extent as any other holder of Senior  Debt,  and nothing
in this Indenture shall deprive the Trustee of any of its rights as such holder.

     Nothing in this Article  Fourteen shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 607.

     Section 1408. No Waiver of Subordination Provisions.

     No right of any  present  or future  holder of any  Senior  Debt to enforce
subordination  as herein  provided shall at any time in any way be prejudiced or
impaired  by any act or failure to act on the part of the  Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the  Company  with  the  terms,  provisions  and  covenants  of this  Indenture,
regardless of any knowledge  thereof which any such holder may have or otherwise
be charged with.

     Without in any way limiting the generality of the foregoing paragraph,  the
holders  of Senior  Debt may,  at any time and from  time to time,  without  the
consent of or notice to the  Trustee or the  holders of the Junior  Subordinated
Securities,  without  incurring  responsibility  to the  holders  of the  Junior
Subordinated  Securities  and without  impairing or releasing the  subordination
provided  in this  Article or the  obligations  hereunder  of the holders of the
Junior Subordinated Securities to the holders of Senior Debt, do any one or more
of the following: (i) change the manner, place or terms of payment or extend the
time of  payment  of, or renew or alter,  Senior  Debt,  or  otherwise  amend or
supplement in any manner Senior Debt or any  instrument  evidencing  the same or
any  agreement  under which  Senior Debt is  outstanding;  (ii) sell,  exchange,
release or  otherwise  deal with any  property  pledged,  mortgaged or otherwise
securing  Senior  Debt;  (iii)  release any person  liable in any manner for the
collection  of Senior Debt;  and (iv)  exercise or refrain from  exercising  any
rights against the Company and any other person.

     This  instrument  may be  executed in any number of  counterparts,  each of
which so executed shall be deemed to be an original,  but all such  counterparts
shall together constitute but one and the same instrument.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Indenture to be
duly executed as of the day and year first above written.

                                    CINERGY CORP.


                                    By:  /s/ Wendy L. Aumiller
                                             Wendy L. Aumiller
                                             Assistant Treasurer


                                    FIFTH THIRD BANK,
                                    as Trustee


                                    By:  /s/ Christine M. Schaub
                                             Christine M. Schaub
                                             Vice President

EX-4

                                  CINERGY CORP.

                                       AND

                                FIFTH THIRD BANK,
                                     Trustee

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

                          First Supplemental Indenture

                         Dated as of September 12, 2001

                                       To

                                    Indenture

                         Dated as of September 12, 2001

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


                            6.25% Debentures Due 2004


     FIRST  SUPPLEMENTAL  INDENTURE,  dated as of September  12,  2001,  between
Cinergy Corp.,  a corporation  duly organized and existing under the laws of the
State of Delaware (herein called the "Company"),  having its principal office at
139 East Fourth Street,  Cincinnati,  Ohio 45202,  and Fifth Third Bank, an Ohio
banking  corporation,  as  Trustee  (herein  called  the  "Trustee")  under  the
Indenture  dated as of  September  12, 2001  between the Company and the Trustee
(the "Indenture").

                             Recitals of the Company

     The Company has  executed  and  delivered  the  Indenture to the Trustee to
provide for the issuance from time to time of its unsecured debentures, notes or
other evidences of indebtedness (the "Securities"),  to be issued in one or more
series as provided in the Indenture.

     Pursuant to the terms of the Indenture,  the Company desires to provide for
the establishment of a series of Securities, to be known as its 6.25% Debentures
due 2004 (herein called the "Debentures"), in this First Supplemental Indenture.

     All things  necessary  to make this First  Supplemental  Indenture  a valid
agreement of the Company have been done.

     Now, Therefore, This First Supplemental Indenture Witnesseth:

     For and in consideration of the premises and the purchase of the Debentures
by the Holders thereof,  it is mutually agreed,  for the equal and proportionate
benefit of all Holders of the Debentures, as follows:

                                   ARTICLE ONE

                             Terms of the Debentures

     Section 101. There is hereby  authorized a series of Securities  designated
the "6.25%  Debentures  due  2004,"  limited in  aggregate  principal  amount to
$500,000,000  (except as  provided  in  Section  301(2) of the  Indenture).  The
Debentures shall mature and the principal shall be due and payable together with
all accrued and unpaid  interest  thereon on September 1, 2004.  The  Debentures
initially shall be issued in the form of a registered  Global  Security  without
coupons,  registered  in the name of Cede & Co.,  as nominee  of The  Depository
Trust Company (the "Depositary").

     Section 102. The  provisions of Section 305 of the Indenture  applicable to
Global Securities shall apply to the Debentures.

     Section  103.   Interest  on  each  of  the  Debentures  shall  be  payable
semiannually on March 1 and September 1 in each year (each an "Interest  Payment
Date"), commencing on March 1, 2002, at the rate per annum specified in the form
of Debentures, from September 12, 2001, or from the most recent Interest Payment
Date to which  interest  has been paid or duly  provided  for.  The  interest so
payable,  and punctually paid or duly provided for, on any Interest Payment Date
will be  paid  to the  Person  in  whose  name  such  Debenture  (or one or more
Predecessor  Securities)  is  registered at the close of business on the Regular
Record Date for such  interest,  which  shall be the  Business  Day  immediately
preceding  such Interest  Payment Date.  The amount of interest  payable for any
period will be computed on the basis of a 360-day year of twelve 30-day  months.
As used herein,  "Business Day" means any day other than a Saturday or Sunday or
a day  which  banking  institutions  in New  York,  New York are  authorized  or
obligated by law or executive order to be closed.

     Section 104.  Subject to agreements  with or the rules of the Depositary or
any  successor  book-entry  security  system or similar  system with  respect to
Global  Securities,  payments  of interest  will be made by check  mailed to the
Holder of each  Debenture  at the address  shown in the Security  Register,  and
payments of the principal  amount of each  Debenture will be made at maturity by
check  against  presentation  of the  Debenture  at the  office or agency of the
Trustee.

     Section 105. The Debentures  shall be issued in  denominations of $1,000 or
any integral multiple of $1,000.

     Section 106.  Principal and interest on the Debentures  shall be payable in
the coin or currency  of the United  States of  America,  which,  at the time of
payment, is legal tender for public and private debts.

     Section 107. The  Debentures  shall be subject to  defeasance  and covenant
defeasance,  at the Company's  option, as provided for in Sections 1302 and 1303
of the Indenture.

     Section 108.  Subject to the terms of Article Eleven of the Indenture,  the
Company shall have the right to redeem the  Debentures,  at any time in whole or
from  time to time in part,  until  maturity  (such  redemption,  a  "Make-Whole
Redemption"),  upon  not  less  than 30 nor more  than 60  days'  notice  to the
Holders,  at a Redemption  Price equal to the sum of (i) the principal amount of
the Debentures  being redeemed plus accrued and unpaid  interest  thereon to the
Redemption  Date,  and (ii) the  Make-Whole  Amount if any,  with respect to the
Debentures being redeemed. For purposes of this Section 108:

     "Make-Whole Amount" means, in connection with any Make-Whole  Redemption of
any Debentures, the excess, if any, of (i) the sum, as determined by a Quotation
Agent,  of the present  value of the principal  amount of such  Debentures to be
redeemed,  together  with  scheduled  payments  of  interest  thereon  from  the
Redemption Date to September 1, 2004 (not including any portion of such payments
of interest  accrued as of the Redemption  Date), in each case discounted to the
Redemption  Date on a semi-annual  basis  (assuming a 360-day year consisting of
twelve  30-day  months)  at the  Adjusted  Treasury  Rate  over (ii) 100% of the
principal amount of the Debentures to be redeemed.

     "Adjusted  Treasury Rate" means,  with respect to any Redemption Date for a
Make-Whole  Redemption,  the rate per annum equal to the semi-annual  equivalent
yield to maturity of the Comparable Treasury Issue, calculated using a price for
the  Comparable  Treasury  Issue  (expressed  as a percentage  of its  principal
amount)  equal  to the  Comparable  Treasury  Price  for such  Redemption  Date,
calculated on the third Business Day preceding the Redemption Date, plus in each
case .25% (25 basis points).

     "Comparable  Treasury  Issue"  means the United  States  Treasury  security
selected by the Quotation Agent as having a maturity comparable to the remaining
term from the  Redemption  Date to the Stated  Maturity of the  Debentures  that
would be utilized,  at the time of selection  and in accordance  with  customary
financial  practice,  in pricing  new issues of  corporate  debt  securities  of
comparable maturity to the remaining term of the Debentures.

     "Quotation  Agent"  means the  Reference  Treasury  Dealer  selected by the
Trustee after consultation with the Company. "Reference Treasury Dealer" means a
primary U.S. Government securities dealer.

     "Comparable  Treasury Price" means, with respect to any Redemption Date for
a  Make-Whole  Redemption,  (i) the average of the bid and asked  prices for the
Comparable  Treasury  Issue  (expressed  in  each  case as a  percentage  of its
principal  amount) on the third Business Day preceding such Redemption  Date, as
set forth in the daily statistical  release  designated "H.15" (or any successor
release)  published by the Board of Governors of the Federal  Reserve  System or
(ii) if such  release (or any  successor  release) is not  published or does not
contain  such prices on such  Business  Day,  (A) the  average of the  Reference
Treasury Dealer Quotations for such Redemption Date, after excluding the highest
and lowest of such Reference Treasury Dealer  Quotations,  or (B) if the Trustee
obtains fewer than three such Reference Treasury Dealer Quotations,  the average
of such Quotations.

     "Reference   Treasury  Dealer  Quotations"  means,  with  respect  to  each
Reference  Treasury Dealer and any Redemption Date for a Make-Whole  Redemption,
the average, as determined by the Trustee (after consultation with the Company),
of the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal  amount)  quoted in writing to the Trustee
by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third
Business Day preceding such Redemption Date.

     Notice of any redemption by the Company will be mailed at least 30 days but
not more than 60 days before any Redemption Date to each Holder of Debentures to
be redeemed. If less than all the Debentures are to be redeemed at the option of
the Company,  the Trustee shall select, in such manner as it shall deem fair and
appropriate, the Debentures to be redeemed in whole or in part.

     Unless the Company  defaults  in payment of the  Redemption  Price,  on and
after any  Redemption  Date,  interest will cease to accrue on the Debentures or
portions thereof called for redemption.

     Section 109. The interest rate payable on the Debentures will be subject to
adjustment  from  time  to  time  if  either  Moody's  Investor  Service,   Inc.
("Moody's")  or  Standard & Poor's  Ratings  Group  ("S&P")  reduces  the rating
ascribed to the Securities issued under the Indenture below "Investment  Grade,"
which is Baa3 in the case of Moody's and BBB- in the case of S&P. In this event,
the interest rate payable on the Debentures will be increased by .25% for such a
reduction by either Moody's or S&P, as the case may be, with a maximum  increase
of .50% if both such rating  agencies  reduce  their  ratings  below  Investment
Grade.  If Moody's or S&P  subsequently  increases  the rating  ascribed  to the
Securities  issued under the Indenture above Ba1 in the case of Moody's or above
BB+ in the case of S&P, then the interest rate payable on the Debentures will be
decreased by .25% for such an upgrade by either  Moody's or S&P, as the case may
be, with a maximum  decrease of .50% if both such rating agencies  upgrade their
ratings to Investment  Grade,  but in no event will the interest rate be reduced
to below the initial  interest rate of 6.25%. Any such interest rate increase or
decrease will take effect from the Interest  Payment Date  following the related
rating downgrade or upgrade, as the case may be. There is no limit to the number
of times the interest rate payable on the Debentures  can be adjusted.  However,
the  interest  rate  payable on the  Debentures  will not exceed  6.25%,  plus a
maximum adjustment of .50% pursuant to this Section 109.

     Section 110. In the event an unaffiliated  third party acquires the Company
or the Company is acquired through a management-led  buy-out (in either case, an
"Acquisition Event"), and both Moody's and S&P reduce the rating ascribed to the
Debentures  below  Investment  Grade within 30 calendar days of the  Acquisition
Event (an  "Acquisition  Downgrade"),  then each Holder of the Debentures  shall
have the right, at the Holder's option, to require the Company to repurchase all
or any  part  of  the  Holder's  Debentures.  The  Company  shall  purchase  the
Debentures  on the  Repurchase  Date at a price  equal to 100% of the  principal
amount of the Debentures,  plus accrued and unpaid  interest,  to the Repurchase
Date.

     The Company shall give notice to the Trustee and Holders of the  Debentures
within 30 calendar days after an Acquisition Downgrade. The date on which notice
is given to the Trustee  shall be the  "Notice  Date." To require the Company to
repurchase the Debentures,  a Holder must, on or before the close of business 20
Business Days prior to the Repurchase Date,  notify the Trustee of such Holder's
exercise of this option and complete and submit appropriate documentation.

     For  purposes of this Section  110,  the  "Repurchase  Date" means the 45th
calendar day after the Notice Date.

     If the Company fails to repurchase Debentures, as required by this Section,
(a) on the Repurchase  Date and (b) for 90 days following  notice to the Company
from the  Trustee of such  failure,  it shall be an Event of  Default  under the
Indenture.

                                   ARTICLE TWO

                             Form of the Debentures

     Section 201. The Debentures are to be  substantially  in the following form
and shall include  substantially  the legend shown so long as the Debentures are
in Global Security form:

                           (FORM OF FACE OF DEBENTURE)

No. R-                                                                $---------

CUSIP No.

                                  CINERGY CORP.

                            6.25% DEBENTURES DUE 2004

UNLESS THIS  CERTIFICATE  IS PRESENTED BY AN  AUTHORIZED  REPRESENTATIVE  OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER,  EXCHANGE,  OR PAYMENT AND SUCH CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED  REPRESENTATIVE  OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & Co., HAS AN INTEREST
HEREIN.

     CINERGY CORP., a corporation  duly organized and existing under the laws of
the State of Delaware  (herein  called the  "Company,"  which term  includes any
successor Person under the Indenture hereafter referred to), for value received,
hereby promises to pay to CEDE & CO., or registered  assigns,  the principal sum
of _____________ and No/100 Dollars  ($_______) on September 1, 2004, and to pay
interest  thereon  from  September  12, 2001,  or from the most recent  Interest
Payment Date to which interest has been paid or duly provided for, semiannually,
on March 1 and September 1 in each year,  commencing  March 1, 2002, at the rate
of 6.25% per annum,  until the  principal  hereof is paid or made  available for
payment.  The amount of interest  payable on any Interest  Payment Date shall be
computed on the basis of a 360-day year of twelve 30-day months. The interest so
payable,  and punctually paid or duly provided for, on any Interest Payment Date
will,  as  provided in the  Indenture,  be paid to the Person in whose name this
Security (or one or more  Predecessor  Securities) is registered at the close of
business on the Record Date for such  interest,  which shall be the Business Day
immediately  preceding  such  Interest  Payment  Date.  Any such interest not so
punctually  paid or duly provided for will forthwith  cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor  Securities) is registered at the
close of  business on a Special  Record  Date for the payment of such  Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities  of this  series not less than 10 days prior to such  Special  Record
Date,  or be paid at any time in any other lawful manner not  inconsistent  with
the  requirements  of any  securities  exchange on which the  Securities of this
series may be listed,  and upon such notice as may be required by such exchange,
all as more fully provided in the Indenture.

     Payment of the  principal of and interest on this  Security will be made at
the  corporate  trust office of the Trustee  maintained  for that purpose in the
City of Cincinnati,  in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private  debts;
provided,  however, that at the option of the Company payment of interest may be
made by check  mailed to the  address  of the  Person  entitled  thereto as such
address shall appear in the Security Register.

     Any payment on this  Security due on any day which is not a Business Day in
the City of New York need not be made on such  day,  but may be made on the next
succeeding  Business  Day with the same  force and  effect as if made on the due
date and no interest shall accrue for the period from and after such date.

     As used  herein,  "Business  Day" means any day other  than a  Saturday  or
Sunday  or a day on  which  banking  institutions  in New  York,  New  York  are
authorized or obligated by law or executive order to be closed.

     Reference  is hereby made to the further  provisions  of this  Security set
forth on the reverse  hereof,  which further  provisions  shall for all purposes
have the same effect as if set forth at this place.

     Unless the  certificate of  authentication  hereon has been executed by the
Trustee  referred to on the reverse  hereof by manual  signature,  this Security
shall  not be  entitled  to any  benefit  under  the  Indenture  or be  valid or
obligatory for any purpose.

     In Witness  Whereof,  the  Company has caused  this  instrument  to be duly
executed.

                                  CINERGY CORP.


                                       By


                          CERTIFICATE OF AUTHENTICATION

Dated:

     This is one of the Securities of the series designated  therein referred to
in the within-mentioned Indenture.

                                                   FIFTH THIRD BANK,
                                                         as Trustee

                                                    By
                                                    Authorized Signatory


                         (FORM OF REVERSE OF DEBENTURE)

This  Security is one of a duly  authorized  issue of  securities of the Company
(herein called the "Securities"),  issued and to be issued in one or more series
under  an  Indenture,  dated  as  of  September  12,  2001  (herein  called  the
"Indenture,"  which  term  shall  have  the  meaning  assigned  to  it  in  such
instrument), between the Company and Fifth Third Bank, as Trustee (herein called
the "Trustee,"  which term includes any successor  trustee under the Indenture),
and reference is hereby made to the Indenture for a statement of the  respective
rights,  limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the  Holders of the  Securities  and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is one
of the series  designated  on the face hereof,  limited in  aggregate  principal
amount to $500,000,000.

The interest rate payable on this  Security  will be subject to adjustment  from
time to time if either Moody's Investor Service,  Inc. ("Moody's") or Standard &
Poor's  Ratings  Group  ("S&P")  reduces the rating  ascribed to the  Securities
issued under the Indenture below  "Investment  Grade," which is Baa3 in the case
of Moody's and BBB- in the case of S&P. In this event, the interest rate payable
on this  Security  will be  increased  by .25% for such a  reduction  by  either
Moody's or S&P, as the case may be, with a maximum increase of .50% if both such
rating agencies reduce their ratings below  Investment  Grade. If Moody's or S&P
subsequently  increases the rating  ascribed to the Securities  issued under the
Indenture above Ba1 in the case of Moody's or above BB+ in the case of S&P, then
the interest rate payable on this Security will be decreased by .25% for such an
upgrade by either Moody's or S&P, as the case may be, with a maximum decrease of
 .50% if both such rating agencies upgrade their ratings to Investment Grade, but
in no event will the interest rate be reduced to below the initial interest rate
of 6.25%.  Any such interest rate increase or decrease will take effect from the
Interest Payment Date following the related rating downgrade or upgrade,  as the
case may be. There is no limit to the number of times the interest  rate payable
on this  Security can be adjusted.  However,  the interest  rate payable on this
Security will not exceed 6.25%, plus a maximum adjustment of .50%.

The  Indenture  contains  provisions  for  defeasance  at any time of the entire
indebtedness  of this  Security or certain  restrictive  covenants and Events of
Default with respect to this Security upon  compliance  with certain  conditions
set forth in the Indenture.

The Securities of this series are subject to optional  redemption at any time in
whole  or from  time to  time  in  part,  until  maturity  (such  redemption,  a
"Make-Whole Redemption"), upon not less than 30 nor more than 60 days' notice to
the Holders,  at a Redemption Price equal to the sum of (i) the principal amount
of the Securities being redeemed plus accrued and unpaid interest thereon to the
Redemption Date, and (ii) the Make-Whole Amount (as defined below), if any, with
respect to the Securities being redeemed.

"Make-Whole  Amount" means, in connection with any Make-Whole  Redemption of any
Securities,  the excess,  if any, of (i) the sum, as  determined  by a Quotation
Agent of the present value of the principal amount of such Securities,  together
with  scheduled  payments  of  interest  thereon  from  the  Redemption  Date to
September  1, 2004 (not  including  any  portion of such  payments  of  interest
accrued as of the Redemption  Date),  in each case  discounted to the Redemption
Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Adjusted  Treasury Rate over (ii) 100% of the principal amount of
the Securities to be redeemed.

"Adjusted  Treasury  Rate"  means,  with  respect to any  Redemption  Date for a
Make-Whole  Redemption,  the rate per annum equal to the semi-annual  equivalent
yield to maturity of the Comparable Treasury Issue, calculated using a price for
the  Comparable  Treasury  Issue  (expressed  as a percentage  of its  principal
amount)  equal  to the  Comparable  Treasury  Price  for such  Redemption  Date,
calculated on the third Business Day preceding the Redemption Date, plus in each
case .25% (25 basis points).

"Comparable  Treasury Issue" means the United States Treasury  security selected
by the Quotation  Agent as having a maturity  comparable  to the remaining  term
from the Redemption  Date to the Stated Maturity of the Securities that would be
utilized,  at the time of selection and in accordance  with customary  financial
practice,  in pricing new issues of  corporate  debt  securities  of  comparable
maturity to the remaining term of the Securities.

"Quotation  Agent" means the Reference  Treasury  Dealer selected by the Trustee
after consultation with the Company. "Reference Treasury Dealer" means a primary
U.S. Government securities dealer.

"Comparable  Treasury  Price" means,  with respect to any Redemption  Date for a
Make-Whole  Redemption,  (i) the  average  of the bid and asked  prices  for the
Comparable  Treasury  Issue  (expressed  in  each  case as a  percentage  of its
principal  amount) on the third Business Day preceding such Redemption  Date, as
set forth in the daily statistical  release  designated "H.15" (or any successor
release)  published by the Board of Governors of the Federal  Reserve  System or
(ii) if such  release (or any  successor  release) is not  published or does not
contain  such prices on such  Business  Day,  (A) the  average of the  Reference
Treasury Dealer Quotations for such Redemption Date, after excluding the highest
and lowest of such Reference Treasury Dealer  Quotations,  or (B) if the Trustee
obtains fewer than three such Reference Treasury Dealer Quotations,  the average
of such Quotations.

"Reference  Treasury Dealer  Quotations"  means,  with respect to each Reference
Treasury  Dealer  and any  Redemption  Date  for a  Make-Whole  Redemption,  the
average, as determined by the Trustee (after consultation with the Company),  of
the bid and asked prices for the Comparable  Treasury  Issue  (expressed in each
case as a percentage of its principal  amount)  quoted in writing to the Trustee
by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third
Business Day preceding such Redemption Date.

Notice of any  redemption by the Company will be mailed at least 30 days but not
more than 60 days before any Redemption  Date to each Holder of Securities to be
redeemed.  If less than all the  Securities  are to be redeemed at the option of
the Company,  the Trustee shall select, in such manner as it shall deem fair and
appropriate, the Securities to be redeemed in whole or in part.

Unless the Company defaults in payment of the Redemption Price, on and after any
Redemption  Date,  interest  will cease to accrue on the  Securities or portions
thereof called for redemption.

If an Event of Default with respect to Securities of this series shall occur and
be  continuing,  the principal of the  Securities of this series may be declared
due and payable in the manner and with the effect provided in the Indenture.

The  Indenture  permits,  with  certain  exceptions  as  therein  provided,  the
amendment  thereof and the  modification  of the rights and  obligations  of the
Company  and the rights of the  Holders of the  Securities  of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal  amount of the  Securities  at
the time outstanding of each series to be affected.  The Indenture also contains
provisions  permitting  the  Holders of a majority  in  principal  amount of the
Securities of each series at the time  outstanding,  on behalf of the Holders of
all Securities of such series,  to waive  compliance by the Company with certain
provisions of the  Indenture  and certain past defaults  under the Indenture and
their  consequences.  Any such consent or waiver by the Holder of this  Security
shall be conclusive  and binding upon such Holder and upon all future Holders of
this  Security  and of any  Security  issued upon the  registration  of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.

As provided in and subject to the  provisions  of the  Indenture,  the Holder of
this Security shall not have the right to institute any proceeding  with respect
to the  Indenture  or for the  appointment  of a receiver  or trustee or for any
other  remedy  thereunder,  unless such Holder shall have  previously  given the
Trustee  written  notice of a  continuing  Event of Default  with respect to the
Securities of this series,  the Holders of not less than 35% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the  Trustee  to  institute  proceedings  in respect of such Event of
Default as Trustee and offered the Trustee  reasonably  satisfactory  indemnity,
and the  Trustee  shall not have  received  from the  Holders of a  majority  in
principal  amount  of  Securities  of this  series  at the  time  Outstanding  a
direction inconsistent with such request, and shall have failed to institute any
such proceeding,  for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or interest
hereon on or after the respective due dates expressed herein.

No reference herein to the Indenture and no provision of this Security or of the
Indenture shall alter or impair the obligation of the Company, which is absolute
and unconditional,  to pay the principal of and interest on this Security at the
times, place and rate, and in the coin or currency, herein prescribed.

As provided in the  Indenture  and  subject to certain  limitations  therein set
forth,  the transfer of this Security is registrable  in the Security  Register,
upon  surrender of this Security for  registration  of transfer at the office or
agency of the Company in any place where the  principal  of and interest on this
Security are payable,  duly endorsed by, or accompanied by a written  instrument
of transfer in form satisfactory to the Company and the Security  Registrar duly
executed by, the Holder hereof or his attorney duly  authorized in writing,  and
thereupon  one or more new  Securities  of this  series  and of like  tenor,  of
authorized  denominations and for the same aggregate  principal amount,  will be
issued to the designated transferee or transferees.

The  Securities  of this series are  issuable  only in  registered  form without
coupons  in  denominations  of $1,000  and any  integral  multiple  thereof.  As
provided in the Indenture and subject to certain  limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of  Securities  of this  series  and of like  tenor  of a  different  authorized
denomination,  as  requested  by the Holder  surrendering  the same.  No service
charge shall be made for any such registration of transfer or exchange,  but the
Company  may  require  payment  of a sum  sufficient  to cover  any tax or other
governmental charge payable in connection therewith.

Prior to due  presentment  of this Security for  registration  of transfer,  the
Company,  the  Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this  Security is  registered  as the owner  hereof for all
purposes,  whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

All terms used in this Security  which are defined in the  Indenture  shall have
the meanings assigned to them in the Indenture.

                                  ARTICLE THREE

                          Original Issue of Debentures

     Section 301.  Debentures in the aggregate principal amount of $500,000,000,
may, upon execution of this First Supplemental  Indenture,  or from time to time
thereafter,  be  executed  by the  Company  and  delivered  to the  Trustee  for
authentication,  and the Trustee shall thereupon  authenticate  and deliver said
Debentures upon a Company Order without any further action by the Company.

                                  ARTICLE FOUR

                       Paying Agent and Security Registrar

     Section  401.  Fifth  Third  Bank will be the  Paying  Agent  and  Security
Registrar for the Debentures.

                                  ARTICLE FIVE

                                Sundry Provisions

     Section  501.  Except  as  otherwise   expressly  provided  in  this  First
Supplemental Indenture or in the form of Debenture or otherwise clearly required
by the  context  hereof or  thereof,  all terms  used  herein or in said form of
Debenture  that are defined in the  Indenture  shall have the  several  meanings
respectively assigned to them thereby.

     Section 502. The  Indenture,  as  supplemented  by this First  Supplemental
Indenture,   is  in  all  respects  ratified  and  confirmed,   and  this  First
Supplemental  Indenture  shall be deemed part of the Indenture in the manner and
to the extent herein and therein provided.

     This  instrument  may be  executed in any number of  counterparts,  each of
which so executed shall be deemed to be an original,  but all such  counterparts
shall together constitute but one and the same instrument.

     In Witness Whereof,  the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.

                                            CINERGY CORP.


                                            By   /s/ Wendy L. Aumiller
                                                     Wendy L. Aumiller
                                                     Assistant Treasurer



                                            FIFTH THIRD BANK, as Trustee



                                            By    /s/ Christine M. Schaub
                                                      Christine M. Schaub
                                                         Vice President

EX-4

                                       B-1
                                 LOAN AGREEMENT


                                     between


                     OHIO AIR QUALITY DEVELOPMENT AUTHORITY


                                       and


                      THE CINCINNATI GAS & ELECTRIC COMPANY




                                   $12,100,000
                                  State of Ohio
                      Air Quality Development Revenue Bonds
                                  2001 Series A
                 (The Cincinnati Gas & Electric Company Project)



                                      Dated

                                      as of

                                 August 1, 2001


                                      INDEX

                   (This Index is not a part of the Agreement
                but rather is for convenience of reference only.)
                                                                                                               Page

Preambles......................................................................1

                                                      ARTICLE I
                                                     DEFINITIONS

Section 1.1   Use of Defined Terms............................................ 2
Section 1.2   Definitions..................................................... 2
Section 1.3   Interpretation.................................................. 6
Section 1.4   Captions and Headings........................................... 6

                                            ARTICLE II
                                          REPRESENTATIONS

Section 2.1   Representations of the Authority................................ 7
Section 2.2   No Warranty by Authority of Condition or Suitability
               of the Project................................................. 7
Section 2.3   Representations and Covenants of the Company.................... 7

                                            ARTICLE III
                                    COMPLETION OF THE PROJECT;
                                       ISSUANCE OF THE BONDS

Section 3.1   Acquisition, Construction and Installation......................10
Section 3.2   Project Description.............................................10
Section 3.3   Issuance of the Bonds; Application of Proceeds..................11
Section 3.4   Disbursements from the Project Fund.............................11
Section 3.5   Company Required to Pay Costs in Event Project
               Fund Insufficient..............................................13
Section 3.6   Completion Date.................................................13
Section 3.7   Investment of Fund Moneys.......................................13
Section 3.8   Agreement as to Ownership of Project............................14
Section 3.9   Use of Project..................................................14
Section 3.10  Rebate Fund.....................................................14

                                            ARTICLE IV
                                 LOAN BY AUTHORITY; LOAN PAYMENTS;
                             ADDITIONAL PAYMENTS; AND CREDIT FACILITY

Section 4.1   Loan Repayment..................................................15
Section 4.2   Additional Payments.............................................15
Section 4.3   Place of Payments...............................................16
Section 4.4   Obligations Unconditional.......................................16
Section 4.5   Assignment of Revenues and Agreement ...........................16
Section 4.6   Credit Facility.................................................16
Section 4.7   Company's Option to Elect Rate Periods; Changes in the
               Auction Date and Length of Auction Periods.....................16
Section 4.8   Company's Obligation to Purchase Bonds .........................16

                                             ARTICLE V
                                ADDITIONAL AGREEMENTS AND COVENANTS

Section 5.1   Right of Inspection ............................................17
Section 5.2   Maintenance.....................................................17
Section 5.3   Removal of Portions of the Project Facilities...................17
Section 5.4   Operation of Project Facilities.................................17
Section 5.5   Insurance.......................................................18
Section 5.6   Workers' Compensation Coverage..................................18
Section 5.7   Damage; Destruction and Eminent Domain..........................18
Section 5.8   Company to Maintain its Corporate Existence;
              Conditions Under Which Exceptions Permitted.....................18
Section 5.9   Indemnification.................................................18
Section 5.10  Company Not to Adversely Affect Exclusion  of Interest on Bonds
               From Gross Income For Federal Income Tax Purposes..............19
Section 5.11  Use of Project Facilities.......................................19
Section 5.12  Assignment of Agreement in Whole or in Part by Company..........19
Section 5.13  Assignment of Agreement in Whole by Company (Novation)..........20

                                            ARTICLE VI
                                            REDEMPTION

Section 6.1   Optional Redemption.............................................22
Section 6.2   Extraordinary Optional Redemption...............................22
Section 6.3   Mandatory Redemption............................................23
Section 6.4   Notice of Redemption............................................23
Section 6.5   Actions by Authority............................................24

                                            ARTICLE VII
                                  EVENTS OF DEFAULT AND REMEDIES

Section 7.1   Events of Default...............................................25
Section 7.2   Remedies on Default.............................................26
Section 7.3   No Remedy Exclusive.............................................26
Section 7.4   Agreement to Pay Attorneys' Fees and Expenses...................27
Section 7.5   No Waiver.......................................................27
Section 7.6   Notice of Default...............................................27

                                           ARTICLE VIII
                                           MISCELLANEOUS

Section 8.1   Term of Agreement...............................................28
Section 8.2   Amounts Remaining in Funds......................................28
Section 8.3   Notices.........................................................28
Section 8.4   Extent of Covenants of the Authority; No Personal Liability.....28
Section 8.5   Binding Effect..................................................28
Section 8.6   Amendments and Supplements......................................28
Section 8.7   References to Credit Facility...................................29
Section 8.8   Continuing Disclosure...........................................29
Section 8.9   Execution Counterparts..........................................29
Section 8.10  Severability....................................................29
Section 8.11  Governing Law...................................................29

Signatures     ...............................................................30

Exhibit A - DESCRIPTION OF AIR QUALITY FACILITIES AT WILLIAM H. ZIMMER
               ELECTRIC GENERATING STATION...................................A-1

Exhibit B - FORM OF DISBURSEMENT REQUEST.....................................B-1

Schedule I

                                 LOAN AGREEMENT


     THIS LOAN  AGREEMENT  is made and entered into as of August 1, 2001 between
the OHIO AIR QUALITY DEVELOPMENT AUTHORITY (the "Authority"), a body politic and
corporate  organized and existing  under the laws of the State of Ohio,  and THE
CINCINNATI  GAS &  ELECTRIC  COMPANY  (the  "Company"),  a  public  utility  and
corporation  duly organized and validly  existing under the laws of the State of
Ohio.  Capitalized  terms used in the following  recitals are used as defined in
Article I of this Agreement.

     Pursuant  to Section 13 of Article  VIII of the Ohio  Constitution  and the
Act, the  Authority has  determined to issue,  sell and deliver the Bonds and to
lend the proceeds  derived from the sale thereof to the Company to assist in the
financing of its portion of the costs of the Project as defined below.

     The Company and the Authority each have full right and lawful  authority to
enter into this  Agreement and to perform and observe the  provisions  hereof on
their respective parts to be performed and observed.

     NOW   THEREFORE,   in   consideration   of  the  premises  and  the  mutual
representations  and  agreements  hereinafter  contained,  the Authority and the
Company agree as follows  (provided  that any obligation of the Authority or the
State  created by or arising  out of this  Agreement  shall never  constitute  a
general  debt  of the  Authority  or the  State  or give  rise to any  pecuniary
liability  of the  Authority  or the State but shall be  payable  solely  out of
Revenues,  including the Loan  Payments  made  pursuant  hereto and moneys drawn
under any Credit Facility):

                                    ARTICLE I

                                   DEFINITIONS

     Section  1.1.  Use of Defined  Terms.  In  addition  to the words and terms
defined  elsewhere in this  Agreement or by reference to another  document,  the
words and terms set forth in Section  1.2 hereof  shall  have the  meanings  set
forth therein  unless the context or use clearly  indicates  another  meaning or
intent.  Such definitions  shall be equally  applicable to both the singular and
plural forms of any of the words and terms defined therein.

     Section 1.2. Definitions. As used herein:

     "Act" means  Chapter  3706,  Ohio Revised Code, as enacted and amended from
time to time pursuant to Section 13 of Article VIII of the Ohio Constitution.

     "Additional  Payments" means the amounts required to be paid by the Company
pursuant to the provisions of Section 4.2 hereof.

     "Administration  Expenses" means the compensation (which compensation shall
not be  greater  than that  typically  charged  in  similar  circumstances)  and
reimbursement of reasonable  expenses and advances  payable to the Trustee,  the
Registrar,  the Remarketing  Agent,  the  Broker-Dealer,  the Auction Agent, any
Paying Agent and any Authenticating Agent.

     "Agreement" means this Loan Agreement, as amended or supplemented from time
to time.

     "Air Quality  Facility" or "Air Quality  Facilities" means those facilities
which are air quality  facilities  as defined in Section  3706.01,  Ohio Revised
Code.

     "Alternate  Credit  Facility" means an Alternate Credit Facility as defined
in the Indenture.

     "Auction Agent" means an Auction Agent as defined in the Indenture.

     "Authenticating  Agent"  means the  Authenticating  Agent as defined in the
Indenture.

     "Authority  Fee" means the  aggregate  fee of $82,750 due to the  Authority
from the Company in connection with the issuance of the Bonds hereunder.

     "Authorized   Company   Representative"   means  the   Authorized   Company
Representative as defined in the Indenture.

     "Bond Fund" means the Bond Fund created in the Indenture.

     "Bond  Purchase  Fund"  means  the Bond  Purchase  Fund as  defined  in the
Indenture.

     "Bond Resolution"  means the resolution of the Authority  providing for the
issuance of the Bonds and approving  this  Agreement,  the Indenture and related
matters, as amended or supplemented from time to time.

     "Bond Service  Charges"  means,  for any period or time,  the principal of,
premium,  if any,  and  interest  due on the Bonds for that period or payable at
that  time  whether  due at  maturity  or upon  acceleration  or  redemption  or
otherwise.

     "Bonds" means the $12,100,000 Air Quality  Development  Revenue Bonds, 2001
Series  A  (The  Cincinnati  Gas &  Electric  Company  Project),  issued  by the
Authority pursuant to the Bond Resolution and the Indenture.

     "Bonds  Outstanding"  or  "Outstanding  Bonds" means  Outstanding  Bonds as
defined in the Indenture.

     "Code"  means the Internal  Revenue  Code of 1986,  as amended from time to
time.  References  to the  Code  and  Sections  of  the  Code  include  relevant
applicable  regulations  and proposed  regulations  thereunder and any successor
provisions  to those  Sections,  regulations  or  proposed  regulations  and, in
addition, all applicable official rulings and judicial  determinations under the
foregoing applicable to the Bonds.

     "Completion  Date" means the date of completion of the Project as set forth
in the  certificate  to be  furnished  by the  Company  pursuant  to Section 3.6
hereof.

     "Construction  Period"  means  the  period  between  the  beginning  of the
acquisition,  construction,  installation,  equipping  and  improvement  of  the
Project and the Completion Date.

     "Continuing Disclosure Agreement" means the Continuing Disclosure Agreement
as defined in the Indenture.

     "Conversion Date" means the Conversion Date as defined in the Indenture.

     "Credit Facility" means a Credit Facility as defined in the Indenture.

     "Credit  Facility  Account" means the Credit Facility Account as defined in
the Indenture.

     "Credit  Facility  Issuer" means a Credit Facility Issuer as defined in the
Indenture.

     "Eligible  Investments"  means  Eligible  Investments  as  defined  in  the
Indenture.

     "Engineer"  means an engineer  (who may be an  employee of the  Company) or
engineering  firm qualified to practice the profession of engineering  under the
laws of the State and who or which is acceptable to the Trustee.

     "EPA"  means  the  Environmental  Protection  Agency  of the  State and any
successor body, agency, commission or department.

     "Event of Default" means any of the events described as an Event of Default
in Section 7.1 hereof.

     "Force Majeure" means any of the causes,  circumstances or events described
as constituting Force Majeure in Section 7.1 hereof.

     "Government  Obligations"  means  Government  Obligations as defined in the
Indenture.

     "Holder"  or  "Holder  of a Bond"  means the Person in whose name a Bond is
registered on the Register.

     "Indenture"  means the Trust  Indenture,  dated as of the same date as this
Agreement,  between the  Authority and the Trustee,  as amended or  supplemented
from time to time.

     "Interest  Rate for  Advances"  means the interest rate per year payable on
the Bonds.

     "Investment  Grade Rating" means a long-term debt rating by a Rating Agency
that is included in one of the four highest debt rating categories of the Rating
Agency,  provided that such rating categories shall mean generic  categories and
without  regard to or other  qualifications  of ratings within each such generic
rating category such as "+", "-", "1", "2" or "3".

     "Loan"  means the loan by the  Authority  to the  Company  of the  proceeds
received from the sale of the Bonds.

     "Loan  Payment  Date" means any date on which any Bond Service  Charges are
due and payable.

     "Loan  Payments"  means the  amounts  required to be paid by the Company in
repayment of the Loan pursuant to Section 4.1 hereof.

     "Notice Address" means:

 (a)  As to the Authority:      Ohio Air Quality Development Authority
                                1901 LeVeque Tower
                                50 West Broad Street
                                Columbus, Ohio  43215
                                Attention:  Executive Director

 (b)  As to the Company:        The Cincinnati Gas & Electric Company
                                P. O. Box 960
                                Cincinnati, Ohio  45201
                                Attention:  Treasurer

 (c)  As to the Trustee:        U.S. Bank National Association
                                425 Walnut Street, 6th Floor
                                Mail Location 5125
                                Cincinnati, Ohio  45202
                                Attention:  Corporate Trust Department

or such additional or different address,  notice of which is given under Section
8.3 hereof.

     "Opinion of Bond Counsel" means a written opinion of nationally  recognized
bond  counsel  selected  by the  Company  and  acceptable  to the Trustee who is
experienced  in matters  relating to the exclusion from gross income for federal
income  tax  purposes  of  interest  on  obligations  issued by states and their
political  subdivisions.  Bond  Counsel  may be  counsel  to the  Trustee or the
Company.

     "Original  Purchaser"  means  the  Original  Purchaser  as  defined  in the
Indenture.

     "Paying Agent" means the Paying Agent as defined in the Indenture.

     "Person" or words importing persons mean firms, associations,  partnerships
(including  without  limitation,  general  and  limited  partnerships),  limited
liability entities, joint ventures,  societies,  estates, trusts,  corporations,
public or governmental bodies, other legal entities and natural persons.

     "Plant" means the William H. Zimmer Electric Generating Station.

     "Project  Costs"  means the costs of the Project  specified  in Section 3.4
hereof.

     "Project"  or  "Project  Facilities"  means the real,  personal or real and
personal property, including undivided or other interests therein, identified in
the Project Description.

     "Project  Description"  means the  description  of the  Project  Facilities
attached hereto as Exhibit A, as the same may be amended in accordance with this
Agreement.

     "Project Fund" means the Project Fund created in the Indenture.

     "Project  Purposes"  means  the  purposes  of  Air  Quality  Facilities  as
described in the Act and as particularly described in Exhibit A hereto.

     "Project Site" means the William H. Zimmer Electric  Generating  Station in
Clermont County, Ohio.

     "Rate Period" means a Rate Period as defined in the Indenture.

     "Rating  Agency"  means Moody's and S&P, as each of these terms are defined
in the Indenture.

     "Rebate Fund" means the Rebate Fund created in the Indenture.

     "Register"  means the books kept and  maintained for the  registration  and
transfer of Bonds pursuant to Section 3.05 of the Indenture.

     "Registrar" means the Registrar as defined in the Indenture.

     "Reimbursement Agreement" means a Reimbursement Agreement as defined in the
Indenture.

     "Remarketing   Agent"  means  the  Remarketing  Agent  as  defined  in  the
Indenture.

     "Restructuring  Transaction"  means the sale or  transfer by the Company of
some or all of its electric  generating  facilities  and  associated  assets and
liabilities, which sale or transfer includes the Plant, to an entity or entities
organized and existing  under the laws of one of the states of the United States
of America,  the District of Columbia or under the laws of the United  States of
America and qualified to do business in the State (the "GenCo") if such transfer
or sale is, in the sole  discretion  of the  Company,  necessary or desirable in
order to permit the Company or an  affiliate  of the  Company to provide  retail
electric service in the State or to comply with any law of the State relating to
electric utility restructuring.

     "Revenues" means (a) the Loan Payments, (b) all other moneys received or to
be received by the Authority  (excluding  the  Authority  Fee) or the Trustee in
respect of repayment of the Loan,  including without limitation,  all moneys and
investments  in the Bond Fund,  (c) any moneys and  investments  in the  Project
Fund, and (d) all income and profit from the investment of the foregoing moneys.
The term  "Revenues"  does not include any moneys or  investments  in the Rebate
Fund or the Bond Purchase Fund.

     "State" means the State of Ohio.

     "Term Rate Period" means a Term Rate Period as defined in the Indenture.

     "Trustee"  means  U.S.  Bank  National  Association,  Cincinnati,  Ohio,  a
national banking  association duly organized and validly existing under the laws
of the United  States of America,  until a successor  Trustee  shall have become
such pursuant to the  applicable  provisions of the  Indenture,  and  thereafter
"Trustee" shall mean the successor  Trustee.  "Principal  Office" of the Trustee
shall mean a corporate trust office of the Trustee,  which office at the date of
issuance of the Bonds is located at its Notice Address.

     "Unassigned  Authority  Rights" means all of the rights of the Authority to
receive Additional  Payments under Section 4.2 hereof, to inspection pursuant to
Section  5.1 hereof,  to be held  harmless  and  indemnified  under  Section 5.9
hereof,  to be reimbursed  for  attorney's  fees and expenses  under Section 7.4
hereof and to give or withhold  consent to amendments,  changes,  modifications,
alterations  and  termination of this Agreement under Section 8.6 hereof and its
right to enforce such rights.

     "Variable Rate" means a Variable Rate as defined in the Indenture.

     Section 1.3.  Interpretation.  Any  reference  herein to the State,  to the
Authority or to any member or officer of either  includes  entities or officials
succeeding to their respective functions, duties or responsibilities pursuant to
or by operation of law or lawfully performing their functions.

     Any reference to a section or provision of the Constitution of the State or
the Act, or to a section,  provision or chapter of the Ohio Revised  Code, or to
any statute of the United States of America, includes that section, provision or
chapter as amended, modified,  revised,  supplemented or superseded from time to
time;  provided,  that  no  amendment,  modification,  revision,  supplement  or
superseding  section,  provision or chapter shall be applicable solely by reason
of this  provision,  if it constitutes in any way an impairment of the rights or
obligations  of  the  Authority,  the  State,  the  Holders,  the  Trustee,  the
Registrar, an Auction Agent, an Authenticating Agent, a Paying Agent, the Credit
Facility Issuer, the Remarketing Agent, or the Company under this Agreement, the
Indenture or the Bonds.

     Unless the context indicates otherwise, words importing the singular number
include  the  plural  number,  and vice  versa;  the terms  "hereof",  "hereby",
"herein",  "hereto",  "hereunder" and similar terms refer to this Agreement; and
the term "hereafter"  means after, and the term "heretofore"  means before,  the
date of delivery of the Bonds. Words of any gender include the correlative words
of the other genders, unless the sense indicates otherwise.

     Section  1.4.  Captions  and  Headings.  The  captions and headings in this
Agreement  are used solely for  convenience  of reference  and in no way define,
limit or describe the scope or intent of any  Articles,  Sections,  subsections,
paragraphs or subparagraphs or clauses hereof.

                               (End of Article I)



                                   ARTICLE II

                                 REPRESENTATIONS


     Section 2.1.  Representations  of the Authority.  The Authority  represents
that: (a) it is a body politic and corporate duly organized and validly existing
under  the  laws of the  State;  (b) it has  duly  accomplished  all  conditions
necessary  to be  accomplished  by it prior to the  issuance and delivery of the
Bonds and the execution and delivery of this Agreement and the Indenture; (c) it
is not in violation  of or in conflict  with any  provisions  of the laws of the
State which would impair its ability to carry out its  obligations  contained in
this  Agreement  or the  Indenture;  (d)  it is  empowered  to  enter  into  the
transactions  contemplated by this Agreement and the Indenture;  (e) it has duly
authorized  the  execution,  delivery and  performance of this Agreement and the
Indenture;  (f) it will do all  things  in its  power in order to  maintain  its
existence or assure the assumption of its  obligations  under this Agreement and
the Indenture by any successor public body; and (g) following reasonable notice,
a public hearing was held on August 14, 2001 with respect to the issuance of the
Bonds as required by Section 147(f) of the Code.

     Section 2.2. No Warranty by Authority  of Condition or  Suitability  of the
Project.  The Authority makes no warranty,  either express or implied, as to the
suitability or utilization of the Project for the Project Purposes, or as to the
condition  of the  Project or that the  Project is or will be  suitable  for the
Company's purposes or needs.

     Section 2.3.  Representations  and  Covenants  of the Company.  The Company
represents that:

          (a) The Company has been duly  incorporated and is validly existing as
     a corporation in good standing under the laws of the State,  with power and
     authority  (corporate  and other) to own its  properties  and  conduct  its
     business,  to  execute  and  deliver  this  Agreement  and to  perform  its
     obligations under this Agreement;

          (b) This Agreement and the Continuing  Disclosure  Agreement have each
     been duly  authorized,  executed  and  delivered  by the  Company  and this
     Agreement and the Continuing  Disclosure  Agreement each constitute a valid
     and legally  binding  obligation of the Company,  enforceable in accordance
     with their terms,  subject, as to enforcement,  to bankruptcy,  insolvency,
     reorganization  and other  laws of  general  applicability  relating  to or
     affecting creditors' rights and to general equity principles;

          (c) The  execution,  delivery and  performance  by the Company of this
     Agreement and the Continuing  Disclosure  Agreement and the consummation of
     the  transactions  contemplated  hereby and  thereby  will not  violate any
     provision of law or regulation applicable to the Company, or of any writ or
     decree of any court or governmental instrumentality,  or of the Articles of
     Incorporation,  as amended,  or the  Regulations of the Company,  or of any
     mortgage, indenture,  contract, agreement or other undertaking to which the
     Company is a party or which purports to be binding upon the Company or upon
     any of its assets;

          (d)  The  acquisition,   construction,   installation,  equipping  and
     improvement  of the Project  were not  commenced  prior to the  adoption of
     Resolution  No.  99-39 of the  Authority  on July 13, 1999  evidencing  the
     intent of the  Authority  to issue the  Bonds;  however,  with  respect  to
     certain  costs of the  Project  that were paid or  incurred on and prior to
     such date,  such costs will not be  financed  with the net  proceeds of the
     Bonds  except to the extent that they (i) consist of costs paid on or after
     60 days prior to July 13, 1999 or (ii) consist,  in an amount not in excess
     of 20%  of  the  aggregate  issue  price  of  the  Bonds,  of  "preliminary
     expenditures"  within  the  meaning of Treas.  Reg.ss.1.150-2(f)(2),  which
     include  architectural,  engineering,  surveying,  soil testing and similar
     costs  that  were  incurred  prior  to   commencement   of  acquisition  or
     construction of the Project, other than land acquisition,  site preparation
     and similar costs incident to commencement of acquisition or  construction.
     Moreover,  no costs of the Project to be financed  with the net proceeds of
     the Bonds were originally  expended more than 3 years prior to the issuance
     date of the Bonds;

          (e) The Project to be acquired,  constructed,  equipped, installed and
     improved at the Project Site, as provided under this Agreement, constitutes
     Air  Quality  Facilities  under  the Act and is  consistent  with  and will
     further the  purposes of the Act and Section 13 of Article VIII of the Ohio
     Constitution  and will be located  entirely  within the State.  The Company
     will cause the Project to be operated and  maintained  in such manner as to
     conform to all applicable  zoning,  planning,  building,  environmental and
     other applicable  governmental  regulations and all permits,  variances and
     orders issued or granted pursuant thereto,  including the permit-to-install
     for each portion of the Project,  which permits,  variances and orders have
     not been withdrawn or otherwise  suspended,  and to be consistent  with the
     Act;

          (f) It is expected  that the  Project  will be utilized as Air Quality
     Facilities  under the Act  commencing  promptly as portions  thereof become
     available  for  utilization,  but in any event on or before the  Completion
     Date;

          (g) It  presently  intends  to use or  operate  or cause to be used or
     operated the Project in a manner consistent with the Project Purposes until
     the date on which the Bonds have been fully paid and knows of no reason why
     the Project will not be so operated.  The Company does not presently intend
     to sell or otherwise dispose of the Project or any portion thereof;

          (h) At least 95% of the net proceeds (as defined in Section 150 of the
     Code) of the Bonds will be used to provide  land or property of a character
     subject to the  allowance for  depreciation  for purposes of Section 167 of
     the Code.  The  Company  will not  request or  authorize  any  disbursement
     pursuant to Section 3.4 hereof,  which, if paid,  would result in less than
     95% of such net proceeds  being so used. The costs of issuance of the Bonds
     financed  with the proceeds of the Bonds will not exceed 2% of the proceeds
     of the Bonds  (within the meaning of Section  147(g) of the Code).  None of
     the proceeds of the Bonds will be used to provide working capital;

          (i) In  accordance  with  Section  147(b)  of the Code,  the  weighted
     average  maturity of the Bonds does not exceed 120% of the weighted average
     reasonably  expected  economic life of the facilities being financed by the
     Bonds;

          (j) None of the  proceeds  of the Bonds  will be used to  provide  any
     airplane;  skybox or other private luxury box;  health club  facility;  any
     facility  primarily used for gambling;  or any store the principal business
     of which is the sale of alcoholic beverages for consumption off premises;

          (k)  Less  than  25% of the net  proceeds  of the  Bonds  will be used
     directly or indirectly to acquire land or any interest therein, and none of
     such land is being or will be used for farming purposes;  no portion of the
     net proceeds of the Bonds will be used to acquire existing  property or any
     interest  therein unless the first use of such property or interest therein
     is pursuant to such acquisition;

          (l) At no time will any funds constituting gross proceeds of the Bonds
     be used in a manner as would constitute  failure of compliance with Section
     148 of the Code;

          (m) The Bonds are not  "federally  guaranteed"  within the  meaning of
     Section 149(b) of the Code;

          (n) At least 95% of the  proceeds of the Bonds will be used to provide
     "solid waste disposal  facilities"  within the meaning of Section 142(a)(b)
     of the Code; and

          (o) The Project  does not  include  any office  except for offices (i)
     located  at the site of the  Project  and (ii) not more  than a de  minimis
     amount of the functions to be performed at which is not directly related to
     the day-to-day operations of the Project.

                               (End of Article II)



                                   ARTICLE III

                           COMPLETION OF THE PROJECT;
                              ISSUANCE OF THE BONDS


     Section  3.1.  Acquisition,  Construction  and  Installation.  The  Company
represents  and agrees  that it (a) has  caused or will cause the  Project to be
acquired,  constructed  and installed on the Project Site in accordance with the
Project   Description  and  in  conformance  with  all  applicable,   valid  and
enforceable  (i) zoning,  planning,  building,  environmental  and other similar
regulations of all governmental authorities having jurisdiction over the Project
and (ii) permits,  variances and orders issued in respect of the Project by EPA,
noncompliance  with which would have a material  adverse effect on the Company's
ability to operate  and  maintain  the  Project  or to perform  its  obligations
hereunder, provided that the Company reserves the right to contest in good faith
any such regulations,  permits, variances or orders, (b) will use its reasonable
efforts  to  cause  the  acquisition,  construction  and  installation  of other
facilities and real and personal  property  deemed  necessary in connection with
the Project to the end that the Project will fulfill the Project  Purposes,  (c)
will pay all fees, costs and expenses incurred in such acquisition, construction
and  installation and (d) will use its reasonable  efforts to ask,  demand,  sue
for, levy,  recover and receive all such sums of money,  debts and other demands
whatsoever  which may be due, owing and payable under the terms of any contract,
order,  receipt,  writing and  instruction in connection  with the  acquisition,
construction and  installation of the Project,  and to enforce the provisions of
any contract,  agreement,  obligation,  bond or other performance  security with
respect  thereto;  provided  that in all  instances the Company shall retain the
option of settlement  of any dispute.  Any amounts  received in connection  with
actions taken under clause (d) of the  preceding  sentence,  after  deduction of
expenses  incurred  in such  recovery,  prior  to the  Completion  Date and full
disposition  of the  Project  Fund in  accordance  with this  Agreement  and the
Indenture, shall be paid into the Project Fund.

     It is understood  that the Project is that of the Company and any contracts
made  by the  Company  with  respect  thereto,  whether  acquisition  contracts,
installation  contracts or  otherwise,  or any work to be done by the Company on
the  Project  are made or done by the Company on its own behalf and not as agent
or contractor for the Authority.

     With knowledge of the provisions of the January 27, 1972 Executive Order of
the  Governor of Ohio,  relating to equal  employment  opportunity,  the Company
hereby makes the pledges and  commitments  enumerated in said order with respect
to the  construction and installation of the Project and to the extent that said
Executive Order is applicable,  agrees that the same  requirement and commitment
shall be included in all contracts and subcontracts awarded for the construction
and installation of the Project.

     All  laborers  and  mechanics  employed on the Project have been or will be
paid the  prevailing  rates of wages of laborers and  mechanics for the class of
work  called  for by the  Project,  which  wages were or will be  determined  in
accordance  with the  requirements  of Chapter  4115,  Ohio  Revised  Code,  for
determination  of prevailing  wage rates;  provided,  that should the Company or
other  nonpublic  user  of the  Project  undertake,  as  part  of  the  Project,
construction  to be performed by its regular  bargaining  unit employees who are
covered under a collective  bargaining agreement which was in existence prior to
the date of the commitment  instrument  undertaking to issue the Bonds, then, in
that event, the rate of pay provided under the collective  bargaining  agreement
may be paid to those employees.

     Section 3.2. Project  Description.  The Project  Description may be changed
from time to time by, or with the consent of, the Company provided that any such
change  shall also be filed with the  Authority  and  provided  further  that no
change in the Project  Description  shall materially  change the function of the
Project  Facilities  unless the Trustee  shall have  received (i) an  Engineer's
certificate  that such changes will not impair the  significance or character of
the Project  Facilities  as Air Quality  Facilities  and (ii) an Opinion of Bond
Counsel  or ruling of the  Internal  Revenue  Service  to the  effect  that such
amendment will not adversely  affect the exclusion of interest on the Bonds from
gross income for federal income tax purposes.

     Section 3.3. Issuance of Bonds;  Application of Proceeds.  To provide funds
to make the Loan to the  Company to assist the Company in the  financing  of its
portion of the costs of the Project,  the Authority will issue, sell and deliver
the Bonds to the Original  Purchaser.  The Bonds will be issued  pursuant to the
Indenture in the aggregate  principal  amount,  bearing  interest,  maturing and
being redeemable as set forth in the Indenture.  The Company hereby approves the
terms  and  conditions  of the  Indenture  and  the  Bonds,  and the  terms  and
conditions under which the Bonds will be issued, sold and delivered.

     The proceeds  from the sale of the Bonds (other than any accrued  interest)
shall be loaned to the  Company to assist the  Company in the  financing  of its
portion of the costs of the Project.  Those  proceeds  shall be deposited in the
Project Fund. Any accrued interest shall be deposited in the Bond Fund.  Pending
disbursement  pursuant to Section 3.4 hereof,  the  proceeds so deposited in the
Project Fund, together with any investment earnings thereon,  shall constitute a
part of the  Revenues  assigned by the  Authority to the payment of Bond Service
Charges as provided in the Indenture.

     Section 3.4.  Disbursements  from the Project Fund.  Disbursements from the
Project Fund shall be made only to  reimburse or pay the Company,  or any Person
designated by the Company, for the following Project Costs:

          (a) Costs incurred  directly or indirectly  for or in connection  with
     the acquisition,  construction,  equipping,  installation or improvement of
     the  Project,  including  but not  limited  to  those  costs  incurred  for
     preliminary  planning and studies,  architectural,  legal,  engineering and
     supervisory services, labor, services, materials, acquisition, construction
     and  installation,  recording of documents  and title work  relating to the
     Project Site.

          (b) Premiums  attributable  to all insurance  required to be taken out
     and maintained  during the Construction  Period with respect to the Project
     and the premium on each surety bond, if any,  required with respect to work
     on the Project.

          (c) Taxes,  assessments  and other  charges in respect of the  Project
     that may become due and  payable  during  the  Construction  Period for the
     Project.

          (d) Costs  incurred  directly or  indirectly in seeking to enforce any
     remedy  against any contractor or  subcontractor  in respect of any default
     under any contract relating to the Project.

          (e) Financial,  legal, accounting,  appraisal,  printing and engraving
     fees, charges and expenses, title insurance premiums, if any, and all other
     such  fees,   charges  and  expenses   incurred  in  connection   with  the
     authorization, sale, issuance and delivery of the Bonds and the preparation
     and delivery of the Agreement, the Indenture and other related documents.

          (f) Fees and expenses of the  Trustee,  Authenticating  Agent,  Paying
     Agent and Registrar (as such terms are defined in the Indenture), including
     reasonable counsel fees and expenses, properly incurred under the Indenture
     that may become due and payable during the Construction  Period,  including
     the initial or acceptance fee of the Trustee.

          (g)  Any  other  incidental  and  necessary  costs  including  without
     limitation  any  expenses,  fees and charges  relating to the  acquisition,
     construction or installation of the Project.

          (h) Payments made to the Rebate Fund.

          (i) Any other  expense  permissible,  in the opinion of Bond  Counsel,
     under the Act.

     Any  disbursements  from the Project Fund for the payment of Project  Costs
shall be made by the  Trustee  only  upon the  written  order of the  Authorized
Company  Representative.  Each such  written  order  shall be in the form of the
disbursement  request  attached  hereto as Exhibit B and shall be  consecutively
numbered.  In the case of any contract  providing for the retention of a portion
of the contract price,  there shall be paid initially from the Project Fund only
the net amount  remaining  after  deduction  of any such  portion,  and when the
amount of any such retention is due and payable, then such retention may be paid
from the Project Fund.

     In addition,  the Company shall not request or authorize any  disbursements
from the  Project  Fund prior to the  Completion  Date for a purpose or function
other than to provide  solid  waste  disposal  facilities  within the meaning of
Section 142(a)(6) of the Code, unless such disbursement would not result in more
than 5% of the net  proceeds of the Bonds  (including  those  amounts  disbursed
pursuant  to this  Section  3.4) being used  other than to provide  solid  waste
disposal facilities (treating issuance costs so paid as being used other than to
provide solid waste  disposal  facilities),  unless in connection  with any such
disbursement  request the Company  provides  the Trustee with an opinion of Bond
Counsel  or ruling of the  Internal  Revenue  Service  to the  effect  that such
disbursement  will not cause the  interest  on the Bonds to be  included  in the
gross income of the Holders for federal income tax purposes.

     Receipt of a disbursement  request, in the form of the disbursement request
attached  hereto as Exhibit B, shall be full  authorization  for the  Trustee to
make the disbursements  requested thereby,  and the Trustee shall be entitled to
rely  without  further  inquiry  on, and shall have no duty to check,  verify or
investigate,   the  statements  and  certifications  made  therein  or  included
therewith.

     Any moneys in the Project  Fund  remaining  after the  Completion  Date and
payment, or provision for payment, in full of the Project Costs at the direction
of the Authorized Company Representative  promptly shall be (a) used to acquire,
construct or install such additional real and personal  property  comprising Air
Quality  Facilities as defined in the Act for use in connection with the Project
as is designated by the Authorized  Company  Representative and the acquisition,
construction,  equipment,  installation and improvement of which will be such as
is  permitted  under  the Act,  (b) used for the  purchase  of Bonds in the open
market for the purpose of  cancellation  at prices not exceeding the fair market
value thereof plus accrued  interest to the date of payment  therefor,  (c) paid
into the Bond Fund to be applied to the payment of Bond  Service  Charges on the
Bonds or the  redemption  of the  Bonds,  or (d) used for a  combination  of the
foregoing as is provided in that  direction or for any other  purposes as are or
may be permitted  under the Act;  provided  that,  in all such cases,  (A) those
moneys  shall  be so used  or  applied  only  to the  extent  that  such  use or
application  will not, in the  opinion of Bond  Counsel or under a ruling of the
Internal Revenue Service,  adversely affect the exclusion of the interest on the
Bonds from the gross income of the Holders  thereof and (B) any money  remaining
in the Project Fund  following  completion  of the Project  shall be invested in
accordance with the Code in such manner as not to adversely affect the exclusion
of the interest on the Bonds from the gross income of the Holders thereof.

     Section  3.5.   Company  Required  to  Pay  Costs  in  Event  Project  Fund
Insufficient.  If  moneys  in the  Project  Fund are not  sufficient  to pay all
Project Costs, the Company,  nonetheless, will complete the Project or cause the
Project to be completed,  in order to fulfill the Project Purposes and shall pay
all such additional  Project Costs from its own funds.  The Company shall not be
entitled to any  reimbursement  for any such  additional  Project Costs from the
Authority,  the  Trustee or the  Holders  of any of the  Bonds,  nor shall it be
entitled to any abatement,  diminution or postponement of the Loan Payments. The
Authority  does not make any  representation  that the moneys which will be paid
into the Project Fund and which under the  provisions of this  Agreement will be
available for payment of Project Costs,  will be sufficient to pay all the costs
which will be incurred  in that  connection.  The  Company  agrees that if after
exhaustion  of the moneys in the Project Fund,  the Company  should pay pursuant
hereto any portion of the costs  listed in Section  3.4 hereof,  it shall not be
entitled  to any  reimbursement  therefor  from the State,  the  Authority,  the
Trustee or the Holders of any of the Bonds.

     Section 3.6.  Completion  Date.  The Company shall notify the Authority and
the Trustee of the  Completion  Date by a certificate  signed by the  Authorized
Company Representative stating:

          (a) the date on which the Project was substantially  completed and all
     other  facilities  necessary  in  connection  with the  Project  have  been
     acquired, constructed and installed,

          (b) that the acquisition, construction and installation of the Project
     and such other  facilities  have been  accomplished  in such a manner as to
     conform with all applicable,  legal and valid zoning,  planning,  building,
     environmental and other similar governmental regulations, so as not to have
     a material  adverse effect on the Company's  ability to operate the Project
     for the Project Purposes and perform its obligations hereunder,

          (c) that,  except as provided in clause (d) of this  Section  3.6, all
     costs of that  acquisition  and  installation  then and theretofore due and
     payable have been paid, and

          (d) the amount which the Trustee  shall retain in the Project Fund for
     the  payment  of  Project  Costs not yet due or for  liabilities  which the
     Company is contesting or which otherwise should be retained and the reasons
     such amount should be retained.

That  certificate  may state that it is given  without  prejudice  to any rights
against third parties which then exist or subsequently  may come into being. The
Authorized  Company   Representative  shall  include  with  that  certificate  a
statement  describing  the items of personal  property  comprising a part of the
Project. The certificate shall be delivered as promptly as practicable after the
occurrence of the events and  conditions  referred to in clauses (a) through (d)
of this Section.

     Section 3.7.  Investment of Fund Moneys. At the oral (confirmed promptly in
writing) or written request of the Company,  any moneys held as part of the Bond
Fund, the Project Fund or the Rebate Fund shall be invested or reinvested by the
Trustee in Eligible Investments; provided, that such moneys shall be invested or
reinvested by the Trustee only in Eligible  Investments  which shall mature,  or
which shall be subject to redemption by the holder thereof at the option of such
holder,  not later than the date upon which the moneys so invested are needed to
make  payments  from those  Funds.  The  Authority  and the Company  each hereby
covenants that it will restrict that investment and  reinvestment and the use of
the proceeds of the Bonds in such manner and to such  extent,  if any, as may be
necessary so that the Bonds will not  constitute  arbitrage  bonds under Section
148 of the Code.

     The Company shall provide the  Authority  with,  and the Authority may base
its certificate and statement,  each as authorized by the Bond Resolution,  on a
certificate of an appropriate officer, employee or agent of or consultant to the
Company for inclusion in the  transcript of proceedings  for the Bonds,  setting
forth the reasonable  expectations of the Company on the date of delivery of and
payment for the Bonds  regarding the amount and use of the proceeds of the Bonds
and the facts,  estimates  and  circumstances  on which those  expectations  are
based.

     Section 3.8.  Agreement as to Ownership of Project.  The  Authority  agrees
that it shall not have any  interest in, title to or ownership of the Project or
the Project Site.

     Section 3.9. Use of Project.  The Authority does hereby  covenant and agree
that it will not take any  action,  or cause any action to be taken,  during the
term of this Agreement,  other than pursuant to Article VII of this Agreement or
Article VII of the Indenture,  to interfere with the Company's  ownership of the
Project or to prevent  the  Company  from having  possession,  custody,  use and
enjoyment of the  Project,  except such action as is requested by the Trustee in
enforcing any remedies available to it under this Agreement or the Indenture.

     Section 3.10.  Rebate Fund.  To the extent  required by Section 5.09 of the
Indenture,  within five days after the end of the fifth Bond Year (as defined in
the Indenture) and every fifth Bond Year thereafter,  and within five days after
payment in full of all outstanding Bonds, the Company shall calculate the amount
of Excess Earnings (as defined in the Indenture) as of the end of that Bond Year
or the date of such payment and shall notify the Trustee of that amount.  If the
amount then on deposit in the Rebate Fund  created  under the  Indenture is less
than the amount of Excess  Earnings  (computed by taking into account the amount
or amounts,  if any,  previously  paid to the United States  pursuant to Section
5.09 of the Indenture and this  Section),  the Company  shall,  within five days
after the date of the aforesaid  calculation,  pay to the Trustee for deposit in
the Rebate  Fund an amount  sufficient  to cause the  Rebate  Fund to contain an
amount equal to the Excess Earnings.  The obligation of the Company to make such
payments shall remain in effect and be binding upon the Company  notwithstanding
the release and  discharge of the  Indenture.  The Company shall obtain and keep
such records of the  computations  made pursuant to this Section as are required
under Section 148(f) of the Code.

                              (End of Article III)


                                   ARTICLE IV

                        LOAN BY AUTHORITY; LOAN PAYMENTS;
                    ADDITIONAL PAYMENTS; AND CREDIT FACILITY


     Section  4.1.  Loan  Repayment.  Upon  the  terms  and  conditions  of this
Agreement, the Authority agrees to make the Loan to the Company. The proceeds of
the Loan shall be deposited with the Trustee pursuant to Section 3.3 hereof.  In
consideration  of and in repayment of the Loan,  the Company shall make, as Loan
Payments,  to the  Trustee  for the  account of the  Authority,  payments  which
correspond,  as to time,  and are equal in amount,  to the Bond Service  Charges
payable on the Bonds.  All Loan  Payments  received by the Trustee shall be held
and  disbursed in  accordance  with the  provisions  of the  Indenture  and this
Agreement for application to the payment of Bond Service Charges.

     The  Company  shall be  entitled  to a  credit  against  the Loan  Payments
required to be made on any Loan  Payment  Date to the extent that the balance of
the Bond Fund is then in excess of amounts required (a) for the payment of Bonds
theretofore  matured or theretofore  called for redemption,  or to be called for
redemption  pursuant to Section  6.1 hereof (b) for the payment of interest  for
which  checks or drafts  have been  drawn and  mailed by the  Trustee  or Paying
Agent,  and (c) to be deposited in the Bond Fund by the  Indenture for use other
than for the payment of Bond Service Charges due on that Loan Payment Date.

     The  Company's  obligation  to make Loan  Payments  shall be reduced to the
extent of any  payments  made by any Credit  Facility  Issuer to the  Trustee in
respect of the principal of, premium,  if any, or interest on the Bonds when due
pursuant to any Credit Facility,  provided,  that the Credit Facility Issuer has
been  reimbursed  for  such  payments  in  accordance  with  the  terms  of  the
Reimbursement Agreement.

     Except for such interest of the Company as may hereafter  arise pursuant to
Section 8.2 hereof or Sections  5.07 or 5.08 of the  Indenture,  the Company and
the  Authority  each  acknowledge  that neither the  Company,  the State nor the
Authority has any interest in the Bond Fund or the Bond Purchase  Fund,  and any
moneys  deposited  therein shall be in the custody of and held by the Trustee in
trust for the benefit of the Holders.

     Section 4.2. Additional  Payments.  The Company shall pay to the Authority,
the Authority Fee and, as Additional Payments  hereunder,  any and all costs and
expenses incurred or to be paid by the Authority in connection with the issuance
and delivery of the Bonds or otherwise related to actions taken by the Authority
under this Agreement or the Indenture.

     The  Company  shall pay the  Administration  Expenses to the  Trustee,  the
Registrar,  the Remarketing  Agent,  the Auction Agent,  and any Paying Agent or
Authenticating Agent, as appropriate, as Additional Payments hereunder.

     The Company  may,  without  creating a default  hereunder,  contest in good
faith the  reasonableness  of any such cost or expense incurred or to be paid by
the Authority and any Administration  Expenses claimed to be due to the Trustee,
the Registrar, the Auction Agent, the Remarketing Agent, any Paying Agent or any
Authenticating Agent.

     In the event the Company should fail to pay any Loan  Payments,  Additional
Payments or  Administration  Expenses  when due,  the  payment in default  shall
continue as an  obligation of the Company until the amount in default shall have
been fully paid together with interest  thereon during the default period at the
Interest Rate for Advances.

     Section 4.3.  Place of Payments.  The Company  shall make all Loan Payments
directly to the Trustee at its Principal  Office.  Additional  Payments shall be
made directly to the person or entity to whom or to which they are due.

     Section 4.4. Obligations  Unconditional.  The obligations of the Company to
make Loan Payments, Additional Payments and any payments required of the Company
under Section 5.09 of the Indenture shall be absolute and unconditional, and the
Company  shall make such  payments  without  abatement,  diminution or deduction
regardless  of  any  cause  or  circumstances   whatsoever  including,   without
limitation,  any defense, set-off,  recoupment or counterclaim which the Company
may have or assert  against the  Authority,  the  Trustee,  the  Registrar,  the
Remarketing Agent, the Auction Agent, the Paying Agent or any other Person.

     Section 4.5. Assignment of Revenues and Agreement. To secure the payment of
Bond Service Charges, the Authority shall, by the Indenture,  (a) absolutely and
irrevocably  assign to the Trustee,  its  successors  in trust and its and their
assigns  forever,  (1) all right,  title and interest of the Authority in and to
all moneys and investments (including,  without limitation,  the proceeds of the
Credit  Facility) in the Credit Facility Account in the Bond Fund and (2) all of
the  Authority's  rights and  remedies  under  this  Agreement  (except  for the
Unassigned  Authority Rights), and (b) grant a security interest to the Trustee,
its successors in trust and its and their assigns forever,  in all of its rights
to and interest in the Revenues including, without limitation, all Loan Payments
and  other  amounts  receivable  by or on  behalf  of the  Authority  under  the
Agreement in respect of  repayment  of the Loan (other than the Credit  Facility
Account,  all moneys and  investments  therein  and the  proceeds  of the Credit
Facility).  The Company hereby agrees and consents to those assignments and that
grant of a security interest.

     Section 4.6.  Credit  Facility.  The Company may, but shall not be required
to, provide from time to time, a Credit Facility with respect to the Bonds.

     Section 4.7. Company's Option to Elect Rate Period;  Changes in the Auction
Date and  Length of Auction  Periods.  The  Company  shall  have,  and is hereby
granted, the option to elect to convert on any Conversion Date the interest rate
borne by the Bonds to another  Variable  Rate,  or to the  Auction  Rate,  to be
effective  for a Rate  Period  pursuant to the  provisions  of Article II of the
Indenture and subject to the terms and conditions  set forth  therein.  Prior to
conversion to an Auction Rate,  the Company  shall  designate an Auction  Agent;
until any such  designation is made any  references  herein to the Auction Agent
shall be  ineffective.  When the Bonds bear  interest  at an Auction  Rate,  the
Company  shall also have the option to direct the change of Auction Dates and/or
the length of Auction Rate Periods (as such terms are defined in the  Indenture)
in accordance  with the Indenture.  To exercise such options,  the Company shall
give the written notice required by the Indenture.

     Section 4.8.  Company's  Obligation to Purchase  Bonds.  The Company hereby
agrees to pay or cause to be paid to the  Trustee  or the  Paying  Agent,  on or
before  each  day on which  Bonds  may be or are  required  to be  tendered  for
purchase,  amounts  equal to the amounts to be paid by the Trustee or the Paying
Agent with respect to the Bonds  tendered for purchase on such dates pursuant to
Article IV of the  Indenture;  provided,  however,  that the  obligation  of the
Company  to make any such  payment  under this  Section  shall be reduced by the
amount  of  (A)  moneys  paid  by  the  Remarketing  Agent  as  proceeds  of the
remarketing of such Bonds by the Remarketing  Agent,  (B) moneys drawn under any
Credit  Facility,  for the purpose of paying such  purchase  price and (C) other
moneys made available by the Company, as set forth in Section 4.08(b)(ii) of the
Indenture.

                               (End of Article IV)


                                    ARTICLE V

                       ADDITIONAL AGREEMENTS AND COVENANTS


     Section 5.1.  Right of  Inspection.  The Company  agrees  that,  subject to
reasonable security and safety regulations and to reasonable  requirements as to
notice,  the Authority and the Trustee and their or any of their respective duly
authorized agents shall have the right at all reasonable times to enter upon the
Project Site to examine and inspect the Project.

     Section 5.2.  Maintenance.  The Company  shall use its best efforts to keep
and maintain the Project Facilities, including all appurtenances thereto and any
personal  property  therein  or  thereon,  in good  repair  and  good  operating
condition so that the Project Facilities will continue to constitute Air Quality
Facilities, for the purposes of the operation thereof as required by Section 5.4
hereof.

     So  long  as such  shall  not be in  violation  of the  Act or  impair  the
character  of the Project  Facilities  as Air Quality  Facilities,  and provided
there  is  continued   compliance   with  applicable  laws  and  regulations  of
governmental  entities having jurisdiction  thereof,  the Company shall have the
right to remodel the Project  Facilities or make  additions,  modifications  and
improvements thereto, from time to time as it, in its discretion, may deem to be
desirable for its uses and purposes,  the cost of which  remodeling,  additions,
modifications and improvements  shall be paid by the Company and the same shall,
when made, become a part of the Project Facilities.

     Section  5.3.  Removal of Portions of the Project  Facilities.  The Company
shall not be under any  obligation to renew,  repair or replace any  inadequate,
obsolete,  worn out,  unsuitable,  undesirable  or  unnecessary  portions of the
Project Facilities,  except that, subject to Section 5.4 hereof, it will use its
best efforts to ensure the continued  character of the Project Facilities as Air
Quality  Facilities.  The  Company  shall  have the  right  from time to time to
substitute  personal  property  or  fixtures  for any  portions  of the  Project
Facilities, provided that the personal property or fixtures so substituted shall
not impair the character of the Project  Facilities  as Air Quality  Facilities.
Any such substituted  property or fixtures shall, when so substituted,  become a
part of the Project Facilities.  The Company shall also have the right to remove
any portion of the Project Facilities,  without substitution therefor; provided,
that the  Company  shall  deliver  to the  Trustee  a  certificate  signed by an
Engineer  describing said portion of the Project Facilities and stating that the
removal of such  property  or  fixtures  will not impair  the  character  of the
Project Facilities as Air Quality Facilities.

     Section 5.4. Operation of Project Facilities.  The Company will, subject to
its obligations and rights to maintain, repair or remove portions of the Project
Facilities,  as provided in Sections 5.2 and 5.3 hereof, use its best efforts to
continue  operation of the Project  Facilities so long as and to the extent that
operation thereof is required to comply with laws or regulations of governmental
entities having jurisdiction thereof or unless the Authority shall have approved
the  discontinuance  of such operation (which approval shall not be unreasonably
withheld).  The  Company  agrees  that it will,  within  the  design  capacities
thereof,  use its best efforts to operate and maintain the Project Facilities in
accordance with all applicable,  valid and enforceable  rules and regulations of
governmental  entities having jurisdiction thereof;  provided,  that the Company
reserves the right to contest in good faith any such laws or regulations.

     Nothing in this  Agreement  shall  prevent or restrict the Company,  in its
sole  discretion,   at  any  time,  from   discontinuing  or  suspending  either
permanently or temporarily  its use of any facility of the Company served by the
Project  Facilities  and in the event such  discontinuance  or suspension  shall
render  unnecessary  the  continued  operation  of the Project  Facilities,  the
Company  shall  have the  right to  discontinue  the  operation  of the  Project
Facilities during the period of any such discontinuance or suspension.

     Section 5.5.  Insurance.  The Company shall cause the Project Facilities to
be kept insured  against fire or other  casualty to the extent that  property of
similar  character  is usually so insured by  companies  similarly  situated and
operating  like  properties,  to a  reasonable  amount  by  reputable  insurance
companies or, in lieu of or  supplementing  such  insurance in whole or in part,
adopt  some other  method or plan of  protection  against  loss by fire or other
casualty  at least  equal in  protection  to the  method  or plan of  protection
against  loss by fire or other  casualty of  companies  similarly  situated  and
operating  properties  subject to similar or greater fire or other hazards or on
which  properties an equal or higher  primary fire or other  casualty  insurance
rate has been set by reputable insurance companies.

     Section 5.6. Workers'  Compensation  Coverage.  Throughout the term of this
Agreement,  the Company  shall  comply,  or cause  compliance,  with  applicable
workers' compensation laws of the State.

     Section 5.7. Damage; Destruction and Eminent Domain. If, during the term of
this  Agreement,  the Project  Facilities or any portion thereof is destroyed or
damaged  in whole  or in part by fire or other  casualty,  or title  to,  or the
temporary use of, the Project  Facilities or any portion thereof shall have been
taken by the  exercise of the power of eminent  domain,  the Company  (unless it
shall have exercised its option to prepay the Loan Payments  pursuant to Section
6.2 hereof) shall promptly repair, rebuild or restore the portion of the Project
Facilities  so damaged,  destroyed or taken with such changes,  alterations  and
modifications (including the substitution and addition of other property) as may
be necessary or desirable  for the  administration  and operation of the Project
Facilities  as Air Quality  Facilities  and as shall not impair the character or
significance of the Project Facilities as furthering the purposes of the Act.

     Section 5.8. Company to Maintain its Corporate Existence;  Conditions Under
Which  Exceptions  Permitted.  The Company agrees that,  during the term of this
Agreement,  it will  maintain  its  corporate  existence,  will not  dissolve or
otherwise  dispose  of all or  substantially  all of its  assets  and  will  not
consolidate  with or merge into another  corporation or permit one or more other
corporations  to  consolidate  with or merge into it;  provided that the Company
may, without violating its agreement contained in this Section, consolidate with
or merge into another  corporation,  or permit one or more other corporations to
consolidate  with or merge  into it, or sell or  otherwise  transfer  to another
corporation all or substantially all of its assets as an entirety and thereafter
dissolve,  provided the surviving,  resulting or transferee corporation,  as the
case may be (if other than the Company), is a corporation organized and existing
under the laws of one of the states of the United States, and assumes in writing
all of the obligations of the Company herein,  and, if not an Ohio  corporation,
is qualified to do business in the State.

     If  consolidation,  merger or sale or other transfer is made as provided in
this Section,  the  provisions of this Section shall  continue in full force and
effect and no further  consolidation,  merger or sale or other transfer shall be
made except in compliance with the provisions of this Section.

     Section 5.9.  Indemnification.  The Company  releases the  Authority  from,
agrees that the Authority shall not be liable for, and indemnifies the Authority
against,  all liabilities,  claims,  costs and expenses imposed upon or asserted
against  the  Authority  on account  of: (a) any loss or damage to  property  or
injury to or death of or loss by any person that may be  occasioned by any cause
whatsoever pertaining to the construction, maintenance, operation and use of the
Project Facilities;  (b) any breach or default on the part of the Company in the
performance  of any covenant or agreement of the Company under this Agreement or
any related document,  or arising from any act or failure to act by the Company,
or any of its agents,  contractors,  servants,  employees or licensees;  (c) the
authorization,  issuance  and  sale  of the  Bonds,  and  the  provision  of any
information  furnished in connection therewith concerning the Project Facilities
or the Company (including,  without limitation, any information furnished by the
Company for inclusion in any certifications  made by the Authority under Section
3.4 hereof or for inclusion in, or as a basis for  preparation of, the Form 8038
information statement to be filed by the Authority;  and (d) any claim or action
or  proceeding  with  respect to the matters set forth in (a), (b) and (c) above
brought thereon.

     The  Company  agrees to  indemnify  the  Trustee,  the  Paying  Agent,  the
Remarketing  Agent,  the  Auction  Agent  and the  Registrar  (each  hereinafter
referred to in this section as an  "indemnified  party") for and to hold each of
them  harmless  against all  liabilities,  claims,  costs and expenses  incurred
without  negligence or willful  misconduct on the part of the indemnified party,
on account of any action taken or omitted to be taken by the  indemnified  party
in accordance  with the terms of this  Agreement,  the Bonds or the Indenture or
any action taken at the request of or with the consent of the Company, including
the costs and expenses of the indemnified  party in defending itself against any
such claim,  action or  proceeding  brought in  connection  with the exercise or
performance  of any of its powers or duties under this  Agreement,  the Bonds or
the Indenture.

     In case any action or  proceeding  is brought  against the  Authority or an
indemnified  party in respect of which  indemnity may be sought  hereunder,  the
party seeking indemnity  promptly shall give notice of that action or proceeding
to the  Company,  and the Company  upon  receipt of that  notice  shall have the
obligation  and the right to assume the  defense  of the  action or  proceeding;
provided,  that  failure of a party to give that  notice  shall not  relieve the
Company  from any of its  obligations  under this  Section  unless that  failure
prejudices  the defense of the action or proceeding  by the Company.  At its own
expense, an indemnified party may employ separate counsel and participate in the
defense; provided,  however, where it is ethically inappropriate for one firm to
represent  the interests of the  Authority  and any other  indemnified  party or
parties, the Company shall pay the Authority's legal expenses in connection with
the Authority's  retention of separate counsel.  The Company shall not be liable
for any settlement made without its consent.

     The  indemnification  set forth above is intended to and shall  include the
indemnification of all affected officials,  directors, officers and employees of
the Authority, the Trustee, the Paying Agent, the Remarketing Agent, the Auction
Agent and the Registrar,  respectively.  That indemnification is intended to and
shall be  enforceable  by the  Authority,  the Trustee,  the Paying  Agent,  the
Remarketing Agent and the Registrar,  respectively, to the full extent permitted
by law.

     Section  5.10.  Company Not to  Adversely  Affect  Exclusion of Interest on
Bonds From Gross  Income For Federal  Income Tax  Purposes.  The Company  hereby
covenants and represents that it has taken and caused to be taken and shall take
and cause to be taken all actions that may be required of it for the interest on
the Bonds to be and remain  excluded  from the gross  income of the  Holders for
federal income tax purposes,  and that it has not taken or permitted to be taken
on its behalf, and covenants that it will not take, or permit to be taken on its
behalf,  any action which, if taken, would adversely affect that exclusion under
the provisions of the Code.

     Section 5.11. Use of Project Facilities.  The Authority agrees that it will
not take any action, or cause any action to be taken on its behalf, to interfere
with the Company's  ownership  interest in the Project or to prevent the Company
from having  possession,  custody,  use and  enjoyment of the Project other than
pursuant to Article VII of this Agreement or Article VII of the Indenture.

     Section 5.12.  Assignment of Agreement in Whole or in Part by Company. This
Agreement  may be  assigned  in  whole  or in part by the  Company  without  the
necessity  of  obtaining  the consent of either the  Authority  or the  Trustee,
subject, however, to each of the following conditions:

          (a) No assignment  (other than pursuant to Section 5.8 or Section 5.13
     hereof)  shall  relieve the Company from primary  liability  for any of its
     obligations hereunder,  and in the event of any such assignment the Company
     shall  continue  to remain  primarily  liable  for the  payment of the Loan
     Payments and Additional  Payments and for performance and observance of the
     agreements on its part herein provided to be performed and observed by it.

          (b) Any  assignment  by the Company  must retain for the Company  such
     rights and  interests  as will permit it to perform its  obligations  under
     this  Agreement,  and any  assignee  from  the  Company  shall  assume  the
     obligations  of the  Company  hereunder  to  the  extent  of  the  interest
     assigned.

          (c) The Company shall, within 30 days after execution thereof, furnish
     or  cause to be  furnished  to the  Authority  and the  Trustee  a true and
     complete  copy of each such  assignment  together  with any  instrument  of
     assumption.

          (d) Any  assignment  from the  Company  shall  not  materially  impair
     fulfillment of the Project  Purposes to be accomplished by operation of the
     Project as herein provided.

     5.13 Assignment of Agreement in Whole by Company (Novation). In addition to
an assignment  contemplated by Sections 5.8 and 5.12 hereof,  this Agreement may
be  assigned  as a  whole  by the  Company,  subject,  however,  to  each of the
following conditions:

          (a) The Company's rights,  duties and obligations under this Agreement
     and all  related  documents  are  assigned  to, and assumed in full by, the
     assignee  either  (i) as of a date  the  Bonds  are  subject  to  mandatory
     purchase under Section 4.07 of the Indenture or (ii) as of a date specified
     by the Company in connection with a Restructuring  Transaction but, in such
     case,  only if the  assignee is the GenCo and the Company has  delivered to
     the  Authority  and the Trustee  written  evidence of an  Investment  Grade
     Rating (taking into account such  assignment to, and assumption in full by,
     the GenCo) with respect to the Bonds from each Rating Agency.

          (b) The  assignee  and the Company  shall  execute an  assignment  and
     assumption  agreement,  in form and substance reasonably  acceptable to the
     Company,  and  acknowledged and agreed to by the Authority and the Trustee,
     whereby the assignee shall confirm and acknowledge  that it has assumed all
     of the rights,  duties and  obligations of the Company under this Agreement
     and all related  documentation and agrees to be bound by and to perform and
     comply  with the terms and  provisions  of this  Agreement  and all related
     documentation as if it had originally  executed the same;  provided further
     that if there is more than one assignee,  such  assignment  and  assumption
     agreement shall be on a joint and several basis among all assignees.

          (c) The Company  shall furnish to the Authority and the Trustee (i) an
     opinion of Bond Counsel (as defined in the Indenture)  that such assignment
     is  authorized  or permitted by the Act and will not  adversely  affect the
     exclusion  from gross  income of interest on the Bonds,  (ii) an opinion of
     counsel to the assignee to the effect that such  assignment  and assumption
     agreement  has been duly  authorized  by the assignee and  constitutes  the
     legal,  valid and binding obligation of the assignee,  enforceable  against
     the assignee in accordance  with its terms,  subject to laws relating to or
     affecting  generally  the  enforcement  of  creditors'  rights,  including,
     without   limitation,   bankruptcy  and  insolvency  laws  and  to  general
     principles of equity  (regardless of whether  considered in a proceeding in
     equity  or at  law)  and  (iii)  a  certificate  of an  Authorized  Company
     Representative and an opinion of counsel to the Company,  each stating that
     such  transaction  complies with this Section 5.13 and that all  conditions
     precedent herein relating to such transaction have been complied with.

          (d) The Company shall, within 30 days after execution thereof, furnish
     or  cause to be  furnished  to the  Authority  and the  Trustee  a true and
     complete copy of such assignment and assumption agreement.

          (e) Any  assignment  from the  Company  shall  not  materially  impair
     fulfillment of the purpose of the Project as herein provided.

          (f) Upon the  effectiveness  of such  assignment and  assumption,  the
     assignee  shall be deemed to be the  "Company"  hereunder  and the assignor
     shall be relieved of all liability hereunder.

                               (End of Article V)


                                   ARTICLE VI

                                   REDEMPTION


     Section 6.1. Optional  Redemption.  Provided no Event of Default shall have
occurred and be  subsisting,  at any time and from time to time, the Company may
deliver  moneys to the  Trustee  in  addition  to Loan  Payments  or  Additional
Payments  required  to be made and  direct  the  Trustee  to use the  moneys  so
delivered for the purpose of calling Bonds for optional redemption in accordance
with  the  applicable   provisions  of  the  Indenture  providing  for  optional
redemption at the redemption price stated in the Indenture.  Pending application
for those  purposes,  any moneys so delivered  shall be held by the Trustee in a
special  account in the Bond Fund and delivery of those moneys shall not, except
as set forth in Section 4.1 hereof,  operate to abate or postpone  Loan Payments
or Additional  Payments  otherwise becoming due or to alter or suspend any other
obligations of the Company under this Agreement.

     Section 6.2.  Extraordinary  Optional  Redemption.  The Company shall have,
subject to the  conditions  hereinafter  imposed,  the option during a Term Rate
Period to direct the  redemption  of the Bonds in whole in  accordance  with the
applicable  provisions  of  the  Indenture  upon  the  occurrence  of any of the
following events:

          (a) The Project or the Plant shall have been  damaged or  destroyed to
     such an extent  that (1) the  Project  or the Plant  cannot  reasonably  be
     expected to be restored,  within a period of six consecutive months, to the
     condition thereof  immediately  preceding such damage or destruction or (2)
     the Company is  reasonably  expected to be prevented  from  carrying on its
     normal use and  operation  of the  Project or the Plant for a period of six
     consecutive months.

          (b) Title to, or the temporary  use of, all or a  significant  part of
     the Project or the Plant  shall have been taken  under the  exercise of the
     power of eminent domain to such an extent (1) that the Project or the Plant
     cannot  reasonably  be  expected  to be  restored  within a  period  of six
     consecutive months to a condition of usefulness comparable to that existing
     prior  to the  taking  or (2) the  Company  is  reasonably  expected  to be
     prevented  from  carrying on its normal use and operation of the Project or
     the Plant for a period of six consecutive months.

          (c) As a result of any changes in the  Constitution of the State,  the
     Constitution  of the United  States of America or any state or federal laws
     or as a result of legislative or  administrative  action  (whether state or
     federal)  or  by  final   decree,   judgment  or  order  of  any  court  or
     administrative  body (whether  state or federal)  entered after any contest
     thereof by the Authority or the Company in good faith, this Agreement shall
     have  become  void  or   unenforceable  or  impossible  of  performance  in
     accordance  with the intent and purpose of the parties as expressed in this
     Agreement.

          (d)  Unreasonable  burdens or  excessive  liabilities  shall have been
     imposed  upon the  Authority  or the Company with respect to the Project or
     the Plant or the operation  thereof,  including,  without  limitation,  the
     imposition of federal, state or other ad valorem, property, income or other
     taxes  other  than ad  valorem  taxes at the rates  presently  levied  upon
     privately  owned property used for the same general  purpose as the Project
     or the Plant.

          (e) Changes in the economic  availability of raw materials,  operating
     supplies,  energy  sources or supplies or  facilities  (including,  but not
     limited to,  facilities  in  connection  with the  disposal  of  industrial
     wastes)  necessary  for the  operation  of the Project or the Plant for the
     Project  Purposes occur or  technological  or other changes occur which the
     Company  cannot  reasonably  overcome or control and which in the Company's
     reasonable  judgment render the Project or the Plant uneconomic or obsolete
     for the Project Purposes.

          (f) Any court or administrative body shall enter a judgment,  order or
     decree, or shall take administrative action, requiring the Company to cease
     all or any substantial part of its operations  served by the Project or the
     Plant to such extent that the Company is or will be prevented from carrying
     on its normal  operations  at the  Project or the Plant for a period of six
     consecutive months.

          (g) The termination by the Company of operations at the Plant.

     The amount  payable  by the  Company  in the event of its  exercise  of the
option granted in this Section shall be the sum of the following:

               (i) An  amount  of money  which,  when  added to the  moneys  and
          investments  held to the credit of the Bond Fund,  will be  sufficient
          pursuant to the  provisions  of the  Indenture  to pay, at 100% of the
          principal amount thereof plus accrued interest to the redemption date,
          and  discharge,  all  Outstanding  Bonds  on the  earliest  applicable
          redemption date, that amount to be paid to the Trustee, plus

               (ii) An amount of money equal to the Additional Payments relating
          to those Bonds  accrued and to accrue until  actual final  payment and
          redemption of those Bonds, that amount or applicable  portions thereof
          to be paid to the Trustee or to the  Persons to whom those  Additional
          Payments are or will be due.

The requirement of (ii) above with respect to Additional  Payments to accrue may
be met if provisions  satisfactory to the Trustee and the Authority are made for
paying those amounts as they accrue.

     The  rights and  options  granted to the  Company  in this  Section  may be
exercised  whether or not the Company is in default  hereunder;  provided,  that
such default will not relieve the Company from  performing  those  actions which
are necessary to exercise any such right or option granted hereunder.

     Section 6.3. Mandatory Redemption. The Company shall deliver to the Trustee
the  moneys  needed  to  redeem  the  Bonds in  accordance  with  any  mandatory
redemption provisions relating thereto as may be set forth in Section 4.01(b) of
the Indenture.

     Section 6.4.  Notice of Redemption.  In order to exercise an option granted
in, or to  consummate  a  redemption  required  by, this Article VI, the Company
shall,  within 180 days  following  the event  authorizing  the exercise of such
option,  or at any time during the continuation of the condition  referred to in
paragraphs  (c), (d) or (e) of Section 6.2 hereof,  or at any time that optional
redemption of the Bonds is permitted  under the Indenture as provided in Section
6.1 hereof, or promptly upon the occurrence of a Determination of Taxability (as
defined in the Indenture),  give written notice to the Authority and the Trustee
that it is exercising its option to direct the redemption of Bonds,  or that the
redemption  thereof is required by Section  4.01(b) of the  Indenture due to the
occurrence of a Determination  of Taxability,  as the case may be, in accordance
with the Agreement  and the  Indenture,  and shall  specify  therein the date on
which such redemption is to be made,  which date shall not be more than 180 days
from the date  such  notice is  mailed.  The  Company  shall  make  arrangements
satisfactory  to the Trustee for the giving of the required notice of redemption
to the  Holders  of  the  Bonds,  in  which  arrangements  the  Authority  shall
cooperate.

     Section  6.5.  Actions by  Authority.  At the request of the Company or the
Trustee,  the Authority shall take all steps required of it under the applicable
provisions  of the  Indenture or the Bonds to effect the  redemption of all or a
portion of the Bonds pursuant to this Article VI.

                               (End of Article VI)



                                   ARTICLE VII

                         EVENTS OF DEFAULT AND REMEDIES


     Section 7.1. Events of Default.  Each of the following shall be an Event of
Default:

          (a) The  occurrence  of an event of default as defined in Section 7.01
     (a), (b), (c) or (d) of the Indenture;

          (b) The Company shall fail to observe and perform any other agreement,
     term or condition  contained in this Agreement,  other than such failure as
     will have  resulted in an event of default  described  in (a) above and the
     continuation  of that failure for a period of 90 days after notice  thereof
     shall have been given to the Company by the  Authority or the  Trustee,  or
     for such  longer  period as the  Authority  and the Trustee may agree to in
     writing; provided, that failure shall not constitute an Event of Default so
     long as the Company institutes curative action within the applicable period
     and diligently  pursues that action to completion within 150 days after the
     expiration  of initial  cure  period as  determined  above,  or within such
     longer period as the Authority and the Trustee may agree to in writing; and

          (c) By decree of a court of competent  jurisdiction  the Company shall
     be  adjudicated a bankrupt,  or an order shall be made approving a petition
     or answer filed seeking reorganization or readjustment of the Company under
     the federal bankruptcy laws or other law or statute of the United States of
     America  or of the state of  incorporation  of the  Company or of any other
     state, or, by order of such a court, a trustee in bankruptcy, a receiver or
     receivers shall be appointed of all or substantially all of the property of
     the Company,  and any such decree or order shall have continued unstayed on
     appeal or otherwise and in effect for a period of sixty (60) days; and

          (d) The Company shall file a petition in voluntary bankruptcy or shall
     make an  assignment  for the benefit of creditors  or shall  consent to the
     appointment  of a receiver or receivers of all or any part of its property,
     or shall file a petition seeking  reorganization or readjustment  under the
     Federal  bankruptcy  laws or other law or statute  of the United  States of
     America or any state thereof, or shall file a petition to take advantage of
     any debtors' act.

     Notwithstanding the foregoing,  if, by reason of Force Majeure, the Company
is unable to perform or observe any  agreement,  term or condition  hereof which
would give rise to an Event of Default under subsection (b) hereof,  the Company
shall  not be  deemed in  default  during  the  continuance  of such  inability.
However, the Company shall promptly give notice to the Trustee and the Authority
of the  existence of an event of Force Majeure and shall use its best efforts to
remove the effects  thereof;  provided  that the  settlement of strikes or other
industrial disturbances shall be entirely within its discretion.

     The term Force Majeure shall mean the following:

               (i)  acts  of  God;   strikes,   lockouts  or  other   industrial
          disturbances; acts of public enemies; orders or restraints of any kind
          of the  government  of the United States of America or of the State or
          any  of  their  departments,   agencies,   political  subdivisions  or
          officials,  or any civil or military authority;  insurrections;  civil
          disturbances;  riots; epidemics; landslides;  lightning;  earthquakes;
          fires;  hurricanes;   tornados;  storms;  droughts;  floods;  arrests;
          restraint of  government  and people;  explosions;  breakage,  nuclear
          accidents or other  malfunction or accident to facilities,  machinery,
          transmission  pipes or canals;  partial or entire failure of a utility
          serving  the  Project;  shortages  of labor,  materials,  supplies  or
          transportation; or

               (ii) any cause,  circumstance or event not reasonably  within the
          control of the Company.

     The  exercise  of  remedies  hereunder  shall be subject to any  applicable
limitations of federal  bankruptcy law affecting or precluding that  declaration
or exercise  during the pendency of or  immediately  following  any  bankruptcy,
liquidation or reorganization proceedings.

     Section 7.2.  Remedies on Default.  Whenever an Event of Default shall have
happened and be subsisting,  either or both of the following  remedial steps may
be taken:

          (a) The Authority or the Trustee may have access to, inspect,  examine
     and make copies of the books,  records,  accounts and financial data of the
     Company, only, however, insofar as they pertain to the Project; or

          (b) The  Authority  or the  Trustee  may  pursue all  remedies  now or
     hereafter  existing at law or in equity to recover all  amounts,  including
     all Loan Payments and Additional  Payments and under Section 4.9 hereof the
     purchase price of Bonds  tendered for purchase,  then due and thereafter to
     become  due  under  this  Agreement,  or to  enforce  the  performance  and
     observance  of any other  obligation or agreement of the Company under this
     Agreement.

Notwithstanding the foregoing,  the Authority shall not be obligated to take any
step  which in its  opinion  will or might  cause it to expend  time or money or
otherwise  incur  liability  unless and until a satisfactory  indemnity bond has
been  furnished  to the  Authority at no cost or expense to the  Authority.  Any
amounts  collected as Loan Payments or applicable to Loan Payments and any other
amounts which would be applicable to payment of Bond Service  Charges  collected
pursuant to action taken under this Section shall be paid into the Bond Fund and
applied  in  accordance  with  the  provisions  of  the  Indenture  or,  if  the
outstanding  Bonds  have  been  paid  and  discharged  in  accordance  with  the
provisions  of the  Indenture,  shall be paid as provided in Section 5.08 of the
Indenture for transfers of remaining amounts in the Bond Fund.

     The provisions of this Section are subject to the further  limitation  that
the rescission and annulment by the Trustee of its  declaration  that all of the
Bonds are  immediately  due and payable also shall  constitute a rescission  and
annulment of any  corresponding  declaration made pursuant to this Section and a
rescission  and annulment of the  consequences  of that  declaration  and of the
Event of Default with respect to which that declaration has been made,  provided
that no such  rescission and annulment  shall extend to or affect any subsequent
or other default or impair any right consequent thereon.

     Section 7.3. No Remedy  Exclusive.  No remedy conferred upon or reserved to
the  Authority  or the Trustee by this  Agreement is intended to be exclusive of
any other available remedy or remedies,  but each and every such remedy shall be
cumulative  and shall be in  addition  to every  other  remedy  given under this
Agreement,  or now or  hereafter  existing at law,  in equity or by statute.  No
delay or omission to exercise any right or power accruing upon any default shall
impair that right or power or shall be construed to be a waiver thereof, but any
such  right or power may be  exercised  from time to time and as often as may be
deemed  expedient.  In order to entitle the Authority or the Trustee to exercise
any remedy reserved to it in this Article, it shall not be necessary to give any
notice,  other than any notice required by law or for which express provision is
made herein.

     Section 7.4. Agreement to Pay Attorneys' Fees and Expenses.  If an Event of
Default  should occur and the  Authority or the Trustee  should incur  expenses,
including  attorneys' fees, in connection with the enforcement of this Agreement
or the collection of sums due hereunder,  the Company shall be required,  to the
extent  permitted  by law,  to  reimburse  the  Authority  and the  Trustee,  as
applicable, for the expenses so incurred upon demand.

     Section  7.5.  No Waiver.  No failure by the  Authority  or the  Trustee to
insist upon the strict  performance by the Company of any provision hereof shall
constitute a waiver of their right to strict  performance  and no express waiver
shall be deemed to apply to any other existing or subsequent right to remedy the
failure by the Company to observe or comply with any provision hereof.

     Section  7.6.  Notice of  Default.  The  Company  shall  notify the Trustee
immediately  if it  becomes  aware of the  occurrence  of any  Event of  Default
hereunder or of any fact, condition or event which, with the giving of notice or
passage of time or both, would become an Event of Default.

                              (End of Article VII)


                                  ARTICLE VIII

                                  MISCELLANEOUS


     Section 8.1. Term of Agreement.  This Agreement shall be and remain in full
force  and  effect  from  the date of  delivery  of the  Bonds  to the  Original
Purchaser until such time as (i) all of the Bonds shall have been fully paid (or
provision made for such payment) and the Indenture has been released pursuant to
Section 9.01  thereof and (ii) all other sums payable by the Company  under this
Agreement shall have been paid.

     Section  8.2.  Amounts  Remaining  in Funds.  Any  amounts in the Bond Fund
remaining  unclaimed  by the  Holders of Bonds for four years after the due date
thereof  (whether  at stated  maturity,  by  redemption,  upon  acceleration  or
otherwise), at the option of the Company, shall be deemed to belong to and shall
be paid, subject to Section 5.07 of the Indenture, at the written request of the
Company,  to the Company by the Trustee.  With respect to that  principal of and
any premium and interest on the Bonds to be paid from moneys paid to the Company
pursuant to the preceding  sentence,  the Holders of the Bonds entitled to those
moneys  shall  look  solely to the  Company  for the  payment  of those  moneys.
Further,  any amounts  remaining in the Bond Fund and any other special funds or
accounts created under this Agreement or the Indenture,  except the Rebate Fund,
after all of the Bonds  shall be deemed to have been paid and  discharged  under
the provisions of the Indenture and all other amounts  required to be paid under
this Agreement and the Indenture have been paid, shall be paid to the Company to
the extent that those  moneys are in excess of the amounts  necessary  to effect
the payment and discharge of the Outstanding Bonds.

     Section  8.3.  Notices.  All  notices,  certificates,   requests  or  other
communications  hereunder shall be in writing, except as provided in Section 3.4
hereof,  and shall be deemed to be sufficiently  given when mailed by registered
or certified mail,  postage  prepaid,  and addressed to the  appropriate  Notice
Address.  A  duplicate  copy of  each  notice,  certificate,  request  or  other
communication given hereunder to the Authority, the Company, any Credit Facility
Issuer or the  Trustee  shall  also be given to the  others.  The  Company,  the
Authority,  any  Credit  Facility  Issuer  and  the  Trustee,  by  notice  given
hereunder,  may designate any further or different addresses to which subsequent
notices, certificates, requests or other communications shall be sent.

     Section 8.4. Extent of Covenants of the Authority;  No Personal  Liability.
All covenants,  obligations  and  agreements of the Authority  contained in this
Agreement  or the  Indenture  shall be effective  to the extent  authorized  and
permitted by applicable law. No such covenant,  obligation or agreement shall be
deemed to be a  covenant,  obligation  or  agreement  of any  present  or future
member,  officer,  agent or employee of the Authority in other than his official
capacity,  and neither the members of the Authority  nor any official  executing
the Bonds shall be liable  personally on the Bonds or be subject to any personal
liability or  accountability  by reason of the issuance  thereof or by reason of
the  covenants,  obligations  or agreements  of the Authority  contained in this
Agreement or in the Indenture.

     Section 8.5.  Binding Effect.  This Agreement shall inure to the benefit of
and shall be  binding  in  accordance  with its terms  upon the  Authority,  the
Company and their respective permitted successors and assigns provided that this
Agreement may not be assigned by the Company (except as permitted under Sections
5.8, 5.12 or 5.13 hereof) and may not be assigned by the Authority except to (i)
the Trustee  pursuant to the  Indenture  or as  otherwise  may be  necessary  to
enforce or secure payment of Bond Service  Charges or (ii) any successor  public
body to the Authority.

     Section 8.6.  Amendments  and  Supplements.  Except as otherwise  expressly
provided in this Agreement or the  Indenture,  subsequent to the issuance of the
Bonds and prior to all  conditions  provided for in the Indenture for release of
the Indenture  having been met, this Agreement may not be  effectively  amended,
changed,  modified,  altered or terminated by the parties hereto except with the
consents  required by, and in accordance  with,  the provisions of Article XI of
the Indenture, as applicable.

     Section 8.7. References to Credit Facility. During such time or times as no
Credit  Facility  is in  effect,  and during  the  continuation  of any event of
default under the Indenture  due to a failure by the Credit  Facility  Issuer to
honor a drawing  by the  Trustee  under the  Credit  Facility  then in effect in
accordance  with the terms  thereof,  references  herein to the Credit  Facility
Issuer shall be ineffective.

     Section 8.8. Continuing  Disclosure.  The Authority hereby acknowledges the
entry by the Company into the Continuing  Disclosure  Agreement  under which the
Company has assumed  certain  obligations  for the benefit of the Holders of the
Bonds.  The  Company  agrees to perform  its  obligations  under the  Continuing
Disclosure Agreement.  The Company acknowledges and agrees that the Authority is
not an "obligated  person" (as defined in the Continuing  Disclosure  Agreement)
with respect to the Bonds and represents  that the Company is the only obligated
person with respect to the Bonds.  Notwithstanding  any other  provision of this
Agreement,  any  failure by the  Company  to comply  with any  provision  of the
Continuing Disclosure Agreement shall not be a failure or a default, or an Event
of Default, under this Agreement or the Indenture.

     Section 8.9. Execution Counterparts.  This Agreement may be executed in any
number of  counterparts,  each of which shall be regarded as an original and all
of which shall constitute but one and the same instrument.

     Section  8.10.  Severability.  If any provision of this  Agreement,  or any
covenant,  obligation or agreement  contained herein is determined by a judicial
or administrative  authority to be invalid or unenforceable,  that determination
shall not affect any other provision, covenant, obligation or agreement, each of
which shall be construed and enforced as if the invalid or unenforceable portion
were not contained herein. That invalidity or unenforceability  shall not affect
any  valid  and  enforceable  application  thereof,  and  each  such  provision,
covenant,  obligation or agreement  shall be deemed to be effective,  operative,
made,  entered  into or taken in the manner and to the full extent  permitted by
law.

     Section  8.11.  Governing  Law.  This  Agreement  shall be  deemed  to be a
contract made under the laws of the State and for all purposes shall be governed
by and construed in accordance with the laws of the State.

                              (End of Article VIII)



     IN  WITNESS  WHEREOF,  the  Authority  and the  Company  have  caused  this
Agreement  to be duly  executed in their  respective  names,  all as of the date
hereinbefore written.

                                      OHIO AIR QUALITY DEVELOPMENT
                                      AUTHORITY


                                      By:  /s/ Mark R. Shanahan
                                               Executive Director



                                      THE CINCINNATI GAS & ELECTRIC
                                      COMPANY


                                      By:  /s/ Lisa D. Gamblin
                                               Vice President and Treasurer

                                    EXHIBIT A

                      DESCRIPTION OF AIR QUALITY FACILITIES
                                       AT
                           WILLIAM H. ZIMMER ELECTRIC
                               GENERATING STATION

     The Project  consists of  modifications  to the scrubber,  de-watering  and
material handling process at the William H. Zimmer Generating  Station (Clermont
County,  Moscow,  Ohio) in order to convert and utilize the waste  byproduct  of
that scrubber process as synthetic gypsum.

     These  modifications  include  but are not  limited  to:  absorber  scoops,
absorber  reaction tank agitator  modifications,  absorber bleed pumps,  storage
tanks,   absorber   storage  transfer  pumps,   clarified   recycle  water  tank
modifications,   modified  filtrate  pump  system,   blow-down  tank  agitators,
oxidation air  compressors  with building,  sulfuric acid tank and feed systems,
transfer pumps, oxidation vessels and compressed air piping, sparge air headers,
oxidation vessel modifications and lining,  hydro-clone feed pumps,  hydro-clone
assemblies, hydro-clone distribution box, horizontal belt filters, vacuum filter
air  deck  blowers,  secondary  de-watering  building,  filtration  sump  pumps,
clarified underflow pumps,  chloride bleed pumps, chloride bleed tanks, load out
hoppers, belt scales, conveyor systems, barge haul system, operators cabs, truck
and  barge  loading   equipment  and  facilities,   river  cell  and  dock  line
improvements,  other  related  equipment  and  modifications  to  that  scrubber
process,  miscellaneous  anchors and foundations,  instrument air and compressed
air systems,  instrumentation  and controls,  power feeds and tower  structures,
wires, conduit, transformers,  switch gear, piping, pipe supports, pipe bridges,
trenching,  modifications  to existing  scrubber  liquid  storage  and  transfer
systems,  access  ways  and  equipment  maintenance  structures,   building  and
equipment  supports,  valves,  insulation,  lagging,  coatings  and paint,  heat
tracing,  HVAC  additions or  modifications,  service  water and filtered  water
piping,  safety  showers,  fire  protection  systems,  and the demolition of any
obsolete equipment necessary to convert the process.

                                    EXHIBIT B


                          FORM OF DISBURSEMENT REQUEST

                    STATEMENT NO. ___ REQUESTING DISBURSEMENT
                     OF FUNDS FROM PROJECT FUND PURSUANT TO
                   SECTION 3.4 OF THE LOAN AGREEMENT DATED AS
                       OF AUGUST 1, 2001 BETWEEN THE OHIO
                      AIR QUALITY DEVELOPMENT AUTHORITY AND
                      THE CINCINNATI GAS & ELECTRIC COMPANY


     Pursuant to Section 3.4 of the Loan Agreement (the "Agreement") between the
Ohio Air Quality Development  Authority (the "Authority") and The Cincinnati Gas
& Electric  Company (the "Company")  dated as of August 1, 2001, the undersigned
Authorized   Company   Representative   hereby  authorizes  U.S.  Bank  National
Association,  as trustee  (the  "Trustee"),  as  depository  of the Project Fund
created by the Indenture (the "Indenture") by and between the Authority and said
Trustee,  to pay to the Company out of the moneys deposited in said Project Fund
the aggregate sum of  $_______________ to pay the person(s) listed on Schedule I
which may include reimbursements to the Company, for the advances,  payments and
expenditures made by it in connection with the items listed in Schedule I, which
is incorporated herein by reference.

     The undersigned in connection with the foregoing  request for disbursements
from said Project Fund hereby certifies that:

     (a)  Each item is properly  payable out of the Project  Fund in  accordance
          with the terms and  conditions of the Agreement and none of such items
          for which  payment is  requested  has formed the basis for any payment
          heretofore made from said Project Fund.

     (b)  Each item for which payment is requested hereunder is or was necessary
          or  appropriate  in  connection  with the  acquisition,  construction,
          equipping,  installation or improvement of the Project,  as defined in
          the Indenture and Agreement,  or costs related thereto as permitted by
          the Agreement.

     (c)  This  document  evidences the approval of the  undersigned  Authorized
          Company Representative of each payment hereby authorized.

     (d)  Each item for which disbursement is requested hereunder,  and the cost
          for each item, is as described in the  information  statement filed by
          the Authority in connection with the issuance of the Bonds (as defined
          in the  Agreement),  as  required  by  Section  149(e) of the Code (as
          defined in the Agreement); provided that if the foregoing statement is
          not  true,  the  average  reasonably  expected  economic  life  of the
          facilities  which  have  been and will be paid for with  moneys in the
          Project  Fund is not less than 5/6ths of the  average  maturity of the
          Bonds.

                   This _______ day of _______________, ____.




                        Authorized Company Representative





                                   Schedule I


TO STATEMENT NO. ________________  REQUESTING DISBURSEMENT OF FUNDS FROM PROJECT
FUND  PURSUANT  TO  SECTION  3.4 OF LOAN  AGREEMENT  DATED AS OF AUGUST 1, 2001,
BETWEEN THE OHIO AIR QUALITY  DEVELOPMENT  AUTHORITY  AND THE  CINCINNATI  GAS &
ELECTRIC COMPANY.

PAYEE                               AMOUNT                              PURPOSE